Morningstar | Croda Company Report
Croda is a British speciality chemicals company, known as the leader in skincare active ingredients for the personal-care market. Actives are a niche segment, but they have the highest value because they allow companies to make performance marketing claims for their products, such as antiwrinkle creams. Continuous innovation and entrenched customer relationships have driven EBIT margins in Croda’s personal-care segment to nearly 35%, and the contribution to group EBIT is now a hefty 47%. A key driver for the company is the percentage of sales from new, patented, or protected products. With NPP sales reaching record levels in personal care, we are hesitant to believe margins can continue to rise unabated. Nevertheless, we expect this segment to remain highly profitable. The life sciences segment (28% of EBIT) is another profitable business, with EBIT margins at about 30%. The business is divided into healthcare and crop care, and operates in fast-growing niches in both areas. The healthcare business is focused on excipients, which are inactive substances that act as the vehicle for a drug or other active substance. While traditional excipients perform simple functions, Croda’s high-purity excipients are high-performance because they are needed for challenging unstable active pharmaceutical ingredients in sensitive applications. Crop care produces adjuvants for fungicides, which improve absorption and efficacy. The high-value aspect is a result of the technology being more complex for fungicides than for herbicides. Croda moved into the fast-growing seed treatment business after acquiring Incotec in late 2015. While this initially dampened segment margins, the acquisition has been integrated successfully. Croda’s industrial exposure is housed within the performance technologies segment (25% of EBIT). The company is targeting a 20% EBIT margin, versus current levels across the 16%-18% range. We think this goal will be reached eventually, given ample room to increase NPP products and demarket lower margin products in the legacy portfolio.Croda International creates, makes, and sells specialty chemicals. Co.'s sales, marketing and research activities are organized into four global market sectors: Personal Care, which focuses on ingredients for skin, hair, sun protection and color cosmetic products; Life Sciences, which comprises of three complementary businesses: Health Care, Crop Protection, and Seed Enhancement; Performance Technologies, which targets technologies in Smart Materials and Energy Technologies and continues to develop its presence in Home Care and Water Treatment; and Industrial Chemicals, which is a sector based on selling co-streams, developing niche industrial applications and undertaking toll processing.
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