Earnings Transcript for CRDA.L - Q2 Fiscal Year 2020

Operator: Ladies and gentlemen, welcome to the Croda Interim Results Presentation Call. My name is Hardy and I will be coordinating today’s call. [Operator Instructions] I will now hand over to your host, Steve Foots, CEO to begin. Steve, please go ahead.

Stephen Foots: Good morning. Many thanks for joining the call today, and hope you're all safe and well. We're sorry not to be with you in person, but the presentation as usual will follow the normal format for Croda. Some comments, then to Jez for the financials. And then I'll come back to talk about some key aspects of our strategy. We'll take questions off the telephone and by the webcast at the end of the presentation, too. So overall, our strong business model has delivered a resilient performance and we've managed through a very challenging period that goes without saying. I use the word resilient for a number of reasons. On the supply side, all of our 19 principle manufacturing sites have remained in operation and nearly all of our workforce has continued to function as normal. So limited impact operationally around the world. And that's great credit to our teams and great credit to the local government support that we're getting as well. On the demand side, we've seen a modest reduction in sales and the group margin has also held up well. As a capital light business, we've continued to generate strong cash. This has allowed us to continue investment in future growth, agree on exciting technology rich healthcare acquisition, and pay a dividend to shareholders, demonstrating our confidence in the future, the 28th successive year of increased dividends payments. In response to COVID, we have three priorities from the outset. And as you'd expect, our major priority has been the health and safety of all of our people. We needed to look them in the eye at the end of the crisis, and we're not there yet knowing we've done everything possible to safeguard their wellbeing. And we have a more engaged workforce as a consequence of that more loyal, and it generates a lot more goodwill. We're looking after our people, which is absolutely right. And next, we focused on keeping the show on the road, maintaining the performance of the business by closely controlling costs and working capital, as you would expect us to. And we've been talking to customers in a lot more frequent basis along the way. And finally, but just as important, we have continued to plan for the future to ensure that Croda is taking full advantage of the emerging opportunities from the pandemic, which I will come onto later. The key principle has been treating all our stakeholders fairly. We didn't follow anybody, we've protected employee salaries, we helped a number of our smaller customers and suppliers with flexible payment terms, we helped communities around the Croda world with our active kindness initiative and we paid a final dividend to our shareholders. We've treated everybody fairly and we're doing the right things. And all of this plays well to our purpose. Turning to the numbers. They are what they are, but you can see the resilience borne out in them. Innovation and commercializing Croda people's knowledge is what our business model is all about. And a modest reduction in sales, a resilient performance in margin and the output of which is strong profit and cash generation. And this is allowing us to further invest in the business. Turning to the sector performance, in Personal Care, we continue to see positive trends from Q4 into Q1. Q2 was significantly impacted by a downturn in consumer demand, luxury travel department stores. This was particularly evident in Europe where a lot of our customers either closed or repurposed that facilities into making hand sanitizer gels. And in Latin America, where there is a greater reliance on door-to-door selling. During the quarter, we've accelerated our customer interactions massively much more engagement than we'd normally would see. And we're excited about what our customers are telling us. There's lots of innovation in the pipeline, and we've also seen a very good recovery in China with personal care sales in China, 9% in Q2, and we remain confident of a good recovery once lockdown measures have eased further. Turning to Life Sciences. That’s less impacted by COVID. Strong underlying health care business, Crop will be more second half weighted due to phasing issues and margin progress is in line with our expectations. The Avanti acquisition, I'll come back to later in the pack. In Performance Technologies, industrial end markets are clearly challenging, but this was partly offset by strong food packaging and home care sales for the group. So let me stop there and I'll hand over to Jez for the financials.

