Croda International : Full year announcement 2022

Press Release

28 February 2023

Results for the year ended 31 December 2022

Powerful operating model and consistent execution delivers record performance

Croda International Plc ("Croda" or the "Group"), the company that uses smart science to create high performance ingredients and technologies that improve lives, announces its full year results for the year ended 31 December 2022.

Highlights

Full year ended 31 December

Statutory results (IFRS)

2022

2021

change

	Adjusted results
			change
			constant
2022	2021	change	currency

Sales (£m) Operating profit (£m) Return on sales (%) Profit before tax (£m)

Basic earnings per share (p)

Ordinary dividend per share declared (p) Free cash flow (£m)

Net debt (£m)

2,089.3	1,889.6	10.6%	2,089.3	1,889.6	10.6%	5.2%
444.7	438.2	1.5%	515.1	468.6	9.9%	5.7%
			24.7	24.8	(0.1)ppt
780.0	411.5	89.6%	496.1	445.2	11.4%	7.3%
465.8	230.0	102.5%	272.0	250.0	8.8%
108.0	100.0	8.0%

167.4	153.6	9.0%
295.2	823.2	(64.1)%

Powerful operating model and consistent execution deliver record performance

• Sales up 11% at over £2 billion, with successful input cost inflation recovery reflecting strength of business model

• 1. Growth across Consumer Care and Life Sciences, driven by price/mix 24% higher
  1. Strong performance in Asia, Western Europe and Latin America
• Adjusted operating profit up 10%, exceeding £500m for the first time
• 1. Profit growth across all three sectors

• 1. Return on sales broadly flat at 24.7% (2021: 24.8%) - improved mix from divestment and lower remuneration charge offset by normalising Life Sciences margin and adverse operating gearing
• IFRS profit before tax up 90% to £780.0m (2021: £411.5m), including £356.0m gain on divestment
• Improved free cash flow of £167.4m (2021: £153.6m), with moderating raw material prices starting to benefit working capital
• Increase in full year dividend of 8% to 108.0p (2021: 100.0p)

Portfolio repositioned - aligned with emerging megatrends

• Completed divestment of majority of Performance Technologies and Industrial Chemicals (PTIC)

• 1. Creates stronger margin, higher return, less cyclical, greater IP and lower carbon intensive business
• Reinvesting proceeds to drive future growth
• 1. Enhanced organic capital investment programme, supported by government co-investment in Pharma
  1. Agreed acquisition of Solus Biotech for c£232m, expanding fast growth Beauty Actives business in Asia

Robust sector performances

• Consumer Care performance demonstrating increased resilience

1. Record sales and adjusted operating profit delivered; encouraging growth in F&F

• 1. Lower second half year volume and margin, primarily due to destocking and supply constraints
• Life Sciences building on exceptional prior year
• 1. Further strong progress, driven by excellent Crop Protection performance

1. Extensive pipeline of non-Covid delivery systems driving growth in Pharma, offsetting reduction in lipid systems for Covid-19 applications

1

Following the divestment of the majority of our PTIC business, the retained business is now known as Industrial Specialties. The prior period has been restated to combine the PT and IC segments which were previously reported separately. The divested business did not meet the requirements to be classified as a discontinued operation. Therefore, the divested business is included for a full year within the Industrial Specialties result for 2021 and for the first half year only for 2022.

			Full year ended 31 December
							Restated
Sales	2022						2021
£m	Price/mix	Volume	Acquisition	Currency	Change	£m
Consumer Care	897.8	22.0%	(12.3)%	1.5%	6.5%	17.7%	763.0
Life Sciences	682.3	5.7%	8.2%	0.0%	5.3%	19.2%	572.3
Industrial Specialties	509.2	19.9%	(31.7)%	0.0%	3.7%	(8.1)%	554.3
Group	2,089.3	24.2%	(19.6)%	0.6%	5.4%	10.6%	1,889.6

Full year ended 31 December

Adjusted profit

	Underlying	Acquisition	Currency	Restated
2022	growth	impact	impact	2021
£m	£m	£m	£m	£m	Change

