Croda International Stock

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. So the usual agenda today, I will start with some overarching comments on performance, and 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. Then it's very much over to you for Q&A. Okay. So making the 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. And 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. We are driving our transformation program at pace, and 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. And 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. 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. And 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. And critically, much of this is within our control. We're not relying on a big recovery in our end markets. So I'm very pleased with how the whole business has responded and 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 3-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 our strong market positions across Consumer Care, Pharma and crop. So plenty to be encouraged about, but also much more to do, which I'll come on to in a moment. But first, let me hand over to Stephen for a detailed run-through of the numbers. Stephen?

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 78p. Free cash flow was GBP 38 million, up from GBP 28 million last year, and we have today announced an interim dividend of 48p.

Net debt was GBP 578 million and leverage remained conservative at 1.4x 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. 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. Most business units in Consumer Care and Life Sciences contributed to a sequential improvement in the second quarter with 3 exceptions.

First, Fragrances and Flavors experienced some disruption related to the conflict with Iran. Second, Crop Protection sales were down as farm incomes were impacted by higher input costs. And 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 brought 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% to 17.7% 50 basis points of expansion was driven by growth with higher volumes, positive price and mix, all contributing to the improvement. Transformation delivered additional cost savings of GBP 18 million, which equates to almost 2 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. And 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 to GBP 38 million. Looking at the component parts, EBITDA increased to GBP 208 million. Our working capital outflow of GBP 68 million is broadly similar to the first half last year. Our working capital improvement program is designed to deliver structural savings of around GBP 50 million by 2028, which we expect to offset the typical annual working capital outflow to fund growth of GBP 20 million to GBP 30 million. CapEx reduced to GBP 43 million following a period of heightened investment. There was a net cash outflow of GBP 50 million after paying last year's final dividend and net debt of GBP 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. Now 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% to 6% and a further increase in adjusted operating margin. Our expectations for adjusted operating profit also remain unchanged. And with that, I'll hand back to Steve.

Great. Many thanks, Stephen. I want to spend the next 10 minutes or so talking about the execution of the 3-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, and 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 3 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. And 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 on to 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'Oreal's CEO a testament to this. And 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, 2 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 [indiscernible], a bond builder for hair that has already secured orders with prestige brands and professional salon specialists. Second, we're developing more tailor-made solutions for customers. And 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. 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 route traditionally used in Eastern medicine and previously applied to parts of the body other than the face. So 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. DCM, one of our beauty customers and now part of Estée Lauder, has adopted Voly4ine as its trade name for a product from the ordinary brand, formulating our ingredient at up to 92% inclusion levels.

And 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. And 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. So it's selling fantastically well for our customers that as well as Desium 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. As you know, this part of our business is split into 2 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 long-standing 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 skin care expertise in beauty.

And alongside this, we have scaled innovation for advanced ingredients, particularly for injectables and bioprocessing applications. 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. So whilst half 1 sales were affected by phasing, our order book means we expect project revenues to improve in half 2.

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. We're also partnering to accelerate sustainable adjuvant development. An interesting example is biotech-derived squalene adjuvants as sharp-derived alternatives face tighter trade controls. And finally, across pharma, we are 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. And for example, we've introduced minimum order values and 18% of our customers now use Croda on, 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. And 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. So 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. And across the group, we are embedding AI and digitalization guided by a coordinated road map. We are already generating incremental revenue by incorporating AI. And 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. And 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. And 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 3-year plan. Again, 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.

So 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. And we're also starting to see the benefits of rebalancing pharma with good growth across our flagship ingredients portfolio.

And our transformation plan is on track, enhancing our platform for growth and making us a faster, more efficient business. So 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. So 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. So let me stop there and take your questions. David, over to you.

Thanks, Steve. Welcome, everyone, to our H1 results call. But first, we'll take questions from our covering analysts over the telephone lines. So George, over to you.

[Operator Instructions] Our first question this morning is coming from Lisa De calling from Morgan Stanley.

My first one is a little bit on the second half. You delivered quite a solid first half result. I mean, 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 Science 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. I mean 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?

Yes. Thanks, Lisa. Let me do the first question. I'll pass to Stephen for the second one. I mean in terms of growth, we're very pleased with the majority of the growth coming through the business. I think as you look at the second half, we expect continued strong growth in Consumer Care. Life Science 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 2 are giving us confidence of full year delivery as well. So let me pass to Stephen on cash flow.

Lisa, thanks for the question. Just on free cash flow for the half, we were bang on where we expected. We're 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've talked about a 20 million to 30 million benefit. And then particularly as we get into '27, '28, the benefits of working capital transformation coming through.

Our next question is from Katie Richards calling from Barclays.

I've got a question on the organic sales growth development in Consumer Care, please, in Q2. How much of this was pricing driven rather than the mix effect, I guess, on the Beauty Active side? And 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. So I'm just struggling to balance these 2 effects. How should we expect pricing to develop in Q2? And are you seeking to retain any of the raw materials inflation within the margins? And then my second question is on your transformation program. It was good to see a significant proportion of the margin growth coming from this program now. But you did disclose that the rate is you're realizing the savings is continuing to build. So what led to the decision to hold the target at EUR 100 million this morning?

Okay. I pass to Stephen a bit on price mix and transformation then. Yes. Let me start on that, Katie. So Q2 margin progression, it's predominantly mix, to be honest, the benefit in consumer in Q2, the impact of price is relatively limited. So that's really good. That's the quality of the business coming through just as we expect. Steve, do you want to pick up the pricing strategy point?

Yes. I mean just on pricing, look, I mean, we're pretty straightforward, as everybody knows. The price increases into quarter 2 were largely limited to petrochemicals represents about 10% of our basket. And the impact was mainly in Asia and to a degree in Europe. So it wasn't widespread everywhere. So that was targeted, and we put our prices up there. And as we monitor the situation in the Middle East, we'll continue to review pricing as and when we need to.

And then Katie, on transformation, look, it's still relatively early days. We're pleased with progress, and 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 said we would do. So we're not in a position to upgrade the GBP 100 million.

Our next question is coming from Matthew Yates from Bank of America.

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. And 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 accelerate. So is it rather that some of those inflationary or investment costs either moderate or annualize or something like that? And then specifically, a similar exercise really on the Consumer division. Obviously, top line is strong. Arguably, I would say the drop-through on margins was maybe a little bit disappointing, particularly given the good mix that you've been calling out. So 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, et cetera?

Yes. Thanks, Matthew. Let me pick that up. So 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 2 reasons. One is the improved business mix in the second half, and that's particularly driven by higher Life Sciences sales. And then as you said, we then get the further transformation benefits coming through. When you look at the slide, I think there's 2 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 '27 and beyond.

And then secondly, the increase in variable remuneration, again, you should see that as a one-off this year. So that gives you then confidence in the progression after this year. Just on Consumer, I mean, Consumer did benefit first half margin and obviously, that very, very strong performance in actives. We do have against that the 2 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. And it's the exit rate that I'd really point to.

Our next question will be coming from Sebastian Bray calling from Berenberg.

I would have 2, 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 2 or 3 years in the U.S.? Because I know Q2 was stronger, but it looks like Asia is really taking up the slack. So 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? And 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-20s EBIT margin business longer term?

Yes. Let me take those, Sebastian. I mean on U.S., I mean, what we're seeing in consumer is actually a classic. You would probably call it a K-shape -- so what we're seeing is very good growth in premium, driven by our actives business, and we can see that. It's had a very strong performance consistently now for the last couple of quarters. And it's still relatively tough in the mass and masstige market. So overall, we're pleased with the progress. We are winning some business back, but actually, the main growth in America is coming from innovation in the actives portfolio and our innovation framework doing what we wanted to do, which is to get products to market quicker, and that's existing products as well. So 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. At the group level, you can see we've got 20% returns planned for the next 2 years, 28 it's linear. You should see that as a linear direction to that. So no change in Life Sciences there. And as we see in the component businesses, we don't see any change there neither.

Our next question is coming from Ranulf Orr from calling from Citi.

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, we sort of debated the intel inside type idea, but brands not typically wanting to acknowledge contributions from ingredient companies on the label. So I guess sort of the 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 -- and if that all is sort of true broadly, what does it mean for pricing power going forward? And then just the second question is on the recovery in the Solutions business in Pharma. Q1, I think you pointed to a relatively benign sort of soft performance pointing to comps and timings. That didn't really recover Q2 clearly. So why should we have confidence that, that now comes in the second half?

Yes. Great. Well, let's do the actives one first and then Pharma Solutions. I mean, 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 prebuying from Middle East in that. We've got growth across all categories, peptides, ceramides, botanicals and biotech actives. So strong growth everywhere. And it's 2 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. And 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.

So the one in the pack, Volufiline is a great example of that, as you call out. And to your point there, I mean, that's great. It's great for Croda. If we can get more of our names on the front of the pack, I mean, it's brilliant. And what you see with that as an example is the influencers then get involved. And if you tap Volufiline into your search engines, you'll see a lot of hits and a lot of exposure positively about the ingredient and what it's doing in the brand. And that's great for Croda, but it's obviously great for our customers as well. So that brings a trust with your customer where you can innovate more with them. So we're in a very good position there. And the growth that we're seeing is as a consequence of that combination of our customers and ourselves innovating more. So we expect that to continue.

I would say, don't pencil in 27% growth for the second half, by the way, but we're delighted with the growth rates, and we expect healthy growth to continue driven by innovation. I mean on the Pharma Solutions side, look, it's a small business. It's a young business. It represents about 30% of our total business in pharma, and it's about GBP 60 million. And the nature of the business is slightly different to the rest of pharma. It's project-driven. The individual contracts are significantly larger than what we see in the other parts of Croda. So by its definition, it's naturally more lumpy. And we're not judging that performance on quarter-by-quarter. I mean this is terrific medicine for the future. But the order book that we see, we expect project revenues to improve in half 2. So it genuinely is phasing in that business.

Next question is coming from Nicola Tang from BNP Paribas.

To start with, I was wondering if you could extend some of those order book comments to the rest of -- or the other end markets as well. Could you talk a little bit about what you're seeing across the different end markets? And you mentioned there could have been a bit of prebuying going on in Q2. So I was wondering if you expect that to fade in Q3? And then 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 input versus underlying price mix? And within that price dynamic, were you able to fully recoup the absolute input inflation that we saw in the first half? And you mentioned that some raw mats have started to moderate. So I was wondering if you could give us a view on your input inflation for the full year.

