Croda International PLC

LSE:CRDA

Earnings Call Transcript 2018-Q1

[Operator]

Welcome to the Croda Q1 Trading Update. [Operator Instructions] Just to remind you, the conference call is being recorded. Today, I'm pleased to present Steve Foots, Group Chief Executive. Please begin your meeting.

[Stephen Edward Foots, Group CEO & Executive Director]

Morning, everybody. Many thanks for joining the call. Again, as usual, I'm with Jez and Conleth in [indiscernible] this time. A brief introduction from me and then let's take the questions as usual. It's been an encouraging start to the year for the group. The group top line momentum that we saw through 2017 continued into quarter 1. Our core businesses grew sales 4% in constant currency, reflecting strong sales in our consumer businesses, with return on sales for the group also slightly ahead. The earlier timing of Easter is estimated to reduce sales by approximately 1% in quarter 1 versus the prior year. So let me run through each of our sectors in turn. It's been an excellent start for Personal Care, a standout performance in the group. Constant currency sales are up 7.6%, and very encouraging to see the demand in all 3 business subsectors with growth driven by a combination of both growth and volume and price/mix. All 3 subsectors are growing in high single digits. All customer classes are growing well and as are all the major regions. And the MNC growth rates in quarter 1 are at similar level to the growth rates of our small- and medium-size customers. So we've got good growth, best growth everywhere in Personal Care, I'm very pleased. And the innovation machine in Personal Care is stepping up, remained very strong and NPP sales are at double-digit sales growth. So Personal Care is in very good position and we expect that growth to continue. Life Sciences also had a very good quarter with sales increasing 4.1%. Crop protection was strong, due to increasing collaboration with multinational and local customers. Our Seed Enhancement business also saw increased demand and it was a record start for Incotec in the quarter. And Health Care saw strong excipient sales, which helped to offset a 3% adverse impact from the prior API contract in North America at the end of last quarter. But without that, Life Sciences run rates are above 7%. So a good -- very good underlying momentum in the business. So if I just pause there, the consumer business in Personal Care and Life Sciences both with good strong underlying trends. In terms of Performance Technologies, that had another positive quarter as we continue to implement our value over volume strategy. Although, sales were only marginally ahead, profitability has continued to improve. There are 3 big margin drivers in the results and that's likely to continue through most of the year and they're all positive margin drivers. The first point is, mix and there's less oil and gas in the results in the world this time last year, that's leading to a positive margin. Pricing, we've applied pretty aggressive price increases across the board, around the world, that's leading to an over-recovery of margins, and with e-marketing at the bottom, like we normally do. That's leading to, unusually but significantly, double-digit price/mix positive and a double-digit volume reduction. In the Croda terms, that means a very big sizable margin improvement story, which is leading to a strong profit improvement in Performance Technologies. So in good shape, although top line weaker, bottom line stronger. Over and above this positive momentum, we've continued to invest in disruptive technologies, I've set out at our Capital Markets event a couple of weeks ago. During the quarter, we completed our acquisition of Nautilus, a blue biotech marine research company and Plant Impact, which has introduced exciting opportunities in biostimulants. So our focus on R&D and innovation continues to sustain our big new product pipeline. So a strong start to the year. We're encouraged by the ongoing momentum in our consumer businesses, and further progress towards our return on sales targets in Performance Technologies. So we confirm the outlook provided in February. Croda is very much on track for 2018. Now let me stop there. I'm happy to take the questions.

[Operator]

[Operator Instructions] Our first question comes from Thomas Wrigglesworth from Citi.

[Thomas P Wrigglesworth]

Just a couple, if I may. Steve, you just mentioned about price increases to recover margins that are coming through in this year. Could you help -- how much incremental margin do you think is in -- is there to be clawed back, i.e. what would have been the adjusted 2017 margin net of that? And as we look at Performance Technologies, just wonder, obviously the sequence of growth there has been for a decline. I was just wondering, if you can identify what you think underlying growth rate of that business is as you strip out these lower value products? Those 2 questions would be great.

