Earnings Transcript for CRDA.L - Q2 Fiscal Year 2024

Steve Foots: Hello, and welcome to this presentation on our results for the first half of 2024. With a focus on relentless innovation at the heart of Croda's business model, I'm prerecording this in the R&D center at our head office in Yorkshire. And as a chemist by background, I like to come into our labs regularly, although it has been many years since I was let loose at the bench. In terms of the agenda, I'll start with an overview of our performance and the progress we're seeing from both a macro and Croda specific perspective. Anthony Fitzpatrick, our Interim CFO, will then run through our financial results in detail before I come back to talk about how we're continuing to strengthen the business for a future that we're confident will be even stronger than before. Okay let me start with the results themselves and highlight the key takeaways that underpin our confidence as we emerge from what has been a tough 18 months. First, our overall performance was in line with expectations at the beginning of the year. Revenues were down 7%, but with sales improving sequentially versus the second half of 2023. On the top right, you see a breakdown of that sequential improvement. Consumer care was stronger than anticipated, growing sales at 9% versus the second half of last year with good volume growth across all regions and more stable market conditions. Life Sciences was weaker than expected with continued destocking in consumer health and crop, but the core Pharma business, excluding COVID-19 lipids, continue to grow increasing sales by 3% versus half two last year. Industrial Specialties also improved with sales up 21% sequentially. Bottom left, the sales of innovative products across the business grew to record levels. NPP increased to 36% of total sales with an especially good result in Consumer Care, where NPP sales grew 11% on a constant currency basis. And in the bottom right, we've seen a sequential recovery in our operating margin, which was 1.6 percentage points higher than the second half of 2023, ex-COVID. That reflects the positive impact of both higher sales volumes and better capacity utilization as well as ongoing price discipline and robust cost control across the business. We have applied a laser-like focus to costs. Nothing knee-jerk, but we're doing much better at controlling what we can control. And then finally, free cash flow was very strong, up 69% in the half supported by a working capital inflow. And our balance sheet strength has been sustained with leverage at 1.4x, well within our targeted range. So encouraging progress across the group and we're starting to see the benefits of steps taken over the last few years. Building on that point, if I compare Croda today to what it look like in 2019, the change is very significant. Pre-COVID, whilst Croda was generating mid-single digit year-on-year growth, we were also exposed to a number of lower growth in cyclical markets. Our acquisition of Iberchem and even more so Avanti as well as the post-pandemic boom in demand helped to support exceptional growth through '21 and '22, as illustrated at the bottom of the slide. That gave us the opportunity to successfully divest the majority of our Industrial businesses and use the proceeds to support a period of significant investment. We've transformed the quality of our portfolio and expanded the global reach of our business that is beginning to come through at the top line and the bottom line will follow. In addition to that, we've also taken several learnings from the recent trading environment and strengthened the business further with a number of self-help initiatives. Firstly, due to significant demand, relationships with customers have become more transactional reflecting our focus on firefighting supply issues. We've now simplified our organizational structure, moving accountability and decision-making closer to customers to develop even deeper relationships with them based on our technical expertise. Our impressive NPS scores indicate the progress we make. Secondly, in Beauty Care, we were seeing a dip in innovation as customers focus more on marketing existing brands rather than new product development. And we've tackled this by increasing local innovation in-country and by prioritizing R&D investment in faster growth markets such as China, India, and Brazil. The increase in NPP sales and growth with local and regional customers is demonstrating the impact that this is starting to have. And thirdly, rapid destocking resulted in strong competition in the bottom of our portfolio where we are less differentiated eroding volumes. And we've now adopted a more flexible pricing policy for ring-fenced customer product combinations, carefully monitoring new performance metrics, so we balance price with volume. And we're seeing this positive effect of this coming through already in Industrial Specialties and Beauty Care, where volumes are up significantly, and we are regaining share. So whilst '23, and to a lesser extent '24 have seen our end markets resetting, Croda is now reshaped and repositioned. We are a stronger business than before, more aligned to the mega trends driving growth, closer to our customers and more innovative and more efficient, and that bodes well for the future. And as you can see on this slide, despite volatility not seen since 2008, with significant raw material inflation and subsequent deflation and the unprecedented fluctuations in sales volumes, we've remained disciplined on price and the margin we make in our sales prices on raw materials has remained high and stable. Top right, relentless innovation, very much the life blood of Croda's business has continued with NPP growing as a proportion of total sales in the last year. We filed more than 50 patents in the first half of this year, an acceleration on the 2023 rate taking the group to more than 1,600 patents today. And bottom left, we carefully balanced investment with capital discipline, with core CapEx as a percentage of sales staying fairly consistent over the last six years. As additional investment to support future growth in our pharma business comes online, we expect overall CapEx to trend downwards from 2026 onwards. And finally, cash conversion has always been very strong and consistent for Croda, and we expect it to remain so going forward. Turning to our thoughts on the macro environment. In Consumer Care, based on what we can see, customer inventories are now at a more normal level and destocking is at an end. That is supporting more stable demand, demonstrated by the sales growth that we've seen in the first half year. And what's interesting is that it's local and regional customers who are driving this growth, signs of a shift in the Consumer Care industry. These businesses are generally more innovative and faster market with high quality and competitively priced products. We preempted that shift, expanding our regional footprint and investing in R&D facilities close to customers, particularly in Asia and Latin America, which has put us in a strong position to win from this trend. In Crop, whilst customer inventory data is mixed, the industry has also been hampered by volatile weather conditions and lower commodity prices. Conversations with customers suggest that there are no signs of an immediate recovery, but our job here is to continue to innovate irrespective of the weaker demand. And finally, Pharma, where we've experienced some headwinds, but have also seen both sequential sales growth, both in half one versus half two ex-COVID lipids and in quarter two versus quarter one. Now whilst the demand environment hasn't fully recovered, we're feeling more positive than we have previously, not least the medium-term opportunity for significant growth. So bringing all of that together and looking at Croda's portfolio today, it is very well positioned for the future, reflecting both the actions we've taken over recent years and what we're doing today, which I'll come on to. In Consumer Care, our Beauty Actives business is a market leader in peptides and biotech ingredients, areas that are shaping the industry now and will do so long into the future. We are very excited about the potential of biotech-derived ceramides that we added to the portfolio last year. And in Beauty Care, our innovation is critical for skin, hair, and sun care products. And as the trend to sustainable ingredients grow, our formulation ingredients are increasingly in demand. The F&F business is doing what we thought it would, growing quicker than Tier 1 peers, and there is a lot more growth to come in Home Care with our fabric care biopolymers and ECO range. Our Pharma business remains the most exciting part of our future growth story, supported by the market-leading positions we have established across three critical technology platforms. And our focus on innovation and sustainability will enable us to lead the way in Crop and Seed. And as I've said already, all of these businesses have excellent alignment with the technology trends that will underpin future growth in our markets. So whilst the macro environment remains choppy, we're continuing to apply our strategy, further strengthening the business to support progress in the near term and to set us up for the next phase of growth. I'm going to come back to the progress that we've made against the near-term priorities we talked to you about in February set out on this slide. But first, over to Fitz for a detailed review of the numbers.