I'll let Steve, you go first, and then I'll add to that.

So let me just deal with -- I think your questions are really touching on the Middle East. So let me deal with that, the impact overall on sales. So as you've seen from the release, there's pluses and minuses there. So 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 prebuy early on, and that's mainly in Beauty Care and Home Care. But that's largely out of the wash by the time we get to the end of the half. And then going in the other direction, we've got the loss of sales directly by F&F into the Middle East. So if you put all of that together, actually, we're looking at a very small net impact on first half sales, and it's mainly in consumer.

Yes. I'd just add to that. I mean, just your order book. I mean, the order book in Pharma Solutions is slightly different to us because it's project-based, it's R&D budgets and R&D planning. So they're in a bit more in the longer term in the order book than the rest of the sort of order intake for what I would say is the normal Croda business. So the order book is around 4 to 6 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, but nothing in the order book is yet to say we're going to see a significant softening. So we're pleased with that.

And then maybe the question around pricing and input sort of view for the second half?

Yes. I mean, at the moment, I mean, we -- 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. But obviously, we're watching if it goes the other way as well. So we're not intending to price any differently, but we will if we have to. And that's the point we make. And we did the same in quarter 2, and we'll do it again in quarter 3 if we have to.

[Operator Instructions] We'll now go to Chetan Udeshi of JPMorgan.

The first question was just looking -- I mean, 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. So 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? 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 at least my expectations and probably also below your expectations.

So the point I'm trying to say is, 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? And if I can squeeze in one last quick question. I'm just curious on your Croda own platform. can you give us a bit more detail on how are you monetizing it in terms of is the margin level for those -- for the sales through 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. Just curious just how should we think about that in terms of margin?

Yes. Thanks, Chetan. Lots of questions there. We'll answer each one. But let's do the margin point first. So Stephen...

Great. Thank you for the question. So a couple of points. So I talked about the one-offs. But really importantly, as I think about the quarter-on-quarter progression and the exit rate, the Q2 exit rate is exactly where we need it to be to deliver the second half margin expansion. So we had the one-offs that 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. So that dragged down the Q1 margin, very strong margin progression in quarter 2, and that's what then translates into further progression in 3 and 4.

Yes. I think on the pharma, I think it's best to look at pharma in the round. People forget about Pharma Ingredients, which is the nuts and bolts of Croda. It 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. So this project flagship, focusing on innovation, dialing up product focus more broadly is delivering good growth. And in there, it's the high-purity excipients that are delivering -- driving the growth. So we're pleased with Pharma Ingredients, which is 2/3 of the business. I think Pharma Solutions is because of its nature of project base, we can map projects much better there. So that gives us confidence that the revenues will start to come through in the second half. And then the third point was Croda On, which is a good point. Yes, we want more of our small product customer combinations on Croda On. And what you should see there, Chetan, is it's the cost to serve should ultimately reduce as we start to load up more onto that platform.

As we have no further questions at this time, Mr. Foots, I'd like to turn the call back over to you for any additional or closing remarks.

Thanks, everybody, for the questions. I think 4 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 is responding to that. We're reiterating our full year guidance. And of course, we're on track for our full year '28 framework as well. So we're working hard and doing the right things. So we'll stop there, and we'll see you next time.

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.

Good morning, everyone. So many thanks for joining us for today's presentation, and it's great to be with you all. As well as running through our financial results, we're going to do a deeper dive on the plan we're expecting to grow -- executing to grow earnings and improve results. And we will also set out our financial framework for the next 3 years. So a slightly longer presentation than normal, which Stephen and I will carve up between us before taking your questions at the end.

So starting with our performance in 2025. Overall, we're pleased with how the business has performed in a very uncertain environment. Sales grew 7% in constant currency, reflecting the benefits of a much stronger portfolio. And sales of patented ingredients were up 9%, with demand for innovation at its highest level since before the pandemic. And our Net Promoter Scores increased by 11 points as service, collaboration and more importantly than that, trust continue to improve across our customer base. And whilst margins remain well below where we want them to be, they improved both in Consumer Care and in Life Sciences, contributing to an 8% increase in profits with PBT in line with our guidance.

Free cash flow also improved in the second half due to lower working capital and CapEx, strengthening our balance sheet. So good progress. There's much more to do, but our actions are beginning to bear fruit, which is encouraging. So more from me shortly, but first, over to Stephen for the numbers. Steve?

Thank you, Steve. Good morning, everyone. I'll start with the financial headlines for the full year before taking you through our sales for the fourth quarter. So in constant currency, sales were up 7% to GBP 1.7 billion. Adjusted operating profit was up 8% at GBP 295 million, and adjusted profit before tax also grew 8% to GBP 276 million. Free cash flow was GBP 162 million, supported by reduced CapEx and lower working capital in the second half. Net debt was GBP 524 million with leverage of 1.3x EBITDA.

And we proposed a final dividend of 63p, bringing the full year dividend to 111p, a small increase on the prior year. Turning to sales for the fourth quarter. These were up 5% in constant currency, slightly stronger than we expected. Our Consumer Care business was up 9%, driven by another strong quarter in Fragrances and Flavors and supported by higher growth in Beauty Actives. Life Sciences were up 8%. Within this, Pharma delivered its strongest quarter of the year, driven by higher excipient sales. And momentum continued in Crop Protection with sales up 12%, though we expect this to slow going into 2026.

Industrial Specialties was down 19% against a particularly strong quarter in the prior year. The trends we saw in the third quarter continued into the fourth with volume growth moderating, a more favorable mix than the first half and like-for-like prices largely consistent with the previous year. Turning to sales now for the full year. We delivered growth of 7% in constant currency despite an uncertain trading environment. Consumer Care sales finished up 8% with another standout year for F&F, which grew 15%. Beauty Actives was up 6% and Beauty Care grew 4%, supported by higher volumes. Life Sciences grew 8% with Crop Protection up 14% as demand returned after an extended period of destocking. Seed Enhancement continued to deliver good growth of 8%. Pharma sales grew 4%, which was below our expectations as U.S. policy impacted sales of vaccine adjuvants.

Finally, Industrial Specialties was down 2% as direct sales growth largely offset a decline with Cargill, which now represents just 20% of IS sales. There was growth across all regions, led by EMEA, where sales were up 9%. Asia lagged other regions as customer exports in pharma and industrial markets were impacted by U.S. tariffs. And growth in North America improved in the second half, supported by a recovery in Beauty. As Steve said, we're starting to see early progress from our business transformation. This chart shows how operating margin progressed over the year from 17.2% to 17.4%. Sales growth delivered an uplift of 0.7 percentage points as higher volumes were partially offset by price/mix, which was mainly mix. There was also a 1.6 percentage point benefit from transformation cost savings.

This more than offset inflation and the costs associated with recent investments coming online. Unfortunately, a foreign exchange headwind of almost 1% masked this margin recovery. With cost savings gaining momentum, second half operating margin was 17.6%, giving us confidence margins will continue to expand over the coming years. Turning now to profit. This shows a bridge of adjusted profit before tax of GBP 276 million to reported profit before tax of GBP 91 million. In addition to recurring amortization of acquired intangibles, there were exceptional charges of GBP 150 million. We incurred exceptional cash costs relating to transformation of GBP 26 million, including redundancy charges.

The rest was largely noncash. This includes a GBP 45 million full impairment of our lipid site at Lamar in the U.S. with an associated onerous contract provision of GBP 16 million for standby costs. We've carried out a detailed review of our pharma lipid capacity across our 4 sites. And whilst we remain excited about the future, we have adequate capacity across 3 sites to satisfy medium-term demand.

So we've started -- decided not to start commercial production at Lamar and have instead placed the facility in standby mode. This eliminates future financial exposure and cost while fulfilling our commitment to the U.S. government, who provided most of the site's funding to produce lipids in the event of another pandemic. Other noncash charges of GBP 62 million include a GBP 29 million write-off for assets under construction, which will save CapEx following a detailed review of future investment requirements.

A GBP 22 million impairment for closure of our U.K. distribution center, which we announced last summer as we optimize our European supply chain and an GBP 11 million impairment of acquired technology intangible assets where we've discontinued certain development programs. There are likely to be further impairments as we continue to optimize our footprint. Moving now to free cash flow and net debt. EBITDA increased 5% to GBP 397 million. As you can see, there was a working capital outflow of GBP 8 million compared to an inflow of GBP 21 million in the prior year when we benefited from the settlement of a GBP 48 million one-off COVID receivable. Typically, I'd expect a working capital outflow of between GBP 20 million and GBP 30 million to fund growth each year, but we can reduce this by making structural improvements, which I will come back to later.

Following a detailed review of current and future investments, CapEx reduced from GBP 138 million to GBP 108 million, below our guidance of GBP 135 million. Combined with stronger earnings, this supported free cash flow of GBP 162 million. After paying the dividend and purchasing shares for our employee share ownership plan, net debt reduced slightly to GBP 524 million. Leverage improved from 1.5x EBITDA at the end of June to 1.3x at year-end. Turning to guidance, where my comments are in constant currency. We expect adjusted operating profit to be in line with current market expectations with organic sales growth of 3% to 6% and a further increase in operating margin. First quarter sales are expected to be similar to the same quarter in 2025, which is a strong comparator with growth of 9%. And we expect sales to split roughly 50-50 between the first and second half. So in summary, we delivered good growth in 2025 despite uncertain end markets, and we're encouraged by early signs that the transformation program is improving both margin and returns. Now back to Steve to take you through our plans.

Many thanks, Stephen. So the plan we're executing builds on the 5 points we talked about last year. It combines growth actions with transformation initiatives to drive improved performance. And it's all about growth and efficiency. We need them both. And that's starting to happen, and we expect that to continue. I'm going to spend some time on what we're doing to deliver more consistent growth. So what we're specifically doing to refocus innovation, improve customer experience and maximize returns from investments to drive consistent growth in key markets such as beauty and pharma. I'm really pleased with the progress being made, executing on our transformation initiatives.

