German sale sees Croda shares take leap

Croda, based in Snaith in East Yorkshire, said it will use the proceeds to reduce net debt, which stood at 292.7m on March 31.

It is selling the business to Malaysian oil palm plantation group Kuala Lumpur Kepong Berhad (KLK). The disposal will largely complete Croda's restructuring programme following the 2006 acquisition of Uniqema, which originally owned the German business.

Analyst James Tetley at Brewin Dolphin, who has a 'buy' rating on the stock, said: "I think this is the final one of those opportunities to restructure the lower margin, less attractive, less specialist businesses they acquired with Uniqema."

Croda's shares closed up 5.7 per cent last night, a rise of 52p to 972p.

Under the terms of the deal, KLK will assume the retirement benefit obligations of about 30.2m related to the business.

KLK, which owns more than 240,000 hectares of plantations in Malaysia and Indonesia, is one of the world's largest makers of palm-based natural chemicals, such as fatty acids and glycerine.

Croda said it expects the deal to marginally add to its earnings for the year ending December 31. Croda's German business reported an adjusted operating loss of 2.1m on sales of 80m in 2009, and had net operating assets of 37.7m at the end of last year.

Robin Johnson of Eversheds advised Croda on the deal.

In the first three months of 2010 Croda saw a near doubling in profits thanks to strong demand for everyday essentials such as deoderants and shampoo.

The company specialises in natural chemicals for anti-wrinkle creams and other skin care products.

The group has managed to avoid the recession as consumers continue to splash out on top-of-the-range beauty and skincare products.

Croda, which supplies ingredients to skin care and cosmetics companies such as L'Oreal, Chanel, Clarins, Estee Lauder, Boots and Procter and Gamble, said pre-tax profits rose 95 per cent to 42.4m in the three months to March 31.

The improvement was partly due to restocking, but analysts were bullish about the group's future.

Group sales increased by 14.7 per cent to 264.7m. The consumer care division reported a 20.6 per cent increase in operating profits to 34.6m on sales ahead by 1.4 per cent to 130m.

The industrial specialities division generated an operating profit of 10.5m on sales ahead by 31.3 per cent to 134.7m.

Following the sale of the German operation, Croda said it has no plans for any immediate acquisitions.

Croda's ingredients represent a very small proportion of the final selling price of a personal care product. But these ingredients are frequently the reason why the product has an effect and the reason why it sells.

The company has increasingly moved away from commodity chemicals to focus on innovative, higher-margin ingredients used in sun-tan lotions and haircare products.

Croda's chief executive Mike Humphrey believes it is vital that the company continues to invest despite the current economic downturn.

"In times of recession people stop thinking about the future, but you don't want to come out of recession and find you haven't got a future, " he said.

"If we stop investing now then in two to three years' time we will be in trouble. Too many companies are taking a short-term view."

Analysts are expecting Croda to report 2010 pre-tax profits of 142.9m.

Disposal ends Uniqema policy

The sale of the German business marks the last significant disposal following Croda's 410m purchase of Uniqema from ICI in 2006.

The disposal fits in with the company's decision to dispose of lower margin businesses following the Uniqema acquisition, which was a major step change in the group's development.

Two years ago Croda made one of its biggest disposals with the 47m sale of its oleochemicals business in Chicago.

Chicago Oleochemicals, a leading North American supplier of fatty acids and glycerine which are used in personal care, household and industrial products, was sold to H.I.G Capital.