Earnings Transcript for CRDA.L - Q2 Fiscal Year 2021

Stephen Foots: Good morning everyone and many thanks for joining us this morning for another virtual presentation. Given how long it's been since we saw you last we've decided to do this by video just to reassure you that we are still very much alive. So okay then let's get on with it. As ever I'm here with Jez and he will come on to talk about the numbers following a brief introduction from me. I'll finish off by updating you with some more detail on various aspects of our strategy. And we will then be very happy to answer your questions. So turning to the next slide then. Overall, Croda delivered a record first half performance driven by the strategic moves that we've made over the last 12 months. Underlying sales increased 27% on H1, 2020 which of course was impacted by COVID. So, important to point out that this is also 10% ahead of half one 2019. Including acquisitions reported profits are up 50% versus 2020 or 35% versus 2019. The group margin is also ahead of the prior year. And despite the acquisition of Iberchem, where margins are lower that progress has led to a further 10% increase to the interim dividend continuing our 29 year track record of dividend growth. There are three key areas that have driven this performance. Firstly, our existing business. We've seen strong underlying growth in our existing business benefiting from significant investment together with increased innovation. End consumer demand has also continued to recover with the additional benefit of customer restocking in line with strengthening academic conditions. Secondly, acquisitions. 2020 was a year of significant investment with nearly £1 billion invested in both inorganic and organic growth. Well, we've really seen the benefit of that, notably the acquisitions of Iberchem and Avanti, which are opening up some very exciting and significant opportunities for Croda. Thirdly, life sciences, which has delivered an excellent performance and with our healthcare business performing exceptionally well. So, very encouraging progress and testament to the strategy that we've been focused on accelerating over the last 12 months. So turning the page just over to the headlines then. Sales were up 38% due to higher volumes and price increases. This is reflecting our ability to successfully pass along raw material costs as well as the benefits of recent acquisitions. Good growth and high value [issues] help push the margin higher and the combination of increased sales and an improved mix delivered a near 50% improvement in operating profit. Cash flow fell as a consequence of growing demand and increased CapEx to support our exciting opportunities for growth. Because the second quarter of last year was weak due to COVID, we've been monitoring business performance against the same period in 2019. So, stripping out acquisitions and lipid system sales, all sectors are ahead double digit on an underlying basis with volumes much better than 2019 and price mix ahead in consumer care and life sciences. Sales of new and protected products as a percentage of total sales are also ahead of 2019 levels with acquisitions and lipid system sales benefiting reported NPP. As we continue our journey to become a more knowledge intensive company, we continue to build our brand and growth. Overall, 85% of our profits are now generated in life science and consumer markets. And all sectors are delivering great growth. Turning briefly to each of the sectors then in turn. Personal Care continued the progress that we saw through the second half of 2020. But at a faster pace driven by beauty actives and stronger demand in the Americas. Better product mix and increased innovation focused on natural ingredients and biotechnology is enabling us to capture growing consumer demand. We're also very pleased with Iberchem's progress and the new opportunities that is opening up in the fast growing fragrance market for us. Life Sciences has been simply outstanding and continue to exceed our expectations. We've seen strong momentum across all areas with underlying sales in crop protection and seed enhancement, both increasing by double digit percentage. The highlight was healthcare where adjuvents and specialty excipients both grew by more than two thirds. Our investment in developing our lipid systems by which we mean both lipid excipients and other Avanti lipid products has been a major benefit. We now expect to generate at least $200 million of sales from lipid systems this year, principally due to Pfizer and BioNTech an increase on the $125 million that we communicated back in March. We've also seen a very strong recovery in performance technologies driven by the broader industrial and market recovery and our exposure to next generation sustainability driven applications. We also saw margins returning to 2019 levels increasing to 15.6% versus 10.9% for the second half last year. So overall in the round and outstanding half with momentum in the business as strong as I've seen it over the last decade. More on that when I come back. Let me stop there and hand over to Jez to go over the half one performance in more detail. Jez.

Jez Maiden: Thank you, Steve. And good morning, everybody. As Steve has said the first half of 2021 has seen a record financial performance for the group. Sales were up 39% and reported currency at 934 million Sterling and increased by 47% in constant currency. The recent strength of Sterling means that reported currency numbers are generally about eight or nine percentage points below the constant currency numbers across our financial metrics. Adjusted operating profit increased by 50% to £242 million. This reflected a better overall product mix and volume, resulting in return on sales increasing by 190 basis points to 25.9%. Adjusted profit before tax came in just shy of £230 million up 50% on prior year. With the effective tax rate broadly unchanged at 24.4% the increase in the number of shares an issue following the Iberchem equity placing at the end of last year, so adjusted earnings per share up [Audio Gap] of the acquisition [Audio Gap] currency return on sales was just under 25%. The standout performer was again Life Sciences having seen no discernible negative impact from COVID-19 last year. Sales grew in the first half of 2021 by 61% with a stronger product mix, suggested operating profit almost doubled and return on sales reached 39%. Performance technologies saw a strong sales recovery from the impact of COVID last year with first half sales 15% on prior year; all organically driven. The benefits of greater volume on operating leverage. So, adjusted operating profit 18% higher and return on sales moving above 15%. Worth noting across all the sectors is the impact of a higher remuneration incentive charge on first half profitability. This comprises the bonus cost, having seen no group wide bonuses accrue in 2019 or 2020 together with a highest share based payment charge reflecting the strong share price performance and the fact that the vast majority of our employees have share ownership and credit. The impact of this was to reduce return on sales year-on-year by a little over two percentage points. Now let's look at each of the three principal sectors in some more detail. 2021 saw the creation of the consumer care sector comprising Croda's leading global position in personal care, our growing homecare business and Iberchem fragrances acquired last November. After a steady recovery in the second half of 2020, after COVID-19 hit going out sales of actives and cosmetics personal care improved rapidly in the first half of ‘21. It delivered underlying sales growth of 19% and sales are now 8% ahead of pre-pandemic levels from 2019. Growth was strongest in the high end IP rich products with beauty active sales up to 26%. Beauty effects saw progressive improvement in demand for suncare, cosmetics and hair care markets growing sales by 11% but remain constrained by some continuing lockdowns. Beauty formulation enjoyed resilience sales through pandemic lockdown with its focus on at home use products but still delivered 8% growth this year. After strong demand for hygiene products during 2020 homecare sales slowed to 5% this year. Customer relaunches using Croda's fabric care technology together with progressive replacement of petrochemical products with bio-based surfactants from a U.S. eco plant should drive further growth. Reported Iberchem sales grew by 13% continuing the double digit percentage sales CAGR enjoy pre-acquisition. Iberchem's profit was in line with our acquisition plan. With active sales strong, this drove better product mix and margin improvement in the underlying business. Price mix improved by 7% and volume was 11% higher. Iberchem together with the smaller 2021 acquisitions added 38 percentage points and currency translation was adverse 10% to give the reported sales increase of 46%. Now Life Sciences continues to develop into a business to rival creditors long held leadership in consumer care markets. With its focus on drug, vaccine and crop science delivery systems, the sector is growing sales through organic expansion and by leveraging acquired technologies. The first half year sales up 61% and adjusted operating profit almost double within underlying sales 47% higher, the existing business added 17 percentage points to sector growth. We saw an outstanding healthcare performance with rapid expansion in all three patient healthcare platforms with sales of vaccine adjuvants and specialty excipients each up by over two thirds. A new manufacturing capacity on stream to support both platforms. Crop protection and seed enhancement each delivered double digit percentage growth year-on-year. This demonstrated the breadth of the growth across the Life Sciences portfolio. The scale up of lipid systems of Croda's sites added 30 percentage points of growth and the successful integration of the Avanti acquisition added 23 percentage points. Currency translation was 9% adverse. Sector is moving into higher value lower volume niches. This is reflected in an increase in return on sales, which has risen 11 percentage points over the last five years. Growth in both sales and margin in the first half of 2021 have been exceptionally strong. As we bring capacity on stream and deploy more people to support this growth we expect both margin and growth to moderate somewhat. However, the overall momentum is expected to remain positive. The first half year for performance technologies saw a continued improvement in sales driven by recovery in industrial markets and sustainability driven demand. Margins also improved due to a better business mix and operating leverage. Sales increased by 15%. Smart materials has led to recovery with sales up 18%. We've seen strong demand for food packaging and protective equipment, recovery and broader polymer demand and growing customer requirements for sustainable solutions such asbiodegradable and recyclable materials. This growth has been supported by progressive improvement in energy technologies with a 10% increase in sales. Industrial markets have recovered and our demand has outpaced this broader recovery. Thanks to our exposure to high growth markets including next generation applications such as electric vehicles. Underlying sales for the sector are now 11% ahead of 2019. So, one ahead of pre-pandemic levels. Free cash flow fell to £43 million as a result of working capital build associated with the growth in demand and the increase in capital expenditure. Of the £98 million investment in working capital 72 million was the priority impact of high raw material prices and increased demand. 20 million was an increase in contingency stock to manage raw material availability and forward price rises, which leaves 6 million as the net increase in working capital. So, I'm not uncomfortable with the overall position here. We continue to deploy capital to deliver sustainable growth in Life Science and Consumer Care markets. In the first half capital expenditure was £18 million. We invested [£40 million] of this in healthcare capacity in vaccine adjuvants and lipid systems. And we commissioned a £30 million investment which is doubled capacity of specialty excipients in the U.S. In Consumer Care, we invested €70 million in the acquisition of Alabama, NBC actives, and parfaits in fragrances. Total investment in capital spend and acquisition totaled £140 million in the first half year. And this reflects elements one and three of the group's capital allocation policy which is shown here. We expect to continue with the current accelerated capital investment program for the remainder of 2021 given the strong demand environment and range of opportunities, particularly in consumer and Life sciences. In addition, in element two, we continue to provide regular returns to shareholders increasing the interim dividend by 10%. And in element four, we continue to maintain an effective balance sheet. At the June, 30 2021 leverage ratio had reduced to 1.7 times. I'll now hand you back to Steve to update you on our strategic priorities.

