Croda International Plc

As Steve highlighted, the group delivered an excellent financial performance in the first half of the year, building on the record performance seen in 2021. Sales increased to over £1.1 billion and were up by 21% against the prior year, 18% in constant currency terms. Adjusted operating profit increased by 24% to £300 million and EBIT return on sales improved by 70 basis points and is now approaching 27%. Adjusted profit before tax rose by 26% to £289 million, and with the tax rate broadly flat against the prior year of 24%, adjusted earnings per share increased by 25% to £155. We've declared an interim dividend of £47, an increase of 8%, continuing a 30-year track record of unbroken dividend growth. Free cash flow reduced to £21 million in the period, with significant investment in working capital reflecting the strong sales growth. Turning now to the IFRS reconciliation, exceptional items and intangible amortisation totaled £13 million. We delivered a profit on divestment of the PTIC business of £361 million, and as a result, on an IFRS basis, profit before tax more than tripled to £637 million. The P-TIC divestment concluded on 30 June, so the first half year includes a full period of P-TIC, reported in the usual way as continuing operations. Turning now to the sales bridge for the first half. The chemical sector has seen significant inflation for some 18 months, which continued through the first half of 2022. We have continued to fully recover cost increases, demonstrating the strength of Kroda's business Price Mix added 22% year-on-year, of which the successful recovery of cost inflation through higher selling prices is estimated to have contributed 20% of the points. This was supported by a 2% improvement in Mix. Volume declined by 5% year-on-year. The first half of last year had been characterised by strong consumer demand, coupled with significant customer restocking. not wanting to be short of product as the post-COVID recovery took off, combined with the uncertainties around global supply chains and rising supply prices. As a result, we were serving the high demand last year from both production and existing stocks. The first half of 2022 has seen supply chains and service levels improve, with the result that customer ordering patterns have been normalised. Nevertheless, consumer demand has remained strong and our capacity does remain tight in some chemistries. As a result, we have demarketed some lower margin product. This has been reflected in the slightly lower volume, but the higher margin you see. In addition, overall acquisitions added 1% and currency translation of further 3%, giving reported sales growth in the first half of 21%. I've also shown what the impact of the PTIC divestment would have been had it occurred on the 1st of January. Taking account of sales retained by CRODA and the impact of a new supply agreement to Cargill Post Divestment, revenue would have been £191 million lower. This next slide unwraps the cost inflation further. The left-hand side shows the breakdown of sales. Raw materials make up 35% of our sales value, labour 19% and energy and freight 3% each. 9% is in other costs and 31% is our EBITDA margin. Raw materials saw a 25% increase on average over the first half year compared with the final quarter of 2021. With a broad basket of raw materials, mostly grown commodities, it was unprecedented to see so many different materials increasing together. The conflict in Ukraine added further to the existing inflation. Now, we don't hedge raw material prices, but we buy on a quarterly basis, and our operating model ensures that we get successful recovery of this cost inflation as it occurs. Freight costs continue to inflate after a challenging 2021 for global distribution systems, and we're up 14% in the first half. Energy costs were up by 47%, though this benefited from a degree of forward cover, which we take on a rolling basis. Energy costs constitute a relatively small proportion of our cost base, but have been recovered through selling prices. Given our manufacturing footprint, we don't anticipate any material exposure to potential gas shortages in Europe from the current forward uncertainty, although some of our petrochemical or material suppliers may see some impact. As we look forward, we see signs of smaller price increases to many materials, but we will continue to recover inflation as and when it occurs, protecting profit in line with our operating model. Growth was strong across all regions, with double-digit percentage growth on both the reported and underlying basis, that is, excluding the impact of currency translation and M&A. Reported sales growth was particularly strong in Asia at 31%, including in China, where sales grew even in April, the worst of the COVID lockdown months. Sales in North America continued to grow strongly, and in Latin America reported sales growth of 35% was driven by excellent demand in crop care. In Europe, reported sales grew by 13%, despite a small adverse impact from the conflict in Ukraine. Sales impacted by the conflict are just 1% of the group's total revenue. Turning now to look at how the sectors performed. Consumer care grew sales by 24%, while adjusted operating profit was 34% higher. And as a result, return on sales increased 200 basis points to 26.6%. Life sciences continues to grow. Sales were up 14%, with adjusted operating profit 4% higher, against a record prior year performance that included peak COVID-19 demand. Life Sciences delivered a best-in-class return on sales of 36%. The combined performance of performance technologies and industrial chemicals saw sales grow by 24% and profit by 61%. Industrial markets reached top of the cycle during the period, with prices for commodity by-products particularly strong, delivering an overall return on sales of over 17%. Sales began to slow somewhat in the second quarter. and there was broadly similar performance between the business we divested and the partner we've retained. As already noted, at the group sales level, sales were up 21% and adjusted operating profit 24%, with return on sales at 26.6%. As in previous years, return on sales is impacted by the level of our variable remuneration charge. This particularly reflects the impact of the share price and the market-to-market value of our global employee share plans. The lower share price due across the first half year saw a benefit of 1.5 percentage points to both sector and group return on sales. So now let's look at each of the sectors in turn. Consumer care was the standout performer in the first half year. Underlying sales increased by 18%. Price mix was up 22% driven by successful cost inflation recovery. and volume was marginally lower, reflecting the strong prior-year comparator which benefited from the post-COVID resurgence in demand and the associated customer restocking that I mentioned. This combined with some selective demarketing of low-margin business