Anthony Fitzpatrick: Thank you, Steve. So as you've heard, our first half performance was very much in line with expectations. Overall, sales of £816 million declined by 7% on a reported basis with adjusted operating profit down 23% to £136 million. The operating margin reduced by 3.4 percentage points to 16.6%, both improved versus the second half of last year ex-COVID lipids. Profit before tax of £127 million was down by 27%, including a £6.5 million headwind from currency translation. Profit before tax at constant currency was £134 million. We have held the interim dividend flat at 47p despite lower earnings reflecting our confidence in the longer-term opportunities and the strong cash flow performance with free cash flow of £123 million, up 69%. Bridging from adjusted to IFRS profit before tax, the exceptional charge of £2.4 million is ongoing restructuring costs associated with the new operating model launched at the start of the year. There was also a small increase in amortization of acquired intangibles to £19 million following the acquisition of Solus Biotech in July 2023. Turning to the Group's sales bridge and moving from left to right on the chart. Group volumes were broadly flat with volumes in Consumer Care up 14%, while volumes in Life Sciences were down by 17%, principally in Crop Protection. Raw material prices ended the first half approximately 4% lower than the start of 2024, adding to the 12% decline seen through 2023. This has enabled us to selectively reduce prices contributing to a 5% decline in price mix. The acquisition of Solus Biotech added 1% to sales, resulting in a constant currency sales decline of 4%. Currency translation was a 3% headwind in the first half leading to a reported sales decline of 7%. Now let's look at divisional performance. Consumer Care delivered an encouraging performance in the first half with sales up 3% versus the prior year and up 9% versus the second half of last year. Beauty Actives delivered sales growth of 9% with an encouraging performance in Asia with the strength of our relationships with local and regional customers is driving growth. In Beauty Care, sales were down 6%, but were up 9% versus the second half of last year as we saw a return to a more stable demand and North America regained market share. Home Care and F&F delivered double-digit sales growth. Our F&F business continues to grow ahead of the market reflecting its niche position with local and regional customers in faster growing markets. Demand for innovative ingredients as well as ingredients differentiated by sustainability remains strong, with NPP sales growing by 11% at constant currency and NPP sales increasing to 42% of total sales in Consumer Care. Moving to margins. The operating margin of 17.6% was 3.3 percentage points below the prior year, but was 2.5 points above the second half of last year supported by improving sales volumes. Performance in Life Sciences was weaker with sales down 19%, principally reflecting the strength of the performance in Crop Protection in the first quarter of 2023 before destocking began. Excluding the £48 million of COVID lipids that was shipped in the fourth quarter of 2023, sales were down 2% compared with the second half of last year. Pharma sales were down 11% versus the prior year, with some of the challenges that impacted health care markets in 2023 including COVID-19 normalization and destocking in consumer health continuing into the first half of this year. Despite this, sales in our strategic focus areas such as lipids and delivery systems for protein-based drugs continue to grow. And ex-COVID, pharma sales were higher both compared to the second half of last year and in the second quarter compared with Q1. Sales in Crop Protection were down 33% with a prolonged period of destocking and lower commodity prices. Sales were also down by 10% in Seed Enhancement, a seasonally second half weighted business, which we expect to have a better second half. NPP as a proportion of total sales increased to 33% with our strategic focus areas in pharma growing and the lower proportion of Crop Protection sales. Operating margin was 18.3%, with the impact of lower volumes in Crop Protection, partly offset by careful cost control. Turning next to Industrial Specialties. Whilst this business isn't a strategic priority, it plays an important role in our operations, contributing to the efficiency of our shared manufacturing model with the opportunity to leverage core technologies in high-value industrial applications. Sales in the first half were down 17% against the prior year, but were up 21% compared with the second half of last year as industrial demand fell through 2023 before starting to recover in early 2024. Operating margins of 8% was 6.7 percentage points above the second half of last year, with higher volumes and improving mix benefiting profitability. Moving to the next slide. On the left, we are bridging the operating margin from the first half of 2023 to the first half of 2024. You can see the margin fell by 3.4 percentage points from 20% to 16.6%. Volume leverage was broadly neutral, while price/mix was a 2 percentage point headwind to the operating margin. Importantly, on a business-by-business basis, 1.9 points of that negative impact on margin came from a significant reset in Crop Protection sales and profit contribution. Variable remuneration was a further one point headwind. On the right, we are bridging from the second half of 2023 to the first half of 2024. Adjusting the second half margin in 2023 to remove the 3 percentage point benefit from the high margin COVID-19 lipids shipped in that period, gives a base of 15%. With group volumes improving versus the second half of last year, volume leverage was a five point tailwind to the operating margin. Price/mix was a two point headwind with variable remuneration reducing the margin by a further one point. Overall, the margin was a little stronger than we anticipated, benefiting from careful cost control. Turning to cash flow. First half performance was encouraging, with cash from operations increasing despite lower profits due to a £44 million working capital inflow. This reflects the payment from COVID-19 lipids, which we shipped in the fourth quarter of last year with disciplined working capital management, enabling a modest inventory build in the first half without offsetting this benefit. Capital expenditure in the first half was £70 million, broadly in line with our full-year guidance for £150 million, including the Pharma expansion program. Overall, free cash flow of £123 million was up 69%. After accounting for the dividend payments and other cash movements, net cash flow was positive £28 million with net debt reducing to £508 million. This net debt position translates to a conservative leverage ratio of 1.4x, well within our guidance range of 1x to 2x EBITDA. Our capital allocation policy remains unchanged. And following the significant portfolio transition in recent years, we are focused on delivering returns from recent investments. And with that, I'll hand back to Steve.

