Sweet scent of success as Croda cashes in on skin-care products

The company, based in Snaith, East Yorkshire, 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 skin-care products.

Croda, which supplies ingredients to skin-care and cosmetics companies such as L'Oreal, Chanel, Clarins, Este 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.

Jeremy Batstone-Carr, at Charles Stanley, said: "Croda has delivered an outstanding set of first quarter results, exceeding our expectations by a wide margin boosted by solid growth in the larger consumer care division and very strong growth in industrial specialities."

Group sales increased by 14.7 per cent, to 264.7m.

Net debt ended the quarter at 292.7m, little changed on the figure seen at the end of 2009.

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.

Mr Batstone-Carr said: "We view Croda as both predator and possible prey in a European sector where consolidation talk has picked up of late. We maintain our accumulate recommendation although earnings upgrades may have to wait a while."

Croda said it has no plans for any immediate acquisitions.

The group said it expects prices of raw materials to rise.

Finance director Sean Christie said: "We do expect so far to have a good year, but the rest of the year might just be a little bit quieter than this."

Analyst James Tetley, at Brewin Dolphin, said the shares were down due to broader market concerns on euro zone debt, but the sentiment on Croda remained positive in general.

"The first quarter was much better than people expected," he said. "So, even if later in the year is not quite so good, I think the full year will still be better than people were expecting before."

Citigroup analyst Sophie Jourdier said: "The company now looks set to continue on a strong earnings growth path, which should help reduce its debt position."

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."

Croda investment

Croda is launching a multi-million-pound investment in green technology to cash in on the ever increasing demand for environmentally friendly products.

The group is building a speciality biofermentation plant in Widnes to produce natural chemicals for anti-wrinkle creams and other skin-care products.

Croda's chief executive Mike Humphrey said biofermentation is the way forward when it comes to producing natural chemicals as you can use raw ingredients such as food waste to produce them.

In addition to skin-care and beauty products, the natural chemicals will also be used to provide an Omega 3 substitute that does not rely on fish oils as its raw ingredient. This will cut back producers' raw material costs and provide a vegetarian option for customers.

Another area for green investment is crop care.

The biggest problem with crops is insects eating them, and while people do not like the idea of pesticides they often have to be used.

Croda's role is to supply the emulsifier, or carrier, which means farmers can use less pesticide.

The emulsifier makes the pesticide stick to the leaves rather than drop to the ground.

Croda's crop care products are biodegradable, which also improves their green credentials.