Croda International Plc

I'll now hand over to your host, Steve Foote, the CEO, to begin. Steve, please go ahead.

Good morning. Many thanks for joining the call today, and I hope you're all safe and well. We're sorry not to be with you in person, but the presentation, as usual, will follow the normal format for CRODA. Some comments then to Jez for the financials, and then I'll come back to talk about some key aspects of our strategy. We'll take questions over the telephone and via the webcast at the end of the presentation, too. So overall, our strong business model has delivered a resilient performance, and we've managed through a very challenging period. It goes without saying. I use the word resilient for a number of reasons. On the supply side, all of our 19 principal manufacturing sites have remained in operation, and nearly all of our workforce has continued to function as normal. So limited impact operationally around the world, and that's great credit to our teams and great credit to the local government support that we're getting as well. On the demand side, we've seen a modest reduction in sales, and the group margin has also held up well. As a capital-like business, we've continued to generate strong cash. This has allowed us to continue investment in future growth, agree on exciting technology-rich healthcare acquisition, and pay a dividend to shareholders, demonstrating our confidence in the future. The 28th successive year of increased dividend payments. In response to COVID, we have three priorities from the outset. And as you'd expect, our major priority has been the health and safety of all of our people. We needed to look them in the eye at the end of the crisis, and we're not there yet, knowing we've done everything possible to safeguard their well-being. And we have a more engaged workforce as a consequence of that, more loyal, and it generates a lot more goodwill. We're looking after our people, which is absolutely right. And next, we focused on keeping the show on the road, maintaining the performance of the business by closely controlling costs and working capital as you'd expect us to. And we've been talking to customers in a lot more frequent basis along the way. And finally, but just as important, we have continued to plan for the future to ensure that Kuroda is taking full advantage of the emerging opportunities from the pandemic, which I will come on to later. The key principle has been treating all our stakeholders fairly. We didn't furlough anybody. We protected employee salaries. We helped a number of our smaller customers and suppliers with flexible payment terms. We helped communities around the Crota world with our act of kindness initiative. And we paid a final dividend to our shareholders. We've treated everybody fairly and we're doing the right things. And all of this plays well to our purpose. Turning to the numbers, they are what they are, but you can see the resilience borne out in them. Innovation and commercializing clever people's knowledge is what our business model is all about. And a modest reduction in sales, a resilient performance in margin, and the output of which is strong profit and cash generation. And this is allowing us to further invest in the business. Turning to the sector performance, in personal care, we continue to see positive trends from quarter four into quarter one. Quarter 2 was significantly impacted by a downturn in consumer demand, luxury, travel, department stores. This was particularly evident in Europe, where a lot of our customers either closed or repurposed their facilities into making hand sanitizer gels. And in Latin America, where there is a greater reliance on door-to-door selling. During the quarter, we've accelerated our customer interactions massively, much more engagement than we normally would see. And we're excited about what our customers are telling us. There's lots of innovation in the pipeline. And we've also seen a very good recovery in China, with personal care sales in China up 9% in quarter two. And we remain confident of a good recovery once lockdown measures have eased further. Turning to life sciences, that's less impacted by COVID. Strong underlying healthcare business. Crop will be more second-half weighted due to phasing issues. And margin progress is in line with our expectations. The Avanti acquisition I'll come back to later in the pack. In performance technologies, industrial end markets are clearly challenging, but this is partly offset by strong food packaging and home care sales for the group. So let me stop there, and I'll hand over to Jez for the financials.