to manage capacity limitations, with underlying consumer demand volume remaining robust. The prior year acquisitions of Album Muller in beauty actives and Parfix in F&F added 3% to sales growth. Currency translation also added 3%, resulting in overall reported growth for consumer care of 24%. We saw sales growth across all four business units. Beauty care was the strongest and noteworthy performance given this was the business where growth had been inconsistent back in 2018 and 2019. Consumer demand for sustainable ingredients, such as eco-suffactants, and our enhanced formulation capability for customers are driving growth and creating greater resilience. Alongside beauty care, the beauty actives business continues to strengthen with the integration of Albon Muller and complementary natural actives. Home care continues to accelerate its customer rollouts in high-value proteins for fabric care. And the F&F business saw some improved growth in emerging markets alongside good progress in synergy capture. Consumer care return on sales increased by 200 basis points to 26.6%. Following an outstanding year for life sciences in 2021, with a rapid expansion of healthcare following the Avanti acquisition and COVID vaccine sales, the first half of 2022 saw further progress, consolidating on this exceptional performance. Underlying sales growth was 12%, with price mix up 1% and volume growth of 11%. Currency translation added 2%, resulting in reported sales growth of 14%. Volume growth was driven by a standout performance in favourable market conditions for crop protection. But the lower average pricing in crop also reflects in the lower price mix for life sciences and in its slightly lower return on sales of 36%. This crop growth built on a strong second half of 2021, so the headline growth will slow in the second half this year, but the outlook remains strongly positive with high commodity prices driving great demand. Healthcare consolidated on a stellar 2021, with growth across all of its platforms other than lipid systems. Recent investment in capacity expansion in patient health drove continued growth in specialty excipients and in vaccine adjuvants. We're starting to see lower demand for lipid systems, as COVID vaccine use declines from its peak. 2021 saw total lipid system sales of about $230 million, of which 190 was for COVID-related vaccines and the balance, the Avanti R&D lipids business. The first half of 2022 saw $90 million of total lipid system sales. Looking forward, we expect a further second half decline to give full-year sales this year around $150 million, within $120 million in each of 23 and 24, as COVID demand stabilises at this lower level. After this, total lipid sales should return to growth from 2025, as clinical opportunities in mRNA and nucleic acids develop and convert into commercial-scale projects, leveraging Croda's wider scale-up capability and Avanti's great pharma R&D access. It's important to remember that this was our rationale for acquiring Avanti, to develop this new patient healthcare delivery platform in exciting new technologies. But it's also good to be approaching the bottom of the curve from the initial COVID sales, and important, I think, to see the profit growth we'll still be delivering in 2022, despite an $80 million decline in total of its sales. We're building a strong foundation for in drug delivery, which will deliver exciting growth in the future. And Steve will share some of the exciting pipeline programs later. In PTIC, first half performance was strong, with underlying sales growth of 22%. Price mix increased by 32%, reflecting the most significant cost inflation seen across the group, but volume declined by 10% against a strong comparator, and as industrial markets peaked in the second quarter. On the 30th of June, we completed the principal PTIC divestment with gross proceeds of €775 million, with a potential subsequent sale of CIPO in China subject to reaching an agreement with our local partner. The retained business will now form the new industrial specialty sector and play a critical role supporting the efficiency of the consumer care and the life science sectors on common manufacturing sites. In the first half, the combined PTIC business delivered 343 million of sales and 61 million of operating profit. Had we made the divestment on the 1st of January, the impact on the group overall would have been to reduce sales by 191 million and adjusted operating profit by 39 million pounds, as shown in the table. This includes sales from a new supply agreement with Cargill and the impact of stranded costs across all three sectors, which we expect to mitigate over time through future growth. Going forward, we expect the industrial specialties business to operate with a return on sales at or just above 10%. Now turning to cash flow, EBITDA grew strongly. Working capital increased by £184 million, primarily reflecting the impact of inflation on inventory value and receivables. The bar chart shows that about two-thirds of the working capital increase reflects the simple pro-rata impact of inflation, a constant day's cover. One third reflected investment for growth, primarily into higher receivables. We expect working capital to reduce in the second half of the year, particularly if raw material inflation starts to recede as expected. Net proceeds from the divestment were £613 million, reducing half year net debt to £331 million, a leverage ratio of 0.69 EBITDA. This next slide shows how we intend to use those proceeds. Capital allocation policy remains unchanged and the divestment will allow us to deploy more capital in line with this policy to support expansion in higher growth, higher return in consumer care and life science markets. We have a rich seam of growth opportunities and will prioritise organic capital expenditure to drive value creation through new capacity, product innovation and expansion in attractive geographic markets. This will be complemented with targeted acquisitions in technology adjacencies, in line with our preferred approach to buy and build. This is demonstrated by our recent investments in patient health, where we have secured new technology platforms, like vaccine adjuvants in Denmark and lipid systems in the US, through modest acquisition spends, and then built for a global scale through organic investment. Our typical capital investment spend is going to be around 6% of annual sales, or just over £100 million currently. We believe this is sufficient to maintain our asset base and deliver target organic growth rates. In addition, we're investing £160 million over four years to access fast growth and farm-out opportunities, which Steve will cover shortly. We're also committed to pay a regular dividend to shareholders with the 8% increase that I mentioned earlier. And in addition, we monitor leverage against our target policy of one to two times EBITDA, returning surplus capital to shareholders when identified.

