Croda International H1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
July 28, 2026

Key Takeaways

  • Positive Sentiment: First-half results were ahead of the prior year and in line with expectations: constant-currency sales rose 5% to £881 million, adjusted operating profit increased 7% to £156 million, and EPS grew 9% to £0.78. Operating margin expanded to 17.7%, while leverage remained conservative at 1.4x EBITDA.
  • Positive Sentiment: Consumer Care led the acceleration, with sales up 8% and Beauty Actives up 27%, supported by customer innovation, product launches, and strong demand for premium offerings. Pharma Ingredients also grew 7%, while Asia delivered 10% growth.
  • Positive Sentiment: The transformation program generated £18 million of savings in the first half, taking cumulative benefits to £46 million, with further margin improvement expected in the second half. Portfolio simplification, lower headcount, procurement savings, digitalization, and increased use of the CrodaON platform remain key efficiency initiatives.
  • Positive Sentiment: Management reiterated its full-year 2026 outlook for 3%–6% organic sales growth and further adjusted operating-margin expansion, citing the strong second-quarter exit rate and expected improvement in Life Sciences, including Pharma Solutions and Crop Protection.
  • Negative Sentiment: Performance remained uneven across the portfolio: Pharma Solutions was below expectations because of project phasing, Crop Protection was pressured by higher farm-input costs, and Fragrances & Flavours faced Middle East-related disruption. Management expects Pharma Solutions revenue to improve in the second half, but acknowledged the business is project-based and inherently lumpy.
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Earnings Conference Call
Croda International H1 2026
00:00 / 00:00

Transcript Sections

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Steve Foots
Group Chief Executive at Croda

Good morning, everyone. Many thanks for joining the call. I'm here with Stephen and David, and once we've run through the formal presentation, we will be very happy to take your questions. The usual agenda today, I will start with some overarching comments on performance, Stephen will go through the numbers in detail, and I will then come back to show how we are executing our plan to grow earnings and returns. It's very much over to you for Q&A. Making a start and coming first to performance. The headline message is that the business has done what we expected it to do with results very much in line with our expectations for the first half. Our growth is classic Croda: profits growing ahead of sales, and sales growing ahead of volume. Exactly what we want to see for an innovation-led business.

Steve Foots
Group Chief Executive at Croda

We are driving our transformation program at pace, that is delivering results today, as well as building an even stronger business for tomorrow. Growth increased in the second quarter, driven by Consumer Care and led by a standout performance in Beauty Actives. We've said for several quarters now that demand for innovation, particularly amongst the large multinationals, has been steadily increasing, and we have strengthened our portfolio and repositioned our approach to R&D to anticipate and take full advantage of that trend. We're now starting to see the benefits with NPP growing faster than total sales in the first half. Alongside this improved performance, we've continued to deliver on our transformation plan to enhance growth and efficiency across all areas of the business.

Steve Foots
Group Chief Executive at Croda

Croda is becoming a stronger business, not just to deliver in the short term, but to drive long-term, sustainable, and consistent growth for many years to come. This progress underpins our conviction for the full year with our outlook unchanged. Just as importantly, we're on track to deliver on our financial framework through to 2028. Building on that point, the initiatives that we are talking about, both to drive growth and transform the business, are delivering an improved performance, meeting our ambition to grow earnings and enhance returns. Our program is focused on a clear set of objectives set out across this slide, which we presented in detail back in February. We're driving stronger returns from prior year investments while sharpening Croda by optimizing and simplifying our structure, as well as transforming the way we do things. Critically, much of this is within our control.

Steve Foots
Group Chief Executive at Croda

We're not relying on a big recovery in our end markets. I'm very pleased with how the whole business has responded, our people are driving this change, and we're now starting to see that in our performance. This overall momentum means that we are firmly on track to deliver on our three-year plan and the targets set out on this slide. As you can see along the bottom, we are making progress in all areas, and we expect that to continue underpinned by strong market positions across Consumer Care, Pharma, and Crop. Plenty to be encouraged about, also much more to do, which I'll come onto in a moment. First, let me hand over to Stephen for a detailed run-through of the numbers. Stephen?

Stephen Oxley
Chief Financial Officer at Croda

Thank you, Steve, and good morning, everyone. I'm going to start with the financial headlines. It's great to report a good performance overall, in line with expectations despite ongoing geopolitical and economic uncertainty. In constant currency, sales were up 5% at GBP 881 million, with 7% growth in New and Protected Products. Adjusted Operating Profit was up 7% at GBP 156 million, and EPS grew 9% to GBP 0.78. Free cash flow was GBP 38 million, up from GBP 28 million last year, and we have today announced an interim dividend of GBP 0.48. Net debt was GBP 578 million, and leverage remains conservative at 1.4 times EBITDA. Turning to sales, where again, my comparisons are in constant currency. Sales growth of 5% was driven by an increase of 8% in Consumer Care and 7% in Pharma Ingredients.