Jeremy Maiden: Thanks, Steve, and good morning, everybody. As Steve has said, the first half year saw a resilient performance that was with 5.8% down in reported currency ₤673 million. This reduction of 7% in constant currency sales terms translated to a 9% reduction in adjusted operating profit in constant currency to ₤161.6 million. Operating cost reduced with the benefit of cost savings delivered at the end of 2019 and lower discretionary spend during the first half of 2020. These cost savings were partly offset by the startup of the North America biosurfactant plant in the early part of 2020. Net interest was broadly unchanged at ₤9.1 million with higher net debt from the 2019 special dividend payment mostly offset by lower interest rates following our refinancing. Adjusted profit before tax came at ₤152.5 million, 10% behind the prior year period. With lower volume and a weaker product mix, return on sales declined by 1.1 percentage points to 24%, a resilient performance reflecting the strength of Croda's operating model. With the tax rate broadly flat at 25%, adjusted earnings per share were 88.8p just under 10% lower than 2019. Having paid the increased 2019 final dividend in May, the interim dividend has been held at 39.5p per share. Finally, the free cash flow remained healthy at over ₤80 million in half. Adjusting profit items charged in the first half totaled ₤7.6 million, discovered a further ₤1.7 million exceptional charge for delivering the cost savings announced at the end of 2019, which is delivering up to ₤20 million of annual benefits to reinvest in the business. Acquisition costs relating to Avanti totaled of ₤1 million and amortization of intangible assets relating to previous acquisitions was ₤4.9 million. Profit before tax on an IFRS basis was ₤144.9 million. So now let's look at the key bridging items for the change in sales. Core business sales declined by 6%. This comprised a 2% reduction in volume due to the impact of COVID-19 and a 4% reduction in price mix. Whilst raw material prices were generally stable, this price mix primarily reflected a weaker product mix due to lower sales at higher value add products in Personal Care and Performance Technologies and relatively better sales of lower value add products used by consumers during the crisis. There was no impact from acquisitions during the period. Industrial Chemicals contributed to a 1% reduction in group sales and currency translation was favorable by 1%. Now looking at the key movements by core sector. Consumer product markets responded more rapidly to lockdown than industrial end markets as Steve has described. As a result, personal care sales were hardest hit, 9% lower. This together with a weaker product mix, so operating profits, 17% low. Margin was resilient though, staying at [technical difficulty] we expect this to recover back to the low 30s, once volumes return. Life Sciences sales were 2% lower, as we highlighted at the full year results in February. This reflected a strong comparative period from 2019, particularly in crop. Continued growth in target markets in Health Care saw operating profit rise by 7% and return on sales increased to 32.5%. Changes in sales in Performance Technologies was 6% low due to slower industrial demand. The impacts of COVID-19 was seen later here than in Personal Care with customers initially moving to protect their supply chains. However, profit was harder hit down nearly 20% and return on sales is just about 15%, still a strong performance compared with its peer group. Let's look at each of the core sectors in more detail. Following a solid first quarter, which saw continued recovery in the North America market, the personal care and beauty industry was significantly affected by the COVID lockdowns. China was impacted in the early parts of the year, but rebounded quickly. As the bottom chart shows Croda sales were down 4% in the first quarter before recovering to be up 9% in the second. The second quarter has seen European consumer demand heavily affected. As Steve said, most of the French cosmetics industry is shut down for several weeks. And consumer retail data showed a 14% reduction in sales in the quarter. By contrast North America consumer demand has been less impacted with lockdown intensity varying state-by-state. Latin America has been hardest hit, particularly in Brazil with 50% of consumer sales are typically made on the doorstep. Well, if there are signs of lockdown conditions easing in Europe, Latin America is likely to remain difficult. Overall, this resulted in a 6% reduction in personal care volume and a 3% weaker price mix. As the more at home use staple products of the beauty formulation business, proved more resilient than the higher value going out products. Also, Beauty Actives demand is typically resilient in these circumstances, but disruption to the prestige distribution channels of duty-free department and luxury stores had an impact on consumer buying patterns. We've not seen any signs that the long-term drivers to growth in personal care changed our strategy to strengthen to grow in personal care, through organic and inorganic investment remains unchanged. Pleasingly, additional investment has become to pay off alignments to maintain our customer intimacy through virtual contact and support. Life sciences has seen limited adverse impact from COVID-19. Healthcare demand has been modestly affected with fewer prescriptions issues and delays for some elective surgery. There has been no discernible impact on crop. Volumes grew by 2% overall in the half or price mix declined due to crop sales moving from the first half to the second half year. Growth continued in the key high value niches of healthcare. Our excipient delivery systems business grew by 11%, and pharma customers look to high quality solutions from one invested stable and innovative partners like Croda. The Biosector vaccine adjuvant business had a much stronger period growing sales by 25%. Consumer health product sales were broadly flat year-on-year. Crop protection sales were lower against a strong comparison period, coupled with delayed plantings in Latin America due to adverse weather. We also withdrew voluntarily from products with a negative environmental footprint as announced at the last year-end. The outlook for crop look strong with North America recovering from last year's U.S.-China trade dispute and a strong innovation pipeline with our global customers. Seed enhancement also recovered some loss sales from 2019 during this season compared to first half period. Our expansive growth strategy for life sciences is working well. Return on sales for the overall sector has reached 32.5%, an increase of over 4 percentage points since the acquisition of Incotec at the end of 2015. Our specialty excipients and vaccine adjuvants are being trialed in a number of COVID-19 related projects. And we're investing for the future both organically and plant expansion and inorganically through M&A. After a weak 2019, Performance Technologies experienced a steady recovery in demand during the first quarter. However, with significant closures of automotive and industrial plants, sales weakened progressively through the second quarter. Partially offsetting this, sales have been strong in both the home care and packaging markets due to COVID related demand and new innovation. This is shown in the top graph. Home and Fabric sales grew by 11% in the first half, whilst Energy Technology has showed sales declined by 18%, reflecting its focus on automotive and industrial lubricants and on flow control in oil production. Smart Materials was more resilient, down just 2% with polymer additives being used in many COVID related applications, including PPE medical devices and packaging. Overall, volume was down 2% in Performance Technologies. Profitability was impacted by a combination of operating leverage and production constraints in our European and Indian plants. Refine to grow strategy will reduce the sector's exposure to more cyclical markets with growth in high-tech, higher growth markets. Innovation will be important and we are seeing stronger interest and growing sales for Coltide Radiance, which we presented to you at the full year results, which doubles the life of fabrics. We are building towards an expected ₤20 million annual sales pipeline for this product by 2023. We're also investing in Asia with our new Shanghai R&D facility opening in the second half of this year, which will give greater access to many new Chinese customers. With the successful commissioning of our North American biosurfactants plant earlier in the year, we secured our first two contracts that eco products and Performance Technologies together with a first contract in Personal Care. The Eco pipeline is now worth almost $20 million in annual sales with sustainably positioned customer products launching from the end of 2020. While we are excited by the developments of new sales opportunities, COVID has provided something of a perfect storm for the plant with food grade bioethanol, which we use as a feedstock in short supply due to hand sanitizer demand, resulting in a high raw material costs at a time when petro derived ethylene is at record lows. We expect to be able to move the plant to a lower cost feed stock later this year. But in the meantime, anticipate that this will cost us about $10 million in added costs in 2020. Croda continues to generate a healthy cash flow despite lower demand. Free cash flow in the first half year was ₤80 million, a reduction of ₤15 million on 2019, driven entirely by the reduced EBITDA. The change in working capital was ₤14 million better than 2019. And it's pleasing to note that we have seen no material deterioration in the timeliness of customers receivables during the COVID crisis. Capital investment increased by ₤9 million to ₤50 million in the first half year, despite some delays to the projects during lockdown. I would expect investment in the full year to be just over a ₤100 million, allowing us to complete key investments, including the doubling of specialty excipient capacity in the U.S., creation of a new customer in R&D facility in Princeton, in the USA and consolidation of our U.K distribution facility. We're also expanding in healthcare in Japan and Denmark, investing in greater digital and innovation capability in China and expanding some of our European plants. At a time when many companies are slashing investment, we believe that maintaining investment at this time will enable us to grow more rapidly in the coming years. Finally, Croda have a strong balance sheet, having completed its debt refinancing in 2019. As the top graph shows, we have excellent liquidity with almost ₤450 million in undrawn committed facilities as of 30th of June. Furthermore, there are no material materials before 2023 as the bottom graph shows with funding out to 2030. And on top of this, we have in July added a $200 million acquisition funding facility to allow us to complete on Avanti, therefore preserving our ample liquidity. Net debt at half year, which is pre-acquisition was ₤577 million. This is a leverage ratio of 1.5x EBITDA. Our downside modeling show significant leverage and liquidity headroom even in more extreme crisis scenarios. I will now hand you back to Steve who will update you on our strategic priorities.