Stephen Foots: Thanks, Jez. Back again. Let me take you through the back of the pack then. And thanks to Jez. The framework for our strategy will be familiar to most of you. But at its core, we believe that sustainability together with innovation will drive our future growth. Sustainability trends are increasing rapidly driven by consumer demand and regulatory change. We are responding through relentless innovation to help customers achieve their own sustainability objectives and that's enabling us to win market share. We've made strong progress implementing our sector strategies over the last 12 months expanding life sciences, strengthening consumer care, and refining performance technologies. We've done our best work coming out of the COVID-19 crisis, which I'll come on to now and the company is in a very strong position to capitalize on this going forward. Turning to the next slide then. The two strategic acquisitions we made last year have delivered significant benefits for Croda. In particular, our acquisition of Avanti has enabled us to play an important role in the manufacture and rollout of COVID-19 drugs and vaccines, supporting 25 COVID related products, something that we're very proud of each and every one of us in Croda. Lipid system sales are now expected to reach at least $200 million in 2021, principally for our major COVID-19 vaccine contract compared with guidance of $125 million previously. Demand for COVID-19 solution ingredients remains uncertain beyond the short term and the current level of sales could moderate. But we expect to see an ongoing expansion in the range of applications for lipid systems and vaccines and therapeutic drugs of the medium term. In future we expect lipid systems to be used for mRNA drugs and vaccines to combat other infectious diseases such as flu, and non-mRNA applications including lipid systems for vaccine adjuvants. So, as a result, we expect this to become a more meaningful part of our business. Iberchem sales grew by 13% and the integration process has moved along at pace and we're firmly on track to deliver targeted annual synergies of €48 million by 2025. Iberchem's focus on higher growth, emerging markets will drive significant value for the business in the coming years. You've heard me talk repeatedly now about focusing Croda on the faster growth markets of the future and that's exactly what we're doing. It's all about making bigger, bolder bets on niche markets to either expand or build our leadership positions and drive significant value. So, across both life sciences and consumer care, these are the areas that we are focused on and where we are delivering on our purpose and using smart science to improve lives. All eight of our core businesses as shown here, are performing strongly and are well-positioned for future growth in markets that are already growing impressively. Turning to drug delivery then. Drug delivery systems has been an area that we've been investing in for nearly two decades. We're focused on three platforms, all of which are niche, highly specialized areas where we see compelling opportunities for future growth given the size of each market and the leadership position that we've established. The market for specialty excipients continues to grow driven by the expansion in injectable drugs using biological actives, which continue to dominate new drug launches. Croda provides the broadest range of high purity excipients and purity is what our customers want. Lipid systems offer significant potential beyond COVID-19 for a wide variety of future mRNA and gene therapy applications reflected in the market value which is currently doubling each year. We have a first mover advantage established through the Avanti acquisition and augmented by continued innovation, and over £40 million of capital investment deployed in the last year. Vaccine adjuvants are another fast growing area. The vaccine market has more than doubled since 2019. And much of this is driven by demand for COVID-19 vaccines and we're in a leading position founded on the technology that we acquired with bio-sector in 2018. So, we see significant opportunities in the future combating both infectious and non-infectious diseases. So taken in the round together, we're working on more than 100 COVID-19 projects in over 20 countries across these three drug delivery platforms, the majority of which utilize our vaccine adjuvant technologies in addition to our expertise in specialty excipients and lipid systems. In R&D, our progress has been fueled by innovation, innovation that has been driven by significant levels of investment, and by working closely with our customers. Biological drugs, normally administered by injection in liquid form dominate the hospital prescription market and we have the broadest range of high purity excipients for biological formulation and launched the further eight excipients in the last year alone taking the total to more than 50 that we have in the market. So we're scaling up in all areas, with lipid systems being no exception and with over 200 lipid based vaccines and drugs in phase 1, 2 and 3 clinical trials and a similar number in research, there is a huge opportunity for us and we're reinforcing our market leading position through R&D investment and innovation. And finally, competition in the vaccine adjuvant market is mainly limited to a small number of traditional adjuvant manufacturers. And we're investing in the next generation adjuvant technologies, and increasing the collaboration with Avanti to become more and more involved with the fight against other World Health Organization listed diseases. So to ensure that we continue to grow in this area we're rapidly scaling up our operations with 100 million of capital expenditure. Over 40 million of which we've invested this half. We've doubled our capacity for specialty excipients in the U.S. with additional capability in Japan. And at Avanti we've doubled the number of employees and doubled capacity which will start to benefit from this quarter. So, as Jez has said, we've also been scaling up Avanti's technologies at existing Croda sites in the UK and we've also doubled our vaccine adjuvant capacity, which is coming on stream now. These are already some of the highest returning investments in our portfolio. And we're confident that this trend will continue. Moving to consumer markets then. This slide gives you a picture of what we're doing in the consumer care sector. On the chart top left you will see that the markets for our technologies are growing more quickly than personal carers at home. Our peptides, botanicals and biotechnology ingredients are all fundamental to both the current and future generations of personal care products and with biotechnology, the fastest growing technology was the number of new product launches has been up and down through the pandemic there's been a steady upward trend in new products with sustainability claims more