Steve Foots: Many thanks, Fitz. I want to spend a few minutes talking about our strategy in more detail and what we're doing to position Croda for a strong future. This slide is one that you will have seen from us before and it illustrates how everything flows from the key technology trends highlighted here on the left. And together, with the learnings and actions we've taken to strengthen the business that I touched on earlier. And on the right-hand side, we've continued to focus on a clear set of near-term priorities, which I'll go through now. So I'm actually in one of our Consumer Care labs, part of a large network of local R&D labs, which help ensure our innovation is tailored to local trends. It's also where I started my career with Croda nearly 35 years ago. Beauty Care is the largest business in Consumer Care and has seen the greatest volatility. Our strategy here is to accelerate innovation, whilst managing volumes at the bottom of the portfolio, where there is less differentiation to ensure consistent plant utilization. This slide highlights some of the leading indicators that show our progress. By localizing our approach, we've pushed innovation to record levels in Consumer Care, and that includes in Beauty Care, where new and protected products grew by 1.5 percentage points as a proportion of total sales. We're also seeing a marked increase in innovation projects with customers benefiting from localizing our approach. Customers are looking for ways to be more sustainable across all areas. We're responding to that by providing carbon footprint data on our products with 80% of our Beauty Care portfolio now covered. We've also expanded our ECO range, where sales increased by 34% in the half, reflecting strong demand from customers in both Beauty Care and Home Care. And as I mentioned earlier, decision-making is now closer to customers, and we've implemented a more flexible pricing policy for defined customer product combinations in the less differentiated part of Beauty Care. This is enabling us to capture lost share in the U.S., where we've regained over 40% of the sales volumes we lost, because we weren't able to meet all of the demand for certain ingredients at the peak of restocking. And better sales volumes are helping to improve capacity utilization, averaging 65% in half one across our shared manufacturing sites. That's compared to 50% to 55% at the end of last year. I mentioned earlier that we're seeing significant change in the beauty market, driven by the rise of local and regional customers and their increasing appetite for innovation. The left hand column shows that while customers, large and small have been increasing new product launches over the last 10 years, local and regional share has grown very significantly in both the skin and hair care markets and that is reflected in our own sales data at the bottom with 78% of Consumer Care sales now coming from local and regional customers in the first half versus 72% in 2020. And moving to the middle column. By investing in R&D across our fastest-growing markets, we're enhancing our proximity to customers and helping regional customers, in particular, reduce time to market and respond to local needs. The best example of that in action is China, where Chinese brands such as Kans and Proya are now ranking higher than multinational brands, again another statistic that highlights the change that we're seeing, a change that we've been positioning ourselves for over the last few years. Our sales to local and regional customers grew by 28% in half one compared with our average globally of 9%. Our F&F business is another good example of where our exposure to local and regional customers and developing markets is enabling us to grow well ahead of our peers. Over 95% of our sales are local and regional. And whilst 80% of revenues are outside Europe and the U.S., the bar chart in the middle of the slide illustrates how we've consistently outperformed Tier 1 competitors. We are investing to support continued growth with new innovation centers in Grasse in the South of France, the World Capital of fine fragrances and also in Dubai, a critical hub for the Middle East. I'm now in one of our Crop Protection laboratories to talk about two examples of recent innovations. Despite the dominance that a handful of large players have in the crop market, we are seeing a greater proportion of our sales going to local and regional customers, here too. And with the balance shifting in their favor for the first time ever. Again, we are well positioned to respond to this trend whilst continuing to work closely with their global peers. As you can see from the middle column, we are doing this very successfully across Asia, where our drift reduction technology, especially formulated for drone applications is now being rolled out across the region, following excellent response from customers in China. And our Seed business, sales of novel microplastic-free seed coatings grew strongly, reflecting Croda's market leading position and the EU's decision to ban the use of microplastics in seed coatings by 2028. Our innovative MPF coatings are now being sold across Europe, North America and Latin America, where they are also in final test stages with the major seed companies. Staying on the move, I've come to one of our pharma labs here, part of the growing network of innovation centers across the world, working to bring new drug delivery systems to the market. We are making further progress building industry-leading positions in high growth markets with customer pipelines across biologics, vaccines, and nucleic acid drugs continuing to expand. The growth in industry drug pipelines both clinical as well as preclinical is impressive. And as you can see on the left, we're all well exposed to that growth due to our market position and technology portfolio. Years of investment to establish strong competitive positions in critical areas such as specialty excipients, adjuvants for next generation therapeutic vaccines and more than 2,000 lipids for new mRNA drugs is beginning to pay off. Accelerating medium-term growth will be driven by the commercialization of new mRNA vaccines for infectious diseases and oncology where we are working closely with big pharma companies driving this development. And it will be driven by increasing sales of new delivery systems that we are bringing to the market. So for example, our newly launched proprietary lipid-based adjuvants are now sampled into 80 projects and are expected to contribute meaningful sales in the second half year as a customer's clinical trials progress towards regulatory drug submission. I want to finish by touching on what we have been doing to enhance efficiency and cost control. Having acquired several businesses in recent years, we're integrating them deeper into the Croda organization. This includes driving growth synergies with the Croda brand opening the door for Iberchem with multi-national customers, great collaboration between our teams at Avanti in Alabama and in Denmark to launch the new lipid adjuvants I talked about, and leveraging our global selling network to fast grow ceramides for Solus. We have also found ways to drive efficiencies by better sharing functional support and consolidate insights or offices, such as for our Seed Treatment business in China. The new organizational structure is getting us closer to customers and is on track to deliver at least £9 million of savings from 2025 that we indicated at the start of this year. Broader operational improvements are also helping to drive a big increase in our NPS scores. Customers are finding us easier to work with. Our robust cost control is expected to benefit group operating margin by about 0.5 percentage point this year compared with our initial expectations. And we will continue to scrutinize spend across the businesses going forward if we need to. So okay, wrapping things up with our outlook for the rest of the year. We're encouraged by the progress we've seen during the first half in Consumer Care, our strategic pharma platforms and IS, helped by more stable conditions. The sequential improvement in the ex-COVID operating margin reflects higher sales volumes, price discipline and robust cost control. And as I mentioned earlier, Crop Protection and Consumer Health have remained weak. And without any signs of immediate recovery in Crop Protection, we now expect adjusted PBT to be between £260 million and £280 million in constant currency. So in summary, it's been a good first half in many respects, highlighted by sequential sales growth, record levels of innovation and an improved operating margin in most areas as well as strong free cash flow. We're emerging from a tough environment as a very different looking business more focused on and more exposed to fast growth markets, and we are increasingly ready for another period of exciting innovation-led growth.

A - David Bishop: Good morning everybody. And welcome to our live Q&A. As a reminder if you joined by the webcast please type your question into the appropriate box on the webcast player and I'll read it out on your behalf. For analysts on zoom please raise your hand and you'll be invited to unmute and put your video live and go ahead and ask your question. And a reminder to allow everybody to ask a question you're limited to one question plus a related supplementary. The first question comes from Matthew Yates of Bank of America. Matthew, please go ahead. Unmute and ask your question.

Matthew Yates: Thank you, David. Can you hear me okay.

Steve Foots: We can. Fine, Matthew.

David Bishop: Yep.

Matthew Yates: Good morning. I'd like to ask about the margin in consumer. So you had a nice 14% rebound in volumes, but profits down about 13%, if my math is right. It's essentially why the lack of operating leverage in this business with margins still below 18%, obviously needs to be considerably higher in the past. Steve, you talked about gross margins being okay. So I'm guessing the pricing is really just reflecting the savings you've had on the raw mats. So why are we not seeing that the volume growth translated to higher margins? Is that because the volumes are coming in diluted businesses and you've still got, frankly, I would say, a pretty poor performance in Beauty Care. Or are the results being distorted by this whole shared site model that we talked about last year with the other parts of the portfolio is still lagging in volumes?

Steve Foots: Yes. Matthew, two points to that, I would say. I mean firstly, we finished the year last year, if you remember, around about 50%, 55% utilization rates. We finished the second quarter, end of first half at about 65% utilization rate. So we're making some operating leverage improvement. But as you say, the other thing is all around the shared service site model where we've got 11 multi-purpose sites. And of course, Consumer Care has taken the lion's share of costs in some of these sites because Crop hasn't come back yet. So and I think once you see Crop come back, then obviously, the margins naturally improve in Crop, but they also improve in Consumer. So you've got that at play. We use those as excuses in the business for the teams. But actually, there's a reality there that actually Consumer is performing probably better. Had Crop been in the numbers in the first half, you would see better margin performance in Consumer. So there's that dynamic. But I think the other point I would make is look, we've seen over the last three years, you saw in one of those charts, our gross margin, which is a very important indicator for us for the quality of business going in the sites is very high and it's stable. And that's through this last three year period, where you've seen massive raw material inflation and then deflation, something we haven't seen before, since 2008. You can't see that in the margin, that volatility. And that's because we're very disciplined around that. So to answer your question, it's mainly -- you would have seen a bigger momentum in margin in Consumer had Crop been more a bigger return, bigger volume growth in the first half. So there's that dynamic at play.

