July 24, 2019 / 6:47 AM / 5 months ago

Chemicals firm Croda's sales hit by trade wars and Chinese laws

(Reuters) - Chemicals group Croda, which makes ingredients for cosmetics companies, on Wednesday said the U.S./China trade war and new Chinese sales laws contributed to a fall in first-half profits, which came in below expectations.

The British company, which also supplies agrochemicals and auto industries, said sales in constant currency were 3.6% lower at its personal care business, which accounts for 40% of annual revenue.

Croda said this was due to the U.S./China trade war which had weighed heavily on consumer confidence, together with new legislation on “Daigou” cross-border selling in China.

So-called Daigou selling is where Chinese consumers who visit Japan or South Korea on holiday buy Japanese or Korean cosmetics products to sell when they get back to China often on social media sites. The new laws aim to regulate this cross-border trade.

Chief Executive Officer Steve Foots said: “(Daigou) is a thriving, big business in China ... the legislation changes, that process is taking a bit of time.”

“Demand has just naturally slowed down because they are not allowed to sell until they register the products,” Foots said.

He said some of Croda’s smaller customers had stopped making products, while others were taking longer to get set up, citing the new legislation. Croda has smaller customers in Asia and North America. The company also counts Unilever Plc (ULVR.L), L’Oreal (OREP.PA) and Procter & Gamble Co (PG.N) among its customers.

“Today’s results will raise concerns that this is more than a cyclical blip,” Liberum analyst Adam Collins said.

Shares in Croda were 4.4% lower at 4,612 pence at 0711 GMT, taking the stock to the bottom of London's bluechip index .FTSE.

The company, which has 96% of its sales and 80% of production outside Britain, said it expected its personal care business’s performance to remain subdued in the United States, while Asia would recover progressively.

“When you are applying 25% duty to chemicals, you are going to see some sort of impact,” Foots said, referring to the impact of the U.S./China trade war.

“We’ve got some short-term demand reduction ... there is some erratic and unpredictable stocking in the industry,” Foots said.

He said sales were significantly lower in automotive and personal care in North America and said Chinese products sold in the United States were now more expensive.

Croda reported a 2.5% fall in adjusted pretax profit to 171 million pounds in the six months to June 30, below a company-supplied consensus forecast of 174 million pounds.

Reporting by Noor Zainab Hussain in Bengaluru; Editing by Shounak Dasgupta/ Jan Harvey/Jane Merriman

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