I'll now hand you back to Steve to look at our strategic opportunities.

Many thanks, Jez. And for the first time in our history, Kroda is now solely comprised of eight growth businesses supported by industrial specialties. We expect each of them to deliver sales growth of at least one and a half times GDP, with return on sales above 20% and ROIC over two times the cost of capital. Ten years ago, you would be investing in our business, one business, and it was called Actives. Now you can take your pick. You might choose to invest in us because of our personal care, our F&F business, or even our crop franchise. Or maybe you invest in Crota because of the emerging healthcare platforms that we've got. There is a much broader breadth and depth to our growth than in the past. We also no longer have exposure to industrial markets to worry about, and the portfolio has rich innovation in each area. So this increased focus makes our future growth much more resilient, even in a more uncertain environment. So in consumer care, Beauty Access is still the leading innovator in the skincare market, with a strong position with Prestige and Mastige brands. Beauty Care is a stronger, broader business with multiple revenue streams, and growth is being driven by a structural shift in behaviour by customers and consumers towards sustainable ingredients. F&F has significant exposure to fast growth markets, underpinned by a highly flexible and responsive business model. And whilst home care is concentrated on fast growing niches, that should be broadly unaffected by the macro. So consumer care has a much broader portfolio today than we had two years ago. Turning to life sciences, we expect all the businesses to be pretty immune to any deterioration in the macro environment. People don't compromise on health and farmers continue to look for ways to protect their crops and get more output from their land. As consumers think more and more about their impact on the wider environment, our customers want us to deliver novel, sustainable ingredients, and this has become a real differentiator for us. We're leading in four areas. Firstly, our target is for the raw materials that we use to be 75% bio-based by 2030, and by continuing to move away from petrochemicals, we're helping our customers to meet their own commitments to fossil-free formulations. Secondly, by ensuring that our raw material sourcing has a positive impact on communities in our supply chain, giving our customers an even stronger platform from which to market purpose-driven brands. And thirdly, by decarbonizing our operations and supply chain to meet our 1.5 degrees science-based target. We expect to reduce our product carbon footprint by 35% and we're developing a scope three index so our customers can see how our actions are benefiting them. And fourthly, with R&D projects that help to transition our portfolio and enable our customers to meet their own sustainability goals. We're combining leadership on sustainability with market-leading innovation to deliver sustainable growth. Our focus is on niche areas developing next-generation products. R&D is driving growth in our beauty actives business. Recent launches have included an innovative retinol and anti-aging active. By encapsulating the active, We've improved skin penetration by more than nine times, creating the most sustainable retinol-containing complex on the market. Beauty care is delivering more consistent top-line growth, particularly in the higher-value sun and hair care markets. Sales of eco-biobase surfactants continue to accelerate, and both in beauty care and home care, where they have doubled in the past first half year. And in F&F, we have launched encapsulated fragrances, one of the first on the market, and expanded our presence in Indonesia and South Africa, as well as launching in Brazil. Innovation, as you all know, is crud as light blood and the bedrock of our future growth. We continue to make significant investments in R&D and are taking bigger bets with more ambitious projects. Our pipeline is being strengthened by our biotech investments, such as Nautilus expertise in blue or marine biotech, and we're using microorganisms found on the ocean floor to find new ways of treating dandruff, skin ageing and inflammation. Our new biotech-derived surfactants have expanded the options available to customers. They're helping to increase our bio-based portfolio and meet our ambition to eliminate petrochemical-derived surfactants globally by 2030. And biotechnology is opening up new approaches to making fragrance ingredients one of the ways in which we're making our F&F portfolio more sustainable. Investments in organic expansion. form part of the redeployment of capital from the P-TIC divestment into innovative, fast growth markets. We're growing our IP with more specialist scientists coming into the business. And we're expanding sustainable technologies, building on growth in areas like sulfate-free surfactants and ingredients that double the life of fabrics. And we're also increasing geographic coverage, particularly in China. So these investments are delivering results and strengthening our platform for growth for the future. The vast breadth of the consumer care portfolio is at an all-time high. Tens of thousands of products focused on fast growth, high value markets. And our pipeline is getting stronger, responding to both current and future trends, creating next generation technology replacing petrochemical formulations along the way. We're winning by focusing on premium, share, agility and fast growing and sustainability driven niches. So consumer care has developed very significantly to become an even more resilient growth platform, underpinned by a strong pipeline and focused investment. Turning to life sciences then. Growth is being driven by demand for high-value delivery systems to enable the latest biological drugs. Biologics is a huge market, accounting for 70% of the top 20 selling drugs, enabling doctors to treat diseases when they could previously only treat the symptoms. So going across the three areas that you will be familiar with, growth in excipients is being driven by expansion in injectable drugs using biological APIs, such as monoclonal antibodies with 5,000 clinical trials currently underway. Adjuvant demand is being driven by new vaccines, greater adjuvants used to enhance the body's reaction to vaccine protection and WHO programmes to expand vaccine take-up in developing countries. So vaccines are also increasingly being used to trigger an immune response to an already contracted disease, to treat HIV for example. There are 1,500 clinical trials for these therapeutic vaccines underway globally. And whilst lipid systems have played a critical role in COVID vaccines, they offer significant potential beyond COVID-19 as the preferred delivery system for nucleic acid therapeutics. The mRNA market is expected to reach $35 billion over the next 15 years, and 180 clinical trials are already underway for applications across preventative and therapeutic vaccines and therapeutic drugs. So biologics also has the potential to revolutionise crop science with our innovative delivery systems. Crota is well positioned to benefit from the move into biopesticides, which are growing at twice the rate of traditional crop care. Our biopharma pipeline is very exciting indeed. We're partnering with major pharma brands to provide specialty excipients for monoclonal antibodies. Applications range from oncology to combating macular degeneration, a condition that affects people's vision. And with the only aseptic manufacturing site for vaccine adjuvants globally, we are the gold standard for aluminium adjuvants used in a third of preventative vaccines. So we have a strong sales pipeline across a variety of vaccines, including flu, pneumonia, shingles and HIV. And therapeutic vaccines promise even faster growth rates, enabling the treatment of diseases such as HIV with a new vaccine that is in Phase 3 trials in Africa. And our lipid systems are being used in preventative vaccines for flu and RSV, a common virus seen in schools during the winter, and in therapeutic vaccines for cancer. All of this highlights how we're involved in helping to treat some of the biggest diseases in the world, creating more and more opportunities for Crodo. And similar to consumer care, our innovation pipeline in life sciences is extremely strong. Here are some examples of applications that use our current generation delivery systems, but illustrate, more importantly, the focus of our future innovation. The first one uses one of our specialist high purity excipients, which has been developed for APIs that require superior solubility performance. They will help enable diabetics, for example, to take insulin orally rather than by injection. And this project is currently in phase three clinical trials in the US. Our vaccine adjuvants are being used in a novel personalised immunotherapy for the treatment of patients with melanoma, lung cancer and bladder cancer as well. So phase two clinical trials are underway in Denmark at the moment. And most exciting of all, our lipid systems are being used by customers which recently completed the world's first dosing of a patient with a gene editing therapy and as part of a clinical trial for the treatment of heart disease. We are truly applying our purpose of smart science to improve lives in all of these opportunities. And again, we're driving growth through focused investment. And as Jez said earlier, Our preferred approach here is to adopt a buy and build model, securing new technology platforms and know-how through modest acquisition spends, then building site expansion from within. We have already double capacity at our specialty excipients plant in Pennsylvania and are rapidly expanding our adjuvant systems factory in Denmark. Our priority here is continuing to build our knowledge base in lipid systems too, so we are investing in our R&D and preclinical capabilities at Avanti, and in a second scale-up site in Pennsylvania to augment current commercial scale-up capacity at Leek in the UK. Between 2021 and 2024, we will invest up to £160 million in new capacity to deliver on the exciting pharmaceutical platform we're building. Complementing our own investment, the US and UK governments are co-investing up to £75 million too, recognising the importance of new generation delivery systems to discovery. These are already some of the highest returning investments in our portfolio, and the expansion will drive accelerated growth. We're going to go into a lot more detail at our investor day in October, but our pipeline in biopharma will be a significant growth engine for CRODA, and it's getting bigger. In the first half, we secured 30 new customers and 18 new clinical and preclinical programs, bringing the total to 330. More than three quarters of these programs are for non-COVID-19 applications, up from two thirds just six months ago. And the pie chart in the middle shows the proportion by each product class. So monoclonal antibody and oncology programs make up the majority of our specialty excipient pipeline, as well as immunosuppressants. In vaccine adjuvants, in addition to our continued focus on fighting against WHO-listed diseases, immunotherapy applications, such as the personalised cancer treatment I mentioned earlier, are becoming increasingly important. And in lipid systems, all of the new programmes in the first half were for non-COVID applications. In this business, we're now involved in more oncology and gene editing trials than we are for COVID. And new mRNA vaccines beyond COVID are a particular area of focus. So finally, coming to outlook then, with stronger profits than anticipated in the first half, full-year profit before tax will be modestly ahead of our previous expectations. And that is despite growth moderating in consumer markets in the second half and full-year lipid sales reducing to $150 million versus $230 million last year. Our improved overall outlook reflects the things I've talked about today, a more resilient growth platform in consumer care ongoing demand in CROP and continued overall growth in healthcare. So in summary, CROP's powerful operating model, its increased focus, the greater innovation and exciting pipeline underpin our resilience, ensuring we're even better equipped for future growth. Now, Jez and I are very happy to take your questions.