Matthew Yates: And maybe to follow-up, Steve, if I can on Beauty Care. So you're saying that NPP is a record level, so very good levels. Why, therefore, is the business still contracting in volumes. Is that the market? Or is that still trying to regain business that you lost in the past?

Steve Foots: Yes. Well, it's -- again, probably two answers to that. It's not contracting. I mean volumes are ahead quite significantly this year against last year. And if you look at the shape of Consumer Care per se, we're 14% up in volume. We're very pleased with that, and we're down about 8.5% in price and mix. And actually, when you think about that, that 8.5% price mix is built around of 16% raw material reduction over the last 18 months. So you start to look at that and think, well, actually a third of our costs are in raw materials. So it's broadly about right in terms of keeping the high stable gross margins fixed, giving back on price at the tail of the business and keeping the business growing. But the other point to make on Beauty Care is very pleased with the recovery. We're regaining business in North America from the Atlas Point plant that was out of action. But I think more importantly, and you're seeing this across many of our markets, this big move to local and regional customers is significant. We are picking up growth -- innovation growth in a lot of our fastest growth markets. So the examples in the pack around China, but we could have also given you examples around India, Brazil, North America, where these dynamo companies, great products very inventive, the fast-to-market, high quality products, and they're actually very price -- they're very good in terms of cost control with their pricing. So the pricing on the market potentially is interesting for those countries that are down trading in part. So that's what you're starting to see. We're picking up more of our basket in consumer into local and regional. But Beauty Care Is doing well. We're very happy with the volume growth, and it bodes well for the future. And I think the other point on Beauty Care, just while we're on it, is the tail of the business -- there's one thing we've learned in the pandemic, the tail of that business is about 20%. As you remember, it's about £80 million of revenue in that business. Yes, we have to be much more flexible with our pricing there and we want to keep our volumes whole. We are doing that, we're doing that well. But whilst we're doing that, the other 80% of that business, we're turbocharging for innovation growth precisely to what we just talked about, which is a lot of local and regional customers are picking that innovation up. So Beauty Care in a good place, and the rest of the portfolio is as well. And I think just on the innovation point, because I know it will probably come up later, the four businesses are all growing in Consumer Care with NPP. It's not just one or two. They are all growing.

Matthew Yates: Thanks for the clarification on the process. Thank you.

David Bishop: Thank you, Matt. The next question comes from Charles Eden at UBS. Hi, Charles.

Steve Foots: Charles.

Charles Eden: Hi, good morning everyone. Can I dig into the Life Science margin in the first half. I think it was 18.3%. So down another roughly 300 basis points versus the second half of last year when you remove COVID. I'm just trying to understand, I guess I understand the explanation of the lack of fixed cost is also from ag, given the shared manufacturing model, but has that really got that much worse in the second half of last year? So I am just trying to struggling to bridge this a little bit sequentially. Can you talk maybe a little bit about the underlying margins in Pharma and Seed today? I guess maybe I'll ask it this way. Is it as simple as if Crop volumes get back to 2021 levels in 2025, then the margin of this division can get back to the high 20s EBIT margin. And then linked to this, is there a way you can get out of this business? Because it feels to me like Crop is ultimately Croda's equivalent of vitamins at DSM-Firmenich. They took the decision to exit vitamins and shrink the group to reduce volatility and were ultimately rewarded for that decision. Is that something you contemplate doing?

Steve Foots: Well, let me start with Crop and just the wider view of Crop, and then I'll pass to David on the margin side of things. But look, I mean, the way we look at Crop is look, for 10 to 12 years, it's been the most consistent business in our portfolio. And what I mean by that is it's always delivered about mid-single digit revenue growth, and it does that very well. There's clearly volatility during a year because of weather, climatic issues, but we're in number one global positions with our delivery systems. So what we've experienced in context in the last three or four years has been this rapid boom and reset. And a lot of that -- where we are now is effectively reset back to the pre-COVID levels. I think clearly, what we want to try and understand more in the business is -- has there been any structural changes and is the innovation level still as high as they were. And certainly, from an innovation point of view, we were still very happy with the innovation that we have with the crop market. I think it's just -- it's an unusual occurrence where that industry, if you call it an industry, is resetting -- is borne the brunt of quite significant volume dynamics, which are probably more pronounced than we've seen in any of our other markets. So '21 and '22, our sales growth was very significant. We were up 40%, 50%. So anything that goes up very quickly is coming down very quickly as well. So what you're seeing in that business is more the end of the reset. It's just taken a little bit longer. So I think we wouldn't want to make any decisions around crop as a consequence of the turbulent period. What we want to see is as it settles and when new demand comes back, making sure that demand is what we expect it to be pre-COVID levels. I think on the margin, I'll lead into the margin with David. I mean a lot of that is around what you saw in the second half was what you saw broadly in quarter two as well last year, which is three quarters of fairly consistent trading in Crop all week. We've seen another two quarters effectively of that in the first half. Quarter one last year, I know it's not a sequential point, but quarter one last year was very strong. So when you look at half one versus half one last year, you obviously have a significant comparator to you there. But David can you talk about sequentials in Crop and also in Pharma.

David Bishop: Yes. Most of the negative impact on the margin is non-operational. So actually, net volume and price/mix is positive in H1 '24 versus H2 '23. So the main impact that you've alluded to already, Charles, is the fact that we were losing the £48 million of COVID lipids with around about £30 million of associated operating profit. So that's by far and away the biggest impact there. And then we've also got a small return of a variable remuneration charge, which was negative last year and we allocate to each of the businesses. So nothing strange in the margin on a sequential basis. And as Steve said, if you look at the individual business units, Crop is suffering because of the lack of that volume leverage. And if we see some volume return in Crop, then we see a benefit to the bottom line as well.

Charles Eden: Thanks. And just because you mentioned the annual bonus, if I can use that as my follow-up. My understanding is if EBIT doesn't grow on an underlying basis, which I guess means ex-COVID for this year, then the annual bonus is quite binary, would be zero again. Could you confirm what the base number is for this? Is it sort of roughly £295 million, that was my calculation. And then perhaps you could set out how much of the £25 million provision for variable remuneration that the previous CFO referred to at the start of the year relates to the annual bonus and how much of this amount remains provisioned at the end of the half year?

Steve Foots: Yes. I mean, let me start, and I'll pass to Fitz. Yes, we are still providing for a bonus, not as big a bonus as we were at the start of the year. So that's still in the numbers in half 1. So there's a bit of an issue -- you can look at that both ways. There's a bit of an insurance there for the second half as well, but we want to pay a bonus the staff as well, where we can. So we want everybody to deliver in the second half, and there's still a chance of a reasonable bonus. In terms of quantum, I'm going to pass to Fitz and Fitz can give you that detail.