The whole business has responded well. And as we pushed hard to deliver change quickly, the organization has responded. And by implementing permanent structural improvements, we're becoming a more efficient company. We are streamlining our supply chain and procurement, digitalizing key processes and exploiting the use of AI and data in the business. So it's all about simplifying, modernizing and standardizing the way we do things across the business to make both the customer and the employee experience a much better one. This is leading to an improved financial performance, which Stephen will expand on in a moment. So before I come back to our actions, I want to talk through the foundations of our plan, which are Croda's core strengths. There's 3 things that sets us apart, I believe, from our competitors.

Firstly, it's our business model. It's fundamentally a differentiated model built on the importance we place on customer intimacy through direct selling. This allows us to better understand the unmet needs of our customers and drive innovation, and you're starting to see that come through. Secondly, it's our core capabilities. We have a leadership position in both innovation and sustainability across all key markets, and we make it very difficult for our customers to formulate out our products. And thirdly, not last, on the right, there is our portfolio. We've come to the end of a period of significant portfolio investment, and it's now pointed to higher growth and focused on niche markets with compelling long-term trends.

This has enabled good year-on-year growth over the last 18 months, even in these tough conditions. So coming to each of those strengths in turn. This slide outlines how our business model actually works in practice. At its heart, Croda is a specialty ingredient company, where we refine and purify natural raw materials and supply thousands of ingredients to thousands of customers that are included in their products, often actually at very low inclusion levels.

The pictures across this slide show each step of the model and what our teams are doing to create performance difference through imagination, creativity, but above all, exacting science. And we're selling the benefits of our ingredients, not the chemistry. And whether that is applying our unrivaled purification expertise for drug delivery, utilizing high throughput screening to create new beauty claims, tailoring ingredients to meet the demands of our crop customers or using our expertise in formulation development to combine ingredients into solutions for high-profile brands. And we bring all of that together with world-class claims, which often transform the value of our customers' brands. Next is our core capabilities.

We leverage common science with common processes and common products. And the diagram on the left illustrates how smart science is the starting point for everything that we do. It touches the areas -- all areas of our business, and the same can be said for our processes as well. Ingredients sold to beauty, home care, crop protection, industrial specialties as well as many pharma customers are produced at our shared manufacturing facilities. It accounts for 60% of our sales and 70% of our volumes. And many of our ingredients are sold in different markets. So what might start out as a product in beauty can often end up in a crop application as well, the same product. And we optimize the exact specification by ensuring that our sales teams work in close collaboration with R&D to create solutions for our customers.

Our ingredients portfolio is unique with 1,700 patents and sales of patent ingredients increased by 9% last year. We also lead the way in sustainability as validated by our external rankings, including our long-standing AAA rating from MSCI. Look, these capabilities are fueling our ability to serve fast-growing niches, each with compelling and common characteristics, which I'll discuss in more detail later.

So following a period of heightened investment over the last 5 years, our portfolio is aligned with the higher growth and long-term sustainable niches. 89% of our total sales now come from consumer, pharma or agricultural markets. That's up from 73% in 2019. These are the areas where customers value our innovation the most, and those industries have got big megatrend structural drivers behind them. We have invested in exciting high-growth niches like plant stem cells, fragrance and flavors and biologics to access faster growth and they're all growing twice as fast as the market. And we're also selling to faster growth customers, notably local and regional customers and now represent 82% and 56% of sales, respectively, for consumer and Crop.

Geographically, 48% of our sales are now from outside of Europe and North America, up from 37%. Half of our business is in fast-growing countries. So from a market, customer and regional perspective, there has been a material shift in our portfolio towards faster growth, and you're starting to see the early signs of that coming through. This slide explains operating margin development over the last few years, with each column accounting for approximately 1/3 of recent margin dilution. Firstly, on the left, it was a consequence of lower volumes, which was mainly macro driven due to volatile demand post pandemic, but compounded by the divestment of most of our industrial business in 2022.

Secondly, it was driven by a higher cost base, as shown in the middle column. And whilst product and gross margins have remained relatively stable, reflecting the quality of our business, our cost base, particularly SG&A, became significantly higher. And thirdly, on the right, whilst this period of heightened investment has positioned us for growth, it's also increased our invested capital base, contributing to lower returns on invested capital and resulted in more incremental costs as new investments come online. So some of our acquisitions are also high growth but lower margin, notably F&F. So until recently, our margins have set us apart from our peers, a leading position that we are determined to recover. And encouragingly, 2023 was the low point of sales and profit with progress in '24 gathering further momentum in '25 and as we ramped up our growth and efficiency program.

So there have been 4 major challenges that we've learned in the last few years, and we're stepping up this execution around them. Firstly, customer behaviors changed post the pandemic, and they temporarily prioritized supply and demand challenges ahead of innovation. And secondly, we allowed our cost base to run ahead of sales. We were slow to address this, and now we're dealing with it. Thirdly, our strategic investments need to make a bigger contribution to profits. And finally, we were too concentrated on higher growth opportunities, notably in pharma, where we focused on vaccines ahead of our heritage business. And our growth and transformation actions are a direct response to these learnings. We're a curious company, we must learn as we go. And we've increased our focus on execution, and you can start to see this coming through in our results. There's also more to come given the natural lag between action and outcome. So we finished the year in '25 much stronger than we started the year.

We expect to finish '26 much stronger than the start of the year in '26. So I'm going to go through each of the 4 growth areas that -- and what we're doing to differentiate our performance. Importantly, our business is very well invested. So we're not having to ramp up investments to deliver consistent growth. It's already there. So starting with innovation, with consumer and regulatory trends changing quicker than ever, customer demand for innovation has rebounded, but customers now want different things. And we've responded by implementing a more rigorous innovation framework, rebalancing R&D resource making it more customer-centric and focused on 3 big things: firstly, launching new ingredients, which is the DNA of Croda. Historically, this is where we focus the hardest.

Secondly, creating new benefits for our existing ingredients; and thirdly, increasing co-creation activity with customers. So running through each of these in turn and starting on the left, sales of new ingredients increased 10% in '25. And last year, we launched KeraBio developed from a new scalable technology platform for hair repair that enables brands to compete with market leaders. We're the first to market with a groundbreaking ingredient. And with the last batch we produce selling out within a day. Next, we're opening up big opportunities by creating new benefits from our existing ingredient range to meet unmet needs.

For example, we've developed our existing lipid range to address new markets for pharmaceutical generics. And finally, we're doing much more with our customers to tailor individual ingredients and formulate multiple ingredients to meet their specific requirements. The average pipeline value of each customer co-creation project increased by 12% in 2025. So a good example of this is a peg-free rheology modifier that we developed in collaboration with a global beauty brand. So turning to customer experience and what we're doing to improve that. Our direct selling model and our co-creation expertise cement strong levels of trust and loyalty. Over 90% of our customers have stayed with us over the last 5 years despite the market volatility. We are now deepening those relationships by building a more granular understanding of different types of customers through the new segmentation program that we've got, introducing more tailored solutions and bespoke service packages for local and regional customers, regional giants and multinationals. They all want different things now.

And for local customers, we are now globalizing claims testing and formulation support. So for example, in Beauty Actives, this has historically been done exclusively from our Sederma site in Paris. We're now replicating this capability in key locations across Asia. And last year, sales to this consumer -- this customer segment grew by 9% in Consumer Care. We're also deepening the relationships with Asian giants across beauty, pharma and crop protection, helping sales to top the 5 -- helping sales to the top 5 Asian beauty giants grow by 19% CAGR over the last 2 years.

And crop sales to Tier 2 customers were also up 36% in 2025, partly driven by the rise of Chinese generic pesticide manufacturers. We're powering the world's biggest brands across our key markets and are a core supplier of beauty actives for every multinational company globally. And in 2025, we grew sales with 4 out of 5 top beauty customers and by 14% with our major crop protection customers. And our Net Promoter Scores, which we value very highly, prove that we're doing the right thing. We're benchmarking at the top of the industry for product quality, the most important driver of customer preference, but we're also in the top quartile for innovation, sustainability and above all that, trust.

And we're driving best practice in order delivery, customer service and access to information. And with 89% of total sales now in strong and niche positions in these structurally advantaged markets, we're in a good position to continue the early growth momentum that is coming through. Turning to investments then. We're scrutinizing future commitments and past performance with much greater rigor, and Stephen will explain how we're applying our capital allocation framework shortly. We're also driving all of our recent strategic investments much harder, leveraging our global distribution network, maximizing sales and broad scientific expertise to accelerate technology transfer and development. And starting on the left with growth-focused CapEx, which was largely spent on assets in Asia and scaling up pharma lipids. Last year, we commissioned our new low emissions production center in Dahej, India, further rebalancing our global manufacturing footprint to higher-growth countries.

It will support faster growth in Asia this year and its lower cost per unit will enhance profitability. Capital expenditure to enable large-scale pharma lipid manufacturing was joint funded by the U.S. and U.K. governments. The investment has positioned us for breakout growth in due course, but it's going to take more time. So we've decided to put our new U.S. lipids facility on standby to minimize costs. In hindsight, we should have invested in scale-up facility, not 2, and that's the learning here. But we have world-class facilities that can quickly ramp up when needed and enough lipid capacity to satisfy near- and medium-term demand.

Moving across to M&A, acquisitions made during this period are delivering good growth, and we have rigorous plans in place for each of these businesses to support continued growth in the year ahead. So over the last 5 years, we've shifted to highly attractive markets primarily small niches, which offer prospects for above-market growth. It's the principle that runs through Croda for many years. And we've also allocated resources to higher-growth geographies. Our Beauty business has a circa 10% share in the $8 billion addressable market, as you can see on the left. Ingredients space with top 3 positions in niches that are growing faster than the market as a whole. In Beauty Actives in the second -- in the left-hand column, we have #1 or 2 positions in niches growing at 4% to 7% a year, and we're a top 3 player in Beauty Care Ingredients in niches growing at least 3% annually. Turning to our F&F business. It's -- we're a small but fast-growing player in a $25 billion addressable market.

We focus almost entirely on local and regional customers in emerging markets, a segment that is growing twice as fast as the broader market. That unique positioning will continue to drive above-market growth in the years ahead, which we will support through light touch CapEx following more significant investment recently. Our agricultural business has a circa 9% share of a $4 billion addressable market. All of these markets have got good growth in them. And we have a top 3 position in niches growing at least 1.5x market growth. And as regulations tighten and crop care formulations become ever more complex, customers have significant development needs, providing us with opportunities to innovate.

