Croda International Plc 2013 Preliminary Results. 25 February 2014

Transcription

1 Croda International Plc 2013 Preliminary Results 25 February 2014

2 Introduction Steve Foots Group Chief Executive

3 Robust results in a tough environment Profit before tax 1 up 5.4% to 251.4m Earnings per share 1 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 Focus on quality of business, returns and cash flow generation is paying dividends 3 1. Figures quoted before acquisition costs and amortisation of intangible assets arising on acquisition

4 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* Making real progress with strategy delivery *Eastern Europe, Middle East and Africa 4

5 Financial Review Sean Christie Group Finance Director

6 Basis of preparation All figures are quoted before Acquisition costs Amortisation of intangible assets arising on acquisition 6

7 2013 Q4 results

8 Q4 sales by segment m Growth Consumer Care % Performance Technologies % Industrial Chemicals % Total turnover % 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

9 Sales trends v 2012 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 only the Euro in positive territory v Sterling 9

10 Q4 EBIT/ROS by segment m Growth Consumer Care % ROS 34.4% 32.6% Performance Technologies % ROS 16.4% 16.0% Industrial Chemicals % ROS 9.8% 20.1% Total EBIT % ROS 25.7% 25.8% Good profit growth and strong margins in CC & PT. Some one-off s in IC in Q

11 2013 preliminary results

12 Full year update on key trading issues Positives Good underlying sales growth in all Consumer Care businesses in Western Europe Negatives Underlying Performance Technologies sales down in Western Europe Underlying sales growth in Asia, US, Brazil and Mexico Very weak demand in all segments in EEMEA, Argentina & Venezuela Crop returned to growth H2 Crop sales declines H1 Favourable currency translation in most territories Q1-Q3 Adverse currency translation in Asia (negative almost everywhere by year end) 12

13 2013 turnover by destination Good underlying growth in Asia but adverse currency translation European sales flattered by currency translation Reasonable sales growth in 11% 7% 38% 36% of sales in emerging markets UK represents 5% of total sales W. Europe +4% North America 18% N. America +3% LATAM: Strong growth in Brazil & Mexico. Sales well down in Argentina & Venezuela due to 26% Asia +4% LATAM +1% political turmoil Very weak sales in EEMEA* Other emerging markets* -8% Overall geographical mix of business is broadly unchanged versus 2012 * Eastern Europe, Middle East and Africa 13

14 Focus on high quality turnover growth We internally analyse the business in three categories 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 Tail High barriers to entry (quality/manufacturing know-how) Novel variants of existing products Commodities and by-products Toll processing arrangements 14

15 Focus on high quality turnover growth m 1200 Group revenue* 2.4% % +11% % NPP Differentiated Tail +1% % % * Full year figures 15

16 New and protected products (NPP) % of sale Consumer Care % % Growth: 11% 30 Growth: 12% 30 Performance Technologies Growth 5% Growth 10% Double digit NPP growth in both Consumer Care and Performance Technologies in

17 Consumer Care m Inc Turnover % Operating profit % Sales ( m) ROS 32.2% 31.6% 0 Q1 Q2 Q3 Q4 Good growth in Western Europe Robust margin performance driven by double digit NPP sales growth EBIT ( m) Sales declined in less differentiated products particularly in EEMEA Adverse currency translation in Asia Q1 Q2 Q3 Q4 17

18 Performance Technologies m Inc Turnover % Sales ( m) Operating profit % ROS 16.3% 15.5% 0 Q1 Q2 Q3 Q4 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 EBIT ( m) Q1 Q2 Q3 Q4 margins 18

19 Industrial Chemicals m Inc Turnover % Sales ( m) Operating profit ROS 10.7% 12.5% 0 Q1 Q2 Q3 Q4 Steady sales growth in specialities boosted by Sipo acquisition in H2 As expected, Sipo only made a marginal EBIT ( m) contribution to EBIT in H2 Q profitability boosted by one off items and lower overhead allocations Q1 Q2 Q3 Q4 19