Thanks, Steve, and good morning, everybody. As Steve has said, the first half year saw a resilient performance. Sales were 5.8% down in reported currency at 673 million pounds. This reduction of 7% in constant currency sales terms translated to a 9% reduction in adjusted operating profit in constant currency to 161.6 million pounds. Operating costs reduced with the benefit of cost savings delivered at the end of 2019 and lower discretionary spend during the first half of 2020. These cost savings were partly offset by the start-up of the North America bio-suffactants plant in the early part of 2020. Net interest was broadly unchanged at £9.1 million, with higher net debt from the 2019 special dividend payment mostly offset by lower interest rates following our refinancing. Adjusted profit before tax came at 152.5 million pounds, 10% behind the prior year period. With lower volume and a weaker product mix, return on sales declined by 1.1 percentage points to 24%, a resilient performance reflecting the strength of Crota's operating model. With the tax rate broadly flat at 25%, adjusted earnings per share were 88.8 pence, just under 10% lower than 2019. Having paid the increased 2019 final dividend in May, the interim dividend has been held at 39.5 pence per share. Finally, the free cash flow remained healthy at over £80 million in the half. Adjusting profit items charged in the first half totaled £7.6 million. This covered a further £1.7 million exceptional charge for delivering the cost savings announced at the end of 2019, which is delivering up to £20 million of annual benefits to reinvest in the business. Acquisition costs relating to Avanti totaled £1 million, and amortisation of intangible assets relating to previous acquisitions was £4.9 million. Profit before tax on an IR4S basis was £144.9 million. So now let's look at the key bridging items for the change in sales. Core business sales declined by 6%. This comprised a 2% reduction in volume due to the impact of COVID-19 and a 4% reduction in price mix. Whilst raw material prices were generally stable, this price mix primarily reflected a weaker product mix due to lower sales of higher value-add products and personal care and performance technologies, and relatively better sales of lower value-add products used by consumers during the crisis. There was no impact from acquisitions during the period. Industrial chemicals contributed to a 1% reduction in group sales, and currency translation was favourable by 1%. Now looking at the key movements by core sector. Consumer product markets responded more rapidly to lockdown than industrial end markets, as Steve has described. As a result, personal care sales were hardest hit, 9% lower. This, together with a weaker product mix, saw operating profits 17% lower. Margin was resilient, though, staying at 15%. We expect this to recover back to the low 30s once volumes return. Lifespan sales were 2% lower. As we highlighted at the full year results in February, this reflected a strong comparison period from 2019, particularly in product sales. Continued growth in target market healthcare saw operating profit rise by 7% and return on sales increased to 32.5%. Although sales and performance technologies were 6% lower due to slower industrial demand, the impact of COVID-19 was seen later here than in personal care, with customers initially moving to protect their supply chains. However, profit was harder hit, down nearly 20%, and return on sales is just above 15%, still a strong performance compared with its peer group. Let's look at each of the core sectors in more detail. Following a solid first quarter, which saw continued recovery in the North America market, the personal care and beauty industry was significantly affected by the COVID lockdowns. China was impacted in the early part of the year, but rebounded quickly. As the bottom chart shows, Crota sales were down 4% in the first quarter before recovering to be up 9% in the second. The second quarter has seen European consumer demand heavily affected. As Steve said, most of the French cosmetics industry has shut down for several weeks, and consumer retail data showed a 14% reduction in sales in the quarter. By contrast, North America consumer demand has been less impacted, with lockdown intensity varying state by state. Latin America has been hardest hit, particularly in Brazil, where 50% of consumer sales are typically made on the doorstep. Whilst there are signs of lockdown conditions easing in Europe, Latin America is likely to remain difficult. Overall, this resulted in a 6% reduction in personal care volume and a 3% weaker price mix. as the more at-home-use staple products of the beauty formulation business proved more resilient than the higher-value going-out products. Also, beauty-actives demand is typically resilient in these circumstances, but disruption to the prestige distribution channels of duty-free department and luxury stores had an impact on consumer buying patterns. We've not seen any signs that the long-term drivers to growth in personal care have changed. Our strategy to strengthen the growing personal care through organic and inorganic investment remains unchanged. Pleasingly, our digital investment has begun to pay off, allowing us to maintain our customer intimacy through virtual contact and support. Life Sciences has seen limited adverse impact from COVID-19. Healthcare demand has been modestly affected, with fewer prescriptions issued and delays for some elective surgery. There has been no discernible impact on crop. Volumes grew by 2% overall in the half, while price mix declined due to crop sales moving from the first half to the second half year. Growth continued