Stephen Oxley
Chief Financial Officer at Croda

Volumes increased 1% with an improvement in every business unit in Consumer Care as well as Pharma Ingredients. Price mix was up 4%, supported by increased customer demand for innovation, in particular in Beauty Actives. Looking at sales by region, EMEA was up 3% on a strong prior year. Asia performed well with growth of 10%. North America was down 1% due to phasing in Pharma Solutions and a strong prior year in Crop Protection, while Latin America increased 11%. Looking at sales by quarter, back in February, we guided to first quarter sales being broadly flat against a strong comparator, and as expected, we delivered growth of 1%. In the second quarter, growth accelerated to 9% against a softer comparator. Within Consumer Care, Beauty Actives grew 27% as it benefited from customer innovation and product launches.

Stephen Oxley
Chief Financial Officer at Croda

Most business units in Consumer Care and Life Sciences contributed to a sequential improvement in the second quarter with three exceptions. First, Fragrances and Flavours experienced some disruption related to the conflict with Iran. Second, Crop Protection sales were down as farm incomes were impacted by higher input costs. Third, Pharma Solutions was below expectations. Here, our order book means that we expect project revenues to improve in the second half. The overall impact of the conflict in the Middle East was limited as we increased prices to recover input cost inflation and as some customers bought early to avoid disruption. This was broadly offset by lower F&F sales in the region. Turning now to margin, which increased from 17.2%-17.7%. 50 basis points of expansion was driven by growth with higher volumes, positive price, and mix all contributing to the improvement.

Stephen Oxley
Chief Financial Officer at Croda

Transformation delivered additional cost savings of GBP 18 million, which equates to almost two percentage points of margin expansion, in line with expectations, bringing cumulative benefits to GBP 46 million. OPEX inflation includes an increase in the charge for variable remuneration. The last of our major investments mainly relates to new sites in China and India. We expect operating margins to increase sequentially in the second half, driven by growth and further transformation benefits. The first half exit rate gives us confidence in delivering the full year margin expansion. Turning now to cash. Free cash flow strengthened from GBP 28 million-GBP 38 million. Looking at the component parts, EBITDA increased to GBP 208 million. A working capital outflow of GBP 68 million is broadly similar to the first half last year.

Stephen Oxley
Chief Financial Officer at Croda

Our working capital improvement program is designed to deliver structural savings of around £50 million by 2028, which we expect to offset the typical annual working capital outflow to fund growth of £20 million-£30 million. CapEx reduced to £43 million following a period of heightened investment. There was a net cash outflow of £50 million after paying last year's final dividend. A net debt of £578 million is broadly in line with last year, with slightly lower leverage. Finally, I want to reiterate our full year guidance. We've provided our usual foreign exchange sensitivities in the materials to help you with currency translation. Despite ongoing geopolitical and economic uncertainty, there is no change to our outlook for 2026. At a group level, we continue to expect organic sales growth of 3%-6% and a further increase in adjusted operating margin.

Stephen Oxley
Chief Financial Officer at Croda

Our expectations for adjusted operating profit also remain unchanged. With that, I'll hand back to Steve.

Steve Foots
Group Chief Executive at Croda

Great. Many thanks, Stephen. I want to spend the next 10 minutes or so talking about the execution of the three-year plan we set out back in February in a bit more detail. It's all about driving consistent growth across our markets. The priority areas to achieve that are set out in this box. We've successfully refocused our approach to innovation by reallocating R&D resources and implementing a framework that ensures greater emphasis on the balance of three things: customer co-creation, creating new markets for existing ingredients, and accelerating the development of new ingredients, which is where the majority of our focus has been historically. We've also significantly improved the way we do things with customers, prioritizing our resources to deliver more tailored service packages for different segments, encompassing global brands, regional giants, and local customers.

Steve Foots
Group Chief Executive at Croda

We're maximizing returns from acquisitions that we've made in recent years and the CapEx we've invested to expand manufacturing in Asia. Two final sites opened during the half, a multipurpose site in Dahej, India, and a combined Fragrances and Beauty Actives facility in Guangzhou in China. This deliberately gets us closer to customers in our fastest growth region. Closely aligned to these priorities, we're successfully reinvigorating beauty and making strong progress to rebalance pharma, which I'll come onto next. Starting with beauty, the increased demand for customer innovation is being led by global brands responding to intense competition from smaller challenger brands, which have been innovating at a faster rate over the last few years. Recent comments from L'Oréal's CEO are testament to this.