than doubling since 2019. That trend will accelerate driven by today's younger consumer demand for green, clean and conscious beauty. And finally, China will continue to be the fastest growing personal care market globally which is why we've more than doubled our presence there over the last year. And as I've said many times now the sustainability trends are enabling us to win lots of new business. In future we expect to grow consumer care both through novel product offerings and by unseating incumbent suppliers because two thirds of our raw materials are buyer based, and our ingredients deliver sustainability benefits to customers. So, a good example of this is our eco-range of sustainable factors that use corn based bio-ethanol as the raw material. Our eco-plant is now fully up and running after some well documented operational issues and we're rapidly seeing the benefits of this investment. We've seen a tenfold increase in the number of personal care customers with an equivalent increase in sales and have more than doubled the number of homecare customers in the period from a higher base. So moving clockwise around the slide, we're also seeing a renascence in very mild surfactants that have been in our product range for a number of years. Unlike similar ingredients from competitors, they are sulfate free and this is one of the things consumers are increasingly looking forward with the clean beauty trend. Throughout the Derma business in France, and IRB in Italy, with the market leaders in biotechnology and Personal Care, the fastest growing beauty technology. And as an example, this has enabled us to develop Majestem®, a market leading product used to treat sagging skin on the face and neck, one for the senior members of the sales side diving into the call. This product has been created from an Edelweiss stem cell culture and it's just one of 50 products that Derma has brought to market using biotechnology, and one of over 100 Croda ingredients that are biotech based. We're also creating new market niches within homecare, and have recently helped Unilever to re-launch its comfort brand in Europe, and Asia using our protein technologies that protect clothes from damage in the washing cycle. And it's all about finding more and more innovation. We're also the market leaders in botanicals where we source ingredients from plants, a market that is growing significantly faster than the average for personal care. And to enhance our position we acquired Alban Muller in March who have a portfolio of 100% natural actives, many source from local farmers too. We're increasing our sustainable actives innovation to cater for that surging consumer demand that we're seeing. Our beauty actives team recently launched amazing a biodegradable product with its origins in wild ginger that improves the appearance of dark eyed circles. Overall, in the last 12 months, we've more than doubled the number of people we focused on consumer care innovation, putting more R&D capacity close to customers, and rapidly increasing biotechnology investment. So just building on the earlier comments about Iberchem we're very pleased with his progress delivering double digit sales growth with profit on plan and good progress realizing revenue synergies. Earlier in the year, we acquired Parfex a small bolt on that increases Iberchem's fine fragrance and sustainable offerings. We've established our creation center for fine fragrances at Parfex in grass in southern France, where we will advance our R&D and manufacture of natural fragrances where we see significant opportunities going forward. And as you know, a core part of the rationale for acquiring Iberchem was to extend our presence in emerging markets. And we've been increasing the collaboration between Iberchem and Croda, Croda China supported by further investment and capacity expansions in the region. We're already seeing signs of early growth as a result, which is encouraging and we've established a new Iberchem team on our main Croda site in Brazil, and are seeing exciting opportunities to grow Iberchem in mature markets, for example leveraging Croda's sales network and logistic teams in North America. As I mentioned earlier, performance technologies has seen very strong recovery as smart materials technology is responding to the increased demand for sustainable solutions such as biodegradable and recyclable polymers. In energy technologies to we're seeing lots of exciting innovation that is helping us grow ahead of the market. As we said at the time, we announced a strategic review of our performance technologies and industrial chemicals businesses, collectively known as PTIC. These are good businesses with a strong and exciting future. But like consumer care and life sciences, they need ongoing investment. So, we are reviewing what the best ownership structure is going forward and the work that we've undertaken in the last few months now tells us that up to 75% of PTIC could be carved out to operate as a standalone entity or as part of another business. The critical objective is to ensure that PTIC can realize its full potential and thrive and we will provide a further update when the strategic review concludes at the end of the year. And finally we're committed to being the most sustainable supplier of innovative ingredients, which is the right thing to do and also opens up lots of exciting commercial opportunities for Croda going forward. Consumers want more information about the products that they buy and we've made strong progress with our ingredient transparency project. We're also making good progress with our decarbonisation agenda, important as much as anything when it comes to helping our customers reduce their scope three emissions. Our focus has been on implementing decarbonisation roadmaps that cover over 90% of our emissions and using an internal carbon price to support our decision making. We've recently become only the third major chemical company in the world to have a 1.5 degree science based target verified, something we're very proud of. And Croda has been ranked as the number one most sustainable international company, putting us ahead of customers we admire so much in the form of L'Oreal and Unilever. So in summary, then we've had a record first half that reflects three key things strong underlying growth in our existing business. Secondly, significant benefits from the acquisitions of Avanti and Iberchem and thirdly, Life Sciences, with our healthcare business performing exceptionally well. In terms of the outlook whilst customer restocking is expected to moderate we expect continue underlying growth across all sectors in the second half of the year. Together with the benefits of recent acquisitions and at least $200 million of lipid system sales we now expect full year adjusted profit before tax to be significantly ahead of current expectations. So let me stop there. Jezs and I are very happy now to take your questions.