Anthony Fitzpatrick: Yes. Look, I think there's a couple of things in there. First, you're right, in '23, there's no bonus accrual and you can see that in some of the progress since the first half this year. We are still accruing on the basis that there's a payout, but it basically accrues on the basis of a full-year performance. So the £25 million, I think, that was referred to assumes that we get to -- we track where we are currently. So in the first half, it's roughly half of that was accrued through the first half. What you don't have in your numbers, though, is it's not just based on EBITDA. There's a slightly -- there's a cost for working capital and some other charges in there. So it's not as straightforward as EBITDA of £295 million. It's actually a slightly lower number. Remember, last year as well, we also had the lipids business in that calculation, which is not part of this year's calculation.

Charles Eden: Understood. Thank you.

David Bishop: The next question comes from Nicola Tang at Exane. Hi, Nicola.

Nicola Tang: Hi, everyone and thanks for taking the question. I guess I'll ask a follow-up to Charles' question, sticking to Life Sciences. I was wondering if you could help us a bit with the moving parts on top line for the second half of the year. You mentioned there was still some destocking in Consumer Health. Is that now done? Or could we see somewhat more of that in the second half? Are you baking in anything in terms of an improvement in Crop in the second half? And can you just remind us a bit in terms of the Seed seasonality? And ultimately, what does that mean in terms of H-on-H margin performance in Life Science?

Steve Foots: Well, let me start with the revenue, and I'll pass to David on margin. I mean, look, don't forget, in the second half of last year, we're coming into some weak comparators. I think we would start with that, particularly in Life Sciences, ex-COVID. If you take the businesses one in turn, the pharma business, we saw a sequential improvement half one versus half two, ex-COVID. We saw a sequential improvement, quarter two to quarter one. And what we saw, if you actually unpick that is Consumer Health starting to improve as well. And Pharma actually has been okay. It's not growing at 9%, 10% in the first half, but it's been doing okay. So when we look at the second half, we're expecting that Pharma business to grow well. And the evidence that we've got for that is the trends that we're seeing, the order intake that we're seeing, we're booking some new business as well, particularly on some of these proprietary lipids, which is built in, already booked in. So we feel confident that in Pharma, particularly, that trend is going in the right direction. If you look at Seed Treatment, Seed Treatment is a quarter four business. It always has been. So you always get modest trading through the first three quarters and then quarter four is where they make a lot of their profit and all the indicators are with the microplastic-free technology coming out, booked orders that seed treatment will be fine. And when you look at Crop, we're not expecting a huge amount of Crop. I mean we're still very cautious around Crop and some very modest improvement, probably year-on-year as we come through. Let's be honest, we've about five quarters now of weak trading in Crop. So only modest improvement. I think I would just provide balance to that. That's the sort of Life Science story. But the Consumer Care story is a positive one, too. We don't need any sequential growth in Consumer Care in the second half to deliver on that guidance. That's premised on just continued trends from the first half. So all of those businesses exit in quarter two -- as they entered quarter two, we expect that to continue. So as I mentioned earlier, this growth in the local and regional is driving that extra stability there and the innovation that we're picking -- our innovation is being picked up by them as well. So we feel comfortable in the round. And actually, when we get to the year-end annualized, all of our businesses with the exception of Crop should be -- in revenue terms, should be ahead of last year. That's the intention. So most of our businesses are in growth, maybe to weaker comparators. We just need Crop to start to come back, and we'll update you on a regular basis, as we always do, to give you a better indications of when that might happen.

Nicola Tang: Thanks. And I wonder if you could -- there's a second part of the question, which was on margins in Life Sciences in the second half?

Steve Foots: Yes, David, any comment on that?

David Bishop: Yes. So -- no, I think, overall, relative to our guidance, we're feeling pretty comfortable about the margin performance in the half and what that means for the second half of the year. So if you remember, at a group level, we guided to margins being two to three percentage points down on full-year 2023, and we're pretty confident that we should be at the upper end of that guidance range. So at around 17% for the full-year rather than 16%. And that would suggest some further margin progression at a group level from the 16.6% that we did in the first half year and that is broadly across Consumer Care and Life Sciences. So still within that range that we guided to you at the start of the year for the group margin, but with a bit of sequential progression in both Consumer Care and Life Sciences versus H1.

Nicola Tang: Thank you. May I ask a follow-up.

David Bishop: Is it another one, please state.

Nicola Tang: Sorry, I was curious about the comments you're making that it seems like we are seeing a step change in volumes amongst local regionals on the Consumer Care side. Can you explain a bit what might be driving that? Because it sounds like it's not just specifically China, it sounds like it's more broad from a geographic point of view.

Steve Foots: Yes, I mean particularly in Consumer Care, although, you can start to see that in Crop as well. But in Consumer Care, if you just look at that, we've shown you some case studies in the pack and in the RNS. I think my take on that is if you remember in the Capital Markets Day that we had on the Consumer in 2022, we started talking about a fragmented world and more and more innovation coming in country for the country. And the world will -- gone are the days where we have big global launches. If you remember, those days, 71%, 72% of our Consumer Care sales were local and regional, 28% MNCs. And we said we'll probably move to 80% because that's the relative growth rates we would expect from local and regional and MNCs. And here we are, we're 78% now. So I think part of this is being fueled by relatively difficult market conditions in some of those big countries. China is a good example. But I think I would say the three or four things that we point to are, these local and regional customers got great innovation, high-quality products, pricing the product a bit more effectively than the multinationals, and they can move quicker. So what -- you see that in China, where we're up 28% in local and regional, slightly down in MNCs as you would expect, but they're winning. Local and regional companies are winning market share. They're growing market share, but they're winning market share away from some of the multinationals as well. And as I mentioned before, you can look at India, America, you can look at Brazil, some of the fastest-growing markets in the world, you're seeing that trend everywhere. And you probably shouldn't be surprised in part with that. But the multinationals will respond in their own way, and our business model is clearly there to make sure that we innovate with the multinationals as well as the local and regional. So it's not as though we're going to forget about the multinationals because they'll be back, and they'll be back stronger. So for me, quite significant changes that are coming. And if you can see that in F&F. And you can actually see that in Crop, if you saw on the slide, the first time that our Tier 2 and Tier 3 customers when you add that together is a bigger proportion than our Tier 1. So you're seeing this fragmentation, and that's good for Croda. It de-risks us going forward, it accelerates innovation and it allows us to pick up smaller and medium-sized customers in those markets where we want to focus on.

David Bishop: We go to the questions from the webcast. We've got a question from Artem which I think is for you, Steve. Any extra color around trends in Crop Protection? What are your major customers saying?

Steve Foots: Yes. I mean, there's probably three things I would point to. I mean it's mixed around the big multinationals. You ask them all. They're all in different stages of destocking or restocking. And you can probably see that with your data that you pick up and certainly the data that we show you. I think that's the first thing. There are weather issues, short term as well, which is challenging for people and the other thing which we shouldn't forget, probably the main thing for you to look at as well is our demand tends to be a function of the commodity food prices. So if you look at wheat, crop and soy prices over 10, 12 years, our business and the demand on our business tends to align, correlate very well with those prices. And what you're seeing recently, no surprise again, that they've come off their tops. But actually, when we look at the planting environment for later in the year, it's not bad. It's not as all the prices have crashed, commodity prices have crashed to a 10-year low. So there's still confidence with our customers that demand will still be reasonably healthy, but they're just working through this myriad of stocking issues. And I think the final point is most of our issues with restocking to destocking is around four or five customers. Because what we find in Consumer last year, we're finding with Crop now is that the multinationals are the ones that are sitting on the higher stock levels. So I think for me, I would point to that. I think David wants to make a point as well.