Steve Foots
Group Chief Executive at Croda

Although low income households continue to be under financial pressure, particularly in the U.S., premium categories are doing especially well, driven by higher income consumers. On the bottom left of this slide, two good examples of how we have been refocusing innovation to start capturing this increased demand. First, we are scaling up and commercializing our biotech pipeline. We recently commissioned a new group-wide biotechnology center in the U.K. with specialist expertise in biocatalysis and synthetic biology. Hair care has been a particular focus area in Beauty Care as we start commercializing our capabilities in recombinant proteins and as the hair care category growth accelerates. We've begun capturing this growth with the launch of Curabio, a bond builder for hair that has already secured orders with prestige brands and professional salon specialists.

Steve Foots
Group Chief Executive at Croda

Second, we're developing more tailor-made solutions for customers. We're now positioning Beauty Care as delivery systems for Actives, leveraging our formulation expertise to create solutions comprising multiple ingredients that deliver particular efficacy or sensory benefits. Moving to the right, the other big step change is what we're doing to internationalize Beauty Actives. We have transferred technology and extended claim substantiation capabilities to new sites in India, China, and Korea. Ceramides, which we acquired through Solus a few years ago, has seen particularly strong growth, up 44% during the first half as we globalize sales. We're also successfully expanding into more affordable beauty categories with higher penetration in masstige brands and our global beauty partners. This is a really attractive opportunity given the margin profile is similar to the margins that we make when we sell our ingredients for customers' premium brands.

Steve Foots
Group Chief Executive at Croda

Turning to the next slide, Volufiline is a fantastic example of an existing product development. Finding new applications for existing ingredients gets you to the market much quicker than developing a new ingredient. Volufiline is a skin-plumping ingredient extracted from a plant root traditionally used in Eastern medicine and previously applied to parts of the body other than the face. Supported by new data, we have repositioned it as a facial filler in a bottle and to address consumer concerns about facial hollowing, often associated with GLP-1 use. Deciem, one of our beauty customers and now part of Estée Lauder, has adopted Volufiline as its trade name for a product from The Ordinary brand, formulating our ingredient at up to 92% inclusion levels.

Steve Foots
Group Chief Executive at Croda

This trend for customers using the names of our beauty ingredients in their marketing is on the increase, with customer requests to use our trademarks increasing threefold over the last year. Volufiline is now a TikTok sensation. Videos have been viewed more than 200 million times on the U.S. TikTok shop from a standing start just over a year ago. It's selling fantastically well for our customers that, as well as Deciem, include Korean beauty brands such as Medicube, which has included it as the hero ingredient in its volume and wrinkle care sticks. Volufiline is a great illustration of how all types of innovation, not just launching new ingredients, can help deliver incremental sales growth, and it shows the early impact that our refocused strategy is having. Turning next to Pharma.

Steve Foots
Group Chief Executive at Croda

As you know, this part of our business is split into two areas which both draw on common capabilities but sell into market segments with different characteristics. The biggest part is Pharma Ingredients, which accounts for over 70% of sales and leverages our longstanding customer relationships and regional model. We saw good growth during the first half, up 7%, and expect this progress to continue through the rest of the year. Our major initiative to relaunch our core flagship ingredients for topical applications and in markets such as animal health is getting really good traction with more to come. Customer co-creation projects for topical applications have doubled in the last year, a number of which draw on our skincare expertise in beauty. Alongside this, we have scaled innovation for advanced ingredients, particularly for injectables and bioprocessing applications.

Steve Foots
Group Chief Executive at Croda

A good example of this is Virodex, our first ingredient range for bioprocessing, initially commercialized through joint projects with multiple multinational Pharma companies, and one of which has already led to a more significant order. Our Pharma Solutions business is a much smaller, specialized business, accounting for well under 30% of Pharma sales, which works closely with customers, principally on new drugs in development. It is more project driven with larger amounts of revenue attached to certain orders, and it's more lumpy by its nature. Whilst half one sales were affected by phasing, our order book means we expect project revenues to improve in half two. Here we are targeting new applications for lipids in generics and expanding our range of more than 2,000 lipids for drug research with new lipids that have the potential for oral delivery of complex therapeutics that normally require injection.