Operator: Hello, everybody. [Operator Instructions] The first question today comes from Gunther Zechman at Bernstein. Please turn on your video and unmute your mic.

Gunther Zechman: Hi, good morning, everyone. I hope you can hear and see me. I'll start with two, please. Thanks for providing so much information in the slide deck. Can I pick you up on Slide 07 where you show the NPP growth over the last couple of years? And one thing that stands out is that NPP organically was only flat the last two years. Does Croda rely on M&A to differentiate, where should we see that go, should we expect more M&A to keep that going? So, that's number one. And the second one on the lipid systems, as you call it now and the raised guidance; how should we think about your visibility into 2022? You said the Pfizer contract was a three year contract, can you give any kind of guidance of the sustainability and shape after 2021 please?

Stephen Foots: Yes. Nice to see you Gunther. And no surprise you first of the question. Let's do the lipid systems first. I mean, to clarify lipid systems is the lipid delivery systems that we are supplying into the COVID vaccines now just for clarity. Plus, it's the lipid delivery systems for non-COVID drugs for the future. So, that's more the gene therapy arena on cancer drugs oncology drugs in the life. So, just to get that defined for you. And it's deliberately vague as well because it covers a multitude of products. I mean, an answer to your question, at least $200 million of lipid systems this year principally with our main contract but there are others there. If we look next year, we're likely to do somewhere in the region of about $200 million again. The strong demand is its vaccine rollout continues around the world. Yes, we're starting midway through that, if you think about it internationally. Plenty of countries still overwhelmed with the pandemic. So, vaccines still got to get round the world and a number of the key vaccine producers are spending time just doing that. I think 23-24 is still uncertain. We still don't know whether this is going to be an annual jab yet or whether we're going to get booster winter jabs as well around the world. I think also the immunity that you get from double jabs needs to be proven. So, there still will be demand in 23-24, I have no doubt but as to the quantity of that demand, we just don't know. So, will and note it to our partners as well. So, we'll need to guide, I mean we got some pretty firm expectations for next year, which is good. But I think sitting back when Jez and myself look at the Avanti pipeline, particularly the non-COVID pipeline, and we'll be launching products in their pipeline next year into the market which we'll talk about. If I look at five years' time do I see a $200 million business for all of these lipid systems going into both COVID and non-COVID? Yes, we do. But it's going to be a little bumpy along the way as we establish ourselves because some of these opportunities are much more significant than they are in our normal customer base. So again, that's where we see it now to answer your question. I will certainly firm that up as we go along. Onto NPP point, now NPP is great. I mean we have no problem with that in the organic trajectory. Yes, we expect that to continue to grow. The way we look at that is yes NPP should grow twice the average growth rates. The problem we're seeing at the moment of course is the average growth rates are so strong on this rebound. Actually they're not growing at twice the rate but they are growing very healthily. And just if you look at year-on-year, if you look at absolute growth. What you're seeing in the numbers is an assessment of NPP in both Avanti and Iberchem with our normal rules that we apply for this which are very strict rules by the way. So, what we're starting to see is that the acquisitions that we're buying are actually very much knowledge intensive. They've got richer intellectual property than what we've got in credit. In many ways it's the KPIs working for us because what we're really wanting to buy is knowledge. We commercialize people's knowledge rather than mental capacity. So, what we're wanting to do in acquisition is to acquire clever people and intellectual property more-and-more. So, that's what you're starting to see. So, your high 30s is where it's shaping up. And obviously, that's before we think about separation of the PTIC as well. Thank you, Gunther.

Gunther Zechman: Thank you.

Operator: The second question comes from Charles Eden at UBS. Go ahead, Charles.

Charles Eden: Hi, good morning. Thank you. If I could just ask one quick follow-up to Gunther's question, just off that $200 million guidance or at least $200 million for this year, can you just remind us how much he's booked already in the first half? Is it all of that $100 million lipid system sales you mentioned I think it was on Slide 14 or is it just part of that? So, that's my follow-up. Then just on my questions. Firstly, life science's margin obviously, significant expansion in the first half. Just trying to think about the sustainability of that as we go forward. And how do you see the life science's margin progressing I guess in the second half of this year and then out into 2022? And then if I can sneak another one in very quickly. 13.5% price mix at the group level with a strong contribution across both consumer care and life science's, I guess if you could give us a sense how much of that is mixed versus real pricing, just thinking about the pricing environment and raw materials inflation at this stage, is there more real pricing to come in the second half? Thank you.

Stephen Foots: Yes. Well, let me do the lipid and the pricing, I'll let Jez do the life science margin. I mean, just on the pricing, because it's a first thing -- the last thing you're focused on. And so raw material, we haven't seen this raw material inflation in our business for well over about 13-14 years. The last time, some of you will remember this the last time we saw this was 2008 to '11 as we came through that recession and we had inflation that was double digit for about three years. So, we're starting to see that now. We feel that it's not just in raw materials it's in logistic costs and freight costs as well. So, I mean Croda is pretty straightforward. And the first half of the year it's about 13% increase in the raw material basket and we've applied 5%. We can demonstrate we've got about 5% increases right across the board. And the first step, that 13% is likely to increase to when I look at it quarter three to quarter one is likely to increase 7% to 20%. So, at the end of quarter three, raw material basket relative to January's likely to be about 20%. That's substantial and that's in the backdrop of over the last 10 years, we haven't had anything like that. So, what we do is we've got the double benefit. We've got obviously the volume growth because of that and that's why the raw materials are going through but we've got a pricing element that sits on top of that. And in quarter three, we are applying and we have applied further price increases because raw material inflation isn't coming down yet, it's going up and difficult to see what it's going to be in quarter four. But quarter three raw materials is certainly not you know the market is still very strong and demand is still tight. So, that's why you're getting raw material through. So, hopefully that answers that. In terms of lipid systems, it's pretty straightforward. It's been $100 million in the first half that we booked and sold and we're expecting at least a $100 million in the second half. And the caution there is around the ability for Croda to scale up through our manufacturing capabilities and then and making sure we can get and we can deliver this demand as we go into next year. We feel very confident we can do that. Both the guidance is around that confidence level and similar trajectory to the first half. So, let me just pass to Jez for the return on sales margin life science.

Jez Maiden: Yes. Good morning, Charles. So, I think the first half on life science margin is a sort of whatever the opposite of a perfect storm is, it's the perfect sort of outcome I guess is of how things are developed. You've got some very strong growth in all three of the patient health platforms within life sciences. So, you've got sales up over two thirds in vaccine adjutants, over two thirds in specialty excipients and of course you've got the establishment of the lipid systems platform as well. So, you've got very strong growth in the highest end of the margin spread. So, I think that's the fundamental driver to the margin. And in addition, we have initially put a lot of people into the product, into the challenge of generating as much supply as possible of lipid systems to respond to COVID and generally that's a lower cost solution but it's not the solution that is most sustainable for the future. So, what we're doing from the half year is we're commissioning more of the capital spend the £40 million of capital that we put to use in the first half year and that is commissioning around this point at the moment. So, that will actually give us a much more sustainable way of delivering the demand. But it's actually a slightly less profitable way of doing it in that you've got more capital costs, you've got depreciation kicking in. So, I think that means that the margin in the second half will still be high-30's for life sciences. But what we see as probably then happening is perhaps the margin stabilizing more into the mid-30's and for life sciences going forward as you get that combination of capital and people, so driving it forward. So, I think it's unusually large peak in the first half year.

Stephen Foots: Thank you, Charles.

Operator: The next question I have on my list is from Nicola Tang at Exane. Do you still want to ask your question there Nicola or has it already been answered?

Nicola Tang: I do, if I may. And thanks everyone and nice to see you. And the first question is actually I guess following-up just on life sciences. Can you clarify within the underlying 17% gross, is there a contribution related to other healthcare ingredients that are going into either COVID vaccines or COVID treatments or has that been fully singled out in the lipid system side? And then the second question was on the consumer care margins, which looked a bit weaker than I was expecting even thinking about that dilution from Iberchem. And so I was wondering if you could just talk us through the moving parts of solution from Iberchem in this in higher incentives. And perhaps you could talk a little bit about the mix because I think last year you lost about 300 basis points from the change in mix in the legacy personal care business. So, I was wondering how much of that has been recovered so far and given the recovery in actives? Thank you.

Stephen Foots: Absolutely. Jez?