So over to you.

We'll now move on to the Q&A section of the event. As a reminder, if you're on the webcast, please type your question into the relevant box and I'll read it on your behalf. For analysts on Zoom, please raise the use hands function. You'll then be invited to unmute your audio and video, if applicable. Introduce yourself and your institution, then go ahead and ask your question. The first question over the webcast comes from Gareth Hayward, who asks what businesses are now in industrial specialties and what's going so right at Cropcare?

Oh, hi, Gareth. Morning to you as well. We were just talking about Nottingham Forest earlier, by the way. David's team just got promoted. But anyway, back to back to business. Um, yeah, I mean, so industrial specialties is still a significant business for Kroda. I mean, we've reduced our industrial portfolio in that, uh, the, the small businesses, which are in the core sites that we couldn't, they're either product streams rather than wider businesses that we couldn't really, um, sell as part of the, uh, the cargo deal. So it's things like water treatment, uh, Fabric and fiber protection. There's a bit of electronics in there. There's a bit of emulsion dispersions in there. And then, of course, on top of that is there's a supply agreement with Cargill, which is our big customer. So we've got transitional service agreements with them, but we will be supplying them. you know, on a long-term basis. So all of that in the round is in there. I mean, in terms of crop, I mean, crops had an outstanding year. I mean, there's three things in the, in the crop results. Um, you know, you've got this big macro positive, which I think you all know about, you know, these big crop prices are higher for longer and the Ukraine events, unfortunately, um, you know, prolonged those, you know, when you think about it from, um, from, from, from the, um, the disaster point of view, but from a crop point of view, you know, prices are going to stay longer for a while. So you've clearly got a helping hand in the macro. You've also got two other things. There's a big move to sustainability. It's not just in home care and beauty care. It's in crop. And we're partnering up probably more so now than we've ever done with the big crop players. So that's gaining more traction, more business. And I think the other thing is the innovation. You know, we've got world-class platforms in there. You tend to think about us in terms of beauty care. and uh and actives and farmer but the crop um innovation platform is um is great so you got those three things together that's driving a really strong performance in crop i think our view on crop generally is that that will continue well into next year as well so um you know clearly there's some tougher comparators in the second half but we're expecting the dynamics of crop to remain positive like that for uh quite some time to come thanks steve