in the key high-value niches of healthcare. Our excipient delivery systems business grew by 11% as pharma customers looked to high-quality solutions from well-invested, stable and innovative partners like CRODA. The biosector vaccine adjuvant business had a much stronger period, growing sales by 25%. Consumer health product sales were broadly flat year on year. Crop protection sales were lower against a strong comparison period, coupled with delayed plantings in Latin America due to adverse weather. We also withdrew voluntarily from products with a negative environmental footprint, as announced at the last year end. The outlook for crop looks strong, with North America recovering from last year's US-China trade dispute and a strong innovation pipeline with our global customers. Seed enhancement also recovered some lost sales from 2019 during this season-acquired first half period. Our Expand to Grow strategy for life sciences is working well. Return on sales for the overall sector has reached 32.5%, an increase of over 4 percentage points since the acquisition of Incotech at the end of 2015. Our speciality excipients and vaccine adjuvants are being trialled in a number of COVID-19 related projects, and we're investing for the future, both organically in plant expansion and inorganically through M&A. After a week 2019, Performance technologies experienced a steady recovery in demand during the first quarter. However, with significant closures of automotive and industrial plants, sales weakened progressively through the second quarter. Partially offsetting this, sales have been strong in both the home care and packaging markets due to COVID-related demand and new innovation. This is shown in the top graph. Home and fabric sales grew by 11% in the first half, whilst energy technologies saw sales decline by 18%, reflecting its focus on automotive and industrial lubricants and on flow control in oil production. Smart materials was more resilient, down just 2%, with polymer additives being used in many COVID-related applications, including PPE, medical devices, and packaging. Overall volume was down 2% in performance technologies. Profitability was impacted by a combination of operating leverage, and production constraints in our European and Indian plants. The refine-to-grow strategy will reduce the sector's exposure to more cyclical markets, with growth in high-tech, higher-growth markets. Innovation will be important, and we are seeing strong interest and growing sales for coal-type radiants, which we presented to you at the full year results, which doubles the life of fabrics. We are building towards an expected 20 million sterling annual sales pipeline for this product by 2023. We're also investing in Asia with our new Shanghai R&D facility opening in the second half of this year, which will give greater access to many new Chinese customers. With the successful commissioning of our North American biosurfactants plant earlier in the year, we've secured our first two contracts for eco products in performance technologies, together with a first contract in personal care. The eco pipeline is now worth almost $20 million in annual sales, with sustainably positioned customer products launching from the end of 2020. While we are excited by the development of new sales opportunities, COVID has provided something of a perfect storm for the plant, with food-grade bioethanol, which we use as a feedstock, in short supply due to hand sanitizer demand, resulting in a high raw material cost at a time when petro-derived ethylene is at record lows. We expect to be able to move the plant to a lower-cost feedstock later this year, but in the meantime anticipate that this will cost us about $10 million in added costs in 2020. Crota continues to generate a healthy cash flow despite lower demand. Free cash flow in the first half year was £80 million, a reduction of £15 million on 2019, driven entirely by the reduced EBITDA. The change in working capital was £14 million better than 2019, and it's pleasing to note that we have seen no material deterioration in the timeliness of customers' receivables during the COVID crisis. Capital investment increased by £9 million to £50 million in the first half year, despite some delays to projects during lockdown. I would expect investment in the full year to be just over £100 million, allowing us to complete key investments, including the doubling of speciality existing capacity in the US, creation of a new customer and R&D facility in Princeton in the USA, and consolidation of our UK distribution facility. We're also expanding in healthcare in Japan and Denmark, investing in greater digital and innovation capability in China, and expanding some of our European plants. At a time when many companies are slashing investments, we believe that maintaining investments at this time will enable us to grow more rapidly in the coming years. Finally, Crota has a strong balance sheet, having completed its debt refinancing in 2019. As the top graph shows, we have excellent liquidity with almost £450 million in undrawn committed facilities at 30 June. Furthermore, there are no material maturities before 2023, as the bottom graph shows, with funding out to 2030. And on top of this, we have in July added a $200 million acquisition funding facility to allow us to complete on Avanti, therefore preserving our ample liquidity. Net debt at the half year, which is pre-acquisition, was £577 million. This is a leverage ratio of 1.5 times EBITDA. Our downside modelling shows significant leverage in liquidity headroom, even in more extreme crisis scenarios. I'll now hand you back to Steve, who will update you on our strategic priorities.