Jez Maiden: Yes. Great. Morning, Nicola. So yes, within the -- so we've split 47% underlying growth in life sciences pre-acquisition between the 30% that's coming from the lipids and the 17% that comes from the rest of the life science platforms in health and crop. So yes, there are other. So, if you've got a COVID project, so Steve talked about the 100 projects that we're working on at the moment. The projects that fall into vaccine adjuvants, and the projects that fall into specialty excipients which go into either COVID vaccines or COVID therapeutics, those sales will be within 17% underline. It's just the lipid system sales that we pick up in that 30. We're obviously not going to always separate those numbers. It's just that conscious that picking up a $100 million in the first half year of sales has quite a big impact and level we wanted to sort of separate that out. But yes, the 17% has been driven by that two thirds growth in vaccine adjuvants, two thirds growth in specialty excipients together with modest growth mid-single digit growth in the consumer health platform and then a double digit growth in both the crop protection and the seed enhancement. So, those collectively are what's driving the 17%; it's a very strong growth there. In terms of the consumer care margins, so the positives to margin year-on-year is the growth of the high end personal care. So, the fact we've got strongest growth in the beauty actives is driving the margin higher and recovering the reduction that you referred to from last year. So, that's the key driver. The dilution is coming from the Iberchem effect which is running high teens in terms of EBITDA margin and which is broadly where it was pre-acquisition and then the impact of the remuneration charge. And so, the remuneration charge we don't normally pull out but obviously we're going from a two years where we've had no bonus charge at all to one where we're currently working on a 100% basis. And then that we have this big share-based payment in fact because so many people in share, share schemes within the credit structure and collectively they've added about £20 million to the charge; so a little over 2%. So, you've got that dilution which actually affects all the sectors but clearly affects consumer. So, when you put those in the mix, you come out just shy of 25. I think our view in medium term would be we'd expect the margin to take up from there. So, in the same way that I talked about the life science margin probably coming off to mid-30's. We probably expect to be more mid-to-high 20s, perhaps 26-27 overtime in consumer, that's where we would see that the natural mix settling down.

Stephen Foots: Great. Thank you, Nicola.

Nicola Tang: Thank you.

Operator: The next question is from Charlie Webb at Morgan Stanley.

Stephen Foots: Good morning, Charlie.

Jez Maiden: Good morning, Charlie.

Charlie Webb: Good morning, gentlemen. And thank you very much for the time for asking questions. I'm sorry to come back to it but just a quick one on the life science's margins. Jez, trying to understand the point you made that have you been capitalizing some of the costs that now are going to kind of appear in the P&L as you now ramp up that capacity to just try and understand that or was it really the case that patient health margins of those kind of subdivisions, adjuvants, excipients and lipids are just well above 40%? Just trying to understand what how we got that perfect storm in the first half and how we think about it, just a bit more detail there would be helpful. And then just secondly, on at this point, not something mentioned here but presuming that's now back up and running, I'm just wondering if there's any updates on that and how we think about that in terms of the year-on-year effect given it was an obviously a notable drag last year, how we're looking for this year? That would be helpful, thank you.

Stephen Foots: Okay, you want to do the margins and I'll then --.

Jez Maiden: Yes, absolutely. Hi, Charlie. So no, we're absolutely not capitalizing costs that is then going to come out and operating. Just what I'm saying is that for example we moved 20 people over to Avanti to work on maximizing the output of lipid systems there. We've used existing kit and a lot of people to meet the challenge really of having to mobilize the lipid systems for COVID vaccines in such a short period of time. And then, what we've been doing is investing capital for the next stage and that investment is £40 million primarily on the COVID solutions. And that's going to start depreciating in the second half year because we're literally commissioning that kit as we speak now. So, no, it's not a capitalization of costs. So, I just mean that we're moving from a model that's been a little bit more people heavy to a model that's a little bit more capital heavy because the capital solution is obviously a more durable solution for long term. So, I'm just saying that actually the people solution is relatively cost effective but it's not the right, it's not as sustainable going forward to build the lipid systems platform as we want to do. So, no capitalization of costs. There's absolutely no one offs or anything like that going on in these numbers. But what you'll see is a little bit more of a move to the capital based solution. The other thing to say is the prices for lipid under the contract tend to be highest at the start of the contract. So, they come off a little bit but not significantly. And collectively, that would mean that I think will be more in the mid-30's as we look into '22. So yes, that's all that's going on in that equation. I think it's the, we shouldn't call it a perfect storm, we should call it a perfect beach day, I guess. It's everything coming together. And it will continue broadly in that way in the second half but you'll start to see a bit more depreciation costs kick in from those new investments.

Stephen Foots: But I think just on the wider life science I mean the way to look at it sort of into next year and beyond is we've always thought about 5% to 7% is sort of our revenue line for that. It looks like it's like to be more than set more likely to be 7% to 10% in terms of revenue and that's the non, that's excluding lipid systems. And lipid systems we'll manage with you separately because that's a big significant and something we think we should manage with you as we go forward year-to-year until we get some stabilization. But that in itself I mean it's fair to say I mean you can do the math on it yourselves, the margins in lipid systems are significantly beneficial and higher than what we see generally in the rest of the rounds. So, we're moving over the next three to five years to more-and-more of our growth coming from those higher margins but Jez makes the good point that in '22 particularly you're going to have that buildup of asset cost as we roll out the manufacturing footprint to serve that future growth. Also important, I think it's safe to say that that investment although its immediate use is going to be COVID vaccines. It's a long-term investment in lipid systems. And we see the long term growth in lipid systems that bring from other mRNA applications and gene therapy applications and so forth. So, this isn't an investment thrown at an immediate problem. It's investment that we think is going to be highly useful as we see the portfolio, as Steve said, over five years shift away from such dependency on COVID to being non-COVID applications for lipid. On that plus point, we'll do it together but commercially well certainly from a planned point-of-view, it's at its best year for a few years. It's running very reliably, safely which is really important. And it's got a routine rhythm of production now which is important. Commercially, it's getting more interesting as we thought it would. So, we've increased if you probably saw in the pack of certainly in the RNS. We've increased the customer base in personal care tenfold this year and we've increased the homecare customer base two fold as well. That's the start of more and more customers moving away from petrochemical ingredients to these natural ingredients. We expect that to continue and we'll be pushing we have stock on the ground now ready to really push for extra businesses that comes through. So, we think this trend is the start, the trend is like to increase over the next two or three years. So, well play certainly with our customer conversations and then and moving customers over to these products. So, sort of excitement building in the organization around that. In terms of the numbers Jez do you want to comment on that this year and next?

Jez Maiden: Yes. So, last year on the biosurfactant plant, we had a loss of £11 million and so this year we'd expect that to moderate but still remain in loss. Obviously, we had two months where the plant wasn't running. And then as Steve said very good first four months running on the plants and so forth. And what I think we'll see then in the second half year is a change in the raw materials which will move us away from the more expensive sanitizer grade of bioethanol. And then Steve says the commercial development is really the key that turns the plant profitable as we look ahead. So, reduced loss this year and then move into profit as we go forward.

Stephen Foots: Thanks very much, Charlie.

Operator: The next question comes from Samuel Perry at Credit Suisse. Sam I believe you're audio only, so please go ahead and unmute your mic. And I wish to see you as well.

