Listed chemicals giant Croda International issued a warning over its margins this morning after its profit before tax plummeted almost 70 per cent on last year.
The London-listed company reported a difficult set of results which “reflects the prolonged destocking and weaker macro environment” facing the firm, after two record years after Covid.
It reported £1.7bn in sales, down more than 18 per cent from the 2022 figure of £2.1bn, while its operating profit dropped to £247.5m, a steep decline of 44 per cent on the previous year.
Following its disappointing results, shares in the firm dipped slightly after the open, down around 1.6 per cent, making it the second-biggest faller on the FTSE 100 by 9am.
Croda said its profit before tax fell to £236.3m, compared to £780m the previous year, a staggering fall of 69.7 per cent.
It said a variety of factors across the business contributed to the slowdown but pointed in particular to “customers’ reduced inventory levels”. It noted sales dipped in consumer care, beauty, and home care. They were up more than 18 per cent in the “lower margin” F&F (fragrances and flavours) business.
It said profit before tax had taken a hit after its 18.9 per cent adjusted operating margin fell from the 25 per cent last year, “due to the negative operating gearing impact from lower sales volumes, lower Covid-19 lipid sales and the negative mix impact of strong F&F sales”.
Looking ahead to 2024, Croda said it expected “adjusted operating margin to be two to three percentage points lower than 2023.”
However, its chief noted other areas of the business are improving and said he expects its “performance to accelerate from 2025, generating continued increasing returns for our shareholders.”
It also said its cost base will “reset back to a more normalised level from its low point in 2023”, but warned this would be be “offset by modest cost savings from our recent reorganisation”.
Steve Foots, its chief executive said: “Our performance this year reflects the prolonged destocking and weaker macro environment that has followed two record years post the pandemic.”
Despite the financial impact of this ongoing uncertainty, the technology trends that will drive our future growth have not changed with a continued transition to sustainable ingredients and biologics.”
We have successfully realigned our portfolio with these megatrends and our strategy is delivering with continued customer demand for innovation and sustainable ingredients.”
Foots added: “Despite the challenging macroeconomic backdrop, we have continued to invest for the future, adding biotech-derived active ingredients to our portfolio through our acquisition of Solus Biotech and expanding capacity in Pharma whilst maintaining strict capital and cost discipline.”
Croda’s share price has dropped by almost 30 per cent in the last year, and it took a particular hit in October 2023, when the firm issued another profit warning.