We'll now move on to analysts, starting, I think, with Matthew Yates. Just on mute there, I think, Matt. Yeah, still, we'll have to come back to you. Can we go to the next analyst, please? We're not getting any audio in the room at the moment. Yes, if you can hear me, I can.

Yes, we can hear you now, Gunther. Please introduce yourself and go ahead and ask the question.

Sorry to jump you, Matthew. I hope you get to go next. So I'll start with two then. Firstly, Steve, Jess, on the LNP business, sorry to start on that point, but it seems that the visibility of LNP the business you have there has improved significantly with a forecast to giving out or the projections are giving out to 2025. So my question is what has structurally or contractually changed in that business? I think Pfizer was more a quarterly rolling visibility. So that seems to be quite a step function to the better. That's the first one. The second one is, like all of us, I'm elated that we only have to deal with earnings twice a year now and not with Q1 and Q3. I'm sure a lot of my sales side colleagues share that feeling. But can you give us an indication of the volume decline in the second quarter versus Q1 and the exit run rate out of the second quarter? And if there's any differences by business, then that would be helpful as well. Thank you.

Yeah, thanks, Gunther. Somebody beat you to it for the first question. That's unusual, isn't it? Yeah, I mean, just on the LNP, I mean, you know, the way we look at that is we've done a lot of work since we last spoke with you on the pipeline. I think that's the important point. So you'll hear a lot more about that, the innovation pipeline. We've got a sales pipeline and an innovation one. So, you know, we're mapping every project to... to our risk-weighted approach and average in terms of the size of that pipeline. And we can monitor that more closely. So again, you're going to hear a lot more about that in early October. I think there's two or three things in this. Clearly, there's the moderation that we would expect and you would all expect from the vaccine rollout to be more getting into what I'd call a natural rhythm. And we feel like with our partner there and others that we can call that more sensibly now than we've had in the past. And that we're now in a natural relationship with them where, you know, the first year we were chasing our tail, as were they, just to get product to market. Now they're in a good position where they've got stock on the ground and we have as well. So we're in a normal rhythm to that relationship. So I think it's easier to call the future than it was six, 12 months ago, although there's still a bit of risk involved in that upside as well as potentially downside, but it's much, It's much more certain now than it was probably about six, 12 months ago. So I think it gives us more confidence. The other thing to point out, though, is this 120 in 2023, more than half of that revenue will be in non-COVID projects. And in 2024, more than two-thirds of those projects in Sales Valley will be non-COVID. So You know, I think the point we're trying to make is it's the innovation pipeline that we're mapping that's driving that assurance and confidence in those numbers in the next two or three years. But, you know, as we've always said, by 2024, 2025, you know, the large portion of this is going to be non-COVID related. And we're supporting, you know, a huge stream, as you can see with some of the examples of treatments, you know, from lung cancer to bladder cancer, from heart health to diabetes. from RSV to HIV, you know, lots of different treatments. So, you know, there's not one project in here. There's several projects. And that's really the importance. And the point we're trying to make is, you know, the assurance is not coming. It's coming more from the innovation pipeline. I mean, in terms of volumes, I'll kick off and then I'll get Jez to comment on that. I mean, you can see in the, you know, we've had a bigger deviation in industrial than we've had in life sciences. I think that's fair to say. And then somewhere in the middle is consumer care. If you look at consumer care, sort of this minus 5% in the first half, when you look at that, there's three moving parts in that. Life sciences is positive, and that's largely crop driving that. But, you know, we're talking about micro volumes, particularly in pharma. So, you know, the volume end is more the crop end plus the consumer care. So the minus 5% in consumer care effectively is three different things. If you remember last year, particularly in the first half quarter too, there was a big surge in demand plus real demand plus restocking. So the comparator last year, it was tough because of that restocking of the pipeline. That was one thing. And then the second thing is we haven't supplied everything we wanted. You know, we've still got some supply constraints. So Outstanding orders are still in a higher position now than they normally would. And we've got one or two raw material constraints in home care and just supply issues generally in beauty care, particularly that's not allowing us to satisfy all the demand. That's second. And then the third thing is this demarketing point. You know, Crota is very good at demarketing. And when capacity is tight, we tend to demarket at the lower end, which tends to be the more volume end. So actually, when you look at that in the round, we think the true volume decline in consumer care is about one, minus one, minus 2% in the round on an ongoing basis. And, you know, when you see the inflation in the business and the 20%, in price in the mix, you know, a negative one, 2% on volume we think is, is, is perfectly acceptable given where we are. And as you can see profit growth ahead of value growth. So, you know, we're in a good, we're in a good shape there. So, um, that was, uh, that's the response to that.

Great. Thanks. That's good to, uh, I suggest we try Matthew again, please. Matthew, go ahead and ask your question.

Sorry, still no audio. Apologies, Matt. We're going to have to move on.