Samuel Perry: Hi Steve, hi Jez. Just one question relating to the terminology of the outlook. So, in the segmental disclosure, you say there's no seasonal variations in the split of revenue. And then in the outlook and say you expect similar phasing between the first and second half periods as seen in the previous years. Can you just confirm what the underlying seasonality or what you expect to be underlying seasonality and profits is now just because has been quite a lot of large moving parts. So, you've got actives coming back, increasing contribution from lipids and then I think there was a Brazilian Act fell in different half years in '19. So, that'd be the first one and then actually maybe a second. And on Avanti you say that the earn out has now reached its maximum level. Has this just being from the Pfizer contracts, I think when you bought that business, you said there were five or six ring fenced opportunities to fulfill that earn out. So, have any of those other opportunities started to come through and sort of what's the scale on revenues on those other opportunities or any timing you could give on them as well? That'd be great. Thank you.

Jez Maiden: You want to do first question, I'll do then? And back to you and I?

Stephen Foots: Yes, fine. Yes, hi Samuel. Yes, so you have to make a seasonality statement under the reporting requirements. So, broadly speaking we don't regard our business as seasonal. However, the fact that Europe is our biggest market and Europe tends to have vacations in July or particularly in August means that there's fewer working days effectively for a number of our markets in the second half. So, what we tend to typically see is maybe 52% to 53% of the turnover and profit arise in the first half year. So, that's what we're alluding to in the outlook statement just that you'll see that typically. We would currently expect to see the typical pattern. We've done $100 million in of lipids in the first half year, we're expecting to do at least $100 million in the second half year. So, there's nothing particularly that we see eschewed between the first and second half. And the main benefit we've had in the first half that maybe we don't expect to replicate in the second half is the customer stocking effect. So, consumer demand has been very good in first half. We don't see any signs of that changing in the second half although clearly there's still noise around COVID. But at the moment demand looks to be very good. Whereas we do think that customers have been stocking in response to the potential unlocking in some markets that have still been constrained such as in parts of Europe and parts of Asia. So, customers have been stocking up in preparation for the can be referred to as the Roaring 20's and also because we had raw material price rises. So, customers often try and stop obviously see further price rises coming through, so they're getting stopped at a lower cost. So, we think that effect will moderate but the consumer demand, we have no reason at the moment say that consumer demand for the slowdown the second half here. So yes, it's just that slight seasonal effect caused by vacations particularly in the Europe.

Jez Maiden: Yes. On the Avanti, now. Yes, I mean if you remember it was $75 million over two years, so the earn out finishes at the end of next year 2022. It covers, that earn out covers both vaccine delivery products right what we're seeing now COVID-19 but it covers non-vaccine delivery products as well. So, it's unlikely that many of those will trigger but some yes we're launching some sort of one or two of those early next year. So, we'll see so. But the important point in that is the earn out maxes out $75 million but to the end of next year is when it completes. So, there is a number of let's just say a number of projects and products in there which is not just confined to the COVID-19 rollout vaccines.

Stephen Foots: And Sam, we had originally provided on acquisition for 92% of the earn out. So, the delta is relatively small but we now think that it'll hit a 100, so we've adjusted accordingly.

Jez Maiden: And we always said in Croda it's one of the nice things to sign that because if we sign the full earn out then it's a great contribution for the group.

Stephen Foots: Thank you, Sam.

Samuel Perry: Great, thanks. Can you give any indication of the scale of those other opportunity?

Stephen Foots: Not really, no, to answer your question. But no, I mean we won't and it's still too early to say so. We will manage that as we go along with you. But I think he can hear us in our voices and in the type and that we're getting more confident with the pipeline. We've always been confident more confident commercialized in the pipeline. How that actually materializes '23, '24, '25, is something that's still to be determined. And we'll be looking at that and guiding you along the way for sure. Good try, Sam.

Samuel Perry: Thank you.

Stephen Foots: It was worth a try.

Operator: Isha Sharma from Stifel. Please?

Stephen Foots: Hi, Isha.

Isha Sharma: Hi, good morning. Thank you for the presentation and very helpful details on results. My first question is on consumer end margin. If I calculate correctly, Iberchem EBIT margin was around was a bit below 15%. Taking a cue from other F&F players, it seems a bit low. Should we expect this to change in H2? And beyond that, what would be a reasonable uplift expectation at Iberchem. Please? The second would be I mean I just am curious in the update if you have any update for us on the contract with the Pfizer. Initially it was a contract of three years within an agreement of five years as I understand it. Could you help us with the phasing please over the next few years? And then just on the midterm guidance of life sciences. Do you stick to the high-single digit topline growth as well as mid-30's EBIT margin after the very strong outcome today?

Stephen Foots: Okay. So, we had Iberchem life science, what was the middle one again?

Jez Maiden: The contract.

Stephen Foots: Oh the Pfizer. Okay. I mean, on Iberchem I mean the way to look at it is the raw material basket for the first half was 9% in Iberchem and thereof if you take adjusted contributions, we failed thereof about 1% on their margin, something like that in the round when you look at that. And that's to do with just the lag that you have in the fragrance industry and passing on the cost. I mean, it's a business that screens for we're very happy with the overall contribution of the business. The top line because it's pointed towards emerging markets, it's growing larger around twice the fragrance a 1.5 to 2 times fragrance industry growth rates. So, it's up at 12%, 13% now. When you looked and then reported a constant, so it's got great growth trajectory. We expect the margins to be around 20% to 22%. That's how it shapes up for that business in the round over the medium term. So, business in them in good shape. So, it's at a temporary effect but not as much as you think. And it's just as we've got two just over 2% percentage points of headwind there just because of remuneration and share-based payments that's in the margins, which let's be honest, is great for the group. 75% of the organization or in share-based or in share-based programs now. So, we want that just to increase. So, it's a great day for Croda in that respect. In terms of life sciences, I mean yes again keeping -- I think we've mentioned it before keeping lipid system separate so we can manage that with you because that's quite chunky and probably got faster growth potentially of the lump -- of the lumper. Life science is generally we swap screens for 7% to 10% for the rest of it. And with margins steadily climbing from where they are now, it's fair to say that you're going to see this margin improvement from them if you remember prior to life sciences and prior to lipid systems it was low-30's. So, most of the growth is coming from high purity excipients and from these vaccine adjuvant and you're finding that actually they are generally going to move the margins steadily upwards as well. So, that's the way to look at the life science piece. And then on Pfizer, I mean no real major update from what we said before. We're delivering against the contract. Our job really there is to deliver against their requirements and make sure that our -- we can do that. The relationship continues to develop. So, our job now is as they roll out internationally making sure we satisfy that demand through our two plants. And the investment that we're putting in now is important to not just future proof that growth. So, this £40 million that we spent in the first half of this year is specifically for COVID-19 rollout. But we've talked about in the release as well, an extra £40 million that we're putting in, that Jez talked about in capital. So, we had 80 before and with plus 40 it was 120. Our guidance for this year likely to be a 160. And that extra 40 is really for exclusively capital projects for non-COVID vaccine rollout. So, there's a lot all in healthcare. And we're putting our money where our mouth is, supporting this rollout potential growth in these other delivery systems; let's just say that from the Avanti pipeline. So, hopefully that gives you a bit of color on that. Jez anything else on contract here?

Jez Maiden: No. That's fine, Steve.

Q – Isha Sharma: Thank you. Thank you, very helpful.

Stephen Foots: Thanks, Isha.

Operator: Next question from Mubasher Chaudhry at Citi Group. Please?