Steve Foots
Group Chief Executive at Croda

We're also partnering to accelerate sustainable adjuvant development. An interesting example is biotech-derived squalene adjuvants, as shark-derived alternatives face tighter trade controls. Finally, across Pharma, we're targeting originator and generics markets in Asia, an increasingly important region where we are well-placed. Coming next to transformation, where we have made good progress across all priority areas set out within this box. We have continued to simplify and optimize our product portfolio to sharpen our commercial focus. For example, we've introduced minimum order values and 18% of our customers now use CrodaON, our online portal for lower value orders, up from 10% at the beginning of the year. Furthermore, we are targeting a significant reduction in SKUs in 2026, with 30% of our global product portfolio optimized so far.

Steve Foots
Group Chief Executive at Croda

To enhance efficiency, we are optimizing procurement, production, and distribution, and we're generating savings from packaging, freight, and key raw materials. Payment terms are being successfully renegotiated. Headcount is lower across all regions, and we continue to rebalance our manufacturing footprint to higher growth countries. We've also made significant progress simplifying Croda by reducing central overheads, introducing shared service centers for finance, and making a greater use of outsourcing. Again, good progress in all areas, and this will support our margin progression over the next couple of years. Our transformation work streams are underpinned by actions to enhance our high-performance culture and to leverage AI, data, and digitalization to support decision making. Across the group, we're embedding AI and digitalization guided by a coordinated roadmap. We are already generating incremental revenue by incorporating AI.

Steve Foots
Group Chief Executive at Croda

A great example of this is in our Seed business, where we've used AI to optimize and control all steps of tomato Seed Enhancement, leveraging more than 20 years of historic data. This has resulted in a fivefold reduction in treatment times, enhancing efficiency, improving customer satisfaction, and generating additional revenue. Our focus going forward is on using AI to enhance our leadership position in innovation and combining it with our R&D data to speed up these innovation cycles. This combination of proprietary information and AI technology will significantly improve our competitive position over the next few years. As I said at the outset, growth plus transformation is helping to drive our improved performance, and we are very focused on delivering the targets set out in our three-year plan.

Steve Foots
Group Chief Executive at Croda

The work we're doing is not just driving a better performance today, it is strengthening our platform for longer-term, sustainable, and consistent growth for years to come. Bringing this all together, our performance in the first half was very much in line with our expectations. We like the shape of our results, with profits growing ahead of sales and sales ahead of volume. That's classic Croda, and it highlights the renewed strength of innovation in the business. The program we set out at the start of this year is delivering, and we are reinvigorating Beauty with a significant step up in Consumer Care led by Actives. We're also starting to see the benefits of rebalancing Pharma with good growth across our flagship ingredients portfolio. Our transformation plan is on track, enhancing our platform for growth and making us a faster, more efficient business.

Steve Foots
Group Chief Executive at Croda

Much of what we're doing is within our control, and that reinforces our confidence for the full year and keeps us firmly on track to meet our targets for 2028. There's lots more to do, but the progress is clear, and we will continue to drive that momentum in the second half and beyond. Let me stop there and take your questions. David, over to you.

David Bishop
Director of Investor Relations at Croda

Thanks, Steve. Welcome, everyone, to our H1 results call. For those of you on the webcast, please type your questions into the Q&A window and I'll ask them on your behalf. First, we'll take questions from our covering analysts over the telephone lines. George, over to you.

Operator

Thank you very much, David. Ladies and gentlemen, if you would like to ask an audio question, please press star one on your telephone keypad and just make sure that your line is not muted to allow you to reach our equipment. Our very first question this morning is coming from Lisa De Neve, calling from Morgan Stanley. Please go ahead. Your line is open.

Lisa De Neve
Lisa De Neve
Analyst at Morgan Stanley

Hi. Thank you for taking my questions. My first one is a little bit on the second half. You delivered quite a solid first half result. How do we expect the second half growth to evolve across Consumer Care, and outside of your highlighted step up in Pharma Solutions, how do you expect the other Life Sciences segments to trend, especially in the light of fairly comparable volume comparables year-on-year? That's my first question. And the second one is on the free cash flow outlook. The first half had a net working capital outflow, which is very understanding given your second quarter sales acceleration, but how should we think about free cash flow for the full year? Thank you.