And this is reflected in strong demand for the highly differentiated ingredients at the top end of our portfolio, which have grown at 10% CAGR since 2019. And finally, pharma is a top 3 supplier of delivery systems in niches, growing at least 5% CAGR. And I want to quickly update -- provide an update to some more detail on the actions that we're taking to reinvigorate Beauty and rebalance Pharma. Both these businesses has margins above the Croda average. So driving consistent growth here, of course, helps enhance group profitability.

Starting with Beauty, where we're looking to drive a more consistent performance in both the top and bottom line. In Beauty Care, following the pandemic, many of our big customers prioritized tactical competitive activities like resetting supply chains ahead of innovation. This impacted industry innovation, causing it to slow temporarily. Well, ingredient innovation is now firmly back, and we've seen that pick up over the last 18 months, particularly with the multinationals. On top of this, customers want different things from our innovation programs. And at the start of last year, we responded by implementing this more rigorous innovation framework I just explained, ensuring spending is well controlled by reallocating resources to maximize the value we can create for our customers and, of course, ourselves.

In Beauty Care, we have 2 key priorities. Firstly, capturing exciting new near-term opportunities in commercializing our advanced biotechnology pipeline. KeraBio is the first -- you should see this as the first of a number of new platforms ready to be commercialized. And secondly, showcasing Beauty Care as a delivery system for actives, leveraging our ability to deliver tailor-made solutions to customers comprising multiple ingredients, and that supported increased growth last year. In Actives, we're seeing greater demand coming from outside of Europe. So again, we have 2 clear priorities there.

Firstly, internationalizing our actives capabilities beyond the traditional center in Paris. This will include regionalizing testing and claim substantiation capabilities, particularly in Asia. Our new class of ceramide ingredients is helping to accelerate active sales as we globalize our offer as well. Secondly, we're taking advantage of new markets opening up. Our Actives have traditionally been used in high-end brands, and that is continuing, but they are now starting to go into more mainstream markets as well. So we're delivering benefits to masstige products, affordable luxury, you may say. That's helped support higher sales growth in the second half of the year, particularly in North America.

And we expect Beauty to contribute to organic sales growth of 3% to 6% to 2028 for Consumer Care, with Beauty Actives growing faster than Beauty Care. And the sales growth across Beauty is accretive to group margin, it will enhance profitability at the group level. And finally, Pharma. We've improved our focus and the customer experience by splitting our Pharma business into 2 portfolio-led focus areas. These are pharmaceutical ingredients, which many of you will know, which represent over 2/3 of pharma sales, but wasn't our priority during the pandemic. And as we concentrated on higher growth opportunities, we've now organized this business on a regional basis, leveraging long-standing customer relationships through our regional model.

It comprises 2 things: ingredients for Consumer Health, where we're benefiting from Croda's broader skin care expertise for topical applications and advanced ingredients such as high-purity excipients that are used as delivery systems across the full range of current generation drugs. And to strengthen our leadership, we're creating new high-purity excipients for injectables and new bioprocessing aids as well, new market opportunities for us. And for example, our recently commissioned super refining process at our site in Leek has supported the launch of a super refined Poloxamer uses both an aid to sell growth during upstream processing as well as an excipient, great new growth opportunities.

And moving across to the right, Pharma Solutions provides lipid technologies and vaccine adjuvants, which together represent less than 1/3 of pharma sales. Here, we have the opportunity to accelerate overall pharma growth, albeit with a more volatile year-on-year performance as illustrated by its exceptional growth during the pandemic, followed by a reset in demand. This is now organized as a specialized global business, working closely with customers and partners, principally on new drugs in development.

In lipid Technologies, we're targeting new applications for lipids in generics and expanding our range of more than 2,000 lipids for drug research, for example, with Certest and to accelerate development of sustainable vaccine adjuvants as well, an important part of our R&D program. We are working with external partners with recent portfolio additions, including sustainable squalene, which has demonstrated extended stability compared with the competitors shark-based alternatives. Pharma will contribute to organic sales of 4% to 7% each year for Life Sciences, a growth rate, which excludes any breakout growth projects that could represent a potential upside.

So growth across all pharma platforms is accretive to group margin and will help enhance the group profitability. So let me pause there, hand over to Stephen, who can talk about our transformation program and how all of this translates into our near-term performance.

Thank you, Steve. Right. So moving on to our transformation program. So last summer, we set out a program designed to enhance growth, drive stronger execution and deliver cost efficiencies. So what are we doing? First, we're optimizing value by reducing complexity in our product portfolio and customer base. We're also delivering commercial excellence through improved pricing discipline, customer segmentation and account management. Second, we're transforming our supply chain, where there's a significant opportunity to reduce cost and working capital by optimizing our procurement, manufacturing and distribution.

Third, we're simplifying our organization by streamlining management layers, headcount and support functions. This is underpinned by actions to enhance our performance culture, aligning incentives to our financial framework as well as a program to leverage AI, digitalization and better use of data. Collectively, these steps are expected to deliver total annualized savings of GBP 100 million and a working capital reduction of GBP 50 million for full year 2028.

Though it's still early days, we've made good progress in each area. So let me give you some examples, starting with optimizing our portfolio. Our customers value the breadth of our product range, which includes over 100,000 individual SKUs. However, this brings complexity and cost to our supply chain with a long tail of low-volume items where we don't always make money. So we're rationalizing our product SKUs with a minimal impact on sales, which will allow us to focus on the most important products, save costs and improve working capital. We've completed a pilot for one global product group and we'll now apply this to the rest of the portfolio. We've also segmented our customer base so that we can tailor our service better.

For example, we're improving account management for our multinationals. We're setting minimum order values for smaller and regional customers, and we're accelerating adoption of our digital portal, reducing cost to serve. We're also driving best practice in pricing across the portfolio. As we told you at the half year, we're closing and outsourcing our U.K. distribution center as part of our supply chain transformation as well as fast tracking an operational improvement program for our 11 shared manufacturing sites, which account for around 70% of volumes and 60% of sales. By the end of the year, we've begun to realize savings in 6 sites with a further ramp-up this year as we benchmark and standardize best practice. We're also starting to consolidate manufacturing processes into fewer locations.

For example, we currently produce alkoxylated products at 8 sites around the world, and we'll halve this by the end of the plan. In total, we have more than 40 manufacturing plants and most of our costs are not associated with the 11 shared sites. So we'll also focus on the rest of the footprint in 2026. Centralizing procurement is a major part of our transformation program, rebalancing local agility with the need to exploit our purchasing power. At the moment, Croda largely buys products and services on a site-by-site basis. We're establishing regional and global procurement by cost category, starting with raw materials, packaging and logistics. We've also launched a working capital improvement program and have identified structural savings of around GBP 50 million across inventory, receivables and payables.

Looking at simplifying the organization, we reduced headcount by around 5% in 2025, excluding F&F. In our back office, we've begun to transform finance, HR and IT with a greater use of shared services and outsourcing as well as better use of data and automation. Now this slide aligns the savings we set out last year with the pillars of the transformation I've just outlined. GBP 65 million comes from optimizing our operations and procurement as we transform our supply chain and GBP 35 million comes from simplifying the organization through headcount reduction and streamlining our support functions.

In total, we still expect to deliver recurring savings of GBP 100 million in 2028 at a cash cost of GBP 80 million. As you heard earlier, we delivered GBP 28 million of savings in 2025, slightly ahead of our plan. This offset underlying inflation and the cost of recent investments coming online. From 2026 onwards, we expect transformation cost savings to more than offset inflation and investment costs, contributing to margin recovery. Of course, we'll continue to identify new transformation opportunities, particularly in our supply chain, and we'll keep you updated on progress.

So turning now to our financial framework for 2028. As Steve said, we have leading positions in attractive markets and are well positioned to deliver consistent growth. Assuming prevailing economic conditions continue, we expect organic sales growth of 3% to 6% in Consumer Care and 4% to 7% in Life Sciences, both underpinned by growth in all our business units. Industrial Specialties is not a priority for capital allocation, though we will selectively target growth opportunities. We expect sales here to be broadly flat as modest growth in direct sales is offset by reductions with Cargill. Together, this amounts to average organic sales growth for the group of 3% to 6%.

Volume growth will moderate from 10% in 2025 as we increasingly focus on our most highly differentiated higher-margin products with price/mix turning positive. So how does this all translate into margins? We expect to increase adjusted operating margin from 17.4% in 2025 to more than 20% for full year 2028. A 20% operating margin is equivalent to an EBITDA margin in excess of 25%, which benchmarks favorably against our peers. Our principal cost headwind is salary inflation, which was GBP 12 million in 2025.

We also expect a GBP 10 million step-up in depreciation in '26 as recent investments come online, but this should be the final significant increase. Margin recovery will be driven by remaining transformation benefits of GBP 75 million as well as top line growth with growth contributing a slightly larger portion. Turning to free cash flow. I'm pleased with the early progress we made in 2025, generating GBP 134 million of cash in the second half. We expect to make further improvements reducing working capital by GBP 50 million for full year 2028. This will be delivered by improving supplier terms and payments as we centralize procurement, standardizing receivables terms and optimizing collection as well as reducing inventory as we transform the supply chain.

Capital expenditure has also been coming down as we complete the pharma investment program and several other large expansion projects. We reduced CapEx to GBP 108 million or 6% of sales in 2025, and we expect it to continue at around that level over the next few years. The benefit of lower CapEx and working capital, together with growing profits, will support a continued improvement in free cash flow. As you can see, we're targeting free cash flow conversion of 12% for 2028. Our definition of free cash is now more prudent as it includes the cash cost of delivering transformation.

Turning now to capital. As I said at the first half, our capital allocation framework remains unchanged, but we're applying it with greater rigor. Our first priority is organic investment, where there's been a period of heightened intensity and greenfield site investments, which are now largely complete. We're putting a strong focus on returns, risk and execution in our upfront commercial assessment of future CapEx and we'll prioritize smaller, lower-risk opportunities with faster cash payback.

Second, our policy is to pay 40% to 50% of adjusted earnings as ordinary dividends, and we remain committed to at least maintaining the dividend as we grow back into this payout ratio from the current level of 76%. Third is acquisitions. After significant M&A activity in recent years, our focus is now on driving greater returns from these investments. We will continue to look at small technology-led bolt-on acquisitions if we see opportunities to accelerate innovation. But any spend here is going to be modest and typically below GBP 10 million. Fourth, we plan to maintain net debt within the range of 1 to 2x EBITDA, providing the opportunity for additional shareholder returns as we generate free cash flow over and above regular dividend payments.

