Toughest trading in a decade, warns Croda
SPECIALITY CHEMICALS maker Croda International has reported a fall in annual profits amid what it described as the harshest trading environment in a decade.
The Snaith-based FTSE 100 company, which counts Unilever, Procter & Gamble and L’Oreal as customers, said it had put in a resilient performance in tough conditions.
Croda’s chief executive Steve Foots said: “I’ve been in the industry for 30 years and these are probably the most challenging conditions we’ve seen in a decade.
“There were the trade wars between the US and China, which affected us in quarter two and quarter three, and the Daigou effect, which is more specific to Croda in China with the Chinese government modernising the distribution channels there, which is absolutely the right thing to do, but it had an impact on us short term.
“It’s back to normal now which is good.”
New legislation has restricted ‘Daigou’ sales, whereby Chinese consumers buy Japanese and Korean cosmetics when they are on holiday and then sell them when they get back to China, often on social media sites.
Croda said it saw some disruption to customer demand from the coronavirus outbreak in China after it reopened sales offices and two production units, with more limited operations than usual.
Mr Foots said it is too early to say whether Croda will be affected by the coronavirus outbreak, but at the moment there has been a very limited impact for the group.
“It’s important to remember that China accounts for 6 per cent of Croda sales, but only 2 per cent of our production,” he said.
“So as things stand we expect the impact to be limited, but we’ll wait to see how things unfold.
“We’re very encouraged with the supply chains getting back to some sort of normality in China. Factories are starting up, shipments are starting to move, but of course that all takes time.
“We’re still hopeful that this can resolve itself in quarter one, but again we’re watching this on a daily basis.”
The virus emerged in China and is now spreading in Europe and the Middle East, with companies facing billions of dollars in losses.
Croda buys lanolin, a wax used in topical creams, from China, but Mr Foots said the group also buys it from other countries.
“The bigger issue is around the supply chain into our customers’ factories,” Mr Foots said, adding that the company is talking to its customers and their suppliers.
Earlier this month, cosmetics company L’Oreal said that the spread of the virus will have an impact on demand in the coming weeks.
Croda reported a 4.9 per cent fall in pre-tax profit to £302.3m in the year to December 31.
Mr Foots said: “The automotive