Steve Foots, Chief Executive's Statement 2025
"We are driving growth and transforming the business to deliver consistent sales growth, enhanced profitability and increased cashflows."
FY25 results - continued progress in a challenging market
We are encouraged by early progress in 2025 as we implement our plan to grow earnings and returns. In an uncertain trading environment, Group sales were up 7% at constant currency. Although margins are still significantly below their medium term potential, they improved in both key businesses, contributing to an 8% increase in Group adjusted operating profit. Adjusted profit before tax was £276.2m (2024: £260.0m), or £282.0m at constant currency, in line with guidance. Whilst free cash flow (post exceptionals) of £161.6m was £8m lower than the (restated) prior year, it improved in the second half year due to lower working capital and capex, with the debt leverage ratio falling to 1.3x EBITDA (31 Dec 2024: 1.4x; 30 Jun 2025: 1.5x). The Board is proposing a one pence per share increase to the full year dividend to 111p (2024: 110p).
Consumer Care and Life Sciences grew sales, adjusted operating margins and profits, with sales up 8% in both businesses at constant currency. In Consumer Care, Fragrances and Flavours (F&F) continues to outperform peers, and growth in Beauty was supported by more robust consumer sentiment in North America in the second half year. In Life Sciences, Crop Protection benefited from a recovery in demand from larger customers following an extended period of destocking, and Pharma delivered its strongest performance of the year in the final quarter despite the US regulatory environment continuing to create uncertainty for our customers.
Growing earnings and improving returns
We are driving growth and transforming the Business to deliver consistent sales growth, enhanced profitability and increased cashflows. Our financial framework to full year 2028 targets 3-6% organic sales CAGR over three years and at least 20% adjusted operating margin, 12% free cash flow-to-sales ratio (post exceptionals) and 10% Return on Invested Capital for full year 2028.
Building on our strengths
Our plan builds on the strengths of Croda, both our differentiated business model with its core capabilities, and a higher-growth portfolio.
Our business model is highly differentiated and enables us to create value through direct selling and customer-focused innovation. We use mainly natural raw materials and proprietary downstream processes across derivatisation, refinement and purification, to provide ~6,000 specialty ingredients to more than 17,000 customers. A key source of competitive advantage is our direct sales team who work closely with our customers and R&D colleagues globally to tailor ingredients for specific applications and formulate multiple ingredients into solutions.
Our eight business units leverage core capabilities to meet customer needs. Ingredients sold to Beauty Care, Home Care, Crop Protection and Industrial Specialties customers, as well as some Pharma ingredients, are produced at shared manufacturing facilities, accounting for ~60% of our sales and ~70% of our sales volumes. We go to market in a similar way across all businesses, creating value for customers by leveraging shared R&D expertise (for example in biotechnology), formulation advice, and testing to verify the performance claims customers make based on the solutions we provide.
We have come to the end of a period of significant portfolio realignment and investment over the last five years, repositioning our portfolio for higher growth. This has reinforced our leadership in innovation (with sales of patented ingredients increasing 9% in-year, leveraging over 1,700 patents) and sustainability (as validated by external rankings including our longstanding ‘triple A’ rating from MSCI). In 2025:
- 89% of our sales were to consumer, pharma and agriculture market compared with 73% in 2019
- Local and regional customers (L&Rs), who are growing more strongly than multinational companies (MNCs) and bringing more products to market, now represent 82% of Consumer Care sales (2019: 73%) and 56% of Crop Protection sales (2019:44%)
- Our footprint outside Europe and North America has also increased to 48% of sales (2019: 37%) enabling us to access higher-growth countries in Asia, the Middle East and Latin America
Through this transition, we have moved closer to higher-growth markets, niches, customers and regions.
So why has our performance been inconsistent over the last three years and what have we learnt? Sales have been impacted by the market environment, due to volatile demand post the COVID-19 pandemic, and a gap in sales volumes compounded by the divestment of the majority of our Industrials business in 2022. The drivers of our recent profit performance are more specific to Croda, with operating profit margins adversely impacted by a higher cost base (particularly operating costs), but product and gross margins remaining relatively stable, demonstrating the quality of our business. 2020-25 was also a period of heightened investment which has positioned us for growth but increased our invested capital base and contributed to lower returns on invested capital. 2023 was the post COVID-19 low point for sales and profit, with progress in 2024 gathering further momentum in 2025.
Building on the five-point plan we communicated in 2025, we are stepping up execution to improve performance, by driving growth and transforming the Business, which enables us to take out costs to enhance profitability, alongside delivering structural change.
