Press Release

28 February 2023

Results for the year ended 31 December 2022

Powerful operating model and consistent execution delivers record performance

Croda International Plc (“Croda” or the “Group”), the company that uses smart science to create high performance ingredients and technologies that improve lives, announces its full year results for the year ended 31 December 2022.

Highlights

	Statutory results (IFRS)	Adjusted results
Full year ended 31 December	2022	2021	change	2022	2021	change	change constant currency
Sales (£m)	2,089.3	1,889.6	10.6%	2,089.3	1,889.6	10.6%	5.2%
Operating profit (£m)	444.7	438.2	1.5%	515.1	468.6	9.9%	5.7%
Return on sales (%)				24.7	24.8	(0.1)ppt
Profit before tax (£m)	780.0	411.5	89.6%	496.1	445.2	11.4%	7.3%
Basic earnings per share (p)	465.8	230.0	102.5%	272.0	250.0	8.8%
Ordinary dividend per share declared (p)	108.0	100.0	8.0%
Free cash flow (£m)				167.4	153.6	9.0%
Net debt (£m)				295.2	823.2	(64.1)%

Powerful operating model and consistent execution deliver record performance

· Sales up 11% at over £2 billion, with successful input cost inflation recovery reflecting strength of business model

o  Growth across Consumer Care and Life Sciences, driven by price/mix 24% higher

o  Strong performance in Asia, Western Europe and Latin America

· Adjusted operating profit up 10%, exceeding £500m for the first time

o  Profit growth across all three sectors

o  Return on sales broadly flat at 24.7% (2021: 24.8%) – improved mix from divestment and lower remuneration charge offset by normalising Life Sciences margin and adverse operating gearing

· IFRS profit before tax up 90% to £780.0m (2021: £411.5m), including £356.0m gain on divestment

· Improved free cash flow of £167.4m (2021: £153.6m), with moderating raw material prices starting to benefit working capital

· Increase in full year dividend of 8% to 108.0p (2021: 100.0p)

Portfolio repositioned – aligned with emerging megatrends

· Completed divestment of majority of Performance Technologies and Industrial Chemicals (PTIC)

o  Creates stronger margin, higher return, less cyclical, greater IP and lower carbon intensive business

· Reinvesting proceeds to drive future growth

o  Enhanced organic capital investment programme, supported by government co-investment in Pharma

o  Agreed acquisition of Solus Biotech for c£232m, expanding fast growth Beauty Actives business in Asia

Robust sector performances

· Consumer Care performance demonstrating increased resilience

o  Record sales and adjusted operating profit delivered; encouraging growth in F&F

o  Lower second half year volume and margin, primarily due to destocking and supply constraints

· Life Sciences building on exceptional prior year

o  Further strong progress, driven by excellent Crop Protection performance

o  Extensive pipeline of non-Covid delivery systems driving growth in Pharma, offsetting reduction in lipid systems for Covid-19 applications

Following the divestment of the majority of our PTIC business, the retained business is now known as Industrial Specialties. The prior period has been restated to combine the PT and IC segments which were previously reported separately. The divested business did not meet the requirements to be classified as a discontinued operation. Therefore, the divested business is included for a full year within the Industrial Specialties result for 2021 and for the first half year only for 2022.

	Full year ended 31 December
Sales	2022£m	Price/mix	Volume	Acquisition	Currency	Change	Restated2021 m
Consumer Care	897.8	22.0%	(12.3)%	1.5%	6.5%	17.7%	763.0
Life Sciences	682.3	5.7%	8.2%	0.0%	5.3%	19.2%	572.3
Industrial Specialties	509.2	19.9%	(31.7)%	0.0%	3.7%	(8.1)%	554.3
Group	2,089.3	24.2%	(19.6)%	0.6%	5.4%	10.6%	1,889.6

	Full year ended 31 December
Adjusted profit	2022£m	Underlying growth£m	Acquisition impact£m	Currency impact£m	Restated2021£m	Change
Consumer Care	204.7	8.8	0.7	6.7	188.5	8.6%
Life Sciences	229.4	9.8	0.0	11.1	208.5	10.0%
Industrial Specialties	81.0	7.6	0.0	1.8	71.6	13.1%
Operating profit	515.1	26.2	0.7	19.6	468.6	9.9%
Net interest	(19.0)				(23.4)	(18.9)%
Profit before tax	496.1				445.2	11.4%

Steve Foots, Chief Executive Officer, commented:

“2022 has been a milestone year for Croda as we continued our transition to a pure play Consumer Care and Life Sciences business, evolving our portfolio to be more closely aligned to the emerging megatrends driving our markets. For the first time, we delivered over £2 billion in sales and £500 million in adjusted operating profit, reflecting progress across all areas of our business. Consumer Care is increasingly resilient, supported by encouraging growth in our F&F business, whilst Life Sciences has built on an exceptional prior year, with an exciting project pipeline in Pharma and a stand-out performance in Crop Protection.

“These record results have been achieved whilst managing a challenging environment. This demonstrates the power of our business model, our consistent execution, an increased resilience, following our recent portfolio changes, and the increasing importance of our products in our markets. We have a disciplined investment approach which is driving both organic and acquisitive growth.

“The increased depth, breadth and resilience of Croda’s business and the significant opportunities that we see in our high-growth markets underpin our confidence for the year ahead.”

