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Croda warns strong pound to hit profits
Chemicals company Croda issues profits warning as sterling's strength takes its toll on the business
Croda, the speciality chemicals business, has issued a profits warning, blaming the growing strength of the pound.
The East Yorkshire-based group said on Tuesday that sterling’s appreciation and a weaker performance by its industrial chemicals unit meant annual profits would come in below forecasts.
The news drove Croda shares down 8pc in lunchtime trade, making it one of the biggest fallers in the FTSE 250.
Croda, which makes chemicals used by companies including Procter & Gable and Unilever, said in a trading statement on Tuesday: “Sterling has strengthened further in recent months resulting in an adverse currency translation and transaction impact of approximately £6.5m year-on-year on second-quarter pre-tax profits, greater than originally expected.
“Croda now expects quarter two pre-tax profits to be approximately 8pc below pre-tax profit performance in quarter one due to a combination of these factors. Approximately £1.5m of the difference between quarters is due to the increase in the strength of sterling.”
The company had cautioned about the rising pound in an update in April when it said it expected profits to continue at the same pace.
If the pound remains at its current levels – it has risen from around $1.50 a year ago to about $1.70 at the moment – Croda expects annual profits to be £19m below the previous year’s £251.4m. Of this £19m fall, currency translation will acount for £13m and £6m be in the form of currency transactions mainly because of the company’s dollar denominated exports from Europe.
Croda’s products are used in the agriculture, pharma, oil, mining and water treatment industries worldwide and although the company makes only a small proportion of its revenues in the UK, it still reports in sterling. As a result a stronger pound has a heavy burden on its results.
The company said it still expected progress in its annual results on an underlying basis, which adjust for currency changes, and that the board is “confident” in its long-term strategy.