Croda International Plc (CRDA) Earnings Call Transcript & Summary

Welcome to the Croda Q3 2026 Sales Update Conference Call. My name is Alan and I will be a cardiac for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Steve Foots, CEO, to begin today's conference. Thank you.

Good morning, everyone, and thanks for joining. I'm here with Stephen and David and a few highlights from me on today's trading update, and then we'll take your questions. So overall, quality sales were up 6.6% on an organic basis keeping us firmly on track to deliver both our full year '26 outlook and our financial in book for full year '26. Growth was led by Consumer Care with beauty exceptionally strong alongside good growth in pharma and seed. -- breaking this performance down across each of our businesses. sales were up 11% organically in Consumer Care with volume, price and mix all positive, supported by our increase in mention and activity. active had another exceptional quarter, up 19%. And with care also of 13%. If we respect the concentration customer product launches continuing from 1 ongoing strength in premium categories, stronger demand for innovation and increased growth in affordable categories. Home Care was also strong, up 10% and that grew 4% against a strong prior year comparator. And despite ongoing Middle East related disruption, and some temporary interruptions in China as we completed the transfer of production to our new facility. The Life Sciences were up 2% organically, and absolute sales improved again sequentially grew 5% with continued growth in farming regions as we scale innovation in advanced excipients and Pharma Solutions improved sequentially with more favorable phasing and project-driven revenues is together with 12% growth in seed enhancement more than offset continued weaker demand in for protection. The sales were down 9% against a very strong quarter last year. with farm incomes continuing to be under pressure. Industrial Specialties were down 1% organically, with growth in cost sales, offset by the anticipated reduction in the supply agreement sales. So on a regional basis, growth was strongest in Asia, where every business unit delivered organic sales growth Beauty active sales were particularly strong in North America as well as Asia, and crop protection was the main drag on performance, particularly in the Americas. So another quarter of innovation-led growth, we're seeing clear evidence that the actions we're taking are working. We're successfully refocusing our relation, we're leveraging customer proximity reinvigorating beauty, we're rebalancing pharma, and we're maximizing the returns from recent investments. Customer spending on innovation has increased as well. That's coming through in our pipeline and in our projects with customers. So finally, our improving financial performance is being supported by our transformation program which is enhancing both growth and efficiency. We delivered GBP 46 million of cumulative savings to the end of June, and we remain on track to deliver GBP 100 million of annualized benefits and a GBP 50 million reduction in working capital for full year '28. We expect further incremental savings in the second half and in '27, so particularly as we optimize our supply chain. Our outlook for full year '26 remains unchanged despite the ongoing geopolitical and macroeconomic uncertainty. We expect the demand trends that we've seen in quarter 3 to continue in quarter 4 and as usual, absolute sales are expected to be seasonally lower in quarter 4 than in quarter 3 and as some customers manage their working capital into the year-end, in line with previous years. So full year continue to expect organic sales growth within our 3% to 6% range and a further increase in group adjusted operating margin our expectations for full year adjusted operating profit remain unchanged, and we remain on track to deliver our financial framework for 2028. Let me stop there, and let me pass back to the operator to take your questions. Over to you.

[Operator Instructions] We will take our next question from Lisa De Neve.

I'll start with 2. You look at a very strong third quarter. Can you share what you're seeing in terms of the order book going forward? And also, can you contextualize a little bit the problems you made around the fourth quarter in terms of the customer and net working capital adjustments that could take place? Are you making a reference history? Or are you seeing anything of that in the market? That's my first question. And then secondly, could you please give us some sort of update or reiteration of your capital allocation policy and your view on considering some special return potentially over the next 12 months?

Okay. Well, let's start with exit rates of quarter 3 and quarter 4 sales, and then we'll go comfort capital allocation with Stephen. I mean, just a few points. Exit rates in quarter 3 are consistent with the entry rates in quarter 3, and we're seeing similar trends in October. We would say that customer inventories are broadly similar to the beginning of the year. And as we know, some customers manage their working back into the year-end, in line with previous years. But we're not seeing anything from previous years. I think looking at quarter 4 sales, we would say expected amount trends in the business to continue. It's positive particularly premium and demand for innovation. It's more stable in the pharma is challenging agriculture farming comes under pressure. So the we expect the trends that we're seeing to continue as is as the statement on capital publication.

Just on capital, I mean, we've obviously set out very clearly our capital allocation policy that we can review regularly with the Board. I mean this is obviously the sales update. So we'll update you on allocation when we get to the full year. I think a few points. We remain committed to maintain the dividend, obviously. And we know that the current dividend payout is above our policy of 40% to 50%, but maintain that. We obviously want to maintain balance sheet strength, leverage is only around 1.2, 1.3x. And we've said consistently that we will not delever below 1x. So let's see where we get to the year-end, and we'll update you in February.

We will take our next question from Katie Richards, Barclays.

Two questions from me, please. Firstly, could you just give us some more information on the decline in crop. Was there a particular region that was responsible for this decline? And should we interpret this as a 1 quarter event or something that might continue into next year? And secondly, if you could give us any color on the volumes and the price mix effects, particularly in Consumer Care for this quarter, if you can give any respective that would be useful, please.