Stephen Foots: Good morning.

Mubasher Chaudhry: Hi, and good morning. Hi, thank you for taking my questions. Just the one left. Just going back to the margins on the life science's side of things. Is that fair to assume that you're quite capacity constrained at the moment given that you're investing heavily and then the growth was mainly related to price mix. And then how do you see the competitive environment going forward as other suppliers come online with their own capacity? Do you see that pricing volume dynamic changing for yourself as there is more alternatives available to yourselves for someone like Pfizer? Just some comments on the competitive dynamics would be helpful? And just linked to that you talked about the current Pfizer contract and delivering against that. Are the kind of the prices and volumes already agreed and confirmed or are these both negotiable as we go into '22, '23? Thank you.

Stephen Foots: Yes. I mean quickly yes Pfizer volumes and prices' committed. So, there's no renegotiation into next year. And we know what volume we need to supply, we know what the price is going to be. So, we'll be satisfying that, so that's clear. In terms of the -- your point about return on sales and are we capacity constrained. No, we haven't been I mean there's a slide in the pack that shows how we're spending that £40 million in terms of releasing extra capacity effectively going forward. So, what we're doing is future proofing that growth for the future. So, a lot of that margin has come really mainly from as Jez said, its commercializing people's knowledge with that rollout so that those margins at around on a relative basis are obviously high. But as we now as we then go into putting more assets on the ground, as Jez says, this margin likely to be more around mid-30's rather than high-30's after this year and we still expect high-30 second half. So, that's what we're trying to guide towards just as we build this out and then and we get more ability to grow. In terms of your competitors I mean there's a small number that you're that are well known to everybody, and that's great. For this market particularly we want this market to grow very quickly. And I'm not just talking about the COVID market I'm talking about gene therapy. For it to grow quickly, it needs a small number of partnerships that are going to allow them for in lipid delivery systems to get there. And then and we're taking a leadership position there at the moment and we're trying to invest to make sure we retain that leadership position. But there are others and we want our partners to be able to source from them as well. I don't think it's and given the sheer demand, it's important that we have small number of players there. So, for me it's a real positive; I don't look at competition in this area as a big issue. I look at it more as an opportunity to expand the market quicker than it would. We don't want the bottleneck to be lipid systems slowing this market down is that is the point what we're trying to make going forward. There is 200 products, 200 projects in the clinical 1, 2, and 3 pipeline already for cancer drugs and for oncology drugs that have these lipid systems in there. So, our mind is very much on that. And in thinking beyond that with the intellectual property we got in-house now thanks to Avanti how we commercialize that IP with our partners.

Jez Maiden: Steve, can I?

Stephen Foots: Yes.

Jez Maiden:

.: So, don't think of it as a capacity constrained supply in which you're just pushing prices up. What you're doing is transitioning. You're seeing much more of the growth coming from products that are sold in kilo quantities rather than tonnage quantities. So, it's really the mix that's particularly driving that effect. And in terms of capacity, actually, we just brought on the doubling of the specialty excipient capacity in the U.S. that we've been building over the last two years. So, that's a £30 million project that came on in the first half year and clearly that was becoming capacity constrained at the tail end of last year. And therefore that's one of the factors behind this growth of sort of 67% plus that we talk about is the fact that clearly we've been able to uncork that bottle a little bit and grow that. So, there's capacity coming on all the time and these capital investments in healthcare are really exciting because of the payback for two to three years. So, this is the best place for us to deploy capital to drive this forward. And just to clarify on the Pfizer beyond that contract area, and demand is firm for three to six months. It's indicative beyond that period because clearly it's a fast moving market. So, our volumes for '22 are an estimate at the moment but a pretty decent estimate, we believe rather than a firm contractual commitment.

Mubasher Chaudhry: Just a quick clarification. Did I hear you right earlier on saying that 2022 could also be around the $200 million mark?

Stephen Foots: Yes. That's our indications at the moment around $200 million for yes '22, for lipid systems generally.

Mubasher Chaudhry: Yes. Thank you.

Stephen Foots: Thank you.

Operator: Next up is Chetan Udeshi at JPMorgan.

Stephen Foots: Hi, Chetan.

Chetan Udeshi: Yes. Hi, morning guys. I was just looking at the Slide 11 of the pack which shows the growth bridge. And was just trying to work out how to get to the $100 million of sales from lipid from that because I was just looking at 8% from lipid systems plus 36% from Avanti. And if I combine the two, it seems like its more £95 million which will be more like $130 million of those sales. I'm just trying to understand what is exactly included within $100 million and what is not. And secondly and maybe this was already touched but on biosurfactant plant, can you remind us what is the expected contribution this year for 2022 from that plant -- sorry, 2021.

Stephen Foots: Yes, okay thanks. Both down Jez's street here. Over to your Jez.

Jez Maiden: Hi, Chetan. So, yes so you've got 11% growth, its being driven by the lipid systems at the group level. If you apply the 11% to the $673 million revenue we did last year that gives you about £70 million, that's the $100 million. And 8% of that is in existing credit plants this commercial scale up and 3%'age points are in Avanti. Avanti in total, as you point out is 6% and that indicates that about half of what Avanti does is in lipid systems and about half is in other technology platforms for Avanti. So, the reason is that you're using 14%, you need to use the 11%, so half of the Avanti sales are driven there. In terms of the biosurfactant plant, look I'm not going to give it precise numbers. I mentioned before, we had a loss of £11 million last year, we expect that loss to be lower this year because we've got the first two months of the year where we were just carrying the cost and the depreciation and so forth but since then we've been we've been producing. What we need to do is to move to the lower cost raw material which we'll do later in the second half. And we need to get commercial growth and through the plant which is what the case has always been built around for biosurfactants about getting people out of petrochemical ingredients and either launching new products or substituting existing petrochem products with the biosurfactants. So, we'll see a reduced loss this year but I'm not going to give you a precise number on that.

Chetan Udeshi: Thank you.

Jez Maiden: Thanks, Chetan.

Operator: Sebastian Bray, Berenberg. Please?

Sebastian Bray: Hello. Yes, Good morning and thank you for taking my questions. I would have two, please. The first is on the question of market share within the poly lipids market. Slide 22 indicates that this is currently a $1 billion a year in the medical area. And if I take Croda guidance at face value and the company does to $220 million of sales this year. It has about 20% market share maybe a little over. Do you expect this to remain roughly constant as the market develops over the next four to five years? My second question is concerning consumer health. The flavors business at Iberchem, how has that been doing and has your view on whether or not this is an interesting market for Croda longer term changed over the last six months?

