Welcome to the Croda Q3 2026 sales update conference call. My name is Alan, and I will be your coordinator for today's event. Please note, this call is being recorded, and for the duration, your lines will be on listen-only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star one on your telephone keypad. If you require assistance at any time, please press star zero, and you'll be connected to an operator. I will now hand you over to your host, Steve Foots, CEO, to begin today's conference. Thank you.
Good morning, everyone. 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. Overall, quarter three sales were up 6.6% on an organic basis, keeping us firmly on track to deliver both our full year 2026 outlook and our financial framework for full year 2028. 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 increased innovation activity. Beauty Actives had another exceptional quarter, up 19%, with Beauty Care also up 13%. This reflects a concentration of customer product launches continuing from Q2, ongoing strength in premium categories, stronger demand for innovation, and increased growth in affordable categories.
Home Care was also strong, up 10%, and F&F 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. Life Sciences were up 2% organically, and absolute sales improved again sequentially. Pharma grew 5%, with continued growth in Pharma Ingredients as we scale innovation in advanced excipients, and Pharma Solutions improved sequentially with more favorable phasing of project-driven revenues. This, together with 12% growth in Seed Enhancement, more than offset continued weaker demand in Crop Protection, where 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 core sales offset by the anticipated reduction in the supply agreement sales.
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 innovation, 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, and that's coming through in our pipeline and in our projects with customers. 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 2028. We expect further incremental savings in the second half and in 2027, particularly as we optimize our supply chain. Our outlook for full year 2026 remains unchanged despite the ongoing geopolitical and macroeconomic uncertainty. We expect the demand trends that we have seen in Q3 to continue in Q4 . As usual, absolute sales are expected to be seasonally lower in Q4 than in Q3 , as some customers manage their working capital into the year-end in line with previous years. For full year 2026, we continue to expect organic sales growth within our 3%-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.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star two. You will be advised when to ask your question. We will take our next question from Lisa De Neve M.S. Your line is open. Please go ahead.
Hi. Good morning, and thank you for taking my questions. I will start with two. You have delivered very strong third quarter. Can you share what you are seeing in terms of the order book going forward? Also, can you contextualize a little bit the comments you made around the fourth quarter in terms of the customer net working capital adjustments that could take place? Are you making reference to history, or are you seeing anything of that in the markets? That is my first question. Secondly, could you please give us some sort of update or reiteration of your capital allocation policy and your view on considering some special returns potentially over the next 12 months? Thank you.
Okay. Well, let's start with exit rates of Q3 and Q4 sales. Then we'll come to capital allocation with Stephen. I mean, just a few points. Exit rates in Q3 are consistent with the entry rates in Q3, and we're seeing similar trends in October. We would say that. Customer inventories are broadly similar to the beginning of the year. As we know, some customers manage their working capital into the year-end in line with previous years. We're not seeing anything different from previous years. I think looking at Q4 sales, we would say expect demand trends in the business to continue. It's positive in Beauty, particularly premium and demand for innovation. It's more stable in Pharma. It's challenging in agriculture with farm incomes under pressure. So, expect the trends that we're seeing to continue as is.
I'll pass to Stephen on capital allocation.
Morning, Lisa. Just on capital, we've obviously set out very clearly our capital allocation policy that we review regularly with the Board. This is obviously a sales update, so we'll update on capital allocation when we get to the full year. I think a few points, we remain committed to maintaining the dividend, obviously, and we note that the current dividend payout is above our policy of 40%-50%, but we'll maintain that. We obviously want to maintain balance sheet strength. Leverage is only around 1.2x, 1.3x , and we've said consistently that we will not delever below 1x . So let's see where we get to at the year-end, and we'll update you in February.
Thank you very much.
We will take our next question from Katie Richards, Barclays. Your line is open. Please go ahead.
Hi, good morning. Two questions from me, please. Firstly, could you just give us some more information on the decline in Crop Protection? Was there a particular region that was responsible for this decline? Should we interpret this as a one-quarter event or something that might continue into next year? 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 questions, that would be useful, please.
Okay, well, let's start with Crop, and I will pass to Stephen for the volume price mix. Look, the way you should look at Crop, is the performance reflects a strong Q3 2025. It was up 19% in that period. Crop - 9% continues to be impacted. All of that is by weak farm economics. We expect the Crop performance to be down year-on-year following that strong 2025. Overall, 2025 versus 2024 was up 14%. Ag commodity prices, though, have inflected recently, and that has continued through the year. That should provide some support for farmer economics in 2027, but unlikely to see that in Q4. In terms of the regions, it is mainly the Americas, which is particularly negative, Latin America through Brazil and North America.