Steve Foots
Group Chief Executive at Croda

Yeah. Thanks, Lisa. Morning to you as well. Let me do the first question. I will pass to Stephen for the second one. In terms of growth, we are very pleased with the majority of the growth coming through the business. I think as you look for the second half, we expect continued strong growth in Consumer Care. Life Sciences should improve, particularly with some modest improvement in Crop and also in Pharma Solutions. And obviously the transformation is building as well through the year that you can see in the pack. And also from a margin point of view, the exit margins in quarter two are giving us confidence of full-year delivery as well. So let me pass to Stephen on cash flow.

Stephen Oxley
Chief Financial Officer at Croda

Morning, Lisa. Thanks for the question. Just on free cash flow for the half, we were bang on where we expected. We are not really seeing yet the structural benefits of transformation of working capital. What you did see was the benefit of lower CapEx, and we had higher inventory and receivables with the benefits of growth. We also had a bit of build on inventory ahead of the new factory openings in Asia. So what you can expect to see as we progress is working capital relatively reducing in the second half. So we have talked about a 20-30 benefit, and then particularly as we get into 2027, 2028, the benefits of working capital transformation coming through.

Lisa De Neve
Lisa De Neve
Analyst at Morgan Stanley

Thank you very much.

Operator

Thank you. Our next question is from Katie Richards calling from Barclays. Please go ahead.

Katie Richards
Katie Richards
Analyst at Barclays

Hi, good morning. I've got a question on the organic sales growth developments in Consumer Care, please, in Q2. How much of this was pricing driven rather than the mix effect, I guess, from the Beauty Active side? I would just be interested as well to hear how you're thinking about the pricing strategy, particularly from the shared manufacturing assets. I'm sort of noting palm oil costs are higher year-on-year. They've not really come off. Ethylene sort of bouncing back slightly, but it's still below the levels we saw earlier in the year. I'm just struggling to balance these two effects. How should we expect pricing to develop in Q2? Are you seeking to retain any of the raw materials inflation within the margin? My second question is on your transformation program.

Katie Richards
Katie Richards
Analyst at Barclays

It was good to see a significant proportion of the margin growth coming from this program now. You did disclose that the rate that you're realizing the savings is continuing to build. What led to the decision to hold the target at GBP 100 million this morning?

Steve Foots
Group Chief Executive at Croda

Okay. Pass to Stephen on a bit on price mix and transformation then.

Stephen Oxley
Chief Financial Officer at Croda

Yeah, let me start on that, Katie. Q2 margin progression is predominantly mix, to be honest, the benefit in Consumer in Q2, the impact of price is relatively limited. That's really good. That's the quality of the business coming through, just as we expect. Steve, you want to pick up the pricing strategy point?

Steve Foots
Group Chief Executive at Croda

Yeah, just on pricing, look, we're pretty straightforward, as everybody knows. The price increases into quarter two were largely limited to petrochemicals. EO/PO represents about 10% of our basket, and the impact was mainly in Asia and to a degree in Europe. It wasn't widespread everywhere. That was targeted, and we put our prices up there. As we monitor the situation in the Middle East, we'll continue to review pricing as and when we need to.

Stephen Oxley
Chief Financial Officer at Croda

Then Katie, on transformation, look, it's still relatively early days. We're pleased with progress. You can see the benefit of that coming through in the first half. That will clearly continue into the second, along with growth will contribute to further margin expansion. Look, let's deliver what we've said we will do. We're not in a position to upgrade the GBP 100 million.

Operator

Katie, is that your question there, please?

Katie Richards
Katie Richards
Analyst at Barclays

Yeah. Thank you.

Operator

Thank you very much, Katie. Our next question is coming from Matthew Yates calling from Bank of America. Please go ahead.

Matthew Yates
Matthew Yates
Analyst at Bank of America

Hey, good morning, everyone. I'd like to focus on, I think it's slide 12 that has the margin waterfall. Maybe starting off with a group level question in essentially the cost savings zero out, given there's some underlying inflation there. Can you talk about as we go into the second half, why does the margin improve? I don't think from your guidance the rate of transformation accelerates. Is it rather that some of those inflationary or investment costs either moderate or annualize or something like that? Specifically, a similar exercise really on the consumer division, obviously top line strong. Arguably, I would say the drop through our margins was maybe a little bit disappointing, particularly given the good mix that you've been calling out.

Matthew Yates
Matthew Yates
Analyst at Bank of America

Is there anything we should really bear in mind that perhaps is holding that margin back still below 18%, be it the cost allocation, the remuneration et cetera? Thanks very much.

Steve Foots
Group Chief Executive at Croda

Yeah. Thanks, Matthew.