Driving consistent growth
To deliver more consistent growth, we are refocusing on innovation, leveraging our proximity to customers, and maximising returns following a period of peak investment. As outlined in the Business Reviews, we are also driving consistent growth in key markets, reinvigorating Beauty – to take advantage of the full range of opportunities globally, and rebalancing Pharma – to put a greater emphasis on our core pharma ingredients (ingredients for consumer health and excipients which represent 70% of sales and grow well at high margins). Our Business is already well invested so we are not having to ramp up investment to deliver consistent growth.
Through the pandemic and immediately afterwards, customers prioritised supply and demand challenges ahead of innovation. With demand having returned, we are refocusing innovation, introducing a new rigorous Group-wide framework for prioritising innovation and rebalancing R&D resources to ensure innovation is more customer-focused. This puts greater emphasis on co-creation with customers and finding new markets for existing ingredients, as well as the development of new ingredients. It also recognises that sustainable innovation should be focused on objectives that customers value most and where we can have the biggest impact, for example augmenting the low carbon footprint of our ingredients by further reducing the associated scope 3 emissions. Key metrics demonstrate the good early progress we have made in 2025.
- Our approach to customer co-creation leverages our ability to tailor individual ingredients and formulate multiple ingredients to meet specific customer requirements. The average pipeline value of each customer co-creation project increased by 12% in 2025, with projects including co-creating PEG-free variants of existing ingredients
- We optimise our existing ingredient range to meet the needs of particular regions, markets or customers. Projects included developing our existing lipids range for the pharma generics market
"Building on the five-point plan we communicated in 2025, we are stepping up execution to improve performance, by driving growth and transforming the business which enables us to take out costs to enhance profitability, alongside delivering structural change."
- We develop new ingredients to fulfil unmet needs, with sales of new ingredients increasing by 10% this year at constant currency. New launches included Kerabio™ K31, a biomimetic bond-builder for hair that enables brands to compete with market leaders in the hair repair market which has been sampled by 500 customers in 2025, and sells at over £200 a kilogram providing the potential to enhance profitability
Our direct-to-customer sales model, together with the close alignment of sales and R&D, represents a significant source of competitive advantage, with customer retention data showing that we retained ~90% of larger customers from 2019-24 despite significant market volatility. We are improving customer experience, by gaining a clearer understanding of customer segmentation and introducing tailored solutions and bespoke service packages for L&Rs, ‘regional giants’ and MNCs.
- For local customers, we are regionalising claims testing and formulation support, for example replicating the world-leading claims testing that we undertake at our Beauty Actives site in Paris, in other locations in Asia. Sales to L&R customers grew by 9% in Consumer Care at constant currency in 2025
- We are deepening relationships with ‘Asian giants’ across Beauty, Pharma and Crop Protection with sales to the top 5 ‘Asian Beauty giants’ growing 19% over the last two years and Crop sales to tier ‘2’ customers up 36% in 2025 both at constant currency
- We have strong relationships with MNCs across our key markets and are a strategic partner to every major Beauty brand. In 2025, we grew sales with 4 of the top 5 Beauty customers and by 14% with our major Crop Protection customers at constant currency
The strength of our customer relationships is demonstrated by customer Net Promoter Scores (NPS) which have continued to improve as we play to our strengths. Customers rate us highly for product quality – the most important customer need where we rank top of the industry benchmark, as well as innovative products, sustainability and trust – where we rank in the top quartile. Through transformation we are driving best practice in order delivery, customer service and access to information. NPS results for 2025, based on ~3,500 responses, were:
- Consumer Care +42 (2024: +31)
- Life Sciences +49 (2024: +41)
- Industrial Specialties +32 (2024: +26)
- Croda Group +43 (2024: +32)
"Customer retention data shows that we retained ~90% of larger customers from 2019-24 despite significant market volatility."
We are maximising returns from investments made over the last five years as we have transitioned our portfolio, to ensure that they deliver incremental sales and profit growth. This period of heightened investment included both acquisitions – to enhance our capabilities and accelerate growth in Consumer Care and Pharma, and growth-focused capex, notably in Asia and post-acquisition investment to scale up pharma lipids.
