Croda International Plc reported record quarterly profit from skin-care formulations as the world’s second-largest cosmetic-ingredient maker closes the gap on larger competitor BASF SE.
The supplier of sunblock is winning smaller customers from distributors employed by BASF and other rivals, as well as expanding in Latin America and Asia, according to Chief Executive Officer Steve Foots. Fourth-quarter pretax profit at Croda, today’s top gainer on the FTSE100 index, rose 3 percent to 61.2 million pounds ($93 million), beating estimates.
BASF is focusing on larger customers brought in by the Ludwigshafen, Germany-based manufacturer’s $3.8 billion purchase of additives maker Cognis. Croda is pursuing smaller clients who buy “test-tube sized volumes” of products in addition to bigger purchasers such as L’Oreal SA, Foots said. Foots, in his post for a year, has been conserving cash for reinvestment rather than offering a special dividend to investors.
“We’d say we’re taking market share, particularly some of the smaller customers at the outsourcing end,” Foots said in a phone interview from London today. “BASF’s model is a different model to ours.”
Croda, which joined the U.K.’s benchmark stock index last year, rose as much as 3.3 percent to a record 2,639 pence and was trading up 1.1 percent at 10:53 a.m. in London. BASF, which today reported earnings in line with estimates, fell 2.8 percent to 72.89 euros in Frankfurt.
Analysts predicted Croda would report fourth-quarter pretax profit of 59.7 million pounds. The consumer-care division posted an 8.3 percent increase in earnings to 185.4 million pounds last year on a 2.6 percent advance in sales. By contrast, BASF’s care-chemicals division, which encompasses Cognis, reported a 4.2 percent decline in revenue.
BASF said the Cognis-led business struggled with difficult markets and “cautious buying behavior” that held back margins. Chief Executive Officer Kurt Bock aims this year to turn the division around through “strict” cost management and efficiency gains.
Bock said today he checked back with managers of the care chemicals business to ascertain whether it had lost customers and couldn’t find any trace of Croda taking share. The area of overlap is very narrow, yet competitive, and is the jewel of the division, he said.
Croda, based in the northern-England town of Snaith, passed on raw-material costs, giving up volume where necessary, and introduced products with better margins to compensate, Foots said. The company added 40 employees to its sales and marketing workforce last year after taking most distribution activities in-house, he said today on a conference call.
BASF’s takeover of Cognis, completed in December 2010, has also brought crop-care clients to Croda as some crop-protection customers switched suppliers rather than order from a direct competitor, Foots said.
Croda predicted “further progress in 2013” after an “encouraging” start to the year, with expansion in North America, Latin America and Asia.
The global market for beauty products expanded 4.6 percent in 2012, led by L’Oreal, Procter & Gamble Co. and Unilever, and the ranks of emerging and wealthy middle classes are expected to almost triple to 2.7 billion consumers by 2020, according to Bloomberg analyst Deborah Aitken.
BASF and Croda, along with Royal DSM NV, also compete in Omega 3 fatty acids, used in drugs and nutritional supplements, following the German company’s purchase earlier this year of Pronova BioPharma ASA for $900 million.
Competition has intensified at a time when Peruvian quotas limiting fishing are tightening the supply of oil used as a raw material. Fish-oil prices may surge by 30 percent to 50 percent this year, and some of Croda’s research efforts are focused on biofermentation to seek alternative sources, Foots said. The CEO declined to go into details.
Croda’s enterprise technology venture capital arm has a “head of steam” and there is a lot of potential for acquisitions at the “small end” of the market, consisting of assets costing as much as 25 million pounds, Foots said.