Croda International Plc ($CRDA)

Hello, and welcome to the Croda International Q1 2026 Sales Update Call. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Steve Foots, to begin today's conference. Please go ahead, sir.

Good morning, everyone. Many thanks for joining. So I'm here with Stephen and David, and together, happy to take your questions. So first, just a few overview comments from me. Overall, quarter 1 sales were as we expected it, up 1% at constant currency and similar to a very strong quarter last year. And whilst we acknowledge the heightened uncertainty that the Middle East conflict has caused, it had no material effect on quarter 1, and there is no change to guidance for full year '26. So breaking our quarter 1 sales performance down by business, sales were up 4% in Consumer Care, driven by Beauty Actives and F&F. Life Sciences saw sales dip 3%, largely due to Crop Protection being 8% lower versus a strong prior year when we saw significant restocking. And industrial sales were down 2%, again against a strong prior period. So turning to performance on a regional basis. Growth was strongest in Latin America and robust demand in agriculture and Consumer Care. EMEA and Asia sales were as we expected, and North America was weaker due to crop normalizing as expected and compounded by continued pressure on lower income consumers and the poor weather. Finally, coming to events in the Middle East in more detail. Our key priority has been the safety of our people and serving our customers. It's a small region for Croda, representing around 5% of group sales, most of which are in F&F. And we saw no material impact on sales in the quarter, but with input costs increasing, we are raising prices to fully recover input cost inflation. And we're doing that transparently and in total collaboration with our customers. And as I said, whilst we recognize the elevated uncertainty the conflict has caused and continue to monitor this evolving situation, our outlook for full year '26 remains unchanged. And we are confident of delivering an improving performance over the next 3 years, as outlined in February, combining innovation-led growth and our transformation program, which remains firmly on track. So it's all about growth and transformation, which is in our control. So let me stop there and hand over to you all for questions. So I'll now hand back to the operator for questions from covering analysts. Over to you, Adam.

[Operator Instructions] We will take our first question from Matt Yates from Bank of America.

A couple of questions, please. You mentioned the uncertainty around the Middle East. I'm wondering if you could share any order of magnitude decline you've seen in the 7 weeks or so since the conflict has been going. I appreciate you said it wasn't really relevant for Q1, but just as we think about Q2, what the sort of the most recent data points would point towards? And then secondly, just around your sort of pricing commentary and your strategy. If I think about the last cycle we went through coming out of COVID, you pushed pricing pretty hard. And arguably, it led to some issues in terms of competitiveness and negative impact on utilization rates. Does that in any way make you cautious about how you're going to market to pass through whatever order of magnitude inflation this cycle may require?

Yes. Thanks, Matthew. I'll do the pricing and then Stephen can talk about the order book. Look, I mean, we've got pricing power and we'll demonstrate it, and we always do. I think I'd say that first. We have an agile pricing model, and we can move with speed as well. So that's the second point. But our customer relationships are a priority, and we're being responsible in taking a balanced approach. So we're taking them through that with us. And we're increasing prices to fully recover the input cost inflation. So all of that, I mean, all cost inflation will be recovered. And we're taking a bottom-up approach. So there's not one blanket increase. And through our transformation program, we're segmenting customers. So we are putting prices up, and we will demonstrate the pricing power, but we'll use that on a case-by-case, one-to-one customer basis. There's no lag in our pricing. So our prices have gone up and are going up and continue to go up. So the weight of the price increases started in April in Asia, as you'd expect, and in some of our products in Europe as well. And again, we'll go in May again with price increases if we need to. But obviously, we're monitoring the situation with all of our customers. And we've got an organization that is very clued to moving quickly but consuming our customers as well.

Matthew, it's Stephen. And just on your question on order book. So just to remind you, so virtually no impact on the first quarter. The direct exposure to the Middle East, as you can see, is obviously small. So we did actually see growth in Middle East sales, but it was pretty subdued. Order book is good. Going into Q2, there is absolutely no weakness whatsoever. So we are encouraged as we sit here heading into the second quarter.

Our next question comes from Charles Eden from UBS.

Two questions from me also, please. Firstly, just sort of a follow-up on the pricing, and I appreciate it is very fluid and prices moving around almost daily. But are you able to give us any indication of roughly what the pricing magnitudes are that you're looking to pass through in Asia and Europe at this stage? I'm not expecting exact numbers, but any sort of rough indication? And then my second question is just on crop. Obviously, a very tough Q1 comp from last year, but with the 8% constant currency decline in Q1, was that in line with your expectations? And maybe what are you hearing from customers in terms of the impact of fertilizer prices? What does that mean for Croda? Do you get a bit of substitution? What's the outlook for crop, I guess, for the remaining 3 quarters of this year?