Okay. Well, let's start with crop and I'll pass to Stephen for the volume price mix. Look, I mean the way you should look at crop is the performance reflects a strong quarter 3 '25. It was up 19% in that period. And crop minus 9% continues to be impacted all of that is by weak farm economics. So we expect the crop performance to be down year-on-year following that strong '25. And overall, '25 versus '24 was up 14%. So at commodity prices, they have inflected recently, and that's continued through the year. So we should -- that should provide some support for pharma economics in '27, but likely to see that in quarter 4. So in terms of the regions, mainly the Americas, which is particularly negative Latin America, through Brazil and North America. And you can probably see that aligned to many of our customers that are out there at the moment. So yes, it reflects that. Over to Steve just on volumes.

Just on volumes, Consumer Care was very healthy. with volume increases, which was great. And in fact, price and mix also was very positive. Life Sciences volumes were understandably lower, and that was driven by crop. So where that leaves us overall on a group basis is that volumes again were positive except for crop. So I think no surprises there.

[Operator Instructions] We will take our next question from Chetan Udeshi, JPMorgan.

First question, on the strong beauty growth, Steve, maybe you can help us understand how much of this is rising tide lifting all boats versus what Croda is delivering in terms of innovation, like it's sometimes hard for us to fully separate out the 2, given it seems like some sort of a broad-based improvement in the beauty trajectory for you but also some of your peers? The second question I had was, I'm a bit puzzled by your fragrance number of plus 4% because we've seen much numbers from other fragrance companies. I know you have relatively high exposure to Middle East as a region in that business, but it feels like for others, Middle East has ceased to be a material headwind in Q3. So what is holding back growth in fragrances?

Yes, sure. Well, let's take them in turn. I mean, beauty, we're just saying you're seeing some performance on duty actives and beauty care. And in actives, we've got this 19% sales growth, which is exceptional and it's aided by some concentration of customer product launches that's continued from quarter 2 into quarter 3. But demand is being driven largely by this ongoing strength in moving to premium. We benefit from the move to premium. It's increasing innovation from us through our framework and also through our customers. Our customers are innovating more. And then led by the multinationals, developing the brand. But it's also -- it's a high level of growth coming from local and regional. And we like formulation churn. When multinationals develop their brands, they're changing their formulation, which helps Croda. So we're very pleased with that. The actions we're taking to grow market share in more affordable categories are having a benefit as well. And I think when you look at active its fifth consecutive quarter of double-digit organic sales growth. But clearly, we've got tougher comparisons into next year. So we're not expecting anybody to pencil in 19% for every quarter. But overall, the innovation mojo in Croda is well back in beauty, and that will continue. In F&F, yes, I mean, look, it's 1 quarter we've had -- I mean, 3 years of outstanding performance. on comparative, 13% in quarter 3 '25. Full year-to-date is up 7%. The 2 areas that were impacted in quarter 3, which are temporary, it's adversely impacted by Middle East related disruption in a small part of the business and some temporary interruptions to China sales as production was transferred to a new facility. But we expect a stronger quarter 4 with the new China facility fully online. So we're very happy with the performance in [indiscernible].

Can I maybe follow up -- it seems your top line is sort of trending pretty well in terms of organic growth, but yet you're not raising your EBIT forecast. I'm curious what is holding back? Or was the forecast or guidance on EBIT already incorporating this trend on top line?

Yes, Chetan, I'll pick that up. So look, look, we're obviously pleased with the trends and progress in the year and the quarter. And we've been very clear that we expect those demand trends continue into Q4. But look, there's a number of puts and takes across the business isn't there, very, very happy with beauty. But the crop environment is tough and it remains a hindwind. And I think that the macro is the geopolitical situation kind of remains. So look, overall, we're confident with the guidance, and we obviously look forward to updating you further when we get to year-end.

We will take our next question from Sebastian Bray, Berenberg.

Can I probe a little on the Pharma and core protection growth in for protection were both prices and volumes down? I ask this because to Chetan's comment about not necessarily about, let's say, good mix in the rest of the business and no guidance raise on the margin side. it could make a bit of a difference if Croda ended up cutting prices in addition to volumes. And on pharmaceuticals is the -- the way the press release phrases, the improvement in the vaccine and lipids business is very much in the mature of well, phasing was good in Q3, and we see what happens. Are there any signs that the underlying growth rate is starting to pick up either in the core excipients business or in the vaccine adjuvants business?

Okay. Well, let's start with Pharma, and I'll pass to Steven on crop mix. Yes. I mean, look, I mean, the way to look at farms we're seeing continued good growth in pharma, driven largely by farmer ingredients. And with project flagship, which we have is our sort of our overall main project to deliver innovation in that area. That's working well. So for the core ingredients, you're seeing growth coming through. Scale particularly by the advanced excipient advanced excipient growth coming through well. Pharma Solutions showed a sequential improvement versus quarter 2, 26 and with more to come in quarter 4. So there's more favorable phasing of the project-driven revenue starting to come through. So pharma becoming more stable than it was and innovation-led, particularly in -- well, in both businesses.

Yes. I'll pick up crop. Just a reminder, we're lapping as Steve said, 90% growth. So that's what we're comparing against. Just in terms of volumes and price, price is actually up in crop. It's the volume that we're signing seeing and the sector is seeing. So yes, that's where we've ended up.

We will take our next question from [indiscernible] also UBS.