Consumer Care	204.7	8.8	0.7	6.7	188.5	8.6%
Life Sciences	229.4	9.8	0.0	11.1	208.5	10.0%
Industrial Specialties	81.0	7.6	0.0	1.8	71.6	13.1%
Operating profit	515.1	26.2	0.7	19.6	468.6	9.9%
Net interest	(19.0)				(23.4)	(18.9)%
Profit before tax	496.1				445.2	11.4%

Steve Foots, Chief Executive Officer, commented:

"2022 has been a milestone year for Croda as we continued our transition to a pure play Consumer Care and Life Sciences business, evolving our portfolio to be more closely aligned to the emerging megatrends driving our markets. For the first time, we delivered over £2 billion in sales and £500 million in adjusted operating profit, reflecting progress across all areas of our business. Consumer Care is increasingly resilient, supported by encouraging growth in our F&F business, whilst Life Sciences has built on an exceptional prior year, with an exciting project pipeline in Pharma and a stand-out performance in Crop Protection.

"These record results have been achieved whilst managing a challenging environment. This demonstrates the power of our business model, our consistent execution, an increased resilience, following our recent portfolio changes, and the increasing importance of our products in our markets. We have a disciplined investment approach which is driving both organic and acquisitive growth.

"The increased depth, breadth and resilience of Croda's business and the significant opportunities that we see in our high- growth markets underpin our confidence for the year ahead."

Outlook

Though early in the year, the Group is trading in line with expectations. We expect the customer destocking that has been particularly apparent in North America to come to an end in the first half year, supporting continued sales growth this year in Consumer Care. In Life Sciences, we expect good sales growth in Crop Care and the non-Covid related Pharma business to offset the previously indicated decline in Covid-19 vaccine demand. Group performance in 2023 will be more second half weighted than in the prior year, reflecting the divestment of the majority of PTIC in June 2022 and the phasing of lipid systems shipments to our principal Covid-19 vaccine customers.

The combination of our differentiated business model, enhanced investment programme and exciting innovation pipelines in sustainable ingredients and drug delivery will continue to deliver consistent, superior returns.

Further information:

An investor presentation will be available via webcast at 0845 GMT on 28 February 2023 at www.croda.com/investors.

For enquiries contact:
Investors:	David Bishop, Croda	[phone]
Press:	Charlie Armitstead, Teneo	[phone]

2

Notes:

Alternative Performance Measures (APMs): We use a number of APMs to assist in presenting information in this statement in an easily analysable and comparable form. We use such measures consistently at the half year and full year, and reconcile them as appropriate. Whilst the Board believes the APMs used provide a meaningful basis upon which to analyse the Group's financial performance and position, which is helpful to the reader, it notes that APMs have certain limitations, including the exclusion of significant recurring items, and may not be directly comparable with similarly titled measures presented by other companies.

The measures used in this statement include:

• Constant currency results: these reflect current year performance for existing business translated at the prior year's average exchange rates and include the impact of acquisitions. Constant currency results are the primary measure used by management to monitor the performance of overseas business units, since they remove the impact of currency translation into Sterling, the Group's reporting currency, over which those overseas units have no control. Constant currency results are similarly useful to shareholders in understanding the performance of the Group excluding the impact of movements in currency translation over which the Group has no control. Constant currency results are reconciled to reported results in the Finance Review. The APMs are calculated as follows:
• 1. For constant currency profit, translation is performed using the entity reporting currency;
  2. For constant currency sales, local currency sales are translated into the most relevant functional currency of the destination country of sale (for example, sales in Latin America are primarily made in US dollars, which is therefore used as the functional currency). Sales in functional currency are then translated into Sterling using the prior year's average rates for the corresponding period;
• Underlying results: these reflect constant currency values adjusted to exclude acquisitions in the first year of impact. They are used by management to measure the performance of each sector before the benefit of acquisitions are included, in order to assess the organic performance of the sector, thereby providing a consistent basis on which to make year-on-year comparisons. They are seen as similarly useful to shareholders in assessing the performance of the business. Underlying results are reconciled to reported results in the Finance Review;
• Adjusted results: these are stated before exceptional items and amortisation of intangible assets arising on acquisition, and tax thereon.
  Exceptional items are those items that in the Directors' view are required to be separately disclosed by virtue of their size or incidence. Movements in contingent consideration have been presented as exceptional as they are not directly representative of the underlying business performance in the period and therefore this presentation provides a meaningful basis to make comparisons between reporting periods. The gain on business disposal and impairment charges have been presented as exceptional due to their size and one-off nature. The Board believes that the adjusted presentation (and the columnar format adopted for the Group income statement) assists shareholders by providing a basis upon which to analyse business performance and make year-on-year comparisons. The same measures are used by management for planning, budgeting and reporting purposes and for the internal assessment of operating performance across the Group. The adjusted presentation is adopted on a consistent basis for each half year and full year results;
• Return on sales: this is adjusted operating profit divided by sales, at reported currency. Management uses the measure to assess the profitability of each sector and the Group, as part of its drive to grow profit by more than sales value, in turn by more than sales volume, as set out in the Group Performance Review;
• Return on invested capital (ROIC): this is adjusted operating profit after tax divided by the average adjusted invested capital. Adjusted invested capital represents net assets adjusted for net debt, earlier goodwill written off to reserves and accumulated amortisation of acquired intangible assets. Calculations and reconciliations are provided in the five year record of the Group's Annual Report. The Board believes that ROIC is a key measure of efficient capital allocation, in line with its policy set out in the Finance Review, with its aim being to maintain a ROIC of two to three times the cost of capital over the cycle, and that it is useful to shareholders in assessing the returns delivered by the Group and the impact of deploying more capital to grow future returns faster;
• Net debt: comprises cash and cash equivalents (including bank overdrafts), current and non-current borrowings and lease liabilities.
  Management uses this measure to monitor debt funding levels and compliance with the Group's funding covenants which also use this measure. It believes that net debt is a helpful additional measure for shareholders in assessing the risk to equity holders and the capacity to invest more capital in the business;
• Leverage ratio: this is the ratio of net debt to Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) adjusted to include EBITDA from acquisitions or disposals in the last 12 month period calculated in line with the banking covenant definition. EBITDA is adjusted operating profit plus depreciation and amortisation. Calculations and reconciliations are provided in the five year record of the Group's Annual
  Report. The Board monitors the leverage ratio against the Group's debt funding covenants and overall appetite for funding risk, in approving capital expenditure and acquisitions. It believes that the APM is a helpful additional measure for shareholders in assessing the risk to equity holders and the capacity to invest more capital in the business;
• Free cash flow: comprises EBITDA less movements in working capital, net capital expenditure, payment of lease liabilities, non-cash pension
  expense, and interest and tax payments. The Board uses free cash flow to monitor the Group's overall cash generation capability, to assess the ability of the Company to pay dividends and to finance future expansion, and, as such, it believes this is useful to shareholders in their assessment of the Group's performance;
• New and Protected Products (NPP): these are products which are protected by virtue of being either newly launched, protected by intellectual property or by unique quality characteristics. NPP is used by management to measure and assess the level of innovation across the Group.

3

Croda International Plc

Group Performance Review

We use a number of APMs to assist in presenting information in this statement in an easily analysable and comparable form (see page 3).

Powerful operating model and consistent execution deliver record performance

Croda achieved another milestone in 2022, exceeding £2 billion of sales and £500 million of adjusted operating profit for the first time. This continues our record of consistent execution. We successfully recovered significant input cost inflation, and navigated challenging economic conditions and continued supply chain disruption. We are building a strong innovation pipeline, supplemented by new technologies and organic investment. Our performance demonstrates the power of our business model, the benefit of our global footprint, greater resilience following recent portfolio change and the increasing importance of our products in a range of niche markets.