Thanks, Jed. Okay, so let me take you through our strategy update. As an executive team, we've prioritized time to think through the impact of a post-COVID world for the group. So if you just look at the slide on strategic priorities, whilst our megatrends and sector strategies remain unchanged, which is very reassuring, by the way, we've refreshed our near-term strategic priorities, and we have five key priorities. Scaling drug delivery, which I'll come on to shortly. More proactive M&A. The pandemic could open up more opportunities, and we want to be more focused with more bolt-ons. As a reminder to you all, we're interested in more Avanti-type acquisitions, lots of IP, new technologies, and clever people. And Asia, as a region, is the most significant growth opportunity for us, and ambition, too. It's there to build. Our aim is to build the Crota brain there, especially in China. And we want to scale by our technology as well. We have a lot of talented innovators, but nature does it better. And here we want to scale up a lot of our technologies, both operationally and from R&D. And this will involve a number of smart partnership arrangements going forward there. And in digital, a real area of progress, which is creating new opportunities to engage with customers in many different ways. For the purpose of today, I wanted to provide more colour on scaling drug delivery, including how Avanti fits into our strategy, but first digital. During COVID-19, quite surprisingly really, when you think about it, we've become more intimate with our customers. One of the big benefits has been even closer interaction with customers and potential customers. Digital has driven that. And if you look at the table on the left-hand side, We've seen a 200% increase in webinars, a 400% increase in customer attendees, and these webinars often involve our marketing and R&D teams, a powerful way of explaining our latest innovations and trends to our customers and, again, to our potential customers. It's all about creating business opportunities, and the stats are a great leading indicator for future business. We're also putting firmer foundations in place, building our digital marketing brain. We've got over a dozen people around the world now in places like China, America, Europe, etc. And we're building a new personal care website for Indy customers and focus websites in China because of the rapidly developing growth potential there too. And if you look at the case study on the right, you can see that we found new ways of bringing our innovation to life in China. You know, China, digital users in China spend an average of six hours online. online per day, so they're used to seeing technologies coming through. But the response has been amazing. 65,000 participants in one of the live stream trade events we participated in there. We're accelerating our conversations with customers. And in the old days, a good salesman would visit 12 to 14 customers per week through digital channels. Our customer audience is an order of magnitude bigger. We're seeing a surge in customer interactions, particularly in personal care, and that bodes well for the future. Turning to drug delivery, as you know, I want Life Sciences to be as profitable as personal care as quickly as we can. That's the mandate for the group. Fast-growing drug delivery platforms are an essential part of that, and we want to build drug delivery into a truly global business for CRODA. If you look at the trends on the left, some of these we've spoken about for some time, but some of them have emerged more recently. There's a shift from more traditional drugs to biological actives. This is already happening. As you know, nine out of the top ten selling drugs around the world use these biological actives now. Biological drugs are challenging to deliver, with the majority delivered by injection. Specialty excipients are chosen for their superior performance, enhancing the API performance in sensitive, challenging applications. Developing of next generation therapeutics is probably a new area to you and to us. And that's things like small molecule and large molecule development of actives driven by immunology and wider gene therapy in areas like vaccines and cancer drugs. You know, really good technology for the future for the group. And of course, COVID vaccines are heavily profiled at the moment in gene therapy, but equally there's new solutions to address diseases outlined in SDG3, which are things like malaria, TB and HIV, and all of those we're investing in R&D. From a regulatory point of view, things like safety, transparency and traceability remain the buzzwords of the industry. They have been there for quite some time. And customers are selecting our product increasingly because of the high performance, purity, and potency of our products. And all of that is to de-risk the supply chains. So a competitive advantage for us and for them as well. In terms of direction, on the right, essentially we're moving from consumer health, which is like, you can see that as non-prescription drugs, to patient health, more prescription drugs, to capture increased value. And with the price opportunity increasing from a few pounds per kilogram to hundreds of thousands of pounds per kilogram, you can see why we're interested in that. Our job is not to make the active ingredient, though, it's to enhance the performance of the active ingredient. So we have a broadening set of platforms for drug delivery, and lipid nanoparticles is the exciting emerging technology from Avanti. And it goes without saying, revenue and margin opportunities are increasing as we move from left to right. As we move to drug delivery, we have an increasing breadth of technology in our portfolio, which is creating lots more opportunities for us. You all know about specialty excipients. We've been banging on about that for quite some time. But many others you don't know. They're new opportunities for the group. And one of the big ones, gene therapy for vaccine and cancer applications. A good example is Avante's messenger RNA technology for vaccines. Effectively, it's an encapsulation technology that delivers the active into the cell. But we've also got processing ingredients to fast-track the manufacture of biological actives. Again, we're not making the active, but we've got ingredients that can facilitate the manufacture of these actives. And also a number of nascent technologies coming through for respiratory diseases as well. The photo on the right at the bottom is of Croda Denmark, our biosector acquisition. And as Jez talked to you about, you know, really good growth this year already, and we were expecting good things with that going forward. They have the only aseptic adjuvant manufacturing facility in the world for vaccines. Turning to Avanti then. We bought Avanti because of their deep knowledge in drug delivery, exciting new technologies, rich IP, but above all, clever people. And if you look at the picture at the right, there's lots of R&D people there and a great age distribution, which you probably can't see. And that was one of the central reasons for buying Avanti. They will become our central R&D brain in drug delivery as we globalise the drug delivery platforms. And most of the employees are scientists serving around 3,000 customers. They launch over 100 products per year, so a very impressive innovation culture. Great track record. And the strategic rationale, it's all about buying knowledge and clever people. I think you've heard that a few times from me now. And it doubles our R&D capability in healthcare. We'll learn from them, and they will learn from us. No doubt about that. And this isn't a technology startup. It's a great business in its own right, growing double-digit and generating strong profit and cash. So in summary then, we've delivered a resilient performance which reflects the strength of our business model and we will continue to take advantage of our healthy cash flow and strong financial platform to invest further in the business. In outlook, it's very difficult to anticipate the future with the timing of recovery unclear, but the working assumptions are life sciences will benefit from the phasing of crop care sales and opportunities in healthcare, Consumer markets were rapidly impacted by lockdown, but expected to recover more quickly than our industrial markets. And the group margin and cash generation expected to remain robust. So the strategy unchanged, but refreshed, and that will underpin and even accelerate our future growth. So let me stop there and hand back to the operator to take the questions.

Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. If you're joining online, please select the flag icon to ask a question and reselect the flag icon if you change your mind. When preparing to ask your question, please ensure your phone is unmuted locally. We have a question from Charlie Webb from Morgan Stanley. Charlie, your line's open. Please go ahead.

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

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

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

Yeah. And, Charlie, on life sciences, I mean, we're very confident on life sciences. I mean, life sciences is effectively immune from the pandemic. I mean, first half, I mean, you know, read into the first half, very good underlying health care. pharmaceutical performance, which is great. Very good seed enhancement performance, one of the best performing first halves in the mix of markets that we operate in. And it was crop that was behind. So crop was the one that was behind for no particular reason. It was more a phasing issue, and we sort of knew that. And there was tough comparators, but a lot of that is certainly in the second half. We can see that already. So I think the three things for the second half that are likely to go in the favor of life sciences are a rebound in crop due to phasing, And as I said, we can see that. We have got some new committed healthcare orders for the second half of the year as well, which is in train now. And obviously supporting that is a new capacity coming on stream. But we've also got Avanti as well. And we'll have, you know, we should close Avanti shortly, but we'll have Avanti for a good part of the second half as well. And that's growing very, very well. It's got double-digit growth in there. So, you know, we're really pleased with that too. So, Life sciences is good, and you can see the margin projections are good. You know, they're going towards what you would expect personal care margins to be in a normal environment. And, you know, they can easily get there soon, and, you know, we would expect that. So, yeah, very confident on life sciences, but very difficult to predict on personal care and performance technologies in the second half. But, you know, consumer markets will probably move ahead of – will rebound quicker than the industrial ones.

That's very helpful, guys. Thank you very much.

Our next question comes from Matthew Yates from Bank of America. Matthew, your line's open. Please go ahead.

Hey, good morning, gents. Just a couple of questions, please. The first one on the biosefactant plant, which I guess continues to disappoint, and I appreciate it. I don't think any of us could have seen a collapse in ethanol availability. But of the 10 million additional feedstock cost you're highlighting, do you think you can recover any of that through passing through price increases to customers? That's the first question. The second question is around what you talked about, the presentation and using these digital tools to interact with customers. Just how good a substitute are you finding that virtual offering to the physical working with customers on new product development? And do you think that's going to have any impact on your MPP product development over the coming quarters? Thanks.