Stephen Oxley
Chief Financial Officer at Croda

Yeah. Morning, Matt. Let me pick that up. Look, I think where we got to a margin, it was exactly where we expected it to be, and it's the exit rate that really gives us confidence into the second half. Why does that improve? It's really two reasons. One is the improved business mix in the second half, and that's particularly driven by higher Life Sciences sales. As you said, we then get the further transformation benefits coming through. When you look at the slide, I think there's two important offsets for you to have in mind. One is the impact of the new plants coming online, and we've very much said that that's a one-off, and actually it's more first-half weighted because we get the benefits of the scale-up in those plants in the second half and certainly into 2027 and beyond.

Stephen Oxley
Chief Financial Officer at Croda

Secondly, the increase in variable remuneration. Again, you should see that as a one-off this year.

Stephen Oxley
Chief Financial Officer at Croda

That gives you then confidence in the progression after this year. Just on consumer did benefit first half margin, and obviously that very, very strong performance in Actives. We do have against that the two drags that I mentioned, very importantly, and then it's the benefit of Crop, the benefit of Pharma Solutions that really contribute to the second half. It's the exit rate that I'd really point to. Matthew?

Matthew Yates
Matthew Yates
Analyst at Bank of America

Okay, thanks very much.

Stephen Oxley
Chief Financial Officer at Croda

Okay, thank you.

Operator

Thank you very much, sir. Our next question will be coming from Sebastian Bray calling from Berenberg. Please go ahead.

Sebastian Bray
Sebastian Bray
Analyst at Berenberg

Hello, good morning. Thank you for taking my questions. I would have two, please. The first is on the relative growth in the U.S. compared to other regions. Is Croda winning back all of the share that it lost in the previous two or three years in the U.S.? I know Q2 was stronger. It looks like Asia is really taking up the slack. Can you give me an idea of where we are in terms of market share recapture, particularly in Consumer Care within the U.S. market? My second question is on long-term margins. Has anything changed about what you think is achievable for Life Sciences versus Consumer Care, and in particular, is Life Sciences a mid-20%s EBIT margin business longer term? Thank you.

Steve Foots
Group Chief Executive at Croda

Let me take those, Sebastian. On U.S., what we're seeing in Consumer is actually a classic, you would probably call it a K-shape. What we're seeing is very good growth in premium driven by our Actives business. We can see that. It's had a very strong performance consistently now for the last couple of quarters. It's still relatively tough in masstige market. Overall, we're pleased with the progress. We are winning some business back. Actually the main growth in America is coming from innovation in the Actives portfolio and our innovation framework doing what we want it to do, which is to get products to market quicker. That's existing products as well. We're pleased with that. In terms of Life Sciences, I think the way to look at Life Sciences, we have no change to the margin profile.

Steve Foots
Group Chief Executive at Croda

At the group level, you can see we've got 20% returns planned for the next two years, 28. It's linear. You should see that as a linear direction to that. No change in Life Sciences there. As we say in the component businesses, we don't see any change there neither.

Sebastian Bray
Sebastian Bray
Analyst at Berenberg

That's helpful. Thank you.

Operator

Thank you very much for your question, Sebastian. Our next question is coming from Ranulf Orr calling from Citi. Please go ahead.

Ranulf Orr
Ranulf Orr
Analyst at Citi

Hi, good morning. Two from me, please. The first, I just wanted to ask about the increase you're seeing in customers using your active ingredient brand names. I think for years you sort of debated the Intel Inside type idea, but brands not typically wanting to acknowledge contributions from ingredient companies on the labels. I guess the sort of question is, why is this coming now? Is this sort of intentional strategy from you? If you are, kind of what channels are you making your brands known to sort of consumers? And if that all is sort of true broadly, what does it mean for pricing power going forward? The second question is on the recovery in the solutions business in pharma. Q1, I think you pointed to sort of a relatively benign sort of soft performance pointing to comps and timings.

Ranulf Orr
Ranulf Orr
Analyst at Citi

That didn't really recover Q2 clearly, why should we have confidence that that now comes in the second half? Thanks very much.

Steve Foots
Group Chief Executive at Croda

Great. Well, let's do the Actives one first and then Pharma Solutions. Look, more broadly in Actives, we're really pleased with the performance. You can see the growth. It's all innovation. There isn't any pre-buying from Middle East in that. We've got growth across all categories, peptides, ceramides, botanicals, and biotech Actives. Strong growth everywhere. It's two things in innovation. It's the innovation that's increasing with our multinationals leading that. We're in a lot of multiple brands going forward, particularly in premium categories. It's Croda's work as well, adopting a slightly different innovation framework where we're getting more products to market quicker, particularly by looking at the existing libraries and repositioning them. The one in the pack, Volufiline, is a great example of that as you call out. To your point there, that's great. It's great for Croda.

