Croda CEO Reshapes Divisional Structure to Accelerate Growth

Croda International Plc (CRDA), Europe’s No. 2 cosmetic-ingredients maker, will reorganize sales and research along divisional lines as Chief Executive Officer Steve Foots seeks to reignite growth after a disappointing first half.

Dedicated global teams, from marketing to top-level management, will be formed for each of Croda’s business groups spanning performance technologies and industrial chemicals, personal care additives, and ingredients for crop and health-care products, the Snaith, England-based company said.

Croda is struggling to recapture a growth trajectory that quadrupled its market value to almost 4 billion pounds ($6.8 billion) in March 2013 from late 2009, earning it a place in the U.K.’s benchmark FTSE100 index. Competition from Clariant AG (CLN) and other chemical companies expanding cosmetic and personal-care additive operations is eating away at the commodity end of Croda’s product offering.

“The top is growing very well,” Foots said on a conference call with analysts. “There’s nothing there to indicate competitive pressure. The tailwind pressure is right at the bottom.”

Croda fell 1.5 percent to 2,182 pence as of 10:57 a.m. in London trading. The stock has dropped 11 percent this year, generating speculation that the British company may be the target of a takeover bid.

Missing Estimates

Second-quarter revenue fell 5.8 percent to 263.4 million pounds, weighed down by bigger-than-expected currency costs and weakened consumer demand in Europe. Sales lagged behind the 268 million-pound average analyst estimate. Adjusted operating profit fell 11 percent to 63.6 million pounds.

Croda’s strategy is focused on the top end of the market, where active ingredients such as anti-wrinkle agents in moisturizer play a central role in brand marketing, and it has historically jettisoned products that have become commodities. The U.K. company has suffered as consumer demand in Europe waned and some customers sought cheaper ingredients, though the slowdown is temporary and a number of markets are returning to growth, Foots said.

“We’d be more concerned if we were losing share in the top or middle section,” Foots said. “We won’t chase volume. If other people want to fight in that tail, fine.”

After seven years of clinical trials, Alliance Boots Holdings Ltd. in May introduced its No. 7 Protect & Perfect anti-aging serum that uses Croda technology.

Omega 3

Croda said a partnership with Par Pharmaceutical Cos. to manufacture a generic version of the blockbuster anti-heart attack drug Lovaza will accelerate this year after the U.S. Food and Drug Administration gave final approval. There’s potential for mid-to-high single-digit millions of pounds in revenue, though management will be better able to analyze the potential for its high-purity Omega 3 fatty acid next year when commercial sales start, Foots said.

BASF SE currently supplies GlaxoSmithKline Plc (GSK) with the Omega-3 used in Lovaza.

At the lower end of the personal-care market, sales forces now have some flexibility to adjust prices to defend orders “where appropriate,” Foots said.

Croda is working on two or three “chunky” research projects that are coming through and currently soaking up more investment spending, Finance Director Sean Christie said.

“Most of our innovation is niche-y, and it just so happens one or two of them coming through,” Foots said.

Croda hired Anthony Fitzpatrick, a former UBS AG and Jefferies Group LLC investment banker, earlier this year to help lead a search for deals, which will be key to pushing company growth along with the reshaping of research and sales forces, Foots said.

The acquisition pipeline includes small- and medium-sized targets, the CEO said. Takeover deals will be “the swing factor for us,” and “we’re out on all fronts.”

To contact the reporter on this story: Andrew Noel in London at anoel@bloomberg.net

To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net Tom Lavell

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