You can probably see that aligned to many of our customers that are out there at the moment. Yeah, it reflects that. Over to Stephen on the-
Yeah, Katie, hi. Just on volumes. Consumer Care was very healthy with volume increases, which was great. 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, the group base is that volumes again were positive except for Crop. I think no surprises there.
Very useful. Thank you.
We will take our next question from Chetan Udeshi, JP Morgan. Your line is open. Please go ahead.
Yeah, hi. Morning. Thanks for taking my questions. 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. It's sometimes hard for us to fully separate out the two, 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 +4%, because we've seen much higher 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 Croda's growth in Fragrances? Thank you.
Yeah, sure. Well, let's take them in turn. I mean, Beauty, we're just seeing some outperformance on Beauty Actives and Beauty Care. 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 Q2 into Q3. 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 that's led by the multinationals developing their brands, but it's also a high level of growth coming from local and regional. 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. I think when you look at Actives, it's fifth consecutive quarter of double-digit organic sales growth. 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 i nnovation mojo in Croda is well back in Beauty, and that will continue. In F&F, yeah, I mean, look, it's one quarter. We've had, I mean, three years of outstanding performance. It was a strong comparator, 13% in Q3 2025. Full year to date is up 7%. The two areas that were impacted in Q3 , 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 Q4 with the new China facility fully online. So, we're very happy with the performance in F&F.
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 forecasts. I'm just curious what is holding back or what's the forecast or guidance on EBIT already incorporating this trend on top line?
Yeah. Hi, Chetan. I will pick that up. So look, we are obviously pleased with the trends and progress in the year and the quarter, and we have been very clear that we expect those demand trends to continue into Q4. But look, there is a number of puts and takes across the business, isn't there? Very, very happy with Beauty, but the Crop Protection environment is tough, and it remains a headwind. I would say that the macros, the geopolitical situation kind of remains. So look, overall, we are confident with the guidance, and we obviously look forward to updating you further when we get to year-end.
Thank you.
We will take our next question from Sebastian Bray, Berenberg. Your line is open. Please go ahead.
Hello. Good morning, and thank you for taking my questions. Can I probe a little on the Pharma and Crop Protection growth? In Crop Protection, were both prices and volumes down? I ask this because to Chetan's comment about not necessarily about, let us 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. On pharmaceuticals, the way the press release phrases the improvement in the vaccine and lipids business is very much into the tune 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 and lipids business? Thank you.
Okay. Well, let's start with Pharma, and I'll pass to Stephen on Crop mix. Yeah, I mean, look, the way to look at Pharma is we've seen continued good growth in Pharma, driven largely by Pharma Ingredients. With Project Flagship, which we have as our overall main project to deliver innovation in that area, that's working well. For the core ingredients, you're seeing growth coming through, scaled particularly by the advanced excipients, the advanced excipient growth coming through well. Pharma Solutions showed a sequential improvement versus Q2 2026, and with more to come in Q4. There's more favorable phasing of the project-driven revenue starting to come through. Pharma becoming more stable than it was, and innovation led particularly in both businesses.
Yeah, if that's all right, I'll pick up Crop . Just a reminder, we're lapping Q3 2025, as Steve said, 19% growth. That's what we're comparing against. Just in terms of volumes and price is actually up in Crop. It's the volume that we're seeing and that the sector is seeing. Yeah, that's where we've ended up.
Thank you.
We will take our next question from Myles Allsop. UBS, your line is open. Please go ahead.
Great. Thank you. You're kind of obviously around a year into the transformational plan. As you kind of get into it, are you seeing more opportunities? I mean, could we start thinking about that 20% 2028 margin being kind of risk to the upside? Then maybe just on 2027, what do you see as the key risks to your business, the different areas? Thank you.
Myles, morning. Thank you. Look, we remain obviously confident on the full year, but also the 2028 framework that we're working to. As you say, that's margin back to 20%, and we've said that that would just be a sequential improvement. We're on track, as you can hear. The margin is always driven by a combination of growth and those transformation benefits. We're on track with those, and we'll just continue to deliver.
In terms of the risks for 2027, I think, when we're looking at the top of the company and with the Board, clearly it's macro risks that are prominent. Who knows what's going to happen next year? But we tend to look at the geopolitics of that. But I think in the businesses, we've got a high level of innovation coming through. I think the only business that we want to see significant improvement in is obviously in Crop, and that's going to be a macro driver that allows us to do that. So we're encouraged with the commodity prices and the inflection there coming through, which should help farmer incomes next year.
Cool. Thank you.
We will take our next question from Artem Chubarov, Rothschild & Co Redburn. Your line is open. Please go ahead.
Thanks. Good morning, everyone. Thanks for taking my question. I would like to ask about supply agreement. I believe you mentioned that you have seen sales declining, which we have seen happening for several years now. Would you remind us what the plan is when your agreement comes to an end? I believe, from memory, it is something like mid towards end 2027. Are you planning to gradually phase the sales out and replace them as you have done before? Or is there a risk that we will see more of an abrupt drop of sales?