David Bishop: No, it's fine, Steve. I think you've covered it. I was just going to go to Charlie Bentley, who I think is dialing in via iPhone. If I identified you right? Charlie from Jefferies. Yes, go ahead.

Charles Bentley: Got it. Thanks very much. Can I just ask, as I think about the second half, I think the first half multiplied by two, I guess it's kind of a couple of percent above the bottom end of the guidance range. Utilization rates exiting the half should be better. You should have a second half like weighted cost contribution. You talked about Consumer improving, Pharma improving, Seed Treatment a bit better, Crop maybe not worse. So all of those things would be positive. So I guess just how are you thinking about the kind of the update in guidance range? It would just be helpful to get some color on that.

Steve Foots: Yes. I mean we tend to -- we always tend to look at it through the eyes of each of the businesses. So I think I mentioned this earlier, you might just joined the call, but not to try and repeat myself too much. Consumer Care doesn't need sequential improvement in the second half of the year. We want to -- the trends that we're seeing evident in the first half, we just expect that to continue. So we're not expecting any significant change there. Well, no change to the trends that we saw in the first half. We're expecting good improvement in pharma and seed treatment for the comments that I mentioned earlier. There's good reason we've got data to support that. So really, the question then is really around -- we've got cost control as well. So there's some cost savings that are being built in from our project restructuring. So we've got all of that, and then the question is really around Crop. And we're scientists and we're engineers in this company. And unless we can see a three-month trend in Crop positively, then we won't call it out. So because we're not seeing that, we're going to be cautious in the second half for good reason. But we're not expecting any big change to crop in the second half as we're not expecting a hockey-stick and the reason for the change in the guidance is effectively two things. It's crop where business and there's a bit of FX in there as well. The rest of the businesses we're expecting to continue their improvement from the first half. But I think from a macro point of view, I think I mentioned choppy, it's still choppy out there. And we're not far away from getting through it all, but we just want to see crop come through first before we get a bit more confident with the Life Science sort of story built into that.

David Bishop: Thank you, Charlie. Next question from Lee...

Charles Bentley: Sorry. Can I just follow up?

David Bishop: Yes, sure, Charlie. Go ahead.

Charles Bentley: Sorry, just -- you made a comment on the volumes in Consumer Care. I guess if I look at the stacked volumes, like it looks like you're still 4% below where you were in 2021 and I guess if I look at the contribution from Iberchem, that's probably 10 percentage points. So I still have you down kind of maybe teens in the kind of core Consumer Care base. Is that fair? And then just trying to think about what the kind of upside on fully recovered volumes in Consumer Care is?

Steve Foots: Well, Matthew was first out with a question around that, and so it's the same answer. We need further continued growth in the utilization rates. We are at 65% now, and we're at 50%, 55% end of last year. That will come from continued growth in the Consumer Business, Beauty Care. Particularly, it will come from some of the Industrial portfolio, but it needs to come from Crop as well. And so the margin performance in Consumer Care is good, but it's taking a bit of the cost allocation away from Crop in those sites because that's not there. And we never really talk about that because we see that as an excuse. But once Crop comes back, obviously, the utilization rates benefit Crop, but they will benefit the Consumer business as well. So I think for us, you can look at that. What we want to see is just utilization rates continue. And I think our organization change, our focus, this big trend to local and regional innovation picking up. All of that feels like it's moving towards our strengths and we feel good about that. But we're still dealing with the backdrop where not all the markets are in perfect shape in Consumer. And so we don't want to get ahead of ourselves for that reason, too.

David Bishop: Thank you, Charlie. Lisa at Morgan Stanley. Thanks for being patient. Please go ahead.

Lisa De Neve: Hi, everyone. Thank you for taking my question. I would like to follow-up on a question from Matthew Yates earlier, also on Consumer Care. So I'm wondering if you can share with us, I mean, how the profitability in Consumer Care subsegments defers. If you could shed any light on that? And then forget about this year, where do you see Consumer Care margins trending to over the midterm? And what do you think the key building blocks to that will be or need to be for you to get there? Thank you.

Steve Foots: Yes. I mean our medium-term guidance hasn't changed. We've always said we want this business. If you take a step back, part of this portfolio change is all about trying to drive a different financial shape to Consumer Care. So pre the pandemic, we were growing at low mid-single-digits for the previous several years. And that was fine. But we want to do -- what we want to feel like is we can get more consistent, higher revenue growth in that business. And we've carried out the acquisitions that we have done, and we feel with this big move to sustainable ingredients. The next five years, look really -- we're in ideal shape to drive the growth. And I think the big things there around this move back to mid-single-digit revenue growth plus and then you've got this 25% margin sort of target as well. Now to get back to 25%, I think the revenue growth is sort of built in. So how do you get back to the 25% while there's some -- clearly, short term, it's around utilization rates. The margins in the business look very good. We're not seeing any deterioration in the Consumer Care margins in components. So we don't feel there's much there. It's all about growing in those fast-growing markets and getting all the businesses firing on all cylinders, but a lot will depend on getting there with the business mix. So F&F, for example, is lower than the average. So it could be dilutive to margin, but you would see extra revenue. So I think a lot of that will lay that out through the course of the early part of next year and just showing you how we're thinking about getting back to those levels. But the building blocks are in place, the markets are moving to where we think they were going to move, the innovations in place. So we think we're in a good position to capitalize, but it's very difficult to give you some detailed answers around the next 12, 18 months or so. We just want to better understand where the business has come -- once we're fully reset with Crop and Crops back and growing, then obviously, that has a complexion on that, too. And in terms of -- David, in terms of the margin, the question around second half.

David Bishop: Yes. I mean you know the margin profile in Consumer Care generally. So the full business units, Beauty Actives has the highest operating margin followed by Beauty Care; F&F, actually the margin performance is pretty good this year, but normally, it's slightly below the Tier 1 peers; and then Home Care is the lowest margin business in that portfolio as we've been investing behind the sustainable technology platforms and the strong growth that we're seeing. So there's nothing particularly change with that margin profile, but hopefully, that gives you a better understanding of the various business units.

Lisa De Neve: Thank you very much.

David Bishop: Thanks, Lisa. Sebastian Bray at Berenberg.

Steve Foots: Hi, Sebastian.