We delivered an 11% increase in both sales and adjusted profit before tax, with good sales and profit growth in both core sectors. Consumer Care delivered a solid performance, with sales up 18% and adjusted operating profit 9% higher, albeit with margin diluted by lower volume and change in product mix. Growth remained robust in the second half year across Asia, Europe and Latin America, partly offset by customer destocking that was particularly apparent in North America. Life Sciences built on an exceptional 2021, delivering 19% sales growth and 10% higher adjusted operating profit, despite a reduction in Covid-19 vaccine demand by our principal customers. The balance of the Pharma business, together with Crop Protection and Seed Enhancement, each delivered double digit percentage sales growth.

Adjusted operating profit was also higher in Industrial Specialties, benefitting from strong trading ahead of the divestment of the majority of its Performance Technologies and Industrial Chemicals (PTIC) business midway through the year. Through this divestment, and the acquisitions in recent years, Croda has significantly repositioned to be more closely aligned with the powerful megatrends that are reshaping our markets. We are becoming a pure play company, focused on high value niches in consumer care and life science markets. This is creating a stronger margin, higher return, less cyclical and lower carbon intensive business. We are also more knowledge intensive, with exciting customer and technology innovation pipelines, particularly in sustainable solutions and drug delivery systems. This will translate into more consistent top line growth and increased margins, delivering superior returns in the years ahead.

Managing a challenging environment

Group sales grew by 11% to £2,089.3m (2021: £1,889.6m). Constant currency sales rose by 5%, driven by our ability to recover input cost inflation, with price/mix up by 24%. The chemical industry experienced a significant impact from inflation and average prices within our raw material basket rose by 23% in 2022, adding to a 17% increase in 2021. Commodity markets remained tight during the year but prices peaked in the third quarter, with signs of modest declines as the year ended. Operating cost inflation increased during 2022, with labour and energy most impacted. The strength of Croda's business model helped manage this challenging environment, ensuring inflation recovery and profit protection.

Group sales volume declined by 20%, with an estimated 13 percentage points of the reduction due to the divestment of much of the industrials business. In addition, after strong consumer demand and customer restocking post-pandemic in 2021, volume declined by 12% in Consumer Care, reflecting capacity constraints and customer reduction of excess inventory levels. Volume in Life Sciences was 8% higher, driven by strong Crop Protection demand, supported by the robust agricultural commodity pricing environment. Across the Group, the challenge of global supply chain constraints began to ease towards the end of the year.

Adjusted operating profit grew by 10% to £515.1m (2021: £468.6m). Over half of this increase was driven by underlying growth across all three sectors, with the balance primarily from favourable currency translation. Return on sales was broadly flat at 24.7% (2021: 24.8%), with an improved margin mix from the reduced share of industrial sales and a lower variable remuneration charge offset by normalisation of the Life Sciences margin, after an exceptional 2021, and a lower Consumer Care margin diluted by lower volume and weaker mix. Profit before tax (on an IFRS basis) increased to £780.0m (2021: £411.5m), which included a gain on the business disposal of £356.0m. Adjusting for this benefit and one- off exceptional items outlined in the Finance Review, adjusted profit before tax increased by 11% to a record £496.1m (2021: £445.2m).

Inflation and supply chain challenges saw increased working capital during 2021 and the first half of 2022. As expected, this began to moderate in the second half of 2022. Free cash flow increased to £167.4m (2021: £153.6m). Net debt reduced to £295.2m (2021: £823.2m) and debt leverage reduced to 0.5x (2021: 1.4x), due principally to the proceeds from the PTIC divestment.

4

Reinvesting in the business

The Group successfully completed the divestment of the majority of its PTIC business to Cargill Inc. on 30 June 2022 for gross proceeds of €775m (£665m). The divestment agreement also included a €140m option to sell Croda Sipo in China in which we have a 65% stake; however, this was subject to reaching agreement with our partner to also sell its stake, which now appears unlikely to occur in the near term.

