Croda finds the right formula for recovery: Shares in chemicals group jump as profits climb 40%

SHARES in Croda International advanced 17p to 258p yesterday after the speciality chemicals group reported a sharp recovery in profits last year.

The taxable surplus surged ahead by 40 per cent to almost pounds 30m on turnover up from pounds 352m to pounds 363m. The results, in line with market expectations, were accompanied by an increase in the final dividend from 4.75p to 5.0p, which lifts the total by 3 per cent to 7.75p.

A year ago Croda was criticised by many City investors for cutting its 1991 dividend by almost half after its taxable profits slumped from pounds 33.7m to pounds 21m. Some felt the cut was unwarranted.

But Keith Hopkins, chief executive, said the company needed to cut its payouts to finance a higher level of capital investment - it is expected to jump from pounds 17m to pounds 20m this year.

'After a decade of a high level of distribution to shareholders, we need to reduce the payout levels during the 1990s to fund more capital expenditure,' he said.

As a result, the company is targeting a dividend cover of twice earnings against an average of 1.5 times in the last decade.

The profits growth reflected the benefits of a pounds 100m expansion programme over the past four years which has helped to reduce costs.

Thanks to higher exports, sales volumes in chemicals grew by 12 per cent last year. The division, which manufactures feedstock from vegetable and animal fats, boosted its trading profits by almost pounds 9m to pounds 31m on sales up 9 per cent to pounds 240m.

However, difficult market conditions led to virtually unchanged profits of pounds 6.1m in the industrial coatings division. Slow Christmas sales pushed trading profits in the group's own-label cosmetics business down from pounds 1.4m to pounds 500,000.

Interest charges eased from pounds 6.1m to pounds 5.4m as net borrowings fell from about 39 to 34 per cent of shareholders' funds.

The company said it was continuing to benefit from a weaker pound and an upturn in the US. Although orders were up in the first three months, trading conditions in Continental Europe, which accounts for a third of group profits, look uncertain.

Martin Glen, an analyst with Lehman Brothers, is forecasting taxable profits of pounds 36m this year. But there is concern that the company may be hit by an economic slowdown in Germany and stiffer competition from large chemicals companies there.