Croda warns on margins as profits slump on weak demand

British speciality chemicals maker Croda International on Tuesday warned of lower operating margins this year after posting a slump in 2023 profits due to customers destocking and a weak macroeconomic environment.

Pre-tax profit for the year to December 31 fell 69.7% to £236.3m. The company, which supplies the consumer and life sciences industries, said it expected group adjusted operating margin to be two to three percentage points lower and adjusted profit before tax to be between £260m and £300m in full year 2024.

The FTSE 100-listed company benefited greatly from the Covid-19 pandemic, including making the lipids for the Pfizer-BioNTech vaccine. However, as supply chains began to constrict after lockdowns eased customers built up stock to cope with the post-crisis surge in orders.

This led Croda to cut full-year forecasts last October, with adjusted pre-tax profit expected to come in at £300m - £320m, down from previous guidance of £370m - £400m. The 2023 figure came in at the low end at £308m but beat the £300m consensus of analyst estimates compiled by the company.

“Given the ongoing uncertainty in our end markets, the recovery trajectory for each of our business units remains difficult to predict and the range of possible outcomes in 2024 is therefore wider than usual at this stage of the year,” Croda said.

“Overall, however, the Group expects to deliver mid to high single digit percentage sales growth in 2024, excluding the $60m of Covid-19 lipid sales in 2023, with higher sales volumes more than offsetting lower price/mix.”

It added that its consumer care division had started the year well and the board was "cautiously optimistic" about the improving demand trend we experienced January.

"Within Life Sciences, we expect the non-Covid pharma business to grow but that destocking will continue in crop protection. Demand in industrial specialties is expected to remain weak."

Reporting by Frank Prenesti for Sharecast.com