The divestment has released more capital to invest into a rich seam of growth opportunities in the consumer care and life sciences markets, whilst maintaining our discipline of careful capital allocation to projects which generate superior returns on capital. Our priority is organic capital expenditure, supplemented by targeted acquisitions, in line with our preferred approach to 'buy and build', as exemplified by our recent investments in Life Sciences, where we have secured new technology platforms through modest acquisition spends, then built scale through organic investment.

Our investment in organic capital expenditure was £138.5m (2021: £158.5m). This investment included a new Fragrances and Flavours (F&F) operation in Brazil, expansion in protein technology in Consumer Care and new laboratory capabilities in Life Sciences, together with additional capacity in our Singapore plant and initial work on a new greenfield manufacturing site in India which will together meet fast growing demand in Asia. In addition to our typical capital investment of around 6% of sales, which includes delivering our carbon reduction roadmaps as part of our sustainability commitment, we are investing an extra £175m over the period 2021 to 2024 to broaden our Pharma footprint and capabilities, particularly for nucleic acid drugs. We are investing in our existing GMP sites in Denmark, the UK and Avanti (US), and creating a new Pharma facility in Pennsylvania (US) to meet forecast market demand, with over £90m invested to date under this programme and spend expected to accelerate in 2023. Alongside this investment, the US and UK governments are co-investing up to an additional £75m, recognising the importance of new generation delivery systems to global pandemic preparedness and drug discovery. This investment will support our innovation pipeline of sales from new product development in the Pharma business.

We expect to supplement our organic plan with selective acquisitions to add adjacent and complementary technologies, particularly those which can accelerate our transition to greater use of natural raw materials or build new technology platforms, enhancing future growth. Shortly after year end, we announced an agreement to acquire Solus Biotech, a leading producer of premium, biotechnology-derived beauty actives based in South Korea. Solus consolidates our position as a global leader in sustainable actives, builds our biotech knowledge base, adds a North Asian manufacturing and innovation facility, and brings rich IP and proprietary know-how that we can leverage globally. Our continued capital deployment will be executed within our consistent capital allocation policy, set out in the Finance Review. Alongside organic and inorganic investment, the policy provides for a regular and increasing ordinary dividend to shareholders, while operating an appropriate balance sheet. As part of this, the Board has recommended an increased full year declared dividend of 8% per share to 108.0p (2021: 100.0p).

Strong performance in Asia, Western Europe and Latin America

On a geographic basis, all regions saw continuing good growth in sales and profit, other than North America. Asia achieved a record year with strong demand, particularly in Life Sciences, and modest growth in China, despite pandemic lockdowns. Demand in Western Europe remained robust, despite higher prices and energy costs, with strong growth in Crop Protection and Beauty Care. Latin America enjoyed good growth, led by demand in the regional Crop Protection market and supported by Consumer Care demand, including the new F&F operation. EEMEA (Eastern Europe, Middle East and Africa) saw a negative financial impact from the closure of our Russia business (which represented approximately 1% of Group sales in 2021).

In North America, sales peaked in the first quarter before softening in Consumer Care and Pharma, the latter partly reflecting lower Covid-19 demand post-pandemic. Consumer Care was negatively impacted by significant customer destocking, with US customers particularly impacted by lower exports to China following lockdowns.

Continued growth across sectors

Consumer Care performance demonstrating increased resilience

Consumer Care achieved record sales and adjusted operating profit in 2022. Sales grew by 18% to £897.8m (2021: £763.0m), with price/mix up 22% as significant inflation was successfully recovered. Adjusted operating profit increased by 9% to £204.7m (2021: £188.5m), resulting in return on sales reducing to 22.8% (2021: 24.7%). This primarily reflected the operating gearing effect of lower volume, alongside a weaker product mix as Beauty Care and F&F grew faster than the higher margin Beauty Actives business. IFRS operating profit declined to £144.5m (2021: £168.0m), which included an impairment charge of £34.6m on goodwill in the Flavours business, where the future value of this business is behind the acquisition case.

After a stand-out performance in Consumer Care in the first half of 2022, growth slowed in the second half year. Full year volume was 12% lower than 2021, driven by two components. Firstly, destocking developed across our customers and

5