So to summarize, our new financial framework sets out our targets for the next 3 years to 2028 and a scorecard for tracking future progress. Our ambitions, of course, go well beyond this, but let's first get the business back to generating good growth, margins and cash flow. We expect to deliver average organic sales growth of 3% to 6% a year through to 2028 based on current market conditions. Together with benefits of our transformation program, this will result in adjusted operating margins of more than 20%. We're targeting free cash flow relative to sales of more than 12%. And finally, with earnings growth and lower capital intensity, we expect return on invested capital of more than 10%. Many thanks, and I'll hand back to Steve.

Many thanks, Stephen. So as you've heard, there's a huge amount of activity going on right across the business. Our plan is built on Croda's core strengths, underpinned by multiple self-help areas to drive growth and transform our business for the next chapter. It's all about delivery and it's all about transformation. And our performance objectives are clear: to maximize value to our shareholders by delivering consistent growth and enhanced profits alongside increased cash flows with improved returns. Progress is underway. There's much more to do, but we look to the year ahead with confidence, and we look forward to keeping you updated along the way.

So let's stop there and take your questions. I think what we'll do just for housekeeping, plenty of questions. When you put your hand up, there will be a mic coming, if you just say your name and firm. And then for those that are dialing in online, just plug in your questions and David will read them out later. Thank you.

Charles, do you want to start?

Charles Eden from UBS. My first question is on margins. And how should we think about the cadence of the margin progression over the coming years? Is there any reason why the progression towards over 20% by 2028 will not be reasonably linear over the next 3 years? And perhaps you could also talk us through how you're thinking about the various contributing buckets to this between operating leverage, transformation cost savings, incremental cost inflation and any other factors you wanted to call out?

And I don't want to get ahead of ourselves, but you mentioned your ambitions go way beyond the targets set out for '28. So is it fair to assume that means nothing has changed regarding the EBIT margin trending back towards the mid-20s over the longer term? And then my second question is on price/mix expectations for '26. Can I just confirm, is the expectation still for flattish list pricing with mix negative to start the year, but to see improvement through the year? Is that the right way to think about it? And are there any variances between Consumer Care and Life Sciences to be aware of?

A few questions, sorry. Stephen margins and mix.

I'll deal with your last question first. The way you've described that is exactly right. Just think about the momentum that we've got going through '25 into '26. Coming back to margin, I'll talk about the 3-year period, not start thinking too far beyond 2028. But let's think about what we've seen. I think good margin recovery in 2025. There is an FX headwind of 1% that masks that. And that's the progression that we will see going into next year. So exiting second half at 17.6% -- and yes, you should think broadly linearly across the 3 years.

And as I set out on the slide, we've got the combination of sales growth and business transformation really driving that, sales growth being slightly more than transformation. And of course, like any business, we then have inflation headwinds and everything else. The key point to make, of course, is that the business transformation benefits are structural, right? So that GBP 100 million of savings continues beyond 2028. Look, our ambition is to get beyond 20%, but let's first get to 20%. When we compare the business now back to 2019, it is a much better business. It's a higher value, higher-margin business, but it's also a different business, a different mix and a more heavily invested balance sheet, but we're not going to rest at 20%.

Lisa?

Lisa, Morgan Stanley. I have 2. I would just like to come back to your capital allocation comments. At the end, you talked a little bit about potential special returns. If you could just provide a little bit of detail or framework around that, that would be great. And then two, you had a quite strong end to the year on the top line. It was quite impressive. How should we think about that trending into the first quarter? I know that you mentioned that comp sales would be broadly flat year-on-year, but it would be good to get some qualitative color on the subsegments, especially pharma and the subsegments of Consumer Care.

Should we start quarter 1 then, just a high-level message on quarter 1, and then we'll come back to special returns as well.

Yes. So Lisa, it's unusual for us to guide for a quarter. I did that because what I don't want is a surprise coming out when we report in April, quite frankly. But there's nothing unusual about what's going on. We've exited 2025 actually in the way that we expected. January is looking bang on expectations. It's just for Q1, we're lapping a very strong quarter in 2025, as I said, with 9% growth. But in terms of phasing for the full year, it will be kind of a normal 50-50 split.

Okay. And then on the special returns, I think the capital allocation policy has been there for many years. We're not doing any more big CapEx. It's back to 6%, around 6%. And a lot of it is -- and we're not doing any M&A as well. So we expect to grow the business very hard. I mean a lot of the focus is on EBITDA growth and free cash flow growth. So we need that free cash flow to grow. And we've got options -- we've got optionality on the balance sheet. But Stephen can probably add to that, if you want.

Yes. Look, I think for me, it's about running a prudent balance sheet. So we're 1.3x levered at the moment. We've been very, very clear that we'll be generating more free cash flow. I think it's important that we grow back into the dividend. And as a point of discipline, we don't borrow to buy back shares or pay special dividends, all right? So we're very clear that the cash will first cover the dividend. As we generate more cash, we and the Board will obviously look at how we deploy that.

Okay. Sebastian?

Sebastian Bray of Berenberg Bank. I would have 2 questions, please. The first is on Industrial Specialties. The company has provided flattish comparable sales growth indication to 28%. Can you talk about the expected margin development over that time because this business used to make double, if not higher, operating margins versus what it does today. Is sitting within that guidance, the expectation that the profitability of the segment will improve on a relative basis faster than the 2 main segments of Croda, the Life Sciences and Consumer Care.

And my second question is on part of Consumer Care, which is Flavors. You didn't mention it in the presentation, but it looks like it was the fastest-growing business at Croda in 2025 with, I believe, over 20% growth. What's going on there? And is this an area that let's say, could become a little more important in the future?

Yes. Well, let's do flavors and then back to IS, and we'll both probably chip in on IS. I mean Flavors, it's a good business with minimal distraction at the top of the company. It's part of a very good team in the F&F team. So it's -- we've given it about GBP 3 million or GBP 4 million worth of capital about 2 years ago. It's all it needs to keep growing. So the growth is coming from that capital that's gone into the business.

And it's really good growth around the world. So our job there is it's not easy, but it's increasing its EBITDA without distraction from the top of the company. And we like the business, and it doesn't need any more capital for the future. So becoming more important because of the growth, but it's still part of flavors and fragrance business, which is growing very well as well. So this last year, it's done very well. But we shouldn't forget about fragrances, which is growing 13%, 14% as well. So we like the business, and it should continue to grow.

IS, I mean, let me start with IS. IS, the majority of IS has got good margins in it. In there, you've heard that 20% of IS is the relationship we've got with Cargill. A smaller percentage of that is the tolling and residue cold stream business. So the majority you can work out is broadly 2/3 of that is good quality quota business, something that I've run for 15 years in Croda. So it's got good margins. We expect that core business to grow. We want it to grow. So we wanted to selectively grow. And I think it will help, of course, that growth to the respective businesses in the front here for Life Sciences and consumer in the shared assets. So it should continue to grow, but a lot will depend on the overall growth with the relationship we've got with our Cargill partner and also cost stream should be just a function of the activity that we do as a business.

And Sebastian, margins in IS will recover, but both as we target specific growth opportunities and as the business benefits from transformation, obviously, from a relatively small base.

Katie Richards from Barclays. Just a quick follow-up on the margins. If I remember correctly, at Q3, you said that you felt you'd be able to recover 750 basis point adjusted EBIT decline and are now targeting above 20%. So is there any reason for your conservatism on this slide? And as well, having now disclosed the sort of midterm targets towards 2028, what can we expect from the CMD in the first half of this year, if that's still happening?

And my second question would be on the utilization and the winning back of volumes. If I look at the slide on the bottom left on Page 19, it looks like the utilization rate in the second half of this year has been flat or maybe 1 percentage point up. Are you still comfortable with getting back to 100% of utilization rates by the end of 2026?

Okay. A few questions in there, margins, utilization and your point about Capital Markets Day. So Steve, why don't we start with margins and utilization. I'll come back on the Capital Markets Day point.

So look, is 20% walk in the park? No, it's not. I think that's a stretch. It's early days on transformation, but we're pleased with progress. We've set out a clear path back to more than 20%. As I said earlier, we're not resting on that as our ambition. What was the utilization? Spot on 93% for the full year. It's up a little bit. Look, we want to get back towards 100%. This isn't an exact science. It's multiple sites. It's multiple processes. When we talk about 93% utilization, that's wonderfully simplistic. What you've seen through the year is the trend of volume coming down and the mix offset coming down as well, all right? So think about 10% volume growth for the full year. Q4 volume growth was 5%. Mix for the full year, 3% against -- and then that's come down, obviously, in Q4. That's the trend that we expect to continue going into '26 and beyond.

And your Capital Markets Day point is don't expect a full-blown Capital Markets Day for us. What we want to do is similar to '22 for many of you in the room that were there is start to do deep dives in our businesses. We've got 4 big businesses, Pharma. We've got Ag, we've got Beauty and we've got F&F. So we're going to start with pharma. So we'll come out with some dates for a deeper dive on pharma in due course. David, we'll take one from David first.

It's a question from Martin covering analyst at Kepler, and it's on the margin again. Regarding your framework and your EBIT margin aspiration of over 20% by 2028, to what extent will this be driven by top line growth, including the leverage effect? And how much will cost savings contribute? Is it an equal split?

Yes. Thank you, Martin. Look, just to reiterate that growth is driven by both with growth slightly higher than transformation.

I think the wider point we want to make to -- and we make in the business as well is we want every business in Croda where sales value is ahead of sales volume and profits are ahead of sales value. And what we really mean by that is that the growth in margin is driven by innovation, but also with transformation. And we're not far away from that in some of our businesses. Matthew?

It's Matthew from Bank of America. Sorry to come back to the margin question again. I'm trying to connect what I think is Slide 19, which is the backwards-looking waterfall of effectively what's gone wrong and Slide 36, which is the forward-looking bridge on your targets because I mean you framed it in the way that these 3 equal buckets. And I guess my question is, of those respective buckets, how much of the problem do you think you can fix versus what, for whatever reason, unfortunately, is still a persistent headwind?