Yes. I mean let's do crop first, and then we'll come back to your pricing point. Look, we think it's -- I call it rebalancing of stock. They've had 2 years of -- they've had 4 years, actually 2 years of boom and 2 years of reset. And the stock levels are broadly where they should be. I think that's the point. So the rebalancing point is they're just fine-tuning stocking. And the comparator was tough because we were still building -- they were still building stock last year. I think when you get behind that, the demand is okay. We think the demand is fine in crop. We don't think there's any weakness there. I think your point on fertilizers, it has an impact to the farming economics. But actually, on the other side of that, you've got crop prices, commodity prices, food prices going up, not massively, but going up 10%, 15%. So there's a benefit. That's partly offset that. We don't expect any demand change through that. The fertilizer chain is not -- doesn't really impact Croda in the same way. So our expectation of the year for crop is broadly where we saw it at the start of the year. So we'll stop there. And then we'll go on to your pricing.

Charles, I'll pick it up. And just on crop, it is exactly as we expected and exactly as we had signaled to investors, and it's consistent with what the Tier 1 players are saying themselves. So no surprises there. On the magnitude of increases, to be honest, I don't want to give that. I think it would be misleading because it is affecting different products in different ways in different regions. But just to remind you, when I think or you should think about raw material imports, the majority of the business is bio-based. That's about 55% by value. The rest is petro. But where we're seeing the most significant price changes is in EO, ethylene oxide, and PO. But that represents only around 10% of our raw material cost base.

Our next question comes from Katie Richards from Barclays.

Just two questions from me, please. One, could you just give us some more color on the Pharma division, please? Because I believe it ended '25 at quite a strong exit rate. So I just would like to understand the reason for the decline at constant currency this quarter. And secondly, could you just give us some more color on the bridge to the full year results? Because if I annualize the sales this morning, I'm getting to sales for the year of about GBP 1.63 billion. So that would still be quite about 7% below consensus forecast as we stand. So can you talk us through the earnings cadence through the year, please?

Yes. I mean on Pharma, Pharma -- if you break Pharma down, Pharma -- let's do that first. Pharma Solutions, it's where we expected it to be at the start of the year. It's a lumpy business. We've said that a few times. All it needs is 1 or 2 orders to go into one quarter or the other and you get a big up or slightly negative. So it's fine, and it's a tough comp. So you don't need to read anything in for Pharma Solutions. We're happy where it is. I think Pharma Ingredients, too, it's good in all regions, Pharma Ingredients, except it's good, except Europe. And actually, underneath all of that for Pharma Ingredients, the high-purity excipient business, which is the big growth business there is doing very well. But it started weekly and it's better in March with encouraging signs going forward. So we'd expect the business to improve from here or both businesses to improve from here through the next 2 or 3 quarters.

And then, Katie, just on sales. So obviously, Q1 in line with our expectations. I think probably currency is your delta. So at constant currency, Q1 sales were GBP 446 million. And we've talked previously about our budget being pretty consistent quarter-by-quarter. And if you think about the shape of 2025, the comps get easier as we go through the year. And the sales -- and we said before, sales will be broadly flat half 1 versus half 2. So no change on full year sales expectations.

We'll take our next question from Nicola Tang from BNP Paribas.

First, just going back on the order book, you talked -- you mentioned no weakness whatsoever. I was wondering if perhaps there have been some prebuying or some sense of like customers increasing safety stocks or buying ahead of anticipation of higher prices? And then the second question, I appreciate you don't disclose profits at the Q1 stage, but I was wondering if you could give any comments on profitability and an update on the cost efficiency program that you have going on.

Thanks, Nicola. So just going back to order book, yes, so I said the order book is good. In response to Matthew's question, there's no weakness. It is good. It is slightly higher than I would have expected. So I read into that, that there probably is an element of pre-buy customers wanting to get ahead of increases and obviously secure inventory. We're monitoring that very closely. It's not kind of out of control at all, but it does give us confidence going into Q2, but that didn't affect Q1 sales importantly. And then just you talked about profit and transformation. Likewise, as we think about profit for Q1, we don't disclose, but exactly as expected, which is great to see. The transformation is on track. We're not changing the targets, but we're obviously confident in what we can deliver.

Our next questions come from Sebastian Bray from Berenberg.