Stephen Foots: Thanks, Jez. Okay. So let me take you through our strategy update. As an executive team, we prioritized time to think through the impact of a post-COVID world for the group. So if you just look at the slide on strategic priorities, whilst our mega trends and sector strategies remain unchanged, which is very reassuring by the way. We've refreshed our near-term strategic priorities. And we have five key priorities; scaling drug delivery, which I'll come onto shortly. more proactive M&A; the pandemic could open up more opportunities and we want to be more focused with more bolt-ons. As a reminder to you all, we're interested in more Avanti type acquisitions, lots of IP, new technologies and clever people. And Asia in as a region is the most significant growth opportunity for us and ambition too. It's fair to build -- our aim is to build the Croda brain there, especially in China. And we want to scale biotechnology as well. We have a lot of talented innovators, but nature does it better. And here we want to scale up a lot of our technologies, both operationally and from R&D. And this will involve a number of smart partnership arrangements going forward there. And in digital, a real area of progress, which is creating new opportunities to engage with customers in many different ways. For the purpose of today, I wanted to provide more color on the scaling drip delivery, including how Avanti fits into our strategy, but first digital. During COVID-19, quite surprisingly, when you think about it, we've become more intimate with our customers. One of the big benefits has been even closer interaction with customers and potential customers. Digital has driven that. And if you look at the table on the left hand side, we've seen a 200% increase in webinars, a 400% increase in customer attendees. And these webinars often involve our marketing and R&D teams, a powerful way of explaining our latest innovations and trends to our customers and again to our potential customers. It's all about creating business opportunities and the stats are a great leading indicator for future business. We're also putting firmer foundations in place, building our digital marketing brain. We've got over a dozen people around the world now in places like China, America, Europe, etcetera. And we're building a new personal care website for Indie customers and focused websites in China and because of the rapidly developing growth potential there too. And if you look at the case study on the right, you can see that we've found new ways to bring our innovation to life in China. China, digital users in China spent an average of 6 hours online per day. So they're used to seeing technologies coming through, but the response has been amazing. 65,000 participants in one of the live stream trade events we participated in there. We are accelerating our conversations with customers and in the old days, a good salesman would visit 12 to 14 customers per week through digital channels, our customer audience in an order of magnitude bigger. We're seeing a surge in customer interactions, particularly in Personal Care and that bodes well for the future. Turning to drug delivery. As you know, I want Life Sciences to be as profitable as Personal Care as quickly as we can. That's the mandate for the group. Fast-growing drug delivery platforms are an essential part of that. And we want to build drug delivery into a truly global business for Croda. If you look at the trends on the left, some of these we've spoken about for some time, but some of them have emerged more recently. There's a shift from more traditional drugs to biological actives. This is already happening. As you know, 9 out of the top 10 selling drugs around the world use these biological actives now. Biological drugs are challenging to deliver with the majority delivered by injection, specialty excipients are chosen for their superior performance, enhancing the API performance in sensitive challenging applications. Developing a next generation therapeutics is probably a new area to you and to us. And that's things like small molecule and large molecule development of actives driven by immunology, and wider gene therapy in areas like vaccines and cancer drugs, really good technology for the future, for the group. And of course, COVID vaccines are heavily profiled at the moment in gene therapy, but equally there's new solutions to address diseases outlined in SDG3, which are things like malaria, TB, and HIV, and all of those we're investing in R&D. From a regulatory point of view, things about safety, transparency, and traceability remain the buzzwords of the industry that have been there for quite some time. And customers are selecting our products increasingly because of the high performance, purity and potency of our products. And all of that is to derisk the supply chains. So a competitive advantage for us and for them as well. In terms of direction on the right, essentially we're moving from consumer health, which is like -- you can see that as nonprescription drugs to patient health, more prescription drugs to capture increased value. And with the price opportunity increasing from a few pounds per kilogram, to hundreds of thousands of pounds per kilogram, you can see why we're interested in that. Our job is not to make the active ingredient though, it's that enhance the performance of the active. So we have a broadening set of platforms for drug delivery and lipid nano-particles is the exciting emerging technology from Avanti. And it goes without saying revenue and margin opportunities are increasing as we move from left to right. As we move to drug delivery, we have an increasing breadth of technology in our portfolio, which is creating lots more opportunities for us. You all know about specialty excipients, we've been banging on about that for quite some time. But many others you don't know the new opportunities for the group. And one of the big ones, gene therapy for vaccine and cancer applications, a good example is Avanti's messenger RNA technology for vaccines effectively. It's an encapsulation technology that delivers the active into the cell. But we've also got processing ingredients to fast track the manufacturer of biological actives. Again, we're not making the active, but we've got ingredients that can facilitate the manufacturer of these actives. And also a number of nascent technologies coming through for respiratory diseases as well. The photo on the right at the bottom is a Croda, Denmark, our Biosector acquisition. And as Jez talked to you about, really good growth this year already, and we were expecting good things with that going forward. They have the only aseptic adjuvant manufacturing facility in the world for vaccines. Turning to Avanti then. We bought Avanti because of their deep knowledge in drug delivery, exciting new technologies, rich IP, but above all clever people. And if you look at the picture at the right there's lots of R&D people there in a great age distribution, which you probably can't see. And that was one of the central reasons for buying Avanti. They will become our central R&D brain in drug delivery as we globalize the drug delivery platforms. And most of the employees are scientists serving around 3,000 customers. They launch over a hundred products per year. So a very impressive innovation culture, great track record. And the strategic rationale, it's all about buying knowledge and clever people. I think you've heard that a few times from me now, and it doubles our R&D capability in healthcare. We learn from them and they will learn from us. No doubt about that. And this isn't a technology startup. It's a great business in its own right, growing double-digit and generating strong profit and cash. So in summary, then we've delivered a resilient performance, which reflects the strength of our business model. And we will continue to take advantage of our healthy cash flow and strong financial platform to invest further in the business. In outlook, it's very difficult to anticipate the future with the timing of recovery unclear, but the working assumptions are Life Sciences will benefit from the phasing of crop care sales and opportunities in healthcare. Consumer markets were rapidly impacted by lockdown, but expected to recover more quickly than our industrial markets and the group margin and cash generation expected to remain robust. So the strategy unchanged, but refreshed, and that will underpin and even accelerate our future growth. So let me stop there and hand back to the operator to take your questions.

Operator: [Operator Instructions] We have a question from Charlie Webb from Morgan Stanley. Charlie, your line is open. Please go ahead.

Charlie Webb: Brilliant. Thank you very much. And good morning, Steve, good morning, Jez. Couple for me.

Stephen Foots: Good morning, Charlie.

Charlie Webb: Good morning. Just first off around Personal Care. Thank you for kind of breaking out price mix and volume. That's helpful. But just on that volume, the minus 6% you saw in the first half, can you -- when you look at the industry, you look at your customers, would you say that it is reflective of that environment that you see with them? Or would you say that given the tough environment, perhaps, typically your products are more geared to some of the higher end customers, there's been a biggest shift there, and therefore, perhaps you have lost some share in this more volatile market. Just trying to understand if it's in line with the market, or there's some kind of share moving around, just given perhaps the overall product mix? That’s the first question. And the second question on Life Sciences, obviously a resilient first half just trying to get a better sense on what gives you that confidence. I mean, it sounds like you're confident on the second half with phasing in crop and obviously the healthcare and scale up of your additional capacity. Just perhaps if you can give us some more context around what you're kind of expecting for healthcare and crop in the second half? What you're seeing in July, just so we can understand how that's going to play out for the rest of the year? It would be helpful.