Steve Foots
Group Chief Executive at Croda

If we can get more of our names on the front of the pack, it is brilliant. What you see with that as an example is the influencers then get involved. If you tap Volufiline into your search engines, you will see a lot of hits and a lot of exposure positively about the ingredient and what it is doing in the brand. That is great for Croda, but it is obviously great for our customers as well. That brings a trust with your customer where you can innovate more with them. We are in a very good position there, and the growth that we are seeing is as a consequence of that combination of our customers and ourselves innovating more. We expect that to continue. I would say don't pencil in 27% growth for the second half, by the way.

Steve Foots
Group Chief Executive at Croda

We are delighted with the growth rates and we expect healthy growth to continue driven by innovation. On the Pharma Solutions side, look, it is a small business. It is a young business. It represents about 30% of our total business in pharma, and it is about GBP 60 million. The nature of the business is slightly different to the rest of pharma. It is project driven. The individual contracts are significantly larger than what we see in the other parts of Croda. By its definition, it is naturally more lumpy. We are not judging that performance on quarter by quarter. This is terrific medicine for the future. The order book that we see, we expect project revenues to improve in half two. It genuinely is phasing in that business.

Ranulf Orr
Ranulf Orr
Analyst at Citi

Okay. Thank you very much.

Operator

Thank you, sir. Next question is coming from Nicola Tang, calling from BNP Paribas. Please go ahead.

Nicola Tang
Nicola Tang
Analyst at BNP Paribas

Hi, everyone. Thanks for taking the questions. To start with, I was wondering if you could extend some of those order book comments to the rest of all the other end markets as well. Could you talk a little bit about what you are seeing across the different end markets? You mentioned there could have been a bit of pre-buying going on in Q2. I was wondering if you expect that to fade in Q3. Secondly, just around input inflation. Within the group 3.4% price mix impact in H1, could you talk about how much of that was pricing just related to inputs versus underlying price mix? Within that price dynamic, were you able to fully recoup the absolute input inflation that we saw in the first half?

Nicola Tang
Nicola Tang
Analyst at BNP Paribas

You mentioned that some raw mats had started to moderate, so I was wondering if you could give us a view on your input inflation for the full year. Thanks.

Steve Foots
Group Chief Executive at Croda

Okay. I'll let Stephen go first, and then I'll add to that.

Stephen Oxley
Chief Financial Officer at Croda

Morning, Nicola. Let me just deal with you. I think your questions are really touching on the Middle East, so let me deal with that the impact overall on sales. As you've seen from the release, there's pluses and minuses there. The benefit on the top line, if you like, are those targeted price increases to cover the input inflation, and that's the petrochem impact. We did see some limited pre-buy early on, and that's mainly in Beauty Care and Home Care. That's largely out of the wash by the time we get to the end of the half. Going in the other direction, we've got the loss of sales directly by F&F into the Middle East. If you put all of that together, actually, we were looking at a very small net impact on first half sales, and it's mainly in consumer.

Steve Foots
Group Chief Executive at Croda

Can I just add to that? Just to your order book. The order book in Pharma Solutions is slightly different to the others because it's project based. It's R&D budgets and R&D planning. They're in a bit more in the longer term in the order book than the rest of the order intake for what I would say is the normal Croda business. The order book's around four to six weeks, and there's nothing to suggest that we're dropping off. With July is a good order book for Croda, so we're very pleased with that. We're obviously naturally remaining cautious for the rest of the year, just given the macro environment. Nothing in the order book is yet to say we're going to see a significant softening. We're pleased with that.

Nicola Tang
Nicola Tang
Analyst at BNP Paribas

Thanks. Maybe the question around pricing and inputs and a view for the second half.

Steve Foots
Group Chief Executive at Croda

Yes. At the moment, had we not seen any change in the Middle East, and who knows where that's going, we would have expected some modest raw material savings in the basket. Very low single digits, so pretty benign. Obviously, we're watching if it goes the other way as well. We're not intending to price any differently, but we will if we have to. That's the point we make, and we did the same in quarter two, and we'll do it again in quarter three if we have to.

Nicola Tang
Nicola Tang
Analyst at BNP Paribas

Okay. Thank you.

Operator

Thank you very much, Nicola. Ladies and gentlemen, as a reminder, if you have any questions or follow-up questions, please do press star one at this time. We'll now go to Chetan Udeshi of JPMorgan. Please go ahead.