And the second question is on top line. This idea of delivering consistent growth I think with respect, that isn't necessarily something that Croda has proven in the past. So the question is, why is this time different? Is it a change in culture, a change in asset base? Why should investors have that confidence when the track record has been so inconsistent?

Let me start with top line and Stephen on margin. I mean, hopefully, what you see from the slides, in top line growth, we've had 18 months of good top line growth in an industry that isn't growing. And you can compare us to anybody in the industry. We're growing very well. I think the encouraging sign in second half is that our heritage Croda businesses are growing well as well. So you've got Beauty Care, Beauty Actives and Pharma Ingredients all supporting growth now, which is really important for the group. So that's point one. Point two, 90% of our business, the portfolio is a stronger portfolio today than it was.

And if you look at the slide that I presented on virtually 90% of our business is in structurally growth markets with big strong positions. We should grow. We expect to grow. We're pointed to customers with a lot of growth, particularly the local and regional customers and the regional dynamos we call them. And thirdly, virtually half of our business is in fast-growing geographies now versus 37% before. So the shift in the portfolio is significant to faster growth. So we would expect that. So all of those should come together to give us more consistent revenue growth. And we're encouraged. We're not getting ahead of ourselves, but we've had 18 months of good growth. I expect that to continue. So we'll stop there. And then on the margin point.

Yes, Matthew, exactly the right way to look at it. So the first slide sets out the margin going down. So that's volume, partly destocking, partly obviously the disposal of the PTIC business. We put a lot of cost into the business, and we've been clear that we were too slow in taking that out. And then finally, the third leg is the cost of investments that are not fully paying back, which is obviously what will drive growth.

So that's the past. If you then look forward to the future, we've set out that the margin up over 20%, go back to what I said a moment ago, driven really by growth -- top line growth of 3% to 6% and transformation growth being a slightly larger portion with GBP 75 million of transformation benefits to go. And then, of course, we do have the routine headwinds going the other way.

I think Chetan has got.

Yes. Sorry, Chetan from...

Chetan from JPMorgan. Maybe just a bit of a critical question to begin with. I think many of us for the first time is seeing a little bit of -- I think, Steve, you mentioned learnings, which probably we've not heard enough in the past, at least publicly. And I'm just curious, you are now talking about 6% of sales, which still seems high because in essence, we are seeing we've got too much assets or too many assets which are not fully sweated out yet. So I'm just looking at all the impairments. I'm just curious, how are you managing that so that we don't see 4 years from now, new plan with a lot of impairments.

We got another question.

Maybe I have, but if you want to.

Let's talk through that because I'd be to get Stephen. Look, I mean, we're a curious company. We have to learn. We don't like some of the things that happen, but you have to deal with them. And we've lived through 4 years of a very volatile industry. So I think every management team has to deal with it. We are. I think in terms of the focus in the business, we're really pleased with where the growth is coming. We've got 18 months of good growth.

I think the other thing that we didn't mention to Matthew's question is you've got innovation coming back in a lot of our industries, which has been temporarily subdued, largely by our customers. That's coming back. And the Croda model is we like innovation, but we need it from our customers as well. And you're getting that. And it's not just -- I'm not just talking about beauty, it's pharma ingredients, it's crop. there's formulation churn back in the industries that we operate in. Croda likes that because we get our next best product in there. So they all won't grow at the same speed. They'll be -- they won't be linear, but they'll grow. And we feel even in these tough markets, as we say, the growth rates that we're posting now, we're encouraged with. And we've got a lot of capacity to grow into. But Stephen, anything else you want to add?

Yes. So Chetan, I think as we think about capital investment, capital allocation, the key word for me is discipline, all right? We've been through a period of significant investments. And those investments are largely -- they're big greenfield sites that, by definition, have a longer payback. That's done. We've got all the investments that we need. Growth is being driven by the portfolio and the asset base that we've invested in. We will spend around 5% -- sorry, around 6%. That's a combination of both what I call maintenance capital, sustaining capital with some very small growth unlocks.

But what we want there are small investments that are low risk with really fast cash payback. And that bite on cash payback for me is the real discipline.

Maybe if I follow up on the same point. This co-development with customers, is that a new concept at Croda? Because I think historically, you wanted to develop and leverage over a wider customer base? Is that a change that has happened over the recent years?

It's an emphasis change. They all want different things now. And when we talk about customers, there's multinationals, there's regional dynamos and there's local players, they all want different, but we have to personalize our innovation with some of them. And some of the best returns that we get for innovation is through bilateral relationships, and we've got many in the pipeline, some really exciting stuff.

But that comes from a position of trust. So when we talk about NPS scores and things like that, we are at a very high level of trust with our customers, and that fosters more and more innovation. So we're at our best when R&D in Croda is speaking to R&D at the customer and you're fostering innovation. And you're starting to see that coming through in all of the businesses. So that's helping us with your point on growth. Innovation will drive us there, but we've got self-help. We shouldn't forget that transformation is in our hands. It's not anybody else's -- it's up to us to deliver that self-help. So we have that as an additional sort of by in our armory. Yes, David has been waiting patiently here, our Head of IR.

It's a question from Ranulf, the Citi analyst. Please, can you provide an update on the competitive dynamics, particularly emerging from Asia?

Yes. I mean, look, I mean, probably a China question, but more broadly, I mean, first point we would say is, look, currently, that Chinese competition is pointed to big customers, big products and big volumes. No matter what industry you're in, that's broadly where it is. In our industry, that lends itself to petrochemicals and upstream and some diversified. Some of you call it semi specialties, which fair enough. But it's not anywhere near Croda. We don't see that.

I think the second point is, look, we -- we don't take competition for granted. We're not complacent nor are we fearful for that. We would expect competition to move towards us. And the third point in response, it's the Chetan point, it's innovation. It's personalizing our customer activities, and it's giving our customers something different. And we've got that capability through the business model. It's a very effective business model. It's meeting customer unmet needs. And you're starting to see Croda get back to its normal cadence with customers on innovation. So that will keep us ahead of the competition.

And Ranulf, just to add, Asia and particularly China are obviously great growth opportunities for us, and you saw some really good examples of that in the presentation.

It's Nicola Tang from BNP Paribas. I just had one just to do a small mini deep dive into your Pharma business. And just can you explain a little bit what's changed versus your previous or historic performance and also previous targets? Because I think you used to talk about low double-digit growth for pharma, if I'm not mistaken, versus this greater than 5%. So is the change a function of changed expectations on end market growth? Or is it more a change in terms of what you've done and how you've rebalanced your portfolio?

Yes. So let me answer that. I mean, firstly, we've got 2 businesses. Pharma Ingredients is 2/3 of the business, which is that business, which you know very well. There's no change in that since 2022. We expect growth rates to be mid-single digit there. We're exiting '25 at those rates actually. So within there is -- and Thomas you can talk to Thomas afterwards. It's all around refocus, innovation, and it's the nuts and bolts of Croda.

So we think there's a lot of opportunities with this rebalancing of our innovation framework to drive further growth. So 2/3 of that business hasn't changed. The bit that has changed is the 1/3, which is Pharma Solutions. And all we're saying there is, look, we're not putting any of the breakout growth in our 3-year plan. We are still very excited about the progress. Every time we look at the number of projects that we've got in there, it's not reducing. And there's lots of opportunities there.

But we will get significant growth in Pharma Solutions without that. And that's coming from -- at the heart is Avanti. It's research for lipids. We've got opportunities for generics and lipids. And we've also got opportunities for non-mRNA lipids and other new vaccines as well. So we see those growth rates being good. The reason that the headline rates probably come down is because we've taken out some of the 3-year breakout growth because it's not in our hands. It may come through, but we're being cautious with that.

I've got a long list, so I can keep going. So again from Ranulf. With regard to the Lamar lipid facility, can you give a view on when operations may resume and what necessary conditions would be...

Yes. I mean I'll take that. I mean, look, we don't like impairments at the best of times. It's not Croda, but we have to respond to market conditions. I think we've mentioned before that, look, everything has been pushed out to the right for lipids, but it hasn't gone away. It's definitely not gone away. And we feel that we've got adequate capacity to meet the near-term and medium-term demand. I think we see that as a very important asset. It's got world-class facilities in there. It's probably more valuable than it was 12 months ago. But back to the question, a lot will depend on breakout growth. If we get something in the clinical programs in the advanced stage that hits the market, and it's something which is more significant than we think, and we can't meet that demand from our current units. And of course, we will bring that back. So we've got plans to step that plant up pretty quickly if we need to.

Maurizio Carulli with Quilter Cheviot Investment Management. Further question on Lamar. If you are mothballing it for the time being, what are the costs involved with that? And the aim is to keep cost at the minimum and then to have a one-off cost when it restart or to keep ready to restart virtually immediately, i.e., having a bit more of cost and then 0 cost when it restarts. And ideally, also to get a sort of a quantitative sense of these costs, if possible.

Yes. Okay. Let me put it up. So we've not -- really importantly, we've not mothballed Lamar. We put it on standby, right? And that means that we're ready to fire it up at short notice as and when there is a volume requirement right? So we've made a commitment to the U.S. government that part funded -- majority funded actually the investment. We have the plant up and running in sufficient time for their needs and of course, any other needs that we see. So it is recur having an ongoing standby costs. That's what we've provided for at year-end. So there is no financial -- remaining financial exposure here. That's completely covered. There's no downside risk. It's fully impaired. So from a financial perspective, you should think of this as a great asset actually. It's all upside when we get the volume opportunity. And in the meantime, we'll just rebalance across the other 3 sites being prudent in how we're managing the cost base.

Back to you, David.

The question is from Virginie at Deutsche Bank. We're seeing some AI-powered fragrance companies emerging. Why do you think this shouldn't be a threat to your business?

Yes. I mean AI is -- I think every board in the world is looking at AI in different ways, and we're as excited as anybody else about AI. And it's no surprise probably to the room that our focus is on innovation on AI and how does it help us with innovation. And actually, in fragrances, we're working with this and embracing that. And actually, it's a real strength. And we see it as a positive because we're taking fragrances and mapping formulations and vice versa and getting products to market quickly. And our model is getting over 2,500 references to customers on a monthly basis.

So we see this as powering our model rather than a threat. And I think AI more broadly is exciting. We see it as a net opportunity for us. It can drive the screening programs. It can help us with thinking about claims. It can get products to market quicker for -- so that's how we view AI. Chetan, with your left hand.

