February 25, 2020 / 7:52 AM / a month ago

UPDATE 2-Croda hit by trade war, Chinese laws as coronavirus threatens supply chains

* China demand hurt by effort to modernise “Daigou” sales

* Q4 saw pick up in demand

* Croda sources lanolin from China

* Shares fall 3% (Adds CEO comments, shares, details)

By Noor Zainab Hussain

Feb 25 (Reuters) - Croda’s annual profit was hurt by a hit to demand as the trade war between Beijing and Washington persisted and China attempted to modernise “surrogate sales” in what its top boss called the harshest trading environment in a decade.

The chemicals group, which makes ingredients for cosmetics companies, also warned of disruption 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.

Croda’s shares were 2.8% lower at 4,782 pence at the bottom of London’s bluechip index.

The virus emerged in China and is now spreading in Europe and the Middle East, with companies facing billion of dollars in losses.

Croda buys wool grease or lanolin - a wax used in topical creams - from China, but Chief Executive Officer Steve Foots said Croda also buys wool grease from other countries.

“The bigger issues is around the supply chain into our customer’s factories,” Foots said, adding that the company was talking to is customers and their suppliers.

French cosmetics company L’Oreal, a Croda customer, said this month that the spread of the virus would have an impact on demand in the coming weeks.

Foots, however, said there were encouraging signs, with the movement of product mobilising within China, people going back to work and shipping channels reopening.

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

Croda, which also counts Unilever Plc and Procter & Gamble Co among its customers, reported a 4.9% fall in pretax profit to 302.3 million pounds in the year ended Dec. 31.

“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,” Croda said.

New legislation restricted “Daigou” sales or surrogate sales, and 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.

Croda said in July demand has slowed down because companies were not allowed to sell until they registered. The fourth quarter, however, saw a return to modest growth with recovery in North America and Asia. (Reporting by Noor Zainab Hussain in Bengaluru; Editing by Bernard Orr and Ed Osmond)

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