Stephen Foots: Yes. Okay. Thanks, Charlie. Well, let's do Personal Care first and I will bring Jez in on the volume side, and then I'll come back on Life Sciences. I mean, Personal Care, so the trading is modeled or correlated very well with the government lockdowns everywhere around the world, we would say and we monitor that. You can see that through the Nielsen data and the IRI data, which we look at. We're probably a 2 months lag behind that -- 2, 2.5 months lag. So what you see there is it's very directional to where we're going probably. But I think the -- yes, when you've got the -- what you've got in there is the out-of-home and the in-home differences. So the out of home as being more effective. So that's obviously things like high-end skincare, duty-free hair salons and the like, and people clearly haven't been going out. So that's been hit harder than the in-home, which is more the shampoos, conditioners and things like shower gel. Volumes are broadly where I would expect them to be. I mean, you can look to individual customers out there and see differences. Some have got bigger volume, negative, some have got smaller volume negatives, very difficult to correlate on that. I tend to look at Croda by geography because of the national lockdowns in Personal Care. And you look at Personal Care in Europe, for example. So the quarter two effect has been most significant in Europe and Latin America for different reasons. Europe primarily it will -- we are all in lockdown. So that's obvious, but the French beauty industry virtually closed for about 6 weeks because they are repurposing that plants on hand sanitizer gel. So that has an effect, particularly on our skin actives business and our FX businesses more than it does on the formulation business as for example. And also in Latin America, as you all know it's direct selling there. So nobody's knocking on the door or very few people knocking on the door. So that to be more impacted. But you look beyond that and you start to see, really encouraging signs. China is the barometer that we use. I think I've mentioned that before. We're at 9% in sales in quarter two in Personal Care, which a good sign. And that's encouraging us to think that once these national lockdowns moderate further and your guess is as good as mine as to how quickly they are locked -- they are moderated. Then the Personal Care business will start to come back strongly. So there's no market share loss for sure. If anything, we're gaining. We're gaining in some areas and we've got some good evidence that we're gaining in some areas, particularly across the board in there because we're in a good position, we're looking out. We're not cost-cutting and we're not looking internally. We're actually looking a lot more with our customers and you can see that with the digital stuff. So I don't know is there anything else on volume Jez you want to say comparable with that?

Jeremy Maiden: No, I don't think so. I mean Charlie, the -- yes, the volume is down more in the cosmetics area and that's consistent. I mean, if we break into consumer data that overall 14% drop in Europe. Within that you see cosmetics down 41% in the U.S., although overall the market is pretty flat. You see cosmetics down by 26%. So it's that going outside of things, which tends to be the higher end, the higher value part of the portfolio that has clearly been more affected on volume with the simpler products and the everyday products used at the home, as Steve says, being less effective.

Stephen Foots: Yes. And Charlie, on Life Sciences, I mean, we're very, very confident on Life Sciences. I mean, Life Sciences is effectively immune from the pandemic. I mean, first half read into the first half, a very good underlying healthcare pharmaceutical performance which has got very good seed enhancement performance, one of the best performing first half in the mix of markets that we operate in. And it was crop that was behind. So crop was the one that was behind for no particular reason. It's more of a phasing issue and we sort of knew that. There was tough competitors, but a lot of that is certainly in the second half, we can see that already. So only the three things for the second half, like to go in the favor of Life Sciences are rebound in crop due to phasing. And as I said, we can see that, that we have got some new committed healthcare orders for the second half of the year as well, which is in train now and obviously supporting that has the new capacity coming on stream. But we also got Avanti as well. And we'll have -- we should close Avanti shortly, but we'll have Avanti for the good part of the second half as well and that's growing very, very well. It's got double-digit growth in there. So we're really pleased with that too. So Life Sciences is it's good. And you can see the margin projections are good. They're going towards what you would expect, Personal Care margins to be in the normal environment and they can easily get there soon and we would expect that. So, yes, very confident on Life Sciences, but very difficult to predict on Personal Care and Performance Technologies in the second half, consumer markets will probably move ahead of -- will rebound quicker than the industrial one.

Charlie Webb: That's very helpful, guys. Thank you very much.

Operator: Our next question comes from Matthew Yates from Bank of America. Matthew, your line is open. Please go ahead.

Matthew Yates: Hey, good morning, gents. Just a couple of questions, please. The first one on the biosurfactant plant, which I guess continues to disappoint, and I appreciate I think any of us could have seen a collapse in ethanol availability. But the 10 million additional seed stock cost you're highlighting, do you think you can recover any of that through -- passing through price increases to customers? That's the first question. The second question is around what you talked about in the presentation in using these digital tools to interact with customers. Just how good a substitute you finding that virtual offering to the physical working with customers on new product development? And do you think that's going to have any impact on your MPP product development over the coming quarters? Thanks.

Stephen Foots: Yes. Okay. Well about ethanol, I mean, yes, we've -- we -- if you look at bioethanol the plant itself, it's not disappointing. I mean, disappointed to get us to get on track, it's taken longer than we'd like. But actually over the last six months, it's had a really clear run and operationally it's in really good, a good position. So once you get these sites up and running, they -- they're a bit like an airline. Once you get in the sky, they stay in the sky for several, several years before you bring them offline. And this one is no different to that. So that's working well. The customer engagement is brilliant. We've got now I think -- you can see in the pack $20 million of pipeline there already and lots more engagement. I think what you're going to see post this pandemic is a greater -- the pandemic is the big challenge of today, but the bigger challenge for the next 10 years is sustainability, I call it and we're already seeing a much heightened interest from our customers on our specific composition of products, safety of our product ingredients, renewability. We think that's going to drive an increasing interest and future sales for that plant because that's from renewable -- based on renewable ingredients. So, all of that looks really good. The disappointment, and we couldn't plan for that has been this sort of bioethanol issue, we didn't model that. And it's the perfect storm in terms of raw material positioning, but, the 10 million is of, Jez will help me, but probably 4 million here already in the numbers in the first half. So, we've taken that hit potentially up to 6 million in the second half of the year. But it's a sort of 2020 issue rather than anything else. What we can do to mitigate that is using nonfood grade bioethanol, which we are trialing and we expect to consume through the second half of the year. So that will -- and also that will help, but also the demand will probably moderate as we get towards the end of the year for hand sanitizer gels as well. So, in the round actually, it's disappointing largely out of our control, but the things are in our control about customer interaction, pipelines getting a plant reliable they're all in great shape. So we see a really good opportunity for 2021, '22 of really good growth being captured there. So that's the point on that. On digital, yes, I mean, it's amazing. I mean, I was a sales guy growing up and tried to do 14 customer visits a week was a challenge. And that wasn't just for me, by the way, that was for everybody. Some might say it wasn't. And then what you're seeing now is just amazing. The interaction is a magnitude different. The customer audience is just a different audience. Now over the last three months, we've obviously been tuned into that with our marketing teams and R&D teams. And it's definitely the future, but it won't replace direct face-to-face. I think for me, we will never do that, but it will be a very important part about selling programs and marketing programs going forward. So you need them both. It can -- it will and it can, but it will accelerate NPP. It just feels like it will. I mean, some of the -- we are really working hard whilst we haven't been able to spend time at the bench with our R&D facilities because a lot of them have been offline for quarter two. We've been spending a lot of time promoting our products in front of customers and you can see from those stats, some of these numbers are very significant and it's a great opportunity to engage with the customers. As I said, we've become more intimate with them as a consequence of this. So we'll certainly be continuing that in different forms too. Okay?

Matthew Yates: Thanks. Take care.

Operator: Our next question comes from Andrew Stott from UBS. Andrew, your line is open. Please go ahead.

Andrew Stott: Hey, good morning everybody.

Stephen Foots: Hello, Andrew. Good morning to you.

Jeremy Maiden: Good morning.