[Stephen Edward Foots, Group CEO & Executive Director]

Yes. I mean, the pricing point is really -- and I think we've been consistent with this for a -- over a year now. The pricing point is mainly in Performance Technologies. We've got 1 or 2 significant raw material increases through the lower receipt rate pile and higher receipt rate pile, the 2 big ones. So we've applied a lot of price increases there, and then that's coming through. I mean, we don't talk specifically about that, but the margin improvement is significant in that business. I think the other thing, you can look at the top line and think it's pretty soft, I mean, what we always have to do in Performance Technologies is look at the bottom line as the priority, and what we're seeing is in the early part of last year, most of the industry, quarter 1 and quarter 2, were surprised in industrial markets to see such a big volume growth. And we're taking 10%, 11% across most of our industrial assets as it was with most of the people's assets. So with that, you've always got a tough comparatable, but what Croda looks to do all the time, is looking to improve the profitability in the business. And to do that, you've got those 3 margin drivers that I described earlier, which are all helping the return on sales move very quickly towards this 20%. So the best way to look at that, we've probably got another quarter of this to go through and then we're back to normal comparators because there is a big oil and gas effect through the industry, which was quarter 4 of 2016 and quarter 1, quarter 2, 2017. And that skews the volume comparators and then sort of sales values comparators. The business doesn't skew the profit comparators because they expect this performance to grow profit every year, every quarter and it is doing. So I think, as we get into the second half of the year, we're expecting, like we've always said, low- to mid-single-digit, probably 3%, 4%, sales growth in Performance Technologies on a normal period.

[Thomas P Wrigglesworth]

Okay. Just -- if I could just squeeze in one more question, Personal Care was 7%, obviously like-for-like growth, is that all volumes?

[Stephen Edward Foots, Group CEO & Executive Director]

7.6%, actually. It's 50% price/mix, it's 50% volume. But it's good solid growth pipeline with peace.

[Operator]

Your next question comes from the line of Mark [indiscernible] from HSBC.

[Unknown Analyst]

I think, it's been answered with reference to Thomas' question about input cost of raw material cost and I'm sorry, if it's old-fashioned question. But you've historically obviously, been very successful at preempting anticipated sort of commodity, chemical and related cost increases by posting your selling price rises in advance, and therefore, having an offset, but you've also got the prices that you set in performance tech clients successfully as in Q1. But given what, I guess, you're hearing in the industry and what we're seeing in sort of Brent crude and related products, are you anticipating that you will sort of have to preempt further inflationary cost pressures through the year or you're sufficiently confident that given the mix of the business and with Atlas Point coming on and some raw materials through the year will not be a problem for you?

[Stephen Edward Foots, Group CEO & Executive Director]

Yes. It's a reminder everybody, most of our raw materials are natural rather than petrochemicals. But the way we look at raw materials for the rest of the year, we've got good graph on it. We expect, if anything, to soften rather than harden. So it's flat to modestly down going into quarter 2 and the second half of the year. So there is a chance, obviously, there for a bit of margin improvement if we hold on to our prices.

[Operator]

Our next question comes from the line of Paul Walsh from Morgan Stanley.

[Paul Richard Walsh, Managing Director]

Just a couple of questions from me, if I can. So I just want to clarify, Steve, the sort of the demarketing, I think oil and gas plays a big role in that, and the general margin improvement push. You think most of that will be done from an organic growth perspective in -- by the end of Q2, such that we should be getting back to normal run rates of underlying organic growth in PT by Q3? I just want to make sure I'm taking away the right message on that front, please.

[Stephen Edward Foots, Group CEO & Executive Director]

That is the case. But don't use the sales growth as a proxy to profit growth. We're going to get -- we'll get significant profit growth in the first half of the year in that business as well. But yes, the best way of looking at the soft top line is, back to normal in the top line from quarter 3, in the middle of the year onwards.

[Paul Richard Walsh, Managing Director]

I'm not wanting to pull into putting targets out there or putting specific dates behind targets, but clearly there is a more aggressive push to get to the 20% margin in PT now. If that's the point, are you just going to accelerate your sales to get there?