Matt, if you can send an email to David, just with your details. So the question, we'll read it out and we'll try and answer it for you.

Let's move to the next analyst, please. Hello, can you hear me now? It's Charlie with Morgan Stanley. Hi, Charlie. Morning to you.

Brilliant. Well, I'm just going to maybe follow up firstly on Gunter's question just around demand. So just thinking personal care, that underlying small negative you saw in the first half. How do you think about the second half? Obviously, raw material inflation presumably is slowing. So the price component will be a little bit less in the second half. Presumably, demarketing doesn't carry on forever. So, and the comps I said are easier, right? So just how do you see the organic profile of consumer care in the second half? That'd be the first question. And then just second question around the leverage position, obviously ending the year, ending the year, ending the half, 0.6 times net debt to EBITDA. You talked about wanting to reinvest that in growth, you know, you see lots of exciting opportunities organically. But how does the inorganic opportunities look at this stage? You know, where is that focused? You know, are there opportunities out there that you think are exciting? And maybe just any additional colour around that would be very helpful.

Yeah, great. I think in consumer care, I mean, the way we look at that is, yeah, we're still very upbeat about consumer care. I mean, you know, L'Oreal being out today or last night and today as well. And, you know, our view has always been quite similar to them. You know, we've had two years of a pandemic. And let's not forget, there's large parts of the world that are just coming out of the pandemic now. And, you know, we start to see this resurgence in Asia, second quarter versus first quarter, because of the unlocking of restrictions, still not fully there, as you read across to China there. So, you know, there's this There's this pent-up demand to socialize through travel, through just going out with friends. So that all helps to drive personal care. There's an indulgence in personal care that we haven't seen for two years, and we expect that to continue. So, you know, the appetite to purchase personal care products in the industry has never been stronger. And I don't think... you know, in a recessionary environment is going to significantly slow that down. Clearly, there's going to be areas around the edges that will moderate. I think they always do. But we're not expecting in our forecast for a real cliff edge volume reduction in personal care. We expect it to sort of cool off a little bit. You know, we're going to get to sort of stock levels that you'd expect and demand may moderate a little bit, but we're not forecasting a sort of... you know, a cliff edge volume decline on the back of that. And we'll manage that in the normal way. And as you saw, I think if people saw Crudas figures in the pandemic, you know, the harshest probably trading environment we're ever likely to see, I think, you know, the personal care business stood up very strongly to that. So I think we're optimistic. Innovation pipelines are strong. You know, the more important thing for the group is making sure that those innovation projects move with pace so our customers don't, don't reduce their investments in the innovation projects through any uncertain environment or recessionary environment. And there's still a lot of pent-up demand there as well. So, yeah, I mean, we're cautious with the second half in our numbers. We expect, you know, some moderation, but not massive in terms of that. And in terms of your leverage point, clearly we'd like to put that to use, the proceeds. We're in a brilliant position. You know, we've got strong... strong trading. We've got a strong balance sheet. We've got plenty of optionality there. And we'll take our time. We're in no rush. But we've appointed chief scouts in both of our big businesses. And they are some of our best business developers in the company. We're not after particularly, we're after target technologies rather than target customers. But the target technology leads us to that customer. So we know what we're looking for. And our lists are probably very different to virtually everybody out there. So we have to be patient with them. They're not long lists, but they're interesting lists. And, you know, I think I've always said, you know, when you come into a recession, you come out of a recession, there's always great opportunities. And Kroda, you know, I've lived through five recessions in 20 years in Kroda. And the opportunities when you come out of a harsh training environment, like what we have done, there's normally more opportunities than you think. So let's just be there. So we're flexible, we're open, but we're, We're very sensible with our money. So we don't feel like there's a burning need to deploy it with speed. We'll do it in the right way.

That's really helpful. And just, just maybe following up on that point around, uh, raw material inflation, the second half versus the first half, obviously saw a lot of inflation in the first half. How do you see that in the second half? Um, and what kind of, you know, reciprocal pricing will you do? Would you expect to see to offset any residual inflation?

Yeah, I think, yeah. I mean, I think our, our, our view is, um, it's probably about 2% in quarter three versus quarter two. You know, there's a mix, it's a mixed bag still out there, but, um, extra two percent increase we're forecasting in um in quarter three um so we think it's peaking you know we expect it to peak in the second half of the year raw material pricing um you know and that's a significant part of uh everybody's inflation environment so um we would expect that to moderate and and therefore the need for further increases is very much more targeted now on individual products rather than sort of across the board so we're not expecting to put full scale you know, across the board increases through because we, you know, as I said, we're expecting raw materials are sort of plateauing now. But Jez, any additional point?

I think that's fair. I think, yeah, so raw materials probably somewhere in that 2% to 5% region, maybe sales price nearer the 2%. But, you know, we did call it out in March and we sort of got it wrong then because of Ukraine. But it certainly feels after six quarters, seven quarters now of some increases that we're getting to the end of that period and that we should start to see commodities generally coming off, obviously, particularly given that we see a little bit of softening on the more industrial side of markets. So that should be helpful. Fantastic, thank you very much.

Thanks, Charlie. Thanks, Charlie. That's two questions here from Matthew Yates of Bama, one of which is a follow on to Charlie's question. Jess mentioned that there might be some working capital release in H2 if raw materials fall. From a profitability perspective, when you have that sort of cost deflation, would you be passing it all on to customers or would you plan to keep some of the savings and drive up your own profitability, particularly in consumer care? And then Matthew's second question is in relation to healthcare. Steve, you kindly gave the number of 330 projects in the healthcare pipeline. but I've no idea what to do with that in terms of translating it into financials. I'm sure there must be a huge variation in project value and likelihood of making it through to clinical trials. So at the risk of front running your planned seminar after the summer, is it reasonable to think this business is running a bit ahead or substantially ahead of the targets you first outlined in 2019? And that's reflected in the sustained high level of capex to support that growth. So perhaps turning to raw materials, first of all.