Andrew Stott: Thanks for taking the questions. I have a couple mainly on Avanti. I wonder if you could explain to a layman, especially around what seems to be more complex chemistry than I can manage. What's particularly exciting about that acquisition for you? I appreciate the slides gave us a lot of detail, but if you can try and tell us what does it really bring to Croda that you just didn't have? And then on the technicals of that acquisition, how does the earn-out work? Is it a 3-year target? How does that full payout potential, how that reached? And then, for this year, how many months do you expect to have it in? So a few questions there on Avanti. And then the questions …

Stephen Foots: All good questions, Andrew. When you say a layman, I think we both to say, but I'll try to answer that. But, yes, I mean the last question first. I mean, we expect to close in quarter three. So let's assume we owned it for four months. There should be 3% to 4% growth to Life Sciences this year. So we start with that. I think, secondly, to your point, I mean, what we're excited about is, I'm excited about drug delivery and you know that, but I'm more excited about the depth of knowledge that we can create in drug delivery. Personal Care is brilliant for Croda because it has great, great knowledge and we're developing that in Performance Technologies too. Hey, we've got great, we're buying great knowledge. You've got 150 people, a hundred plus scientists, a lot of them PhDs as well. The previous Chief Exec would have a field day talking about propeller heads. But yes, brilliant R&D and they have a deep pharmaceutical expertise, particularly in drug delivery. And they got 3,000 customers, but they've got a lot of academic partnerships, which we can then leverage that. But their competence is R&D, not operations. And what they do is they got it first, first base scale on the projects. But then what tends to happen is that's found out to figure out contract manufacturers and then they lose quite a lot of value with that. Well, Croda can do quite a lot of those because a lot of them scale up in our science. And we've got multiple sites that could scale this up -- their projects. So the technology -- I mean, the lipid nano-particle particle technology is what it is. It's liposomes. And more and more of the next generation drugs, whether it's cancer drugs, oncology drugs, or vaccines are using this type of technology. And what it does is, it's primary use is encapsulation. It encapsulates the active and it delivers it into a cell. So it opens the door of a cell effectively. And that's what it does. It does it very differently to the specialty excipients. So the example I used in the presentation was a messenger RNA. That's a good example where it delivers, it encapsulates around the RNA. The RNA can't go into a cell directly, but what it can do through an encapsulation route through lipid nano-particles, it can deliver that into the cell, opens the door of the cell. So that's really important. We would say that. So that's a type of technology for cancer. The next generation cancer drugs and oncology drugs are moving that way. And it's all about boosting the immune system as well. So the immunology it's called and a lot of new development in pharmaceuticals is about boosting immune systems. And they have very sophisticated technologies to do that. So that -- I mean the way we looked at it and now we appreciate that's unusual for keeping it. You certainly don't see that in a chemical industry. And it's a significant earn-out. But I mean, how we looked at it is we paid $185 million for the business, the base business. We wanted to detach the opportunities from the base business. And the base business was growing effectively. It's growing at double digits. So we didn't want to pay for potential future projects that didn't pay out just in the base value. So we did that. And then what we've looked at with them is, like in any pharmaceutical company, they have bigger projects that they're working on. We always have them as well, but a lot of them never get commercialized. Some of them potentially do. And I'm trying to do then is agree a sort of an earn-out that effectively that captures the benefit for both parties, if it's material -- if things take off. So we want it to detach that away from the base business. So we're not paying. So I don't think any of our shareholders want us to pay for potential business rather than, the real business in the base business. But Jez, anything else on that?

Jeremy Maiden: I mean clearly on the earn-out, if the earn-outs pays in full or in part and it could do either of those, then clearly the value of that earn-out to Croda is much more than the amount we’re paying away. So I think it's a win-win from that point of view. Yes, but as Steve said, the $185 million is based on the existing performance, and …

Andrew Stott: And can I just tick? Is it a revenue earn-out or an EBITDA earn-out?

Jeremy Maiden: Yes, it's revenue. It's a revenue earn-out, but it's -- yes, it's we don't want to take you through the detail, but the -- and you don't really need to know the proportions, but it's revenue base, but it's I mean, these are very high margin. So the revenue base is significant. A large part of the revenue is likely the profit. So it's -- but technically it's a revenue based.

Stephen Foots: The key thing, obviously, we controlled from completion of the acquisition. We control the projects that are going on, the projects that have been delivered. So, you're not going to end up in a position where you're paying the revenue earn-out on something, which is unprofitable because we're responsible for the company.

Jeremy Maiden: It's -- let's put it this way. We would be delighted to pay the full earn-out. I mean, on behalf of the company, because the company would generate a lot more lot more profit generation than that earn-out. So, yes -- and then that's obviously it goes without saying that, but so, yes -- so it's great. It's sort of the projects that we're sitting on a very -- potentially very significant book. Yes, we know a lot of them never get to market, that's the issue with these things. So they’re quite binary, I call them. So the earn-out is there just a couple of that. So let's say, they worked hard with these projects for quite few years and this is a contribution of the profit that effectively goes to them if they do, if they do come good.

Andrew Stott: Thank you. I'm sorry, just to follow-up. The group CapEx for 2020, do we just take 15 [indiscernible] and then also any thoughts on '21?

Jeremy Maiden: So, yes, we got quite a lot of growth projects sort of going on at the moment. We've got the -- we'll be completing this year, the doubling of capacity on the specialty excipient plant in the U.S and we started work on the U.K and the Japan plant. We've got new customer centers being for the U.S and for an R&D in China. So it's quite a lot going on at the moment. I think the ₤50 million in the first half year was slightly constrained by COVID clearly on some sites. We took off the people who didn't have to be there, which would include construction workers. So we could just focus on the operations side of the business. So I suspect second half will be a little bit higher than ₤50 million, just because of the number of opportunities we have. So something just over a ₤100 million for the full year should be a good guide. We still think going forward that the overall level of spend should be around about sort of ₤80 million, ₤90 million, it's just the way in which the projects are falling this year. And as Steve said, the opportunity to invest at a time when a lot of people are slashing their investments, but we think there is a lot of opportunities there, particularly around the Life Science business. So we'll continue to do the appropriate investment. But yes, we'll remain relatively capital light. There's no major projects in there. The biggest one would be about 20 million sterling. So this isn't a big projects on the eco scale, but there's a number that are going to add meaningful capacity and capability over the next 6 to 12 months.

Andrew Stott: Okay. Thanks, guys, and thanks, Steve.

Stephen Foots: Okay. Thanks.

Jeremy Maiden: Thanks, Andrew.

Operator: Our next question comes from Chetan Udeshi from JPMorgan. Chetan, your line is open. Please go ahead.

Chetan Udeshi: Yes. Hi. Thanks. A couple of questions maybe one for Jez. Just looking at the depreciation in the first half there wasn't a major material swing, I think at the full year results you were talking about maybe including biosurfactant plant and increase of maybe ₤30 million. So can you help us understand if that is going to come primarily in second half or has something changed in terms of numbers for full-year? And maybe one for Steve. I appreciate the lack of visibility on how -- what is the pace of recovery in Personal Care. But are you seeing any of that yet in the numbers, or is it still pretty patchy to call out in terms of any noticeable signs of recovery?