I had one on the Beauty Care development. So I appreciate that the comparative number from last year is distorted because of pre-buying, but the minus 4% constant currency growth, is that was what was expected at the start of the year? Or has something changed here? I'm trying to distinguish between if this was a deliberate choice to begin demarketing old products again or if demand was just not as good as had been hoped for. My second question is on cash flow. Are there any indications how this performed in the first quarter? And if I may squeeze in another one. Are there any outages at any of Croda's key competitors in Personal Care or Life Sciences at the moment related to feedstock shortages? Or is that not visible?

Yes. I mean let's take them as in turn. So there's a question on Beauty Care then cash for Stephen and then outages for LS and Consumer Care. We'll do that one. There isn't. We don't see much on any change in Life Sciences and Consumer Care on the competitive base. I mean Beauty Care -- I mean, look, Beauty Care, it's U.S.A. only is the weakness. It's on strong comps. We had a weather impact for the first 6 weeks, which was more minus 29 degrees at our site, our East Coast site, which -- so we started the year softly but strengthening through the quarter. And I think that's important. So Beauty Care is starting to come back. I think the other thing to make the point on is in the lower income end of North America, it's been under pressure, soft. But actually, the premium end has been pretty strong. So you see some very strong growth in Actives, and that's consistent around the world. So I think Beauty Care started weekly, strengthening in March. Order book looks good for quarter 2, and it's coming into some weak comps as well. So we feel Beauty Care is in a good position. It's a quarter 1 impact, which is primarily based on those 3 points.

Sebastian, just I'll pick up your cash. Just on Beauty Care for U.S., you should think that we were lapping particularly a very strong quarter 2025 in addition to the weather and actually also a very strong Q4 '25. So you've got to frame that first quarter within those 2 points. Cash, obviously, we're just giving sales update for Q1. As with profit, cash is exactly on track. You'll remember at year-end, we've put out a working capital saving target of GBP 50 million. It's good to see some fruit on that coming through.

We're now taking our next question from Adam Chubarov from Rothschild & Co Redburn.

I would like to ask about capacity utilization rates at your shared manufacturing site. So if I think about the main moving parts, so Beauty Care was down and Crop Protection was down and so was Industrial Specialties. So can we conclude that utilization rates have decreased? Or is it a bit more complex than that? And linked to that, how was the price/mix volume into play in the quarter, please?

Yes, I'll pick it up. So just the way you should think about this is, as we talked about the progress through last year. So we exited 2025 at around 93% of our 2019 volumes. We talked about the volume growth slowing. That has continued into the first quarter. But obviously, we're talking about absolute sales growth of 1%. So it's pretty small, but it's positive. And just in the same way, that trend on price/mix, so coming down as we went through 2025 to being quite small in the fourth quarter, that trend continues into quarter 1 this year, and I would expect that to continue looking forward.

Our next question is from Lisa de Neve from MS.

Lisa de Neve from Morgan Stanley. Two questions, if I may. The first question. So as you're now sort of pushing through these higher prices to offset inflation, how should we think about the volume cadence as we move through the year? Is there sort of anything to call out across the portfolio? That's one. And two, a small follow-up on the earlier question on Pharma. So should we read it as you expect Pharma to step higher through the year beyond the comparables effect? And also, can you tell me if there's any change or any pickup in your pipeline for Pharma?

Yes. Thanks. I mean on the -- let me do the volume pricing, I mean, we don't expect -- we expect volume growth to continue through the year. We're not expecting volume reduction. And actually, the priority for customers right now and into quarter 2 is delivery, is consistency and continuity of supply. And there's an acceptance that inflation will go through the value chains that we're in. And we -- so that's good. So no impact to volume is the sort of message there. I think on Pharma, Pharma was a tough comp. So we're not seeing any trend changes from quarter 4 to quarter 1. There's nothing in there. So we'd expect that Pharma to continue through the normal trend. And then as you come into some easier comps, then obviously, that will help. Lots of good stuff in Pharma, both in Pharma Ingredients on flagship, which were driving increased growth. I think the high-purity excipient business in there is very important business. That's growing at double digits. So we've got some really good strength right across the group in liquid injectables and Pharma Solutions is where we expected it to be, and there's no change to our outlook there. In terms of -- did you have another question, Lisa, that was it.

Our next question is from Chetan Udeshi from JPMorgan.

The first question was just maybe a bit technical. I was just wondering because you haven't been reporting your quarterly sales for that long. I'm just curious, what would you say is your normal seasonality these days in Q2 versus Q1? I mean most other companies in the sector would typically see second quarter absolute sales higher than Q1 just because of the higher working days, also season of the year. I mean can you just remind us how does the Q2 seasonality for Croda looks these days with different portfolios? The second, I'm a bit curious, what would you attribute -- like what would you think are the reasons why you haven't seen an impact in demand in your F&F business in Middle East? You would have thought with less tourists, maybe people going out less. There should have been a reduction in demand. So would you think this is mainly pre-buying? And just in Iberchem, my impression was you are sourcing all of your raw materials from others in terms of the aroma chemicals and ingredients. So I was curious, you did not mention Iberchem as the place where you were seeing raw mat inflation. So maybe you can help there as well.