[Stephen Edward Foots, Group CEO & Executive Director]

Yes, I mean, we do. We want to get there as quickly as we can. And I think we won't be specific on that, but we're very pleased with where we are in the quarter 1, as you say that.

[Paul Richard Walsh, Managing Director]

And just final question from me around the Personal Care business and the acceleration in organic growth. You did talk about the multinationals getting back to similar growth rates of the SMEs. Is that a notable -- is that the delta -- when we're thinking about last year to this year, is that a simple function of the multinationals getting back to innovating?

[Stephen Edward Foots, Group CEO & Executive Director]

I think it's a little bit more than that, but that's a significant driver of it, Paul. As you know, there's been some headwinds on MNCs in '14, '15 and a bit in '16, as it all starts to come back. And the actually pleasing thing on that point is that we're being [ crowded ] into some significant product launches from the biggest multinationals and the biggest brands, again. So that's -- we take 2 big points to that: one is, they're innovating again; and two is, they're innovating again with our products. So the trust in -- the trusting relationship we've got with them is probably the strongest we had for many years with a [indiscernible]. So that -- and then you're also seeing steady progress on the SMEs and serving the customers as well. And Jez just wants to make a comment.

[Jeremy K. Maiden, Group Finance Director & Executive Director]

Yes, Paul, the other encouraging area we're seeing consistent growth across all 3 of businesses, Beauty Actives, Beauty Effects and Beauty Formulation, profit consistently there. And we continue to see very strong growth in Beauty Actives, which of course, a bit less multinational driven. So yes, it's very consistent across the board in both businesses as well as customer categories.

[Paul Richard Walsh, Managing Director]

And I know the differentiated segment is honestly a bigger piece from a volumetric perspective across all these silos. But if I'm thinking about Personal Care getting up to high single-digit organic growth numbers in Q1, is NPP still running ahead of that? I guess, my question is, we're talking sizable margin gains in PT but notwithstanding currency effects in Personal Care, that kind of organic growth can't be bad for margin or help me understand that piece, please?

[Stephen Edward Foots, Group CEO & Executive Director]

Yes. The NPP is of about 12% in Personal Care. So the NPP is ahead of the rest. We're not specific on margins on Personal Care or Life Sciences, and we'll draw that out as we get to half year, but we're pleased with where we are. And the most important thing is we're getting good balance, so really good balance steady stable growth at high levels around the world. This is the third quarter where we're posting around 7% to 8% sales growth and we should expect that to continue.

[Operator]

Our next question comes from the line of Daniel Buchta from MainFirst.

[Daniel Buchta, Vice President]

Three questions, if I may. The first one on Life Sciences, I mean, thank you very much for giving the indication of what Life Sciences has grown, excluding the par effect, but just to understand, I mean, Q4 was very strong in terms of organic growth in Life Sciences. Is the difference to the underlying growth rate now in Q4 only also explained with a very strong par finishing in Q4 or was there an underlying slowdown in Life Sciences in Q1 now? And then, I know it's, of course, noncore business and industry chemicals but with minus 10% organic growth, it was much more down than the previous quarters. Again, is there any particular reason as you're being more aggressive in -- I don't know, demarketing volumes there, internalizing them, et cetera? And the third one if I may quickly on your indication of a slight return on sales increase. I mean, if I do the math and what you also said, I mean, PT margin should be clearly up and then you had stronger growth in the higher margin segments. So what is holding you back that the margins are only increasing slightly? I know it's a question, of course of what slightly means but is it Incotec, is it Personal Care with lower margins, just to get a bit of a bridge there and to better understand that wording?

[Stephen Edward Foots, Group CEO & Executive Director]

Yes. Okay. Well, let me give you just one first, and then I'll let Jez do the margins on Life Science and the group. Yes, industrial chemicals is just a classic, we have been demarketing significantly in the Performance Technologies business. What that means is we're shedding quite a lot of volume, which means there is less volume that goes straight to sell effectively. So that's why -- that's why you've got a turnover hit for industrial chemicals, but it's immaterial to sort of bottom line for the group. But that's what it is. I'll let Jez kick off from Life Sciences and may provide other two things as well.