Jeremy Maiden: Okay. Okay. Hi, Chetan. Yes. So on depreciation. Yes, as you said the key driver to depreciation was commissioning of the biosurfactant eco plants in North America, because that came on during the first quarter. We only have one quarter of depreciation in the second quarter. The overall impact of that is about around about ₤8 million in a full year. So there's a couple of million in the first half. And there'll be a couple million more in the second half because of having two quarters of depreciation. Okay?

Stephen Foots: Yes. I mean, the first care recovery, it's hard to say, and it's very difficult for us to forecast them. And if you wanted to put a focus together, you wouldn't believe it and we will -- and we wouldn't believe you, we forecast as well, it's just very difficult to have that. But it's got to be evidence based and we look at China, we're very pleased with China, how that's recovered. We're looking closely at the Nielsen data and the IRI data, IRI data from the U.S. And they’re good indicators for us that people are starting to purchase Personal Care products again, and that's probably the best. And we are excited to see that the Nielsen data is improving. It's less negative as is the IRI data as well. So, that bodes well for recovery and we relate it to SARS -- when SARS was, it was upon us, we recovered pretty strongly. But I think before we get there, we just have to see the, how these national lockdowns moderate further, because Personal Care is exposed to people getting at -- the more people that are out than obviously the more people that will use cosmetics. There's no doubt about it. So it's getting back an improvement, I think that will gradually improve, but certainly over the next few weeks and month. So, yes, so -- and it's a great business. It's a very solid business for Croda. There's lots of technologies in there. We are in lots of countries around the world. So, we would expect that to come back. So we'd like Europe to, I think the big thing for us is, Asia, certainly China doing well, but the rest of Asia coming back and North America too, which is encouraging signs in North America and we want to see Europe start to come back. We would expect that over the next few months, as well. Latin America will take a bit longer because of where they are in the pandemic at the moment. So that's sort of where we are with it.

Chetan Udeshi: Thank you.

Operator: Our next question comes from Kevin Fogarty from Numis. Kevin, your line is open. Please go ahead.

Kevin Fogarty: Great. Thanks very much. Just a couple for me. I guess, if we look at sort of the Performance Technologies, the drop through there in terms of the operating leverage was much more significant than we've seen in previous periods. I just wondered, is that sort of purely driven by the sort of mix change, or is there anything else sort of going on there? And just secondly, in terms of working capital, I get the sort of year-on-year improvement on lower volumes. We still saw sort of increased investment in inventories. And I just wanted to sort of what business is kind of requiring that sort of increased investment on the inventory side? And just finally, if I could wrap up with a sort of general question on benefits from COVID-19, perhaps in terms of market share gains, where do you see the equation potentially reflect coming through?

Jeremy Maiden: Yes. Okay. Well let me just do Performance Technologies. I'd just like to comment on working capital and the benefits. So -- okay. Yes. Hi, Kevin. So, yes, I think first of all probably about half of the plants that we have are shared across the sectors. So clearly one of the issues you have when volumes are dropping in -- into the three sectors that is it's a better operating leverage position when you've got some sectors rising, as we normally do while other sectors are falling. So clearly you have a bigger impact on our pricing leverage when several businesses are going down at the same time as we've seen during the COVID situation. But overall in terms of operating leverage, if it is a more operating level of business, but the other thing we saw was we did see significant impact just on production from a couple of the European plants, where we had shutdowns going on and also from the Indian plant, which is quite a main performance technology producer. And India is the one place, the one site where we've had significant restrictions on our ability to produce volume to ship it out in India and outside of India. And the only products we've really been able to allowed to produce in there for at least a couple of months now has been the Life Science products, because there are sort of on our list that you're allowed to make. So you've had a sort of double, triple whammy property. You've had the operating gearing effect. You've had the fact that other businesses are not picking up the slack in volume and therefore carrying more of the cost. And you've got the specifics around the European and Indian sites. So I think it's an extreme position on that, but not generally a sign of how much gearing effect we would expect to see in that business.

Stephen Foots: Yes. And on working capital, I mean, the working capital increases are a 100% deliberate. It's been -- there's been actually quite a bit of intervention from the CEO in stocks. I've been here before four or five times in a recession. And I've made sure that we've got stock in the right place around the world for recovery. And we haven't had that in some cases in the past. And what I mean by that is, we would expect Asia and North America to come out of it pretty quickly. And then Europe, I’m sure soon after the U.S is sort of our working assumption. So there's one thing about getting the right stock, that's getting the right stock in place. And the other thing is making sure it's in the right location. So we've been making sure in Asia and North America, that we've got stopped from all assets globally in the right place, rather than in the wrong place, if you know what I mean. So that -- and we feel comfortable with the stock holdings we've got around the world, we'll monitor that closely in the second half, but yes, we are there ready to respond when demand starts to come back, which of course it will. The $64 million question is how quickly it responds. But we're in a comfortable position. So don't worry about working capital, just see that is a great opportunity to capture fresh growth for later in the year and probably next year. So, that's the point on working capital. The benefit to COVID-19, I mean, we'll come through this, we're weathering the storm very well as a one or two of you had mentioned. What that means for Croda, we always invest. I mean, Jez talk about maintaining investors, we're actually increasing investment. We're increasing investment in R&D and digital in acquisitions by buying Avanti. We're doing the right thing and we're investing in our people as well. And the best time to invest I’ve always said, it's called a mantra that goes through decades as you invest in the downturn, as well as the upturn. And that's what we're doing. And I think in a year or two times, when we reflect on it, we'll be a much better place because of that. So we will be capturing, we are capturing business, we are particularly capturing business in Personal Care, we feel. Life Sciences, it's just great growth from the technology platforms. And we also -- we're also capturing new business in some parts of Performance Technologies by the Coltide Radiance and things like that which is just great, great technology. So I think we're in a very good position. We're doing all the right things. We're planning ahead. We've got time to do that, and we're putting out programs in place to accelerate those strategic priorities I talked about earlier. So in good shape certainly for a rebound, whenever that comes.

Kevin Fogarty: Great. That's really helpful. Thank you very much.

Stephen Foots: Thank you.

Operator: Our next question comes from Isha Sharma from MainFirst Bank. Isha, your line is open. Please go ahead.

Isha Sharma: Good morning, gentlemen. Thank you for taking my questions. Could you help us with the monthly progression? How did you see the Personal Care business developing, especially how do you see July in the first few weeks, if that is possible, please? is it incrementally a bit better than June or flattish? That would be very helpful. My second question is on Life Sciences. Now that you've already achieved a margin of 32.5%. Is it fair to assume that the expansion might even be beyond the 33% level in the mid-term and more accelerated? And the last one is on raw materials. What is a reasonable assumption for the full year-over-year, given the decline in oil derived raw materials please.