Follow-ups. First one was I heard Stephen talk about raising the minimum order value from customers. Isn't that completely the opposite of what your small customers actually like from you, which is not a commitment on volumes or value? And the second question was there's a little bit of question mark right now on what's happening in the ag ecosystem. And I do know this has been a big driver of volumes for Croda in terms of recovery in the last 18 months. Are you seeing any shift in the momentum in that market?

Yes. Well, let's do the tail. I mean the 2 points, what we're doing in the tail is it's the tail, tail, by the way. It's the small, small, very small. But there's 2 things we're doing there. One is to improve profitability, we think we can, minimum order quantities, we can apply because we can and we should. And separately, it's -- Stephen mentioned, it's the lower cost to serve, putting them on portals and online and scaling that. We are there, but we just want to scale that up. We think there's a better way of managing that. And separately, which is probably more beneficial to us is simplifying the tail as well. And we're talking about product SKU. So for some products, we have -- [ Alexandre ] is not here. We have multiple specifications for individual products, and we have multiple packs for individual products. That's Croda through and through. All we're saying at the tail we're trying to streamline that a bit more because that will be advantageous for us to get better throughput through the factory, nothing more than that.

So it's spring cleaning, but there's -- with a target on profitable growth there. Ag, yes, I mean, look, ag has gone through 4 years of unusual trading. So 2 years of boom and 2 years of reset. I think all we're saying there now is, look, we're now -- I think stock levels are broadly where you would expect them to be across the crop environment. Don't forget we're in Europe, North America and Brazil.

So we would expect -- as expected, we would see that as a more normalized growth rate now, like you saw from Croda 2010 to 2020, it was growing about 5%. It has the seasonality and the cyclicality, but it's actually quite a normal -- it grows pretty much that similar each year. So that's all we're saying we're expecting that to get moderate to its normal levels.

Okay. No further coming analyst questions on the webcast.

Okay. Well, thanks very much. Thanks for coming as well. I mean we'll see you April 22. But also, I mean, look, the big things around for Croda, what you've heard all through the session is it's about growth and transformation. Transformation is in our hands and self-help there, but we have got good growth, encouraging signs. It's early days, but we're focused as a management team on driving that growth and driving returns for everybody. So we'll stop there. We'll come back to you with deep dive timings for pharma through the year. But thanks again. Thank you.

Hello, and welcome to Croda International Q3 2025 Sales Update. My name is Laura, and I will be your coordinator for today's event. 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. Thank you.

Good morning, everyone, and thanks for being on the call. I'm here with Stephen, and he'll join me in answering your questions in a moment.

But let me start by quickly highlighting 3 key points coming from the quarter 3 update. Firstly, group sales were up 6.5% in constant currency, the sixth consecutive quarter of sales growth, and we're pleased with that. Quarter 3 hasn't seen any big surprises for us with customer demand for our ingredients broadly the same as quarter 2. And most encouragingly, we're seeing sales growth with innovation led, driven by an improvement in Beauty Actives, continued strength in F&F and an ongoing recovery in Crop.

Secondly, we'll continue to optimize utilization at our shared production sites through targeted sales of ingredients in Beauty Care, Crop and Industrial Specialties as part of the actions we've been taking since 2024 to increase operating margins. Alongside good growth in Actives and F&F, this resulted in another quarter of low double-digit sales volume increases compared with the same period last year. And as a result of these actions, the mix continued to be negative year-on-year due to both product mix and business mix and like-for-like prices remained largely consistent with prior year.

Thirdly, we continue to make good progress with our transformation plan to improve earnings and returns. We're driving sales by maximizing returns from our portfolio, leveraging our proximity to local and regional customers and stepping up innovation with all customers where we are seeing strong demand. And we're driving margin recovery by finding more ways to optimize capacity and by taking out costs as we simplify and modernize the business. We're on track to realize GBP 25 million of cost savings this year and continue to expect to deliver GBP 100 million of annualized savings by the end of 2027, contributing -- all contributing to margin recovery.

Finally, our guidance for the full year is unchanged. We expect a more challenging trading environment and low order book visibility to continue for the remainder of the year. But in line with previous years, absolute sales in quarter 4 are likely to be seasonally lower than in the first 3 quarters as customers typically manage their working capital into the year-end. Despite this, the combination of good sales growth year-to-date and anticipated cost savings means that we continue to expect GBP 265 million to GBP 295 million of group adjusted profit before tax at constant currency.

So let me stop there and hand over to you for questions from the sell-side analysts. So thanks for that.

[Operator Instructions] We'll now take our first question from Lisa De Neve of Morgan Stanley.

I have 2. Could we just run through the full year guidance, which was unchanged on a currency-neutral element. But just taking into consideration the unchanged translation FX guidance, but small incremental negative transactional FX, but then your third quarter volumes were slightly ahead. How do we picture that into the full year against market expectations? It would be very helpful to get a little bit of color on that.

And then secondly, in terms of the fourth quarter, you called out the normal seasonal slowdown, but it would be very helpful to get some comments on what you're seeing more globally and specifically in Asia and Lat Am in terms of trading trends and how the customer is feeling and what the implementation is on that in terms of Life Science and Consumer Care demand.

Yes. Let's Stephen do the guidance, and I'll come back on the wider, broader customer point.

Yes. Lisa, good to hear from you. So look, we've reiterated full year guidance. That shows the confidence, obviously, in the business. We're on track. We have highlighted market uncertainty and just shorter visibility on the order book. So that's why we're keeping the guidance unchanged.

Worth saying that on ForEx, you pointed out 2 elements there, both headwinds. We have translational ForEx of around [ 10 million ] for the full year. And then on a transactional level, you will recall we had an adverse impact in underlying profit of [ 7 million ] in the first half. We expect that to be about [ 3 million ] in the second half. So again, I think, [ 10 million ] overall for the year was a headwind.

Yes. In terms of the broader point, Lisa, yes, I mean, we expect the trends to continue from quarter 3 into quarter 4. What you're seeing is Consumer Care. You've got Consumer Care growing well, particularly with innovation-led growth in Actives and Beauty Care as well. I think Crop is recovering well, too, as well. And you're seeing that F&F has been consistent with its growth.

I think we're cautious on quarter 4, like many others because of the order book more than anything else. The order book visibility is very low. But customer sentiment is not changing. Innovation will win in the end in this market. And as long as we continue to innovate, we'll be fine. But we're just taking a cautious view because of the low level of visibility in the order book.

And we'll now take our next question from Charles Eden of UBS.

Two questions from me also, please. Firstly, you mentioned you're implementing the actions required to realize the GBP 25 million cost savings in 2025. I wonder if you could just give us a couple of examples of specific measures you've already taken and what you're seeing in terms of reward or cost savings as a result of those.

And then my second question and the comment, I guess, as well is thanks, firstly, for breaking out the mix and the pricing component separately in the release. That's very helpful. Can I just ask, given pricing is broadly flat year-on-year now, is the expectation that, that will remain the case. And then, I guess, at some point through '26 return to positive territory and back to sort of the old Croda, if you like, where pricing is an accretive component to group organic -- sales growth or group constant FX sales growth going forward.

Yes, a few questions in there, Charles. But we'll let Stephen do the cost transformation and examples and then also the mix.

Yes. Charles, let me just start with the mix. So yes, we expect pricing trends we've had both in the first half and then this quarter to continue. What we said next year is that volumes -- as volumes come in and the business normalizes, we would expect to see that volume price mix trend essentially reversing. So volume growth will come to an end as we get to the end of next year. And then you'll see positive trends on price and mix. And as you pointed out, prices are largely consistent year-on-year on a like-for-like basis, which is important.

On the cost savings, yes, we're on target for the GBP 25 million of savings for this year. We've set out in the summer a clear program to deliver GBP 100 million savings by the end of 2027. You can imagine the savings at the moment are what I'd call slightly more tactical. So early procurement savings, headcount reduction across the business in the back office sort of early moves on shared services. As we go into next year, we start to tackle the more structural opportunities that we've outlined, particularly in supply chain and logistics.

Very clear. And just for clarification, I think I know the answer, but you talk about volume trends normalizing. You'd still expect volumes to grow in '26, just to be clear.

Absolutely. So we've talked about getting back to the historic levels of utilization in our core plants. That will take 2026 to achieve that level. That will give us good operational leverage that drops through to margin accretion, as you saw in the first half. That will continue. Once we're at those levels, Charles, we'll then see the price/mix margin accretion from that.

And we will take our next question from Chetan Udeshi of JPMorgan.

The first question was -- so I think this is probably the first quarter in many quarters where your Actives business has grown double digits. I'm just curious, is there some -- a freak accident because of the launches from your customers', timing, et cetera? Or do you see now a clear trajectory here where we should see at least some positive growth in coming quarters because of the new products that you are referencing in terms of innovation?

The second question was, I mean, I'm a bit curious, you are almost now in Q4, the range of your guidance still seems pretty wide given that we have only one quarter left. Are you still anchoring us to -- or sorry, still suggesting that we should be anchoring to the midpoint of the guidance? Or do you want us to take a view on either low or top end of the guidance?

And the last quick question would be on Crop. Very, very strong growth again in Q3. It seems some of your customers are starting to sound a bit more cautious. Is that something you see in your order book or any of your discussions with customers?

Okay, Chetan, thanks for the questions. I'll do Actives and Crop, and Stephen on guidance.

Yes, Actives, I mean, I was in Sederma last week for 2 days, just running the rule of the business. And I mean, great progress there, innovation-led growth. We have been growing, by the way, Chetan over the last few quarters, but this is a bigger growth. And we're very pleased with that, well balanced across local and regional and multinationals actually. It's U.S.A. led. And there's many behind the growth figures. It's not 1 or 2 customer wins. It's many, product launches with customers of all different shapes and sizes. So primarily, virtually all of it is on innovation, some great new products coming out and some existing products with new data. So we feel very confident about the Actives business.

I think in Crop, the good recovery continues. Europe is getting stronger, which is where the recovery started. And that's now supported by America as well. So it's mainly multinational driven. But Tier 3 customers are growing as well, too. And we don't see any deterioration in the order book as we look at that into the remaining part of the year. So we're okay with that.