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

Our next question comes from Andrew Stott from UBS. Andrew, your line's open. Please go ahead.

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

All the questions, Andrew. When you say a layman, I think we're both the same, but I'll try and answer that. But, yeah, I mean, the last question first. I mean, we expect to close in quarter three. So let's assume if we own it for four months, there should be 3% to 4% growth to life sciences this year. So we start with that. I think, secondly, your point, I mean, what we're excited about is, you know, I'm excited about drug delivery, and you know that, but I'm more excited about the depth of knowledge that we can create in drug delivery. You know, personal care is brilliant for CRODA because it has great, great knowledge, and we're developing that in performance technologies, too. Here, we're buying great knowledge. You know, you've got 150 people, 100-plus scientists. A lot of them PhDs as well. The previous chief exec would have a field day talking about propeller heads. But brilliant R&D, and they have a deep pharmaceutical expertise, particularly in drug delivery. And they've got 3,000 customers, but they've got a lot of academic partnerships which we can leverage that. But their competence is R&D, not operations. What they do is they're good at first-phase scale of the farm projects, but then what tends to happen is that that's farmed out to bigger contract manufacturers, and then they lose quite a lot of value with that. Well, Crota can do quite a lot of scale-up in our sites, and we've got multiple sites that could scale this up, their projects. So the technology, lipid nanoparticle technology is what it is. It's liposomes. And more and more of the next generation drugs, whether it's cancer drugs, oncology drugs, or vaccines, are using this type of technology. And what it does is its primary use is encapsulation. It encapsulates the active and it delivers it into a cell. So it opens the door of a cell effectively. And that's what it does. And it does it very differently to specialty excipients. So the example I used in the presentation was messenger RNA. That's a good example where it delivers, it encapsulates around the RNA. The RNA can't go into a cell directly, but what it can do through an encapsulation route, through lipid nanoparticles, it can deliver that into the cell. It opens the door of the cell. So that's really important, we would say. So that's the type of technology. But the next generation cancer drugs and oncology drugs are moving that way. And it's all about boosting the immune system as well. So the immunology, it's called, and a lot of new... new development in pharmaceuticals is about boosting immune systems. And they have very sophisticated technologies to do that. So that's that. On the ERNA, I mean, the way we looked at an ERNA, we appreciate that's unusual. You certainly don't see that in the chemical industry. It's a significant earn-out. I mean, how we looked at it is we paid $185 million for the business, the base business. We wanted to detach the opportunities from the base business. And the base business was growing – effectively, it's growing at double digits. So we didn't want to pay for potential future projects that didn't pay out, just in the base value. So we did that. And then what we've looked at with them is – Like in any pharmaceutical company, they have bigger projects that they're working on. We always have them as well. But a lot of them never get commercialized. Some of them potentially do. And what you're trying to do then is agree a sort of an earn-out effectively that captures the benefit for both parties if it's material, if things take off. So we wanted to detach that away from the... The base business, so we're not paying for any of our shelves. We want us to pay for potential business rather than the real business and the base business. But, Jez, anything else on earn-out?

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

Can I just check, is it a revenue earn-out or an EBITDA earn-out?

Yeah, it's revenue. It's a revenue earn-out, but it's – yeah, it's – we don't need to take you through the detail, but it's the – and you don't really need to know the proportions, but it's revenue-based, but it's – I mean, these are, you know, very high margins. So, you know, the revenue-based is significant. A large part of the revenue is likely to be the profits. So it's – but it's – technically, it's a revenue-based –

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

Just to put it this way, we would be delighted to pay the full earn out. I mean, you know, on behalf of the company because the company would generate a lot more profit generation than that earner. So, you know, obviously it goes without saying that. But, yeah, so it's great. Some of the projects that we're sitting on are potentially very significant, but, you know, we know a lot of them never get to market. You know, that's the issue with these things. So they're quite binary, I call them. The earner is there just to cover that. So they've worked hard with these projects for quite a few years, and there's a contribution of the profit that effectively goes to them if they do come good.

Thank you. And sorry, just to follow up, the group capex for 2020, do we just take 50 and double it? And then also any thoughts on 21st?