Yeah, well, we'll both answer that. I mean, the first bit commercially, I'll let Jez talk about working capital and wind and things like that. I mean, we're not forecasting in the model a massive deterioration in raw materials very quickly. So the issue with raw materials, I think they'll plateau. If they did come crashing down, which we're not expecting, then we will, of course, pass some of those reductions back. But what you tend to find in our model is in rapid raw material deterioration, Inflation or deflation, we tend to hold on to a bit more margin at the edges because we're up quickly to pass prices through, as we've demonstrated in the first half. There's no lag there from us. And when we come down, we'll just be a bit slower to pass the increases on. But we will pass a significant amount of those on. So net-net, it's sort of a slightly margin improvement story for the group. The working capital is slightly different.

Yeah, I mean, from the working capital point of view, I mean, clearly we've seen very sustained increases in working capital over the last 18 months, almost exclusively reflecting the higher values of inventory and of receivables in there. And so, you know, certainly given our sort of view that we should be seeing a more stable period, at least on raw material inflation, than we'd expect to see today. yes, a stabilisation of working capital. And then obviously if we see prices coming down later in the year, then that will be reflected in working capital. But I think we're probably through that peak in working capital in the same way that we're probably through the peak in raw materials at the moment. But we keep the number of days constant and just manage our business. We've probably added a couple of weeks of inventory over the last 18 months because of supply chain disruption, particularly caused by global distribution. So we'll keep that in as a buffer to protect service. But the great thing has been to see that service has been improving steadily through the first half year. So we don't really need to do any more of that at this point.

Yeah. Just on your healthcare point. I mean, yeah, I mean, you know, you make a good point and, you know, $64 million questions. What does it all mean? You know, we, we didn't want to give you too much information today because we've got capital markets day in early October. And as I said, the feature of that will be, it'll be exclusively the pharma, the pharma business of Kroda. new team and fresh information. But a lot of that will be around bringing to life the innovation pipeline as we know it. And we're very reluctant to go out too early with numbers that might overexcite people. We've got to make sure ourselves, as you say, they're all in different stages of clinical programs. Some are much bigger than others, but in the round, you know, the fact it's a sheer breadth of the, um, of the treatments that we're, we're following and the sheer breadth of the products that we have in there, which are the really big, important things. You know, we, since we last spoke with you, we picked up another 80 programs in the first half of the year. Um, so we're now, you know, we're now at three 30, 30 customers, um, across these three new customers, uh, across these three platforms. So, you know, in the round, it's all shaping up nicely. Um, But what we need to do is try and guide you and educate you and bring to life that not just in examples, but in the framework. So I think what you're going to see in October is certainly the innovation framework and how that's linked to the wider strategy and breaking that down in the three component technology platform. So, you know, there's more about that in the future.

I think Matthew make a good point as well about the CapEx. I think that that pipeline development does give us the confidence in the CapEx. If we were critical of ourselves in the past, it would be that we're sometimes a bit slow to put the capex in. So in the case of the specialty excipients platform, we're probably surprised by the rate of growth that we saw that we covered in the 2019 Capital Markets Day and then had to put capacity in and we're probably constraining demand somewhat while we were building that capacity. We inherited the same situation with the vaccine adjuvant business in 2018 and we've been willing to put capital in to expand that because we've seen that business sort of double since we acquired at the end of 18. And so on the lipid systems platform, we want to make sure that we're fully prepared for what we see as really that market taking off commercially from 2025, notwithstanding obviously the COVID demand that there's been up to now. And that's what gives us the confidence about spending 160 million sterling of additional capex over the four years from 21 to 24.

um because we can see that pipeline coming through and we want to be able to serve those markets as the growth comes there's a follow-up question from tanike on the webcast who says is there a risk that there'll be excess capacity in three years time um yeah i don't know whether that's in relation to lipids or is that in relation to just generally for the group i think principally in relation to the healthcare and pharmaceutical capacity

Yeah, unlikely, we would say, but I mean, there may be, but let's be honest, we don't need to run our assets at 100% utilization. We're not a continuous process built company. We work in batches and it's purity and quality in pharma, which is the most important thing. So what we have to make sure of is that eventuality when some of these products hit the market and they're more significant than we expected or they're earlier than we expected, that we've got a multi-purpose um set of like a chemistry and a biochemistry set on our sites that allow us to cater for that demand and as i said the interesting thing is there's multiple products now in the pipeline there's three you're hanging around three big technology platforms so we have to be able to to have that breadth and that capacity to to cater the demand for for that so effectively um As Jez says, it's thinking about a five-year planning program that we're moving into now. We're moving from three to five-year planning. Part of that is to really imagine where this growth is going to be in three and five years' time and invest now. I think we're doing all the right thing for you and for us. In terms of the overall spend for the group, it's trivial. It's modest compared to the potential performance benefit we get with the results.

The return on capital we achieve from our organic program is the best that we can achieve. We don't have to pay away goodwill and intangibles. We can get a very strong return on capital. It's still the best place for us to deploy capital. And we're still seeing 10 to 30 percent growth in the existing two or the prior two health care platforms. And, you know, everybody knows that mRNA demand is going to really drive lipids. So, you know, that market's going to grow very rapidly.