Outlook

Though early in the year, the Group is trading in line with expectations. We expect the customer destocking that has been particularly apparent in North America to come to an end in the first half year, supporting continued sales growth this year in Consumer Care. In Life Sciences, we expect good sales growth in Crop Care and the non-Covid related Pharma business to offset the previously indicated decline in Covid-19 vaccine demand. Group performance in 2023 will be more second half weighted than in the prior year, reflecting the divestment of the majority of PTIC in June 2022 and the phasing of lipid systems shipments to our principal Covid-19 vaccine customers.

The combination of our differentiated business model, enhanced investment programme and exciting innovation pipelines in sustainable ingredients and drug delivery will continue to deliver consistent, superior returns.

Further information:

An investor presentation will be available via webcast at 0845 GMT on 28 February 2023 at www.croda.com /investors .

For enquiries contact:
Investors:   David Bishop, Croda  +44 7823 874428
Press:   Charlie Armitstead, Teneo  +44 7703 330269

Notes:

Alternative Performance Measures (APMs): We use a number of APMs to assist in presenting information in this statement in an easily analysable and comparable form. We use such measures consistently at the half year and full year, and reconcile them as appropriate. Whilst the Board believes the APMs used provide a meaningful basis upon which to analyse the Group’s financial performance and position, which is helpful to the reader, it notes that APMs have certain limitations, including the exclusion of significant recurring items, and may not be directly comparable with similarly titled measures presented by other companies.

The measures used in this statement include:

· Constant currency results: these reflect current year performance for existing business translated at the prior year’s average exchange rates and include the impact of acquisitions. Constant currency results are the primary measure used by management to monitor the performance of overseas business units, since they remove the impact of currency translation into Sterling, the Group’s reporting currency, over which those overseas units have no control. Constant currency results are similarly useful to shareholders in understanding the performance of the Group excluding the impact of movements in currency translation over which the Group has no control. Constant currency results are reconciled to reported results in the Finance Review. The APMs are calculated as follows:

a.  For constant currency profit, translation is performed using the entity reporting currency;

b.  For constant currency sales, local currency sales are translated into the most relevant functional currency of the destination country of sale (for example, sales in Latin America are primarily made in US dollars, which is therefore used as the functional currency). Sales in functional currency are then translated into Sterling using the prior year’s average rates for the corresponding period;

· Underlying results: these reflect constant currency values adjusted to exclude acquisitions in the first year of impact. They are used by management to measure the performance of each sector before the benefit of acquisitions are included, in order to assess the organic performance of the sector, thereby providing a consistent basis on which to make year-on-year comparisons. They are seen as similarly useful to shareholders in assessing the performance of the business. Underlying results are reconciled to reported results in the Finance Review;

· Adjusted results: these are stated before exceptional items and amortisation of intangible assets arising on acquisition, and tax thereon. Exceptional items are those items that in the Directors’ view are required to be separately disclosed by virtue of their size or incidence. Movements in contingent consideration have been presented as exceptional as they are not directly representative of the underlying business performance in the period and therefore this presentation provides a meaningful basis to make comparisons between reporting periods. The gain on business disposal and impairment charges have been presented as exceptional due to their size and one-off nature. The Board believes that the adjusted presentation (and the columnar format adopted for the Group income statement) assists shareholders by providing a basis upon which to analyse business performance and make year-on-year comparisons. The same measures are used by management for planning, budgeting and reporting purposes and for the internal assessment of operating performance across the Group. The adjusted presentation is adopted on a consistent basis for each half year and full year results;

· Return on sales: this is adjusted operating profit divided by sales, at reported currency. Management uses the measure to assess the profitability of each sector and the Group, as part of its drive to grow profit by more than sales value, in turn by more than sales volume, as set out in the Group Performance Review;

· Return on invested capital (ROIC): this is adjusted operating profit after tax divided by the average adjusted invested capital. Adjusted invested capital represents net assets adjusted for net debt, earlier goodwill written off to reserves and accumulated amortisation of acquired intangible assets. Calculations and reconciliations are provided in the five year record of the Group’s Annual Report. The Board believes that ROIC is a key measure of efficient capital allocation, in line with its policy set out in the Finance Review, with its aim being to maintain a ROIC of two to three times the cost of capital over the cycle, and that it is useful to shareholders in assessing the returns delivered by the Group and the impact of deploying more capital to grow future returns faster;

· Net debt: comprises cash and cash equivalents (including bank overdrafts), current and non-current borrowings and lease liabilities. Management uses this measure to monitor debt funding levels and compliance with the Group’s funding covenants which also use this measure. It believes that net debt is a helpful additional measure for shareholders in assessing the risk to equity holders and the capacity to invest more capital in the business;

· Leverage ratio: this is the ratio of net debt to Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) adjusted to include EBITDA from acquisitions or disposals in the last 12 month period calculated in line with the banking covenant definition. EBITDA is adjusted operating profit plus depreciation and amortisation. Calculations and reconciliations are provided in the five year record of the Group’s Annual Report. The Board monitors the leverage ratio against the Group’s debt funding covenants and overall appetite for funding risk, in approving capital expenditure and acquisitions. It believes that the APM is a helpful additional measure for shareholders in assessing the risk to equity holders and the capacity to invest more capital in the business;

· Free cash flow: comprises EBITDA less movements in working capital, net capital expenditure, payment of lease liabilities, non-cash pension expense, and interest and tax payments. The Board uses free cash flow to monitor the Group’s overall cash generation capability, to assess the ability of the Company to pay dividends and to finance future expansion, and, as such, it believes this is useful to shareholders in their assessment of the Group’s performance;

· New and Protected Products (NPP): these are products which are protected by virtue of being either newly launched, protected by intellectual property or by unique quality characteristics. NPP is used by management to measure and assess the level of innovation across the Group.