[Jeremy K. Maiden, Group Finance Director & Executive Director]

Yes, sure. So the fourth quarter was exceptionally strong in Life Sciences. We were up almost 15%. It is quite lumpy in the Life Sciences. And on the fourth quarter in particular is a very strong quarter for crop and especially for Incotec, that's [indiscernible] quarter because it's between the harvesting and then the spring planting, so it's the key time for seed preparation. So what we saw in fourth quarter was extremely strong Incotec performance and a very good crop protection above the ground performance. Those have continued in the first quarter. It continued to be very strong, but not quite at the levels of the fourth quarter. So we did see a lumpiness in Life Science that you don't tend to see in Personal Care business, which is much more spread, much broader. So we're very pleased to see really good growth numbers continuing in crop, and in Incotec, but they are slightly coiled to quarters and just didn't have quite a sort of extreme growth in the fourth quarter. So that's the key reason. But fundamentally, you've got the 2 parts of the crop business, Crop Protection growing strongly in the first quarter, you got the Health Care business negative, but it would have been positive without the impact from the North American contract.

[Daniel Buchta, Vice President]

Okay. And then...[indiscernible]

[Stephen Edward Foots, Group CEO & Executive Director]

Just to reiterate, Life Sciences, we always look at Life Sciences, Personal Care running at around about 5% through all the quarters of the year, this year. So -- and we still believe that's probably about right. We think Life Sciences underlining is a little bit more than that. We've always said it's got 7% -- 7% to 7.5%, that's where it is now. What I think people are missing, we've read the reports this morning, people are missing that there is a par effect. There's -- we've basis of this contract last year and that's been the headwind in quarter 1 for 3%. So that takes the shine of what is a very good trading underneath in Life Sciences, and that's going to continue throughout this year. So you just got to make sure that you understand that [indiscernible]. That's something that we stated that we've been explicit with, so I don't want you all to miss that. But it's not -- I think the takeaway message in Life Sciences is, we're very pleased with the underlying performance. And in your case in Capital Markets event most of anyway. The Incotec had a record start and we expect the crop business to really outperform again. And the rest of the Health Care business is in very good shape. So there is no reduction in organic growth in the trends in Life Sciences. You've got one issue, which is just a headwind on par through this year, which will burn out by the end of the year and then you'll start to see, if not before, significant growth around 7% generally for that business.

[Jeremy K. Maiden, Group Finance Director & Executive Director]

So looking at the margin question, we're not going to get into margins on the individual sectors. Clearly, we do that at the half year. We don't do that in quarters. In terms of what -- where are the headwinds on that, yes, there are some additional costs running through. So clearly, we've made a small number of acquisitions, also we have all the people in place, operators, maintenance, et cetera, for the bio-surfactant plant startup, but obviously, without production because we're in commission. So those create a headwind then of course. This time last year we would have profit from North American API contract, but we have seen and that is exactly what we expect in general. We wouldn't have been making money in that contract this year. So, but last year certainly we were making solid profits in that. So there are some headwinds there. In terms of the acquisition effect, most of the acquisitions we do, such as Nautilus and so forth are small headwinds, a few hundred thousand pounds, while we're in sort of approaching commercial scale up over the next year or 2 on those. The one standout, one worth calling out is Plant Impact acquisition. So at the end of March, we acquired this [indiscernible] business, you have about 60 -- 6-0 people in it, and relatively low sales. It has 1 or 2 initial products in the market. So this year, we would anticipate in the 9 months we'll own it, probably a loss of about GBP 4 million for Plant Impact. Looking towards 2019, we think it'd be much close to breakeven as we scale up the sales. So the main headwind that we'll have from the acquisitions will be planted back this year with that GBP 4 million. Other than that, as Steve said, we're very happy with our margin, the developing across the group.

[Operator]

Our next question comes from Adam Collins from Liberum.

[Adam Robert Collins, Analyst]

I had a couple left. Firstly, could you give me a bit more granularity on the growth in PT, the growth rates of Smart Materials and Incotec and [indiscernible]. And then also, I don't know if you can help on this, but then the FX impact to revenues this year, are you able to give us an idea on a mark-to-market basis what are you expecting now?