Yes. Okay. Do you want to do the sales split?

Phasing it.

Phasing.

So we're expecting, as I said earlier, a 50-50 sales split this year. That's pretty consistent, I think, to previous years, plus or minus a tiny bit. So that is typical. As I think about profit, that is more second half weighted. And that's mainly, as you think about this year, think about the benefits of transformation accumulating. Obviously, that just affects the second half has a better contribution than the first half as the program develops.

Yes. And on F&F, I mean, we've seen the continued growth -- it continued to grow strongly in quarter 1, 10% organic sales growth. It is below expectations in the Middle East, to be fair, but that's been fully offset by the strength in other regions. So Western Europe really well ahead and also Africa, very well ahead. And Flavours and Fragrances, both very healthy. And the team have navigated many crisis successfully over the last 15 years. So speed and responsiveness of that business model is helping maintain service levels. I think on the raw material position, yes, we're expecting raw materials to go up. And we'll deal with that in the same way we're dealing with pricing elsewhere, but it's not a material impact in the books as yet. But we will have a plan for that.

[Operator Instructions] We'll take our next question from Georgina Fraser from Goldman Sachs.

A couple of questions. I want to revisit the questions around feedstock shortages. Now you mentioned that you haven't seen any of this yet, but they're burning palm oil as fuel in Indonesia. So how are you thinking about that risk for the balance of the year kind of managing on your own raw material side? And then a follow-up question, how would you be thinking about the risks that your local and regional customers face shortages? I would think these smaller customers would be most vulnerable to physical shortages. And then last question, are there any opportunities to ramp up Atlas Point given the tightness in the ethylene oxide value chain?

Yes. I mean good question -- all good questions. I mean, look, I mean, our job is to look around corners in crisis like this, particularly on feedstocks and things. I mean we're not seeing anything yet, and we're monitoring that. I think your point on palm oil, we're such a tiny consumer of palm oil in the value chain. Yes, we're seeing some of those things, but our demand is so small that we feel we would be comfortable with that. We don't buy palm oil. We buy derivatives of palm oil. So that's that. I think local and regional customers, it plays -- in many ways, it plays to our strengths, which is making sure -- I think the important point for Croda is to -- we've got a nice balance to our manufacturing portfolio and our distribution model allows us to put stock locally. So the important thing is to make sure we put the stock in the right places, and we're doing that. And then on ECO -- the economics -- the ECO Atlas Point platform, economics are more attractive on a relative basis. I think that's for sure. So there's some tactical opportunities that we'll look to take in the short term. But most likely, the approach would be to sell end ingredients from Atlas Point outside North America, depend upon available capacity at the downstream plant. So -- and a lot will depend on the longevity of the raw material inflation. So more opportunities would come if petrochemical prices stay high for long.

Our next question comes from Ranulf Orr from Citi.

Just a quick follow-up actually on one of the very first questions around your pricing power and how you see the pricing dynamics evolving. I mean, I think, it would just be interesting to hear you just compare and contrast maybe a little bit back to 2022, 2023 when I think you have acknowledged perhaps pricing was pushed a little bit too hard. How are you thinking about it differently today? Are you sort of benchmarking versus peers? And how are you ensuring that some of those share losses don't come back through this time around?

Yes. I think -- yes, I mean, we're doing much the same. The one change is rather -- it's around customer relationships, and it's all bottom up. So we're looking at products to customer on a targeted basis to make sure that we don't see any volume shocks, and we actually pass all full costs on. So that's being done in a sophisticated way. But there's no real change to the point that we've got pricing power and we'll demonstrate it. We just -- we're doing that with a customer segmentation lens on it.

It appears there are no further questions. I'd now like to turn the conference back to Mr. Steve Foots for any additional or closing remarks. Please go ahead.

Thanks, everybody, for getting up early for us. Quarter 1 sales in line with expectations, and we're not seeing any material impact from the conflict in the quarter 1 numbers from the Middle East. And we recognize the level -- the elevated uncertainty the conflict has caused, but full year '26 outlook is unchanged, and we're confident of delivering our 3-year framework. It's all about innovation-led growth in Croda, and it's about the transformation, which is on track. So thanks very much and we'll see you in July.

This concludes today's call. Thank you for your participation. You may now disconnect.