Chetan Udeshi
Chetan Udeshi
Analyst at JPMorgan

Yeah. Hi. Thanks for taking my questions. The first question was the comment you made was the exit rate gives you more confidence on the second half improvement. I'm just curious if you can quantify the exit rate, because you did 17.7% for H1 as a whole. Should we expect that Q2 was above 18% or anything that you can help to just quantify what the exit rate was coming out of Q2?

Steve Foots
Group Chief Executive at Croda

That's-

Chetan Udeshi
Chetan Udeshi
Analyst at JPMorgan

The second question I had was just on this Pharma Solutions piece. I appreciate it's a small business, but I suppose it's also more profitable than your Pharma Ingredients and not trying to be critical, but I think it's fair to say that the first half in pharma was probably below, I think, my expectations and probably also below your expectations. The point I'm trying to say is there a risk that this order book doesn't translate into revenues or at least as much revenue as expected in H2, as was the case in H1? If I can squeeze in one last quick question. I'm just curious on your CrodaON platform.

Chetan Udeshi
Chetan Udeshi
Analyst at JPMorgan

Can you give us a bit more detail on how are you monetizing it in terms of is the margin level for the sales to that platform actually higher than the traditional sales model, given you probably don't need the same sort of sales approach in terms of fixed costs?

Steve Foots
Group Chief Executive at Croda

Yeah.

Chetan Udeshi
Chetan Udeshi
Analyst at JPMorgan

Just curious how should we think about that in terms of margin?

Steve Foots
Group Chief Executive at Croda

Thanks. Thanks, Chetan. Loads of questions there. We'll answer each one. Let's do the margin point first. Stephen, over to you.

Stephen Oxley
Chief Financial Officer at Croda

Chetan, great. Thank you for the question. Couple of points. I talked about the one-offs, really importantly is I think about the quarter-on-quarter

Stephen Oxley
Chief Financial Officer at Croda

Progression and the exit rate. The Q2 exit rate is exactly where we need it to be to deliver the second half margin expansion. We had the one-offs. The first quarter was also depressed by the weather events, the extreme weather events in the U.S., and we've talked about that previously at the Q1 results. That dragged down the Q1 margin. Very strong margin progression in quarter two, and that's what translates into further progression in three and four. I think on the Pharma, I think it's best to look at Pharma in the round. People forget, Pharma Ingredients, which is the nuts and bolts of Croda, represents about 70% of our business. Thousands of products, thousands of customers. That's made encouraging progress through the first half, and we're really pleased with that.

Stephen Oxley
Chief Financial Officer at Croda

This project flagship focusing on innovation, dialing up product focus more broadly, is delivering good growth. In there, it's the high-purity excipients that are driving the growth. We're pleased with Pharma Ingredients, which is two-thirds of the business. I think Pharma Solutions is, because of its nature of project-based, we can map projects much better there. That gives us confidence that the revenues will start to come through in the second half. The third point was CrodaON, which is a good point. We want more of our small product customer combinations on CrodaON. What you should see there, Chetan, is the cost to serve should ultimately reduce as we start to load up more onto that platform.

Chetan Udeshi
Chetan Udeshi
Analyst at JPMorgan

Got it. Thank you.

Stephen Oxley
Chief Financial Officer at Croda

Thank you.

Operator

Thank you very much, Mr. Udeshi. As we have no further questions at this time, Mr. Foots, I'll now turn the call back over to you for any additional or closing remarks.

Steve Foots
Group Chief Executive at Croda

Yes. Thanks, everybody for the questions. I think four key points for me, just to pull it together. You're seeing innovation increasing, not just at our customers, but with ourselves as well, which is really driving the encouraging results. Transformation benefits are building. You can see that coming through, and we're really pleased with how Croda's responding to that. We're reiterating our full year guidance. Of course, we're on track for our full year 2028 framework as well. We're working hard and doing the right things. We'll stop there and we'll see you next time.

Analysts
    • Steve Foots
      Group Chief Executive at Croda
    • Stephen Oxley
      Chief Financial Officer at Croda
    • David Bishop
      Director of Investor Relations at Croda
    • Lisa De Neve
      Analyst at Morgan Stanley
    • Katie Richards
      Analyst at Barclays
    • Matthew Yates
      Analyst at Bank of America
    • Sebastian Bray
      Analyst at Berenberg
    • Ranulf Orr
      Analyst at Citi
    • Nicola Tang
      Analyst at BNP Paribas
    • Chetan Udeshi
      Analyst at JPMorgan
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