Yeah, a couple of points. I think the core part of that Industrial Specialties business is growing well for Croda, and it has good margins, and it pays its way in the factories that they supply. In terms of the supply agreement, it comes to an end in the middle of next year. But we will expect to continue supply beyond that. I think what you should see with the Cargill sales at the moment is it is moderating, but it would moderate to a level which will be stable, and we are not far away from that. So, it is not going to go down to nothing. We are not far away of it, just stabilizing. But the core business in there is growing pretty well for Croda.
Understood. Thank you.
We will take our next question from Jens Lindqvist, Investec. Your line is open. Please go ahead.
Yes. Good morning, all. Just one question left from me. In spite of the China facility migration, Asia was again very strong, up 12%. How much of that was China? Is that regional growth primarily Beauty, or is it broad-based across Pharma and Agri? Thank you.
I mean, the Asian growth is broad-based. It is across all categories, and it is innovation-led. China plays its part, India does, Japan, Korea. We have got good growth, well-balanced growth across the region. So, it is healthy growth, we would say.
Yeah. Thank you.
As a final reminder, if you would like to ask a question, please press star one on your telephone keypad now. We will take our next question from Martin Roediger, Kepler Cheuvreux. Your line is open. Please go ahead.
Yes. Thanks for taking my two questions. First of all, just a clarification question from an earlier question, because I had some connection problems to understand what you said about the organic sales growth of 6.6% and splitting in volumes and pricing. I just understood that Crops volumes were down, prices up. But on a group basis, is this 6.6% equally split into volumes and pricing? That is my first one. Secondly, can you reveal your full-year energy cost bill? How are you protected against rising energy costs, and is there any time lag in passing them on because of the contract duration for your products?
Okay.
Should I pick up?
Should we do the volume price mix first?
Yeah. Just to reiterate, if you missed that, Jens. I will start with this consumer. Just to repeat, the Consumer Care volume growth was very healthy, as was price and mix. All very positive. It is obviously Life Sciences where we have got volumes are down, as I mentioned, and that is Crop. Price and mix in Life Sciences are both positive. Where does that leave us overall with the kind of the group volumes and the shared service sites? We are positive except for Crop. As a result, group price mix is positive, and the growth is coming through from both business and product mix, but particularly the business mix, obviously. Just on hedging, which we have covered before, there is no change there. You should understand that energy represents a relatively small proportion of our input costs. It is around 3% of sales.
We obviously do buy forward, and we hedge it, lock in. Typically, we start each year with 40%-60% of energy inputs hedged. Look, as we have said continually, we seek to pass on increases in prices, in input prices, I should say, immediately, and that practice has continued.
Thank you. We will take our next question from Nicola Tang, BNP Paribas. Your line is open. Please go ahead.
Hi, everyone. Linked to a similar topic, I was wondering if you could give us an update on what you are seeing across your raw material basket, and also thinking about into next year, being mindful of weather disruptions related to El Niño and so on. Then a second question, just in terms of sort of exit rate from 2026 as we go into 2027. Is it fair to say that it is mainly the Crop side and to some extent F&F, which is perhaps underperforming where you would like to be, but the other sort of end markets are now kind of, I guess, aligned with your midterm ambitions? Thank you.
Yeah, I mean, just on raw materials, I mean, there is nothing big in the basket that we are worried about. If anything, there might be some modest increases going into next year, but it is still difficult to say. We are not expecting significant raw material inflation. The second question was more around exit rates into Q1. Yeah, I mean, the way to look at it, I think we just said that, Q4, demand trends to continue as they are. We project forward, Beauty very strong, stable in Pharma, and it is the agriculture really, which is in Crop Protection, which is the area that we want to see upside. We have got to see that come through with farmer income increases. F&F, we are fine with.
Nicola, just to add on the raw materials. Raw materials in Q3, they are up around 2.5% year-on-year, and that is obviously mainly petro-driven. That is really sort of consistent with the full-year number. We are seeking, as I said earlier, to pass on those costs to customers. As I think about raws going into Q4, we are kind of expecting them to be broadly flat off Q3, but obviously higher year-on-year. It is particularly the petro EO/PO prices that for us are elevated.
Thank you.
There are no further questions on the line, so I will now hand you back to your host for closing remarks.
Yeah, thanks, everybody. Yeah, another quarter of healthy growth for the company and delivering on our promises as well. I think three points to call out from the release. The portfolio is delivering, and we're getting a consistent revenue growth coming from that. Secondly, innovation is definitely stepping up. The Croda innovation mojo coming back strongly, and the transformation remains on track. Thanks very much for the questions, and we'll see you again in February.
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