Stephen Foots: Okay. I mean, Personal Care, best to look at a trend, we would say May, June, July, and that's pretty stable. So it's weak, but broadly flat, we would say. And it's patchy everywhere and it's all correlated with the lockdown. So we'll be watching that closely as things develop. In terms of Life Sciences, I mean the margin improvement is great, and that will continue. I have no doubt. And the Avanti acquisition is very high margins as well. So the growth that we've got in the core platforms which are things like lipid nano-particles, the vaccine adjuvants from Biosector and specialty excipients, they are the main drivers and they're in the higher margin. So we would expect, continued margin progression there, let's call it that. And we've always said we want to get to 33%, 35% margins, like Personal Care and there's no reason why they can't and who knows getting beyond that is not -- is something that's certainly achievable. So I would say that on those two. Raw materials, Jez.

Jeremy Maiden: Yes, I mean, we still have the picture is broadly flat. Obviously, we're buying primarily naturals, commodity for raw materials. So overall the basket it's been pretty flat. I would say, its subject to a lot less volatility overall than you would see in a more petrochemical centered basket. So, yes, overall with the increase on, around bioethanol and some decreases in other areas, I would say, pretty benign from raw materials as we've seen for a number of years now. I think on the last time it's March, we might get a small bit of initial dilution on Avanti, just because it's -- that’s a very good margin, but probably 25% to 30% EBITDA type level. So it'll be quite small dilution, but again, opportunity-wise, we certainly see it as a Life Science plus margin opportunity.

Isha Sharma: That’s very helpful. Thank you so much.

Stephen Foots: Thanks, Isha.

Operator: We have a question from Adam Collins from Liberum. Adam, your line is open. Please go ahead.

Adam Collins: Good morning. I think I've got three loose ends, please. So first of all, on Life Sciences. I think at the beginning of the year, you were talking about a 2% growth impact as you deliberately exited some crop products with poor environment footprint. Just wanted to understand, is that happening? And then on the sort of broader growth story, understood it's a very defensive area. But was there not some negative impact from the fact there's been lower GP visits, elective surgeries during the period. I'm thinking now the sort of consumer health business, a smaller part of your operations, but nevertheless, affected by the frequency of prescription activity. Maybe I'll do it in turn. That's the first question.

Stephen Foots: Yes. I mean, I'll do the first and then Jez can do the GP visits. He goes with the GP more than I do, so he knows these things to say. He's a bit older than me. At the end, the 2% thing on Life Sciences, yes that’s happened. I mean, we took the decision. I mean, very much part of our sustainability agenda is we don't want these and al catena systems in our plants or any other has this material of that nature so or toxic ingredient. So they're out there going out, so they're impacting or they have impacted. So -- but that's fine. It's one of those things. But the underlying strength in the Life Science result in the first half is being driven by the healthcare platform generally. And Jez talked about those in these pack and also see an enhancement, which has been great. It's only the crop that's been down just on phasing issues. But, Jez, do you want to talk about GP stuff?

Jeremy Maiden: We saw a modest impact, Adam, on -- in the sense of, look, we’re a bit removed from it and the inventory pipeline in pharma can be anything up to 12 months. But we could see that there was clearly some impact from the reduced number of prescriptions being written and the reduction in elective surgery going on. So we could definitely see some impact for that when we look at the customer product mix, but the general feel was in the excipient side. We still saw very good 11% growth and that's across both the standard excipients on the specialty excipients. So the specialty excipients continuing to be probably 10% to 30% year-on-year. So, we didn't really see a change in that. Consumer health, yes, we were flat to sort of plus 1% on that. So that for us picks up more sort of topical treatments, oral care, that sort of side of the business, and it's been relatively steady. So I don't think anything that we would be concerned about there. And as we've said, the second half outlook and beyond looks very positive on both the [indiscernible] crop.

Stephen Foots: Did you have a question?

Adam Collins: Okay. Thanks.

Stephen Foots: Second question.

Adam Collins: Yes. Well, I had a couple here. So within 6 months, we could be heading for hard Brexit in the U.K. You mentioned that you are comfortable with the inventory position and sort of touched on being right-sized for Asia and North America, in particular, as it recovers. But what would you anticipate to be the impacts of the business in the event that we do see a hard U.K. exit from the EU? So that's the first one. And then the second one was just on the OpEx issues. Jividen yesterday was talking about puts and takes, lower travel costs, no product testing in its Personal Care areas, but more freight costs. Have there been any significant movements there either positive or negative?

Stephen Foots: Yes. Well, let me start with Brexit. And then Jez leads the Brexit team internally. So I'll get him to comment on the detail, but I mean -- so we've got a chemical industry group that works with government on a two weekly basis to talk about Brexit. So I'm involved in that and other Chief Execs are as well for the industry. So we're encouraged with where they are behind the scenes with the development of discussion let's call it. I mean the impact of Croda is modest. We have 95%, but more than that now of our sales outside of the U.K. So -- the impact is always like it to be too small. I think the area that we're focused on at the moment is making sure we keep the regulatory playing field the same as Europe and the U.K., which is called reach and making sure that -- the European, our European partners in [indiscernible] want the same thing. So we're still hoping that that will be the case, although and where that goes, but we'll all be in government very hard on that at the moment, but that's the only one for the year. That's an industry point. But, Jez, do you want to go on the detail anymore? Detail on Croda?

Jeremy Maiden: Yes. The -- I guess a couple of areas that we've looked at I think now actually we're at the point where from the trading point of view, it's sort of almost to some extent from the point of view of the changes we need to make doesn't really matter now whether we're in the hard Brexit or whether we get up a basic free trade, or even at the end of the transition agreement in the sense that under both systems we're going to have to account for sort of VAT duties, etcetera, in Europe where in the past we've just shipped from the U.K and not have to worry about that. Obviously, what we prefer in that is a free trade agreement, whether duties has set at zero rather than having to have duties tutors, but we did evaluate the tariff impact of moving completely to WTO for the U.K and the European manufacture A couple of years ago, and we were looking at mid to high single-digit million pound annual impact from WTO tariff. So that sort of backstop, I guess, one could end up with ₤5 million, ₤7 million of duties and so forth, which clearly one wouldn't want. But I think mechanistically now you're going to have a VAT and the duty system it's just whether or not those duties are set at zero. So I think we can manage that sort of those impacts on the trading model. As Steve said, more of a focus on trying to avoid duplicating an entire regulatory system, we can clearly do it, we would just incur additional cost to implement and then to maintain. So clearly we already run multiple regulatory systems around the world. So we can do it otherwise it's just -- it's a bit pointless in that point of view when I'm really getting the value from it. So and I think the general view would be that, hopefully one would see less immediate issues come January in terms of goods getting block to borders and so forth, particularly given the new case announcements, the goods would be able to flow into the U.K., which affects us more on the raw material side. So I think we're in a good place on the Brexit planning. We'd rather not have tariffs. We'd rather not have a separate regulatory system, but they are manageable with a bit of cost, if those come along. In terms of the OpEx side of things, overall we were down about a ₤1 million in OpEx. You'll see that I have made an adjustment to the way we report the OpEx in the income statement, just to make it a bit more consistent with the way peers report and so forth. That's just a flip between the cost of sales and the OpEx lines that you'll see in the income statement for those of you who are looking. The OpEx overall was down about a ₤1 million year-on-year. That's the function of the ₤15 million to ₤20 million of savings that we implemented last year, less, the additional resource that we've reinvested in areas like China. It's a function of definitely reduced discretionary spend around travel and exhibitions because clearly that's not happening at the moment. And then it's offset partly by the eco plant start up because obviously that creates a bunch of OpEx costs that we didn't have previously in the depreciation that we touched on earlier. Overall, we've kept the -- at a tight rein on operating costs, both in the same way on the investment side that we're not slashing investment, but this is the time to invest. We're also doing the same on the resourcing side, but where we can see opportunities such as China -- digital China, we're investing behind that because it's the right thing to do now. And given our model, we are pretty lean operating model anyway.