- Acquisitions made during this period delivered good growth in 2025, with F&F sales up 15% in constant currency and Avanti lipid sales for drug research growing double-digit percentage CAGR at constant currency in the last three years despite customer uncertainty caused by the US regulatory environment. Sales of ceramides, acquired in 2023 with Solus Biotech, were up 36% at constant currency as we globalise sales, provide data for existing ceramides and launch new ceramides for scalp and hair health in addition to skin care
- We are investing selectively in manufacturing as we rebalance our footprint away from more mature regions to higher-growth countries. We recently commissioned a new low emissions production centre in Dahej in India which has a lower cost per unit than our existing manufacturing facility in India, and have begun commissioning a new F&F and Actives facility in Guangzhou, China, both of which we can leverage to deliver fast growth across Asia
- Capital expenditure in large-scale pharma lipid manufacturing across multiple sites globally has positioned us for potential break-out growth and was supported by significant funding from the US and UK Governments under their pandemic preparedness programmes. Whilst we expect sales of lipids for drug research to continue to grow, projects requiring the production at significant scale are expected to take longer to materialise. As a result, we have taken the decision to put the Lamar lipids facility in the USA on standby, resulting non-cash exceptional charges totalling £60.5m but minimising future costs while enabling us to fulfil our pandemic-preparedness commitments to the US Government. Other impairments, as outlined in the Finance
review, principally related to stopping certain inflight capital programmes and the exit of a UK distribution centre as we streamline the Business and tighten discipline.
Delivering transformation
We are driving structural transformation to enhance both growth and efficiency, making Croda a better business for the long term. The programme is fully established with an experienced transformation team and the whole business has responded well as we push hard to deliver change quickly. Underpinned by actions to enhance our high-performance culture, and to leverage AI, data and digitalisation to support decision-making, we are implementing clearly defined action plans for each of the pillars of the programme. We continue to expect to deliver total annualised efficiency benefits of ~£100m and a reduction in working capital of ~£50m both for full year 2028.
- We are simplifying and optimising our customer and product portfolios to sharpen our commercial focus. To optimise customers ‘at the tail’, we have introduced minimum order values and accelerated the adoption of ‘CrodaOn’, a low cost-to-serve online portal for lower value orders which is now used by over 10% of our customer base. To rationaliseour product portfolio, we are targeting a significant reduction in SKUs in 2026, building on recent successful pilots
- We are optimising our supply chain to enhance customer service, creating an end-to-end supply chain that will drive efficiencies and improve working capital. Optimisation of production capacity is underway, focused on our 11 shared manufacturing sites where we are rationalising processes and headcount. We are globalising procurement and scaling up improvements across raw materials, logistics and packaging. We are also exiting a UK distribution centre following a review of our distribution networks
- We are simplifying our organisation to realign our cost base by streamlining enabling functions, headcount and management layers. We are professionalising and streamlining structures in enabling functions and expect to deliver further efficiencies in 2026 as we implement our rationalisation plans and through structural savings in indirect costs.
With comprehensive action plans in place and the benefits delivered in 2025 slightly ahead of expectations, delivery of our transformation programme will make an important contribution to enhancing profitability, meaning a significant proportion of future margin improvement is ‘self help’, in our control, and not dependent on market recovery.
Outlook
Financial framework to full year 2028
With encouraging early progress in 2025 and actions underway to drive consistent growth and transform the Business, we are confident of delivering an improving performance over the next three years. Our financial framework to full year 2028, on a constant currency basis, comprises:
- Consistent sales growth from our strengthened portfolio, targeting an organic increase in sales of 3-6% CAGR 2026 to 2028 assuming current economic conditions continue
- Enhanced profitability driven by growth and transformation, targeting a Group adjusted operating margin over 20% for full year 2028
- Sustainable and growing cashflows, targeting a free cash flow-to-sales ratio (post exceptionals) of over 12% for full year 2028, driven by improved profitability, lower capital expenditure and structural improvements to working capital
- Improving returns on capital, targeting a Return on Invested Capital of at least 10% for full year 2028.
Guidance for 2026
For full year 2026 we expect:
- Group organic sales growth within our 3-6% range - versus a strong Q125 comparator, when sales were up 9% at constant currency, we expect sales in Q126 to be similar to the prior year at constant currency
- A further increase in Group adjusted operating margin driven by improving profitability in Consumer Care and Life Sciences and the benefits of our transformation programme
- Group full year 2026 adjusted operating profit in line with current market expectations¹ at constant currency
Technical foreign exchange guidance
The financial framework to 2028 and guidance for Group performance in 2026 are provided on a constant currency basis. Constant currency expectations are based on the Group’s average exchange rates through 2025 which were US$1.32 and €1.17. The US Dollar and the Euro together represent approximately 65% of the Group’s currency translation exposure. We estimate that the average annual currency translation impact on adjusted operating profit is £1m per Dollar cent movement per annum and £1m per Euro cent movement per annum.
The impact from movements in remaining smaller currencies is broadly aligned with the impact from movements in the US Dollar. If foreign exchange rates in the period from February 2026 to December 2026 were to reflect the same levels as January 2026 closing rates, it is anticipated that there would be a negative impact of approximately £8m on reported operating profit.