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

Okay, thanks, Jess, and thanks to you. Yeah, thanks. Thanks, Andrew.

Our next question comes from Chetan Udashi from J.P. Morgan. Chetan, your line's open. Please go ahead.

Yeah, hi. Thanks. You know, a couple of questions, maybe one for Jess. Just looking at the depreciation in first half, there wasn't a major material swing. I think at the full year results, you were talking about maybe including biosafactant plant and increase of maybe 12, 13 million pounds. So can you help us understand if that is going to come primarily in second half or has something changed in terms of numbers for full year? And maybe one for Steve, I appreciate the lack of visibility on how what is the pace of recovery in personal care, but are you seeing any of that yet in the numbers, or is it still pretty patchy to call out in terms of any noticeable signs of recovery?

Okay. Okay. Hi, Chetan. Yeah, so on depreciation, yeah, as you say, the key driver to depreciation was commissioning of the bifactant eco plant in North America. Because that came on during the first quarter, we only have one quarter of depreciation in the second quarter. The overall impact of that is around about 8 million sterling in a full year. So there's a couple of million in the first half, and there'll be a couple of million more in the second half because of having two quarters of depreciation. Okay.

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

Thank you.

Our next question comes from Kevin Fogarty from NUMES. Kevin, your line's open. Please go ahead.

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

Yeah, okay. Well, let me – let Jez do performance technologies. I'd just like to comment on working capital and the benefits. Okay. Hi, Kevin.

So, yeah, I think, first of all, probably about half of the plants that we have are shared across the sectors. So, clearly, one of the issues you have when volumes are dropping in two of the three sectors is – it's a better operating leverage position when you've got some sectors rising, as we normally do, while other sectors are falling. So clearly you have a bigger impact on operating leverage when several businesses are going down at the same time, as we've seen during the COVID situation. But overall, in terms of operating leverage, yes, it is a more operating lever business. But the other thing we saw was we did see – impact just on production from a couple of the European plants where we had shutdowns going on and also from the Indian plant which is quite a main performance technology producer and India is the one place, the one site where we've had significant restrictions on our ability to produce volume to ship it in India and outside of India. And the only products we've really been able to allow to produce in India for at least a couple of months now has been life science products because they're sort of on a list that you're allowed to make. So you've had a sort of double, well, triple whammy probably. You've had the operating gearing effect. You've had the fact that other businesses are not picking up the slack in volume and therefore carrying more of a cost. and you've got the specifics around the European and India sites. So I think it's an extreme position on that, but not generally a sign of how much gearing effect we would expect to see in that business.

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

Great. That's really helpful. Thank you very much. Thank you.

Our next question comes from . Is your lines open? Please go ahead.

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

Okay, I mean, personal care, best to look at a trend of, we would say, May, June, July, and that's pretty stable. So it's weak but broadly flat, we would say, and it's patchy everywhere and it's all correlated with the lockdown. So we'll be watching that closely as things develop. In terms of life sciences, I mean, you know, the margin improvement is great and that will continue, I have no doubt. And the Avanti acquisition is very high margins as well. So, you know, the growth that we've got in the core platforms, which are things like, you know, lipid nanoparticles, the vaccine adjuvants from biosector and specialty excipients, they are the major drivers and they're at the higher margin. So we would expect... you know, continued margin progression now, let's call it that. And, you know, we've always said we want to get to 33%, 35% margins like personal care, and there's no reason why they can't. And who knows, you know, getting beyond that is something that's certainly achievable too. So,

So I would say that on those two raw materials, Jez? Yeah, I mean, we saw the picture as broadly flat. Obviously, we're buying primarily naturals, you know, commodity-grown raw materials. So overall, the basket has been pretty flat. It's subject to a lot less damage. and volatility overall than you would see in a more petrochemical-centered basket. So, yeah, overall, with the increase around bioethanol and some decreases in other areas, I would say, you know, pretty benign from raw materials as we've seen for a number of years now. I think on a life science margin, we might get a small bit of initial dilution on Avante just because it's at a very good margin, but probably 25% to 30% EBITDA type level. So it will be quite small dilution, but again, opportunity-wise, we certainly see it as a life science plus margin opportunity.

That's very helpful. Thank you so much.

Thanks, Isha.