[Stephen Edward Foots, Group CEO & Executive Director]

Okay. Thanks, Adam. Would you take the FX question first?

[Jeremy K. Maiden, Group Finance Director & Executive Director]

Yes. So we've sort of updated at the end of the first quarter, we think the profit impact continues to be around about GBP 12 million on PBT if we restate 2017 PBT at the current prevailing rates for translation for 2018. I haven't got the revenue number at the hand, Adam, but certainly in terms of profit impact, we're still making around about GBP 12 million. Clearly, we've indicated here, the impact, which is 5.3% on revenue. I think it will be similar in second quarter; third and fourth quarter you'd expect that gap to start to narrow because we saw some strengthening in selling in the second half of last year. So I guess it'll be less than the first quarter number, but key number is the profit impact at the moment less than GBP 12 million.

[Stephen Edward Foots, Group CEO & Executive Director]

And just on the splits on the Performance Technologies, I guess, question is quarter 1. Slightly ahead on energy technologies, slightly behind on Smart Materials and home care and water treatment. Virtually all of that is a function of demarketing, demarketing is we look at the lower end of the portfolio and there is still some home care and water treatment, Smart Materials that we've significantly exited. So in terms of -- if you look at the price/mix and volume, it's quite significantly negative on volume in those 2 areas, more than the average that we talked about. And very strongly up on price/mix because of that. So profitability wise it's fine, but that's where the shape is.

[Operator]

Our next question comes from Gunther Zechmann from Bernstein.

[Gunther Zechmann, Research Analyst]

Can I ask on higher CapEx, because it looks like with the demarketing and bottom slicing that you've done in the quarter that there's quite a bit of capacity freeing up. I think Jez, you mentioned double-digit volumes down in performance tech, almost in Industrial Chemicals we're looking at double digits as well. Can you update us on the CapEx guidance you expect? I know you usually say mid-single digits, but is there some newer CapEx going forward because you can refill these capacities with more profitable volumes?

[Jeremy K. Maiden, Group Finance Director & Executive Director]

Yes. We continue to have the same view around the sort of medium-term CapEx spend rate, which we think is 5% to 6% of sales, so this year we'd be looking around GBP 75 million as our expectation on CapEx. About GBP 50 million of that is depreciation, that's about the level at which we need to reassess to maintain the asset base and about GBP 25 million towards growth. We think that GBP 25 million is consistent with growing organic volume around about 4% to 5%. So yes, the Performance Technology reduction has taken some of the extra load we saw in last year off of the plants that are more geared towards Performance Technologies, but we see some good opportunities to develop in the existing technologies and in some adjacencies through expansion projects. So we've got 2 or 3 projects running at the moment, which are GBP 10 million to GBP 25 million project. So I think, the CapEx number is around GBP 75 million is still a fair number. I don't think, you see significant reduction or increase from that.

[Operator]

Our next question comes from Andrew Stott from UBS.

[Andrew Gregory Stott, Managing Director and Research Analyst]

I just wanted to come back to the slight margin comment, I mean, in the past I'm always used to thinking sort of 50 basis points, as your definition of slight. If that's the case then you may not to choose to comment, but then the implication is that Atlas Point is really weighing down the Personal Care business for Q1 because we think year-on-year, Personal Care underlying year-on-year, your demarketing comments that you just made on performance tech, FX is broadly translation. The only confusion for me at Atlas Point is, is it quite a sizable loss? Which I guess, in a startup mode is not uncommon. Is that the right way of thinking or is my slight margin definition too slight?