20 2013 pre-tax profit up 5.4% m Growth Total operating profit % ROS 24.6% 24.3% Financing (13.2) (16.6) Pre-tax profit % ROS increases to 24.6% Financing Reduced opening pension deficit reduces financing costs Pre tax profit 251.4m, up 5.4% 20

21 2013 Earnings Per Share up 8.3% m Growth Pre-tax profit % 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% 21

22 Total dividend up 8.4% m 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

23 Capital expenditure m 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 Capital investment Depreciation Expect to invest significantly more in

24 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 Both acquisitions expected to generate profits in

25 Significant free cash generation m EBITDA Working Capital movement (3.0) (51.7) Cash from operations Capital expenditure (46.2) (52.3) Free cash flow % increase in free cash flow to 249m 5% growth in EBITDA Low requirement for extra working capital Reduced capital spend 25

26 Net cash flow m Free cash flow Excess pension contributions (41.2) (24.7) Share purchases/issues 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 Exchange differences (0.2) 4.4 Change in net debt

27 Net debt reduced to 202m m Net debt Committed facilities Committed headroom 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) * As per loan covenant calculations, rolling 12 months 27

28 Pension deficit decreases by 30m pre tax (IAS19 basis) m 31 December December 2012 Market value of assets Value of liabilities (944.1) (878.1) Deficit pre tax (135.8) (165.8) Deferred tax 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 28

29 Financial KPIs (I) ROS Now stands at 24.6% CC: 32.2% (target: maintain) PT: 16.3% (target: 20% medium term) IC: 10.7% (target: maximise profitability) ROS 30% 25% 20% 15% 10% 5% 0% ROIC Very high after tax returns maintained despite M&A and capex ROIC 23.8% Far ahead of cost of capital WACC 6.3% ROIC v WACC 25% 20% 15% 10% 5% 0%

30 Financial KPIs (II) EPS growth 8.3% growth achieved in 2013 Target 5-10% Eps (p) Debt ratios Debt/EBITDA 0.7x (target <3x) EBITDA interest cover 36x (target >4x) Debt Ratios x

31 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

32 Strategy review Steve Foots Group Chief Executive

33 Consumer Care m Inc Turnover % Operating profit % ROS 32.2% 31.6% 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 Innovation is the key differentiator 33

34 Performance Technologies m Inc Turnover % Operating profit % 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 34

35 Industrial Chemicals m Inc Turnover % Operating profit 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 35

36 Bringing innovation to life Increasing the amount of Group turnover that is protected Fast grow Grow Manage Now Future Focussed on NPP and differentiated products New white space opportunities Increasing barriers to entry 36

37 Bringing innovation to life m 1200 Group revenue* 2.4% % % % NPP Differentiated Tail 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 * Full year figures 37

38 Making progress with our strategy Key growth streams Delivery Mega trends Increase innovation in core segments On plan Beauty and ageing Accelerate technology capture On plan Sustainability Expansion in high growth markets On plan Health and well-being Bringing innovation to life through building capabilities 38

39 Increased innovation in our core segments Consumer Care Light, silky touch for skin New and protected products Low drift for safer crop spray Efficacious botanicals Sustainable palm Improved drug performance Exceeding quality standards Differentiated Bringing innovation to life with new claims 39

40 Increased innovation in our core segments Performance Technologies Safer paint with lower VOC New and protected products Novel oil gelling for air care Stable slip for better plastics Durable wicking for nappies Improved fuel economy 100% bio based dishwash Differentiated Bringing innovation to life with new claims VOC = Volatile Organic Compound 40

41 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 HTN = High Tech Nature *2013 sales 41

42 Accelerated technology capture 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 42

43 Expansion in high growth markets China China: Customer engagement programme Increased exposure in H 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 Moving ever closer to our customers 43

44 Expansion in high growth markets Brazil Brazil: Local knowledge focusses key growth opportunities Increased Lubricant manufacturing Transfer of product manufacture from Europe in H 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 Recent investment starting to deliver good growth 44

45 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 Fast grow Grow Manage NPP Differentiated Tail Now Future 45

46 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

47 47 Questions