Croda profit hit by trade war, Chinese laws as coronavirus fears grow

(Reuters) – Croda (L:) posted a drop in annual profit on Tuesday, hurt by lower demand caused by the drawn-out trade war between Beijing and Washington and a change in China sales laws.

The chemicals group, which makes ingredients for cosmetics companies, also warned of a possible hit to customer and consumer demand from the coronavirus outbreak in China after it reopened sales offices and two production units with more limited operations than usual.

China represents 6% of Croda’s core business sales, 2% of production and is a limited part of its raw material supply chain, the company said.

Croda, which also supplies agrochemicals and auto industries, said pretax profit fell 4.9% to 302.3 million pounds in the year ended Dec. 31, with a 3% drop in sales at its personal care business, which accounts for 35% of annual revenue.

“The trade war between the U.S. and China significantly impacted demand for Croda products … sales were adversely impacted by significant ingredient destocking in the summer months as customers adjusted inventory to the lower than expected demand,” the company said in a statement.

New legislation restricted “Daigou” sales into China from the key manufacturing markets of Japan and South Korea, whilst local Chinese customers were hurt by a combination of trade uncertainty and tariffs, internet selling regulation and multinational competition, the company added.

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.

The fourth quarter, however, saw a return to modest growth with recovery in North America and Asia, Croda said.

Founded in 1925, Croda has smaller customers in Asia and North America. The company also counts Unilever Plc (L:), L’Oreal (PA:) and Procter & Gamble Co (N:) among its customers.