[Stephen Edward Foots, Group CEO & Executive Director]

Well, if you talk about slight, you're not far away, and you wouldn't be far away. I think it's -- the way I would at it is, you got big strong margin improvement in Performance Technologies. You've got some -- because of the par effect, par is a very strong margin driver, you've got a slight mix effect in Life Sciences because of that, but we don't expect that to continue even though the par headwind will continue. I think, there's some margin improvement coming from other parts of Life Sciences coming through the next few quarters. [indiscernible] Personal Care is, there is a bit of that, yes, there is a bit of that whilst it gets fully on the stream and ramping up. You've also got multinationals growing at the same rate now as the small- and medium-size customers, so there is a modest mix effect. Personal Care margin is pretty robust. So the slight is the slight thing, that's all we're getting. That's all we're giving you but you're not far away. But we look at the -- underneath all of this, the most important thing is the gross margin -- the gross margin percentage and that's very strong in all 3 businesses, if you look at that, all ends up in [indiscernible] and we are very happy with that.

[Andrew Gregory Stott, Managing Director and Research Analyst]

Okay. Can I just come back -- I'm sorry.

[Jeremy K. Maiden, Group Finance Director & Executive Director]

Sorry, Andrew, let me just throw in a couple of specifics around the points you made. On the eco project and the North American bio-surfactant project, we guided at the year-end to about a GBP 5 million benefit year-on-year when that plant came into commissioning. So if you reverse that, then you can see that the quarterly impact is probably circa towards GBP 1.5 million of cost that we carry when the plants aren't running. So that will give you a guide. So it's not significant headwind but as we said, once it's up and running the first year, we'd expect about GBP 5 million benefit year-on-year and then accelerating as we introduce new products, new green products into the alkoxylate portfolio. And currency-wise, the [indiscernible] transaction is much small than translation for us. The main transaction impact is exports from Europe and particularly, the U.K., In the U.K., we have 20% of our production in the U.K. we have 5% of our sales in the U.K. So that's the net leverage out of the U.K. So you tend to see a correlation between the direction of translation and transaction on currency. So there will be a bit of transactional currency headwind when the translation number is negative as well. So those are the just two effects. You could have seen that nothing that's causing us any grief or concerns just to give you follow-on into the question, I guess.

[Andrew Gregory Stott, Managing Director and Research Analyst]

Perfect. And I was just going ask actually on the Atlas on the GBP 5 million guidance. I mean, given you're now up and running, I guess it's not GBP 5 million, it's GBP 5 million for 12 months, isn't it?

[Jeremy K. Maiden, Group Finance Director & Executive Director]

That's right, yes. So that was the guidance for the first 12 months of operation, yes. So specifically, when the change in terms of obviously picking up the margin, all switching off external supply and producing our own [indiscernible] and that's the GBP 5 million benefit. And then the sales growth of new products accelerates that number.

[Andrew Gregory Stott, Managing Director and Research Analyst]

Yes. Just a quick second question, if I can. This time last year, you talked about the calendar impact benefiting the business by, I think it was a 150 bps, if not, 200 bps, in terms of organic. You've not commented today on the calendar, does that mean you don't think there is a calendar impact or you just think it doesn't?

[Stephen Edward Foots, Group CEO & Executive Director]

Well, Andrew, we did comment on it. We said, I mean, we won't be alone but we had a very -- we had an exceptionally strong March last year and a very weak April, which is quite usual for -- it was just the acuteness of the Easter timing last year. Again, we're not alone with that. We estimate that is about 1% and technically we're understating sales in quarter 1, 1%, April looks very strong. You'd expect that because we'd have to write March and April together, but we did last year and like we did this year. So understating the group numbers by 1% in quarter 1 is probably an overstating of the group numbers by 1% in quarter 2. That's how we should look at it.

[Operator]

Next question comes from Chetan Udeshi from JPMorgan.

[Chetan Udeshi, Research Analyst]

Just one question on crop protection. Have you seen any sort of inflection in that market because it was sort of weak through '18, the first 3 quarters of last year, you, of course, outperformed the market? Are you seeing some signs or some signs of inflection in the general environment, besides the usual outperformance that you guys have shown over the last 18 months in that business?

[Jeremy K. Maiden, Group Finance Director & Executive Director]

Yes, I mean it's just that it's quite lumpy. It's difficult to pick up that sort of macro improvement factor because [indiscernible] micro in this area. But I would tell you, it's too early to call. Although, our results are a bit stronger than we expected in quarter 1 for crop. And, in particular, I think, if there is some inflection, it's in Incotec on the positive side, we had a very strong start. We've reorganized and restructured. So a lot of that is self-help. Yes, so treatment industry looks in pretty reasonable shape at the moment. But I think, it will be too early to talk about it. So the upswing in the macro in crop and encouraging time as we say.