Sebastian Bray: Hello, good morning, Steve and team. Thank you for taking my questions. I have two, please. The first is on the pricing environment in the excipients business of the Pharma subsegment. In the Consumer Care part of your over-the-counter products, the simpler excipients, in some of our areas like capsules, I believe there has been incremental pressure on pricing, reflecting low volume environment. Is the pricing environment for Croda in this area tougher than it used to be? And my second question is on Solus Biotech, how has the acquisition gone? Has the company been growing well since it was acquired? It looks as if the sales have been distributed across both Life Sciences and Personal Care and roughly 50

Steve Foots: Yes, well, let's do Solus first, and then we'll come back to the excipients pricing as well. So Solus, I mean, we've been very pleased with where it is. It's had a year in Croda now. And as I always say to you, when we acquire technologies like this, the first year is what I call positioning. They don't have a selling network or they didn't, and most of their sales were through distribution outside of Korea. So of course, the first thing we do is we redirect that to our global selling network and we've been doing that. So the distributors have been sitting on reasonable levels of stock that you expect. So we're running that down. But the whole organization is probably the most exciting acquisition we've done for quite some time, and we've got Iberchem in place and we've got Avanti. This is right in the heart of Croda in both the Actives business for ceramides, but also phospholipids for Avanti and all the leading indicators, the thousands of samples that we're sending out, the commercial sales opportunities are very significant. So yes, sales, we expect sales to grow, and there's always a year two, three, four and five, where we should see significant sales growth across the territories. And every sales team in most countries around the world can sell these products. That's the important thing through our network. So it's broadly -- it will be broadly 50-50, Sebastian. You see we bought two businesses. We bought -- the competitive environment in these areas is very limited, and we bought probably the best technology for the future. So our positioning is good. And with Sederma and both, Avanti, they're going to accelerate the innovation through their R&D basis. So we're very pleased with that. It's a high-margin business, it's classic, it screens very well for our Actives portfolio and our Avanti portfolio. So we're pleased with that, but we know that positioning year one was never going to change the dial. We expect that to change through the course of the next two or three years. I think you point on excipients and pricing. I mean, inevitably, let me start, and I'll play David in again. Inevitably, there's been some pressure on it, not because of bigger increased competition per se. There is some extra competition. But when you come off the tops of raw materials and raw material pricing goes down 16% over the last 18 months, inevitably, there's some price that you want to give back. And our approach there is not too dissimilar to Beauty Care, where the more competitive end of that portfolio, some of those are traditional products that have been with us for years, you have to be a bit more flexible with price. So we're doing that. We think the majority of the consumer health issue is more stocking issues than pricing per se, but there is a little bit of pricing there. And David to provide more color.

David Bishop: Yes, it just really supports what you were saying, Steve. So the price mix was negative 1% in Life Sciences and broadly pharma was similar. So any negative price would have been in that consumer health part of pharma, where there is some competition for the excipients that we provide into over-the-counter medicines.

Sebastian Bray: That's helpful. Thanks for taking the questions.

David Bishop: Thanks. Amy at Barclays, please.

Amy Lian: Thanks for taking the questions. Maybe just a follow-up. Hi, can you hear me?

David Bishop: Yes, hi, Amy.

Amy Lian: Sorry, thanks. Maybe just a follow-up on the Solus Biotech question just then. I see that on the EBIT line for Consumer Care, it seems to be a negative contribution. Is that related to what you just mentioned about the distributors as you are having quite a lot of stock? And if not, could you give us more color there? And then secondly, on Beauty Care, some of the negative pricing there. I assume that's also still related having to maybe win back some of the lost volume to competitors. Is your market share in these businesses now back to where you want it to be? Or is there still some volume you're having to chase that to competitor pricing?

Steve Foots: Yes, good question. I mean, the first one, simply, it's -- yes, one-off hits on distributors, which we always take. We take that with most of our acquisitions. So that's the main headwind. It's a short-term one-off through the year. And then obviously, when you get the business back, we get them at obviously higher revenues and higher margins for ourselves because we're doing -- we're managing that direct. So that will blend in through the course of next year -- second half and next year. I think your wider point about, which was -- your question again, just remind me? Because we did Solus. What was your first question?

Amy Lian: Beauty Care after the market share loss...

Steve Foots: Yes, Beauty Care market share. I mean, so the market share loss was really specific to North America, where we took this plant off-line in the end of '22. Yes, I think on one of the slides, you can see that it's difficult to really accurately work this out, but we've regained over 40% of that business. I think where the market share -- so our strategy in Beauty Care has been new one supposed to pandemic is in that differentiated area of 20% of the revenue, we want to be cost competitive and hold our own with market share the volumes essentially neutral, but we're expecting to regain our positions from where we were. So we're starting to do that. There's still some work to do to get more of that back through the second half and next year. But while we're doing that, and that's with about 2030 price customer combinations of how we discipline ourselves on price. Then on the rest of the 80%, it's all about just fast growing that through our model and the local and regional customers taking more of the Lion's share in the near term. So we feel comfortable with that. So we're not fully there yet, but there's work to do, but we feel we're on the right track in that respect.

Amy Lian: Thank you very much.

David Bishop: So Chetan Udeshi at JPMorgan.

Chetan Udeshi: Yes, hi, good morning. Firstly, I have to say, Steve, you were looking pretty kicked with your R&D growth. It's different than usual.

Steve Foots: Don't quote me on the science, Chetan. 30 years ago, I was in that lab.

Chetan Udeshi: I had two questions. First, I'm a bit confused about H2 guide because if I look at your absolute revenue in Q2, it was actually lower than in Q1 and historically, your seasonality is always H2 lower than H1 in terms of earnings of PBT. So it doesn't feel like you guys are expecting any recovery in H2. So why will the earnings be better than H1, which is not what you normally see in the business? So what is different this time? And the related question is just coming back to the utilization that you mentioned 65% at the moment. Is that across the group or is that just across consumer? And can you remind me where were you before this, let's say, pre-COVID. What is the normal utilization that Croda used to have, say, 2019, 2018, just to get a sense of how much do we need to see utilization improve before we get to anywhere close to the normalized margins?

Steve Foots: Yes, let me take the second question, and I'll pass to David for the first question. Yes. I mean if you look at, normally, we're about 80%, maybe a little bit more than that, Chetan, and that's not on everything in the group. It's about 11 -- we call it 11 multipurpose sites, which effectively represents about 3/4 of our revenue, something like that, best part of that. So we want to see that increase further. And I think once you get through to 80% levels, we're rebased again with margins. And again, we would assume there is a normal mix on each of the factories. So that's Beauty Care, Industrial and Crop tend to share the same assets and a bit of Home Care and a bit of the Consumer Health business as well. So they're the main ones that get connected to that. But in terms of phasing for the second half, I think David can...

David Bishop: Yes. I mean this, as you've seen, we've reported on the basis of H1 numbers. But given we provided a Q1 sales update, we've given you the quarterly breakdown as well. And sector-by-sector, Industrial Specialties and Life Sciences were slightly ahead in Q2 sequentially over Q1, and Consumer Care was slightly behind and the impact there is just the good January. So we weren't alone in seeing an obvious restock in January. The important point in Consumer Care is that April, May, June look broadly like February and March, and that's the assumptions on which we built the second half year. Steve's touched on this already, but effectively a bit of growth in H2 versus H1 in Consumer Care, but that's coming from the strong momentum in F&F and in Home Care, which are growing well. So we feel pretty comfortable about that as the basis of our assumptions for the second half. And then Industrial Specialty is broadly flat on the top line, has seen a good recovery and a commensurate improvement in margins with Life Sciences better for the reasons that we've outlined, mainly coming through in Seed Enhancement, a seasonally second-half weighted business and also in pharma where H1 was better than the second half of last year and Q2 was better than Q1.

Chetan Udeshi: It's clear. Thank you.

David Bishop: Thanks, Chetan. Martin, at HSBC.

