June 24, 2014 / 7:06 AM / 4 years ago

UPDATE 2-Chemical maker Croda warns strong pound to hit profit; shares fall

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June 24 (Reuters) - British speciality chemical maker Croda International Plc warned that full-year pretax profit would be lower than last year’s as a strong pound was expected to hit earnings.

Shares in the London-listed company, which supplies chemicals to Unilever, L’Oreal and Procter & Gamble, fell as much as 9.5 percent to 2177 pence on Tuesday morning.

The stock was one of the top percentage losers among FTSE 250 companies at 0808 GMT.

Croda, said it expected to achieve underlying profit progress for the year ended Dec. 31.

The company said if the pound remained at current levels, the currency translation and transaction effects would have reduced 2013 pretax profit of 251.4 million pounds ($427.6 million) by about 19 million pounds.

The amount reflected 13 million pounds in currency translation plus an estimated 6 million pounds in currency transaction, arising mainly on Croda’s U.S. dollar denominated exports from Europe.

Croda, which makes chemicals used in cosmetics, pesticides and detergents, generates only about 5 percent of revenue from the UK but reports its earnings in sterling.

The company also warned that the British pound had further strengthened in recent months resulting in a 6.5 million pound hit on second-quarter pretax profit.

Croda said it expected pretax profit in the second quarter to be 8 percent lower than the first quarter.

Margins in the second quarter would be lower due to greater transactional currency costs and a slightly less favourable product mix in its core consumer care business, it said.

“Croda has published a negative pre-close trading update highlighting the pressure the strong sterling is exerting on earnings,” JPMorgan Cazenove analyst Martin Evans wrote in a note.

The brokerage cut its target price on the stock to 2250 pence from 2380 pence. ($1 = 0.5880 British Pounds) (Reporting by Karen Rebelo in Bangalore; Editing by Gopakumar Warrier)

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