US-China trade war hits Croda

Speciality chemicals maker Croda International said its personal care division has been hit by the trade war between Beijing and Washington.

Croda makes 96per centof sales and 80per centof production outside the UK

The Snaith-based FTSE 100 company, which counts Unilever, Procter & Gamble and L’Oreal as customers, reported a 2.5 per cent fall in pre-tax profit to £171m in the six months to June 30, below analysts' forecasts of £174m.

Croda said sales in constant currency at its personal care unit were 3.6 per cent lower due to weakness in the US and China where the trade war between the two countries has created significant uncertainty, weighing heavily on consumer confidence.

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Croda has also had to deal with new legislation on ‘Daigou’ cross-border selling in China.

Croda's chief executive Steve Foots said the wider trade war is affecting short term demand.

"In personal care, what's happening in North America is softening consumer confidence," he said.

"There's a consumer confidence issue and market data would suggest that skincare and hair care are broadly flat, but what you're getting underneath that with this uncertainty is unpredictable and erratic de-stocking regime which is affecting demand temporarily."

Talking about the Daigou issue, he said: "In China this ‘Daigou’ legislation is the Chinese government modernising selling channels for personal care products, which is good and we're supportive of that, but short term it has an impact on small customer demand.

"Both of these issues conspire to have a negative effect on personal care in the short term, but it's confined to North America and China. If you look outside of that, the personal care business is up 2 per cent which is where we would have expected against tough comparatives.

"We know what the issue is. It's macro, it's mainly the US/China trade war and the modernisation of legislation."

He said that structurally, Croda is in a very good place.

"We see this as a short term, macro blip that we have to get through like the rest of the industry and we'll be back to normal growth.," he added.

Croda, which makes 96 per cent of sales and 80 per cent of production outside the UK, said it expects its personal care unit’s performance to remain subdued in the US, while Asia recovers progressively.

Croda described its performance as resilient despite subdued market conditions.

"We are more cautious in our outlook statement," said Mr Foots.

"It's uncertainty and consumer confidence that is driving it rather than anything more structural.

"Our industry is not great at managing stock through the cycle. It never has been, so you get these unpredictable periods with restocking and destocking in a way you don't expect. What we are seeing now is this destocking taking place, which is more radical than we would expect."

The firm reported an "excellent" performance at its life sciences division.

"Life sciences is really good and it's up 13 per cent. It's the fastest growing business in Croda," said Mr Foots.