Martin Evans: Yes, thanks, David. A segue then, again, into consumer and the end markets in the second half and into next year because there's quite a lot of talk of customers trading down at the prestige end of the market, Unilever referred to a slowdown in the beauty divisions to four or two. And I appreciate you've obviously got quite interesting comps in the second half off a low base. But equally, are you seeing a shift as consumers basically trade down? And then just related to that, Slide 7, one of your responses to the difficult trading is more flexible pricing policy for certain customers. I guess that's related. In other words, if there is a trade down in the consumer market, your response would be to cut your prices. Is that correct?

Steve Foots: Yes, I mean good questions, Martin. The first one is, yes, we've seen that from some. You'll see that from some of the multinationals around trading down. I mean our sense of it is, it's not general everywhere. It's specific to certain countries. So I think the two countries that we're probably seeing it the most is in China. And you see we're benefiting from our strategy there of picking up local and regional because they're winning there. And also in America, you're starting to see mass markets, particularly in America, a bit softer than they were in the first half. And I think that's probably what you're seeing from Unilever and others a bit more skewed to North America. Look, our strategy is -- our model is not just focused on multinationals. So there's one big message today is they're effectively 22% of our revenue in that business. So we have to be a bit more price flexible. But again, it's in that Beauty Care area in that 20% area, and we watch that all the time. But while we're doing that, we are growing our business with the differentiated products with the multinationals and others as well. And I think the other point to make, Martin, is we may give a little bit to the multinationals, which is inevitable at the tail. But our products, our margins in the local and regional customer base is good, is similar to the multinational. So we're not seeing any margin attrition in the same ingredients that we supply into the smaller customers. So you get that benefit. So I think a lot of our focus in the second half is, yes, there may be some softness in some markets. But we should be able to take advantage of that with our small and medium-sized customers. So for example, China, we're up 28% with the local and regionals. We're down a few percent in multinationals. Net-net, we're ahead high-single-digits in China. And it's a market that's probably -- it's been the toughest now for three or four years to what we've seen. So we're winning with our model. Now clearly, we'll see what we want to see, and we expect to see as that innovation still play out pretty helpfully with the local and regional players.

Martin Evans: Thanks, very clear.

David Bishop: Thanks, Martin. Georgina Fraser at Goldman Sachs.

Georgina Fraser: Hi, thanks, David. And hi, Steve.

Steve Foots: Hi, Georgina.

Georgina Fraser: Hello. So my question is looking at profitability of the group. I think what we have learned over the last 18 months, and please say if you disagree, but there's probably more margin interdependency between the segments than we would have realized without the strange macro backdrop that we've had. Is this any kind of risk to the potential operating performance of each of the divisions? And is there anything that you can do to mitigate that risk going forward? Do you believe that the operational setup enables each of the segments to deliver maximum value for shareholders?

Steve Foots: Yes, I mean it's a good question. We don't believe we're any more cyclical. We believe we're less cyclical than we were two years ago, three years ago. And we don't believe the interdependencies of the sites are actually a long-term issue for the group. It's a challenging period more around, I would call it, this psychological spending cycle, which is driven by the pandemic. And what you've seen is this big boom and reset period over the last three years -- three or four years. So we're living through the end of that. And I think what you're seeing for Croda is we're affected like others as well, we didn't expect all of the markets to become weak at the same time. I've lived through three cycles. And in the other cycles, you never see that. So it's a very unusual period. And I think we shouldn't try and confuse two things, the business model of Croda and something, which is, I think is a quite unique event. So clearly, we're watching every market to understand if there's any structural changes and we will move and innovate in the right way to move into faster growth. But I don't believe that there's a change there. I think what you're seeing is we'll get back to a normal level of operating and then we'll demonstrate our growth from there. So we do feel we're ideally placed for the next few years. I think it's fair to say, in parallel with this, what we've seen is a capital spend period above the normal CapEx. We're adding a bit more pharma CapEx in there for the right reasons. So you're finding that's taking a bit of depreciation and cost into the forward years. So you're finding that actually, your margin is not bouncing back at the same level or hasn't done through this year. And that's partly because of we're in the final stages of that pharma as well. But we shouldn't confuse two things. We think our markets are primed for growth. We think our businesses are all growing. Utilization rates will get back to normal. And once they do, hopefully, we don't feel the need to talk about that review within the organization because we've never done it for the last 30 years. So I don't expect us to in the future, but we watch our markets to make sure that all the markets are moving in the right direction.

Georgina Fraser: Thank you.

David Bishop: Thanks. And I think the final question is coming from Ranulf Orr at Citi. So make it an upbeat one.

Ranulf Orr: I would just like to follow on a bit from Georgina. Focus a little bit more just on Industrial Specialties, if that's all right, and just how important that is to the group margin recovery? I think my understanding is it accounts for a pretty large share of the volumes from the shared asset. The shared assets maybe sort of 30%, 40% and it seems that volumes over the last few years have maybe halved. So I guess, what I want to understand is how closely we should be watching these volumes, how important getting back to a 2019 level is for the group margin recovery or perhaps actually, it's a relatively small impact, say, compared to recovery in Crop.

Steve Foots: Yes, I'm going to play Fitz in a sec. But yes, I mean, just a general comment upfront. I mean it's as important as it is incremental growth in the other businesses. Because once we get utilization rates back up to, what I'd call normalized levels, they can come from Industrial coming back first, a bit more Crop coming back, further growth in Beauty Care and in some of the other existing businesses. So all of those can help us. So Industrial plays its part in the same way as the others. I wouldn't overweight on Industrial, but at the moment, it's helpful that we get Industrial Specialties back. But I'll pass to Fitz just to comment because the margin levels in that business are very similar to what we see in most of our core as well.

Anthony Fitzpatrick: I think there's a couple of key points. I think Steve expressed it very well. First of all, most of the Industrial Specialties are those parts of the business that we actually chose to keep partly because of the commonality of the sites. Also the chemistries and actually the end markets that they find are actually quite powerful and interesting. And so as Steve said, some of the margins we see there are actually comparable to the rest. The reason in the whole why you see the margins for Industrial Specialties being lower than the overall, however, is when we have tolling and residues. We still have some supply agreement with the purchaser of our Industrial business. So I think the fundamental role of the business is trying to find those niche opportunities to load the plants up, make sure that we keep the plants humming along as best as possible and add value with those chemistries, and I think it does it very well. So you can see that some of that focus, have seen the volumes come back 21% sequentially and you've also seen the margins come back. So I actually think it has a fundamental role, but on a much lower part of the overall picture for Croda.

Ranulf Orr: Great, thank you.

David Bishop: Thanks, Ranulf. Over to you, Steve, just for a few closing remarks.

Steve Foots: Well, thanks, everybody, for the questions. I hope you got the answers you wanted. I mean, look, generally, we're pleased with the first half. We're seeing encouraging growth in all parts of consumer, in all regions, innovation led. We've got Industrial coming back, and we're expecting the Pharma business and the Seed Treatment to come back in the second half, and the only headwind that we've got at the moment is Crop and a bit of FX. So from Croda, we feel we're ideally placed and we're not far away of this growth trajectory that we're expecting. So we've got the businesses largely where we want them and the team is working hard. So we'll see you again in October and update you then. So thank you very much for the questions.