Stephen Foots: Okay, thanks Sebastian. Yes I mean, on the market share thing, I mean for Croda we don't really talk about market share. And those that have followed us for years we talk about market growth rates. And the most important thing in this area is that market growth rate is accelerating as quickly as it can. And then if we have a 20% market share or we have a 15% market share or even a 25% market share, it's great but it's a 25% or at 15% or whatever it's going to be market share of a much bigger market. So, we think with our investments will continue to keep a step ahead. I think it's fair to say but we would we're quite relaxed about competition coming in. I don't think there's going to be 20 or 30 people making these ingredients going forward. They are very difficult to make as from a chemistry and a biology point-of-view. Yes, and they're different, they need to be handled with great care. And it probably takes that the entry level to make these is quite significant. So, I would say that. But I would watch the market growth rate ahead of Croda's market share is the point I'm trying to make because we want this market to grow much quicker going forward and then we're we all have a great opportunity for all of us I would say. And our job I think also with investment is not just capital investment and we've doubled the number of people in Avanti from 125 to 250. They're all scientists, effectively all of them are scientist primarily. So, we're doubling the brain power of Croda in this space which is really important. You need brains in this space added capital. So, we want more knowledge in this business very quickly. So, that's what we're doing there. In terms of the other question around comes it's around the flavors area. I mean the flavor business' having a great start to the year and it had a very good year last year. So, it's great. It's a nascent business for Iberchem. So, we want to see that grow. We don't like to make hasty decisions with some with things like divestitures. We want to see it run through the cycle and see how it develops. And as long as EBITDA keeps growing and sales keep going, it's great, but it's a very good business. And it has a, it has a real core home in Croda for the near-and-medium term because of that. And then, it's a great team in Iberchem more widely and we're really pleased with everybody in Iberchem whether it's on the flavors or the fragrance side. They are top business and they're demonstrating actually how we can learn from them with their speed and their market responsiveness; it's really quite stellar. So, many ways for Croda to learn and that's part of it with acquisitions. It's not just about imparting the Croda knowledge, it's about learning from others as well and getting us to think a bit differently. So, we're seeing that in abundance with and with Iberchem and we are of course with Avanti and bio-sector too. Thanks, Sebastian.

Sebastian Bray: Thanks for taking my question.

Operator: Next question is from Martin Evans at HSBC. Please go ahead and turn your video on and unmute your microphone.

Martin Evans: Okay. Thanks, David. Just a quick, slightly weird question on the chemistry of the drug delivery business. I'm just trying to understand they're on Slide 22, 23, it's a very helpful market estimate sizes for lipids, excipients and adjutants. And given the speed of developments in the drug delivery world, you see these technologies as almost totally discrete from each other or is there an opportunity or a risk of some interchangeability, in other words, cannibalizing one with the other. I'm just thinking with the mRNA developments, whether vaccine adjuvants for example injectable adjutants would still be necessary or one would replace the other as the drug delivery technology evolves. Thanks.

Stephen Foots: Yes. Thanks, Martin. Really good question, that. You're looking more relaxed than we are with your looks like you got a T-shirt on there but we've got three white shirts for the price, it's here in here actually. So, we've all got the same shirts on today but so anyway. And David's is a bit tight for him because we're a bit bigger but bigger. Yes, I mean a very good question. I mean we did our senses that actually if you go forward in gene therapy with a lot of these 200 projects and beyond, you actually need more specialized lipid delivery systems for each of these individual projects. So, we don't think one project, one product from Croda will transition across multiple projects. We think you need that specialization. And we don't want to get into that with you but we'll shed some light on that when we do talk in more detail about Avanti profile in Croda and technologies. But a lot of it's about refining and then purification and separation. And we don't at this stage think I think there's a lot of synergies between the three businesses because they're all in many ways three different business teams and they are under the umbrella of life sciences. And clearly the knowledge synergies of each of them are important for others for the other businesses. But I think we don't expect -- we think that they're all in their own right delivering something slightly different. So, in mRNA, for example, maybe high purity excipient is going forward, but primarily it's going to be lipid systems. And the vaccine adjuvants are very much it's a traditional chemistry set that we're investing in for our multiple other vaccines let's just say that. So, who knows I mean who knows where the technology and the science goes but certainly in the near term we don't expect that. We're not in our research we're not, we're not thinking about that too much but you think about going forward when they're looking at the flu in an mRNA vaccine together for example COVID vaccine and flu together, who knows whether actually you might start to get combinations of these actually working together as well because you're actually putting two vaccines together in one syringe. So, that's when it probably will get a little bit more interesting as well. So, but yes no good question and thanks for that. Thank you, Martin.

Operator: The final question this morning comes from Matthew Yates at BofAML.

Stephen Foots: Hi, Matthew.

Matthew Yates: Hey, morning everyone.

Stephen Foots: Hi, Matthew.

Jez Maiden: Just a couple of questions. The first one I think it's a follow-up on Sebastian was asking about fragrance and the strategy there. You've obviously done a small bolt-on in Parfex. Where do you draw the line in terms of how big the fragrance portfolio needs to be in order to have a competitive or credible offering in the market? And the second question is around the Ag part of life sciences. I think you said double-digit organic growth there. Is that driven by market conditions or is there anything in terms of Croda product launches that's contributed to that?

Stephen Foots: Yes, thanks Matthew. I mean, on the Ag side I mean market conditions mainly I mean as we've always said consistently to you all, it's normally a mid-single digit sales area for crop protection and a bit more than that high-single digits for seed enhancement. I think in crop protection that's we've seen that moved from about 5% a year, in first half it was 10% a year. Some of that is just blinking with the farmers increasing as you all know, it's probably the best time the farmers have had for a few years now as well. So, we're seeing that benefit of that. There is a bit of pricing in the revenue line as well because of our price increases going through as well. So, we're pleased with that and I think seed enhancement generally is starting to really deliver for Croda as well. It's had a very good first half too on the back of last year as well. I like to invest in businesses that can withstand the jolt of a market environment which is either recessionary or hard and these acquisitions and you'll see that with Iberchem and Avanti can demonstrate that they can still grow through the cycle. It doesn't matter what the cycle is, it's just a question of the rate of growth. So, in the round we're very happy with crop. Your other question was fragrances. Yes I mean, yes we don't need to be, we don't, we're not looking to compete with the big players in the space, I mean we know them all and they know Croda and they're brilliant companies. We really like them, we admire them for what they are and they're very consistent with that but Croda's acquisitions in this space will be moving Croda to more sustainable fragrances effectively Eco fragrance as I call them. So, they'll be more niche in that regard. And as everyone, when we look when we look at markets we look at the faster growth areas of the markets in particular. So, the infrastructure we've got is a very good infrastructure particularly for emerging markets. So, we're pleased. We're not going to rush to them to acquire lots of things but if anything came along which we thought was really interesting in that space that I've just talked about, then that would be interesting to us but the priority for the group is life sciences for obvious reasons particularly healthcare and the top of personal care from a sustainability point-of-view. And the Alban Muller acquisition is all about moving Sederma and increasingly to a 100% sustainable active because that's where the market's growing, and going and growing. So, so let me stop there.

David Bishop: Thank you, Matthew.

Operator: That completes the Q&A this morning. So, I'll just leave Steve to wrap up.

Stephen Foots: Yes. Thanks very much for your questions. It's a real shame we can't be with you to be in the room together and have a chat with you but anyway we are this is the second best thing. So, we're still alive and kicking. Really strong set of numbers for the group and it's in three areas as we've talked about. The underlying is this existing business is growing very well. The two acquisitions that we've acquired recently have given us a lot of knowledge and a lot of growth potential and that's starting to demonstrate through the numbers and of course we've got the life science healthcare in the form of healthcare really rapid growth there from the first half. So, very pleased with the first half and we think this is the start of Croda moving into a faster growth period. So, let's stop there and hopefully next time we definitely want to see you in the flesh. So, we'll see you in February. Thank you.