[Chetan Udeshi, Research Analyst]

Okay. And maybe last question, I don't know if you can answer that, but there is a really a lot of speculation or discussion in the press about big deals, et cetera. So -- and you guys have talked about in the past about but now waiting for a period of time before deciding on the cash return. Is first half the right time line to look at in terms of some sort of decision or you think you're going to probably need a further waiting in terms of when you decide to switch to say higher cash returns to investors?

[Stephen Edward Foots, Group CEO & Executive Director]

Well, we're not going to hold on to it forever. Everybody knows we've got this capital allocation policy, which is very clear. We are well aware of the information in the market around what we might do, what we might not do. But it's our decision in the end and we'll do that at a sensible time. So we're not going to tell you when that is. But it's not long in the distance, so we just keep reviewing the M&A opportunities against the cash return that's effectively the decision point. And we'll make that decision when we think it's the right time.

[Operator]

We have a follow-up question from the line of Paul Walsh from Morgan Stanley.

[Paul Richard Walsh, Managing Director]

Actually, Andrew, really asked what I was going to ask, I was just going to basically pose the question as to how the Atlas Point ramp was going, but I think you've answered most of the points around that.

[Stephen Edward Foots, Group CEO & Executive Director]

Okay, thanks.

[Operator]

Next question is from [indiscernible] from Bank of America.

[Stephen Edward Foots, Group CEO & Executive Director]

Is it Stephanie?

[Operator]

[Operator Instructions] We have a line, I think it's from Stephanie Bothwell.

[Stephanie Bothwell, Vice President]

So just a quick follow-up question regards to PT. Clearly, the margin and trajectory there is in focus. I just want to check, you have an existing 20% medium-term margin targets above 20%. In the past, I think what you said is that we can expect progression towards our targeted [indiscernible] over the course of the next few years. Should we now expect more of an acceleration in that in the coming few years? And the second question is on demand by geography. Can you perhaps give us a little bit more color in terms of what you're seeing in each of the businesses by each geographic segment?

[Stephen Edward Foots, Group CEO & Executive Director]

Yes, I mean, just on the [indiscernible] margin point. Yes, I mean, we're pushing it hard. It has to come from innovation, this margin improvement story. It is being helped in the short term by these 3 margin drivers as I described before, the mix effect, the pricing and also the demarketing, all of that is [indiscernible]. We're very pleased, we're already ahead of where we expect it to be for return on sales. We can see in fact, near to medium term is a 20% horizon that's really important we believe for the group. As a reminder as well, this business had double-digit profit growth in the last 2 years. So we mustn't forget that actually if it doesn't get there, it's still can deliver double-digit profit growth for the group. So that's the most important thing, we set our targets for that and we expect to deliver that. So yes, a little bit more aggressive on that. In terms of geography, I'll hand over to Jez for that.

[Jeremy K. Maiden, Group Finance Director & Executive Director]

Yes, so we saw consistent growth really across the regions, the strongest performer on our core business was North America, Asia also particularly strong, both of those strong in Personal Care, which is encouraging. Latin America continues to show some steady signs of improvement. It's not out of the woods yet from a macro point of view, but it continues to be -- have a positive trend, so sales growing in Latin America in constant currency, that's good. And Europe was solid. So again, North America, Asia the strongest markets as we see them at the moment.

[Operator]

There appears to be no further questions. I will turn the conference to you.

[Stephen Edward Foots, Group CEO & Executive Director]

Okay. Just a recap from me, we do believe it's been an encouraging start for the group. Hopefully, you can get behind the numbers in a bit more detail after the Q&A. But all businesses are in good shape, and we are very pleased and the innovation level still is high. So let's stop there and we'll see you again in the middle of the year. Thank you very much.

[Operator]

Thank you. This now concludes our conference call. Thank you for attending. You may now disconnect your lines.