February 25, 2014 / 12:25 PM / in 4 years

UPDATE 1-Chemical maker Croda says currency to weigh on profit

* Emerging market currencies weaken versus sterling

* Company generates 36 pct of sales from emerging markets

* Croda expects to grow sales and profit in constant currency this year

* Shares flat, after falling 2 pct in early trading

By Karen Rebelo

Feb 25 (Reuters) - British specialty chemicals maker Croda International Plc said profit growth in 2014 will be constrained by currency volatility in emerging markets, which account for more than a third of its sales.

Weakness in Asian and Latin American currencies relative to sterling, a trend that accelerated in December, are threatening to take the shine off rising sales of the company’s chemicals in developed markets.

“Currency translation is expected to have an adverse impact on profit growth in 2014,” Croda Chairman Martin Flower said in a statement.

Croda’s shares fell as much as 2 percent on Tuesday.

The free-floating currencies of the ‘Fragile Five’ countries that rely on foreign investment to finance deficits - Brazil, India, Indonesia, Turkey and South Africa - have borne the brunt of an emerging market sell-off that began last May.

Croda, which makes chemicals used in cosmetics, pesticides and detergents, said currency translation had a negative effect on its earnings during the fourth quarter of 2013. For the first three quarters of the year, the effect had been positive in most of the company’s markets.

The company, a supplier of chemicals to Unilever, L‘Oreal and Procter & Gamble, generates about 36 percent of its sales from emerging markets.

Despite underlying growth, Croda said its full-year 2013 results had been undermined by weak demand in eastern Europe, the Middle East and Africa, as well as adverse currency rates in Asia.

Morgan Stanley analysts wrote in a note that consensus among analysts called for 2014 reported sales growth of 5.4 percent.

“We continue to believe this fails to reflect what we expect will be an FX drag of 3.8 percent due to the strength of sterling,” they wrote.

Despite the currency drag, Croda said it expected to achieve “constant currency sales and profit growth” this year.

For the year ended Dec. 31, Croda said adjusted pretax profit rose 5.4 percent to 251.4 million pounds ($418.09 million). Revenue increased 2.4 percent to 1.077 billion pounds.

Analysts on average expected full-year revenue of 1.079 billion pounds, according to Thomson Reuters I/B/E/S.

Croda Finance Director Sean Christie told Reuters that the company had no plans to start hedging currency risk.

“If you’ve got hedges in places, you would start having all sorts of cash problems,” he said.

Croda said revenue from its core consumer-care business rose about 1 percent to 593.2 million pounds in 2013.

The company raised its final dividend to 35.50 pence per share from 32.75 pence a year earlier.

Croda’s shares were flat at 2501 pence on the London Stock Exchange, after having fallen as much as 2 percent earlier in the day.

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