We have a question from Adam Collins from Liberum. Adam, your line's open. Please go ahead.

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

Yeah, fine. Yeah, I'll do the first thing. Jeff can do the GP visits. He goes to the GP more than I do, so he knows these things. He's a bit older than me. The 2% thing, yeah, that's happened. I mean, you know, we took the decision. I mean, very much part of our sustainability agenda is we don't want these alkyl phenol systems in our plants or any other hazardous material of that nature or toxic substances. So they're out and they've gone out, so they're impacting and they have impacted. But that's fine, it's one of those things. But the underlying strength in the life science result in the first half has been driven by the healthcare platforms generally, and Jez talked about those in his pack, and also seed enhancement, which has been great. It's only been crop that's been down just on faith issues. But, Jess, do you want to talk about GP?

Yeah, we saw a modest impact, Adam, in the sense of, look, we're a bit removed from it, and the inventory pipeline in pharma can be anything up to 12 months. But we could see that there was clearly some impact from the reduced number of prescriptions being written and the reduction in elective surgery going on. So we could definitely see some impact of that when we look at the customer product mix. But the general feel was in the excipient side, you know, we still saw very good 11% growth, and that's across both the standard excipients and the speciality excipients. So the speciality excipients continuing to grow 10% to 30% year on year. So, you know, we didn't really see a change in that. Consumer health, yeah, we were flat to sort of plus 1% on there. So that for us picks up more sort of topical treatments, oral care, that sort of side of the business, and it's been relatively steady. So I don't think anything that we would be concerned about there. And as we said, you know, the second half, Outlook and Beyond, looks very positive on both health and crop. Did you have a second question here?

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

Well, let me start with Brexit. Jez leads the Brexit team internally, so I'll get him to comment on the details. So we've got a chemical industry group that works with government on a sort of two-weekly basis to talk about Brexit. So I'm involved in that, and other chief execs are as well for the industry there. So we're encouraged with where they are behind the scenes with the development of their discussions, let's call it that. I mean, the impact for Crota is modest. You know, we have 95%, a bit more than that now, of our sales outside of the U.K., So, you know, the impact is always likely to be too small. I think the area that we're focused on at the moment is making sure we keep the regulatory playing field the same as Europe and the UK, which is called REACH, and making sure that, you know, our European partners in CEPIC want the same thing. So we're still hoping that that will be the case, although... Who knows where that goes, but we're lobbying government very hard on that at the moment. But that's the only one for the year. That's an industry point. But, Joe, do you want to go on the detail anymore, detail on Crota?

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

Still from Yorkshire. Thanks, Adam. Thanks a lot.

Our next question comes from Martin Evans from HSBC. Martin, your line's open. Please go ahead.

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

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

Great. Thanks.

Next question comes from Tom Wiggles, Western City. Tom, your line's open. Please go ahead.

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

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

Yeah, hi Tom. From the investment side, it's a well-invested site in Alabama, and Then as it happens, we're already well into the expansion, obviously, of the main site in Pennsylvania. That's the Kroda manufacturing site. And then we have the two other sites in the UK and in Japan. And we have expansions already underway in those. So generally to just broaden the volume of the speciality excipients and drug delivery systems that we can do. So I think that's already part and parcel of our plan, and these expansions are typically between 10 and 20 million pounds sterling each. So they're quite modest in the scale of expansions and things that we can cope with in the normal program, really. And it's just about getting the capacity in place in time to meet the market growth.

Great. Thank you both. Thank you.

We have no further questions, but back to you, David.

Yeah, let me just wrap up. What I didn't do at the start, and my mistake was to welcome David Bishop to the organisation. Despite him being a Nottingham Forest fan, we think he's going to do really well for us. So you've all probably had conversations with him now, so use him like you did with Conleth, and I'm sure you'll get the responses that you want. But I think just in summary, a resilient performance. And I think more than that is we're investing in the business. We're accelerating our investment where we can. And we've got these refreshed strategic priorities, which I think are going to be very important to us over the near medium term to capture new growth. And of course, we're investing in R&D and digital, but we're investing in acquisitions as well. So we feel like we're coming out of this stronger than we were going in. And And that bodes well for certainly in the near and medium term for the group. So thanks very much for your questions, and we'll see you when we see you.