Croda to cut costs as profits fall

CRODA INTERNATIONAL yesterday became the latest chemical company to unveil a slump in profits due to dire markets and the strength of the pound.

The fall in profits came as Croda announced it would close several non- core operations, with job losses likely, in a bid to reduce costs. The company declined to name the plants earmarked for closure but said the measures would cost pounds 8m and yield annual savings of pounds 4m from 2001.

The speciality chemicals group reported a 12 per cent fall in 1998 pre- tax profits before exceptionals to pounds 33m, on sales marginally higher at pounds 354.9m. The figures were depressed by an pounds 18m exceptional loss on the disposal of three businesses, leading to an overall profit figure of just pounds 14m, down 64 per cent on 1997. The disappointing figures forced Croda to leave the dividend unchanged at 10.35p.

The chairman Keith Hopkins said the results had been severely affected by the difficult trading conditions in many key markets. A collapse in demand in the financially-stricken Far East caused a profit shortfall in Croda's industrial chemicals division, which produces paints, inks and fire-fighting products.

The company's core speciality chemicals division, which supplies high- technology products to pharmaceuticals and cosmetics companies, was also hit by lower Asian demand, with sales in the region down 15 per cent. The unit's problems were compounded by a sharp rise in the price of vegetable and palm oil imposed by Indonesia.

Croda's plight was deepened by the strong pound, which last year wiped nearly 10 per cent off the group's profits and some 4 per cent off sales.

The finance director, Barbara Richmond, said many of Croda's markets were set to remain subdued throughout 1999.

David Phillips at Sutherlands said Croda's margins, at around 15 per cent, were among the best in the sector, but warned that the difficult trading conditions would persist in the near term.

However, Croda shares have fared better than many of its peers. After yesterday's 3.5p fall to 225p, they are on 13 times 1999 earnings of around pounds 33m. This is an unjustified discount to rivals such as Laporte and BTP, which are better positioned to take advantage of a upturn in the chemical markets. At these levels, Croda is no more than a hold.