Stephen Foots: So [indiscernible].

Jeremy Maiden: Thanks, Adam.

Adam Collins: Thanks a lot.

Operator: Our next question comes from Martin Evans from HSBC. Martin, your line is open. Please go ahead.

Martin Evans: Yes. Thanks very much. Just getting back to the potential for Avanti looking forward, do you think in terms of its significance is the equivalent to your Sederma deal years ago in Personal Care, in terms of giving you the critical mass you need and the potential, or do you still feel on drug delivery there's the need for another add on? And secondly, just in terms of the customer offering going forward that you can offer the 3,000 plus customers of Avanti, given your, as you say, your ability to scale up and their ability on R&D. Is that important if you could almost offer sort of one stop shop offering to the customers or doesn’t it really matter in the world of pharmaceuticals? Thanks.

Stephen Foots: Yes. Great. Thanks Martin. Good questions. Yes, I mean, the Sederma just to remind people, I mean, what Sedemra brought to Personal Care was they, we learned from them and we were a very good Personal Care business before Sederma. But they -- and we learned a lot for them. They created pentapeptides and they had a brilliant R&D and marketing function. And we learned a lot from that. We are still learning from them now. In many ways, there's lots of parallels with Avanti. I mean, still early days, we haven't got them on board yet just about to. But they have the potential to do very much the same and so much that we'll learn from their drug delivery experience. They've got deep knowledge there. And their R&D and track record in R&D over the last several years has been outstanding. It's excellent. So it's great. So, and they'll take it in two areas that we either were not aware of at the moment or something can leverage going forward. So it has the potential, I think 6 months, 12 months, when we come back, who knows where it will be. But it won't stop us doing more though, as well as the point there is, we think there's other opportunities there as well that we want to look at too. I think in terms of the customer base, the way to look at it, Martin is, we're trying to move to more pharmaceutical services. So what you need there is you need a very good R&D base to that. You need to then have scale of potential, preferably in your organization, which is manufacturing led and you need to have a great selling function to take them to market. And we've got great selling function. We have the great ability to -- our operational capability is strong in this area. But we didn't really have the deep expertise in R&D. So we see this as a sort of -- you triangulate around those three functions and this will bring a lot to the other two as well. So, they're very North American business, so they don't have huge sales outside of North America and parts of Europe. So, yes, we think from a selling point of view, we can get global reach that they couldn't get before, which is what we did with Sederma, if you remember. And I think just generally we will have more appeal to our customers and our future and our new customers because of that R&D manufacturing and selling strength now. So we become a real operator in this space. And that cost us, that's important, our job in that was to create really terrific value from it. So when we think we can. So it'll be an exciting journey, but it is definitely the most exciting acquisition on the mind of leadership as CEO certainly at the moment from what we can see. But that will be proved out and borne out by results and you hold us to that. And that's absolutely right.

Martin Evans: Great. Thanks.

Operator: The next question comes from Tom Wrigglesworth from Citi. Tom, your line is open. Please go ahead.

Tom Wrigglesworth: Hi, gents, Thanks very much for the presentation. Just a quick one now, because -- just on that -- on that transfer from the R&D side of Avanti to the manufacturing, are the margin similar on the manufacturing side? And you've said that you can expand -- you can use your existing sites to manufacture some of their products, but is there a point at which you would then have to consider expanding that manufacturing capacity? And is that something that's, one to two years away or something that's more five years down the road?

Stephen Foots: Yes. I mean, good question. I mean, it's still to be proven because we're learning as we go along. I mean, the they looks like the similar margins. I think the issue is not so much the margin, it's the capability to make it. At the moment, Avanti lose -- it's a great business model, but it's not the perfect business model because they can have a lot of these small scale, one kilos, maybe half kilo quantities up to five kilos quantities, something in that area, they can satisfy from their own plant. But anything beyond that, when you scale up, they have to outsource to another partner. So they lose, I think they lose a significant contribution when they do that. And clearly we want to pick that contribution up. So I think it's not so much margin. The margin is still very high. I'm not sure if there's much change between that, but it's the losing out of the opportunity to scale up, which is very rewarding. That's the lucrative part is the manufacturing of it. And just to give you some feel for these things, we -- we've moved along that continuum from consumer health is ₤3, ₤4 a kilo and some of the Avanti products, you're into hundreds of thousands of pounds a kilo. So you're talking about different ball game, which is great. So we'll certainly once we've got a selling global reach, we'll certainly learn how to price the product correctly in this space as well, because we think we're good book. We can be better. So I think that's going to be great as well. So, yes, lots of good opportunities, but we just want to get them on board and really get them working with the rest of Croda. Jez, has just got an additional point for you as well.

Jeremy Maiden: Yes. Hi, Tom. From the investment side, it's a one invested site in Alabama. And that as happens, we're already well into the expansion, obviously of the main site in Pennsylvania. That's the Croda manufacturing site and then we have the two other sites in the U.K and in Japan and we have expansions already underway in those. So generally to just broadly the volume of the specialty excipients and drug delivery systems that we can do. So I think that's already part of our plan and these expansions are typically between ₤10 million and ₤20 million each. So they're quite modest in the scale of expansions and things that we can cope with in the normal program really. And it's just about getting the capacity in place in time to meet the market growth.

Tom Wrigglesworth: Great. Thank you, both.

Stephen Foots: Thank you.

Operator: We have no further questions. So back to you, David.

Stephen Foots: Yes. Yes, let me just wrap up. I mean what we had, didn't what I didn't do at the start and my mistake was not to welcome David Bishop to the organization. Despite him being not even a forest fan, we think he is going to do really well for us. So you've all probably had conversations with him now. So hugely and like you did with Conleth, and I'm sure you'll get the responses that you want. But I think just in summary, originally in performance, and I think more than that is we're investing in the business. We're accelerating our investment where we can, and we've got these refresh strategic priorities, which I think are going to be very important to us in the medium term to capture new growth. And of course we are investing in R&D and digital, but we're investing in acquisitions as well. So, we feel like we're coming out of it stronger than we were going in and that bodes well for certain near and medium term for the group. So thanks very much for your questions. And we'll see you when we see you.

Operator: Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.