Cautious Croda uncertain on recovery timing

Croda International (CRDA) has not diagnosed any radical treatment for its weakened sales, aiming just to freshen up some parts of the business. The company sells precursor ingredients to the beauty, pharmaceutical and agricultural products industries. 

Its customers stocked up in 2021 and 2022 and then slashed buying more recently. 

As a result, Croda reported far lower profits in the year to 31 December as it cut prices to hold onto market share, while also feeling the impact of the winding down of Covid-19 vaccine manufacturing. The outlook for 2024 is similar, with adjusted profit before tax at £260mn-£300mn. 

The adjusted operating margin fell over 6 percentage points to 18.9 per cent in the year, on the back of lower sales set against fixed costs at its manufacturing facilities. The only unit where sales increased was fragrances and flavours, which actually had a negative impact on the margins. The overall personal care unit held up well, however, with sales down 1 per cent on 2022. Life sciences, which sells into the pharmaceutical and agricultural industries, saw a 12 per cent drop in sales and a one-third fall in adjusted operating profit. 

After what chief executive Steve Foots called a “difficult”, “unusual”, “volatile” year, the company will shift to reporting sales on a quarterly basis to keep investors on top of developments. The company has changed tack on a plan to stick to the basics to be ready for a market turnaround, and will aim for a “simpler operating model” in the future as well as cutting inventory levels. 

Croda prides itself on a 30-year-plus record of raising the dividend, and it has eked out a 1 per cent overall increase here, similar to 2019 and 2020. This is a weak point for the company, but the business is still sound. Hold. 

Last IC View: Hold, 5,870p, 25 Jul 2023