Yes. And then, Chetan, just on the Q4 and guidance. So look, we're very happy with the way the business is trading. It's in line with our expectations. It's just given the external environment and uncertainties, the reason why we've just not changed the guidance at all.

Don't forget when we set that back in early in the year, we weren't expecting those FX headwinds that are hitting our underlying profit. So I think the key takeaway for me is that I'm absolutely comfortable with where consensus sits, and I would not expect that to change.

And we'll now take our next question from Nicola Tang of BNP Paribas.

I wanted to just clarify on the comments around seasonality for Q4. I think we only really have disclosure on a quarterly basis for the past 2 years, which perhaps weren't normal years, but wasn't necessarily down Q-on-Q in Q4 versus Q3. I think if I look at Bloomberg consensus, it implies Q4 sales will be down around 6% or 7%. So I just wanted to check versus Q3. So I just wanted to check if that was roughly in line with the usual seasonality that you're referring to.

And then the second question, you referenced in the release slower -- the fact that lipid sales, adjuvant sales were a bit lower due to uncertainty relating to U.S. regulation or the regulatory environment even. And does this relate to sales going towards existing commercial applications, i.e., lower uptake of vaccinations by U.S. consumers today? Or does it relate more to development projects, i.e., consumers slowing down their pipelines or slower FDA approvals?

Yes. Let's go to the order of the question. And Stephen, on the quarter 4 seasonality, and I'll come back on Pharma.

Nicola, yes, just on seasonality, Q4 has always been traditionally the smallest quarter, and that just simply reflects the buying patterns with our customers. What we would expect to see are the trends that we've seen through the year so far. In other words, in Q4, year-on-year growth, but just the quarter being smaller in absolute terms.

Yes, Good. I think on Pharma, I mean, I would make a wider point. It's good to see the early signs of growth in Pharma ingredients. As a reminder to everyone, that's 2/3 of the business.

The lipids point, it's slightly behind driven by America, but that's against tough comparators in the quarter and some customer hesitancy. But outside of America, it's fine. So we don't see any -- we're not overly concerned with anything in lipids. The Avanti preclinical lipid pipeline will continue to grow. We have no problem with that.

And we will now take our next question from Artem of Redburn.

Firstly, on the shared slide, I remember after the first half results, you provided this chart where you indexed your volumes of the share slide of the pre-COVID levels. I think last time you showed that slide, it was 8% down relative to the pre-COVID levels. Would you get any indication where these volumes are today? Or in other words, how do you feel about your capacity utilization rates right now?

Yes. It's a little bit better than that, as you'd expect. And I think more broadly, back to Stephen's point, we've got one more year to get back to optimized rates. So the plan is working for us, and we're pleased with that.

And we will take our next question from Sebastian Bray of Berenberg.

I have 2, please. The first is on Life Sciences. Can I ask about your thoughts on the run rate of this business into '26? And what I'm referring to is the following. If the lipids plus vaccines part is roughly 1/3 and constant currency sales were flat, let's say, high purity and other excipients were up mid-single digits, it implies that this fraction was down by close to 10% when there is quite a lot of new facility coming online that introduces fixed costs that needs to be covered for '26. Do you think Life Sciences as a whole is going to grow very much if ag is flattish because it's pretty tough comps in '26? How to think about the moving parts for that segment? In other words, are you comfortable with the balance of expectations for Consumer Care EBIT and Life Sciences EBIT for '26?

And then secondly, Fragrances, any signs of a cycle, which has been very nice is starting to soften? Or is everything pretty much as it was in Q2?

Yes. Thanks, Sebastian. We'll let Stephen go first on the Life Sciences trajectory, and then I'll come back on F&F.

Sebastian, so look, in terms of -- as I think about next year, you will absolutely see year-on-year growth across the Life Sciences portfolio. What you've seen in the quarter is a sort of a slowing or flatter Pharma business overall. But as we've said, only 1/3 of that is in lipids and adjuvants, and better growth in the excipients business in Pharma. I'd expect that to continue in terms of accelerated growth in excipients as we focus on that and rejuvenate that part of the portfolio.

Look, we're really excited about the Pharma opportunity. We're coming to the end of the investment cycle there in our facilities. We're really excited about what that gives us, particularly U.S.-based manufacturing, and we will grow into that. I think it's just worth saying that, that environment, the lipid environment is a little bit more difficult than we thought given U.S. policy, but we're still very excited about the long-term potential of the business.

And just to add to that, on the Lamar side, we've got potential revenue streams for Consumer Care going in there as well to protect profitability as well. So just to add to that.

On F&F, it's broad-based growth virtually everywhere. This quarter is led by -- well, both Fragrances and Flavors and also the Parfex business, which is more the business pointing to Beauty Care.

Regionally, the big growth is Middle East, Africa and Europe driving that. And the research and commercial pipelines are being expanded as we move research capability more locally there.

We're not -- back to your point, we would expect the revenue growth to moderate from 15% to 17%, but it still should be pretty strong for the next couple of years. And we're not weighted on a high level of what I'd call really fine fragrances in the portfolio as well. So we expect that business to continue good growth trajectory.

And we'll now take our next question from Katie Richards of Barclays.

First, could you just provide us some more color on how adjusted EBIT margins have trended this quarter versus the first half of the year? I know you haven't disclosed them explicitly. There was also some criticism of potential lack of operating leverage exhibited in the first half of the year as you've been winning back some volumes. So what would you say towards this?

Just another question on the transformation program, please, as well. You're targeting GBP 35 million of cost savings for optimizing operations. Can you give some more color on what part -- what this part of the program means towards you? Would you consider targeted divestments, for example, maybe of the shared manufacturing assets or elsewhere in the portfolio?

And then finally, I just want to pick up on the fixed point -- the fixed cost point Sebastian just made. You've guided towards GBP 15 million SG&A inflation per annum going forward as part of the transformation program with GBP 10 million expected this year. But given the ramp-up of what looks to be about GBP 200 million in new assets, including the Lamar sites, the Indian surfactants and the China F&F site, how can we expect the SG&A inflation to trend into next year? I'm just struggling with the timing of the ramp-up of these businesses and the fixed costs that come with them.

Okay. A few questions there. So really point them to Steve in margins, op leverage, transformation program detail and fixed costs going into next year for the plants.

Katie, thanks for the questions. Just on margin, obviously, we've not given margin for Q3. It's a trading update. Just all I'd say is we're very comfortable with the progression of the business and the continuation of what you saw in the first half.

On operating leverage, the point here is that we're bringing back business into the company that's rightfully ours. If you look at the first half, the benefits of that volume growth on a net basis were around 2% improvement in our operating margin. That's the plan that we're executing on, and that will continue, as I said earlier, through to the end of next year.

On the cost savings, Yes, remember, GBP 100 million by the end of '27, the largest individual parts of that around supply chain and logistics. We've talked there about optimizing the footprint globally. So that is both within individual facilities and the network as a whole. And you saw a good example in July, where we've announced the closure of one of our distribution centers to optimize that footprint.

What we're looking at is both supply -- both manufactured within the individual sites. So we expect to see a rebalancing of where we produce product to bring it closer to where we're seeing customer growth, so particularly in Asia.

And then on the fixed costs, you're right. So we're coming to the end of our major CapEx investment program. That finishes at the end of Q1 '26. And thereafter, we'll see a significant reduction in CapEx. It is bringing on as we start up those facilities around GBP 10 million of incremental fixed costs that we've talked about previously into the business. So that's one element of inflation. Beyond that, I'd just point you to sort of normal inflation in the cost base and particularly salary inflation. But the point here is that with the GBP 100 million of savings, the transformation program we've got that overall, we will see that contributing to margin recovery as we get back to our ambition of mid-20s operating margin.

And we'll take our next question from Georgina Fraser of Goldman Sachs.

Kind of follow-ups to Katie's questions. I just wanted to understand, you've highlighted a continuation of negative mix. Could you talk about what's driving that given the strength in Beauty Actives? And then you did Stephen, give some helpful comments about the trends that you're seeing in margins. Do you mean that we should still expect margins to be up year-on-year in the second half, even though we have that negative mix?

And then final question, thinking a bit more about profitability levels or margins for next year. You repeated quite a few times. So I think you want us to all get this message very, very clearly that next year is going to be another year of getting back to optimized utilization rates. So should we be thinking about 2026 as another year of volumes at the expense of mix before we get into positive mix territory into 2027? And what does that mean for margin expectations next year?

Yes, fine. Thanks, Georgina. I mean let me do the negative mix effect in the quarter and then pass to Stephen for the others.

I mean, simple, the majority of that is in the negative mix is in the Industrial Specialties and the Crop businesses for the quarter 3. You've got positive mix starting to come through, particularly with Actives growing in Consumer.

But on the margin profitability, I'll pass to Stephen.

Yes. So Georgina, as I said, Q3 is exactly in line with our expectations. You will continue to see that mix effect into next year. And that's just as we bring in those volumes that we talked about before where we saw a significant drop-off in volumes post-COVID, particularly relating to the sale of part of our Industrials business. But that will cease as we get towards the end of next year.

[Operator Instructions] And we'll now move on to a follow-up question from Sebastian Bray of Berenberg.

I have one follow-up on cash flow. The release doesn't mention it, but H1, it seemed to be the source of some investor concern. Have the working capital balances improved in H2? How is cash flow shaping up?

Yes. Sebastian, thanks for the follow-up. So again, working capital tracking as we would expect. Look, what I said at the half, obviously, we are investing in working capital to support the growth of the business. But I do see opportunities for us to be more efficient in the way that we manage working capital just as we'll be more efficient in the way that we manage the cost base. So if you think about supply chain optimization rationalization, there's a cost element to that, but there's also an inventory carrying level to that as we drive efficiency around the network.

So I've talked about an opportunity of several tens of millions. That won't come out instantly because it does link to the transformation of the business. But I'd expect that improvement in working capital broadly to map the cost savings program. Look -- and Sebastian, the balance sheet is strong. We're in -- we're bang in the middle of the range, and I expect that to continue. And with CapEx coming down, obviously, we will delever.

That was our last question. I will now hand it back to Steve for closing remarks.

Okay. And thanks very much, everybody, for your questions. I mean 3 key points we wanted to get across today. We've got good sales growth continuing a good quarter for that, 5-point Plan remains on track and full year guidance unchanged.

So thanks very much, and we'll see you in February.

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