And I think the other thing as well, just thinking about is, you know, the bigger disappointment, if we were here talking, talking to you all about, um, you know, the, the, the frustration because we've got big demand and we don't have the supply, um, you know, that would be, that, that, that would be remiss of us. So as well, so we're just trying to bake in some contingency and insurance and we might, you know, we might've got it wrong, but, um, if we've got it wrong, um, we'll still have a great return because we'll probably got it wrong on the downside. We need to invest a little bit more. So, um, yeah, we're in, um, we're in good shape. And as you say, so, um, Using that wisely is probably the best use of our capital right now. Thank you.

We're ready to take the next analyst question on Zoom, please.

Hi, good morning. Just checking you can hear me.

Yeah, hi, Charles. Younger version of Stotty, which is good.

Indeed. Morning, everyone. Thanks for the questions. Just two from me. Firstly, on life sciences, Given the commentary on the momentum in the other components of the division outside of lipids, it feels like cells in the division might be able to be held flat or even grow modestly in 2023. Is that a fair conclusion, I guess, sort of net of that 30 million drop in lipid cells you're guiding to? And then my second question is a follow-up on the leverage commentary and the inorganic opportunities. And Jez, maybe this one's for you. Is there a net cash level which would see you say, OK, it's time to return some of this to shareholders, either through buybacks or special dividends as you've done in the past? Was that not really in the thought process at all at this moment? Thank you.

Yeah. Yeah. Life sciences. I mean, yeah, the way I let Jez do the leverage, the way we should look at that is, you know, you've got the numbers now that you can program in for the lipid systems. I mean, the rest of the business we had to expect to continue to trade 7% to 10%. It's demonstrating that. Even in a harsher trading environment, we think the opportunities are still there. So when you model that in your system, I think you'll get there to a life science profitability around last year, maybe a little bit more.

Yeah, Charles, I think – You're right. I mean, we're only expecting a $30 million reduction from this year to next year on the lipid platform. I think the important thing, as Steve said in the commentary, was that we've come down $80 million year on year, and yet we've still grown the profit in service and life science and, of course, for the group overall in significant terms. So, yeah, absolutely. I think our point today is there's only another $30 million to come out of that platform, in our view, before we're normalised. And therefore, yes, definitely the life science growth in crop and the other health care platforms will more than offset that. So, yeah, I think we'll see positive growth just be constrained slightly by the lipid lipid reduction that we see in terms of return on capital. We're very disciplined in terms of the approach that we take to deploying capital. You know, we don't want to deploy capital into marginal products, projects. Uh, we want to, uh, deploy capital in projects that are at least 2 to 3 times cost of capital, you know, because that's the credit away. It's about keeping special and valuable. Not not just becoming big. We do see the additional opportunities at the moment to deploy capital organically. We're spending about 100Million. annually on capital, and then we have this 160 million program on top over four years. So this year, probably about 150 million. That was quite light in the first half, but we've got the part of government funded projects starting in the second half. I think we'll spend about 150 million organically, and that will continue through 23, 24 as we go through these health care programs. And Steve said, you know, we're looking for what are likely to be bolt on adjacent acquisitions across consumer care and life sciences. That said, we're probably still going to generate much more capital than we need. And so we'll keep that capital allocation under review. We were very clear when we did the announcement of the disposal last December. we start with where we can deploy capital. And I think investors would like us to deploy capital in high return opportunities rather than give it back. So the discipline is there, but we're not looking, you know, we're not looking at that short term, but it's very much part of our capital allocation discipline. Yeah.

Thanks very much. I appreciate not mentioning my football team.

Thanks very much. We'd embarrass everybody, Charles, wouldn't we? Thanks, Charles.

Okay, next question. Morning, Mubasher. Morning. Hopefully you can hear me. Yeah, we're fine.

Yep. Morning, guys. A couple of quick ones, please. Can you provide an update on the Iberchem side of things? How did that perform in the 1.8? And I know it's still relatively early days on the Synergy side of things, but just a couple of comments around that would be helpful. And then on the Avanti sales. So you've given the top line outlook. Is that coming in at the same profitability as it was for the last year and kind of first half? Or is it dropping in profitability as well? Just some comments around that would be helpful. And then finally, are you seeing a slowdown in, are you seeing a slowdown in July, which is driving your cautious outlook, or are you just being conservative given where the macro is and kind of taking a bit more of a cautious approach?

Yeah, a few questions in there. I do, I became, and Joe's going to do the second one, if he can remember it, and I'll do the third one. Yeah, but I mean, I became trading well and improving, you know, to quarter two, better than quarter one. And it's, you know, reported, Reported revenues are in the teens, but the organic underlying is probably like for like high single digits. So, you know, we're really pleased with that. Good shape to the growth. And they've been trading in a difficult environment as well, as you know, with raw material prices at sort of 10-year highs. So, you know, we've been pleased there. I mean, we're continuing to invest. So, you know, we've started this energy capture, as everybody knows, and we're investing in Brazil, South Africa, Indonesia. And, you know, as each three months, six months goes by, you know, it's getting a more integrated part of CRODA in our thinking. So, you know, very pleased with where they are. You know, 83% of their sales, as a reminder, is in emerging countries. So, you know, once the emerging countries start to fully unwind with no lockdown restrictions, then, you know, we're pleased the headwinds, one or two of the headwinds that they've had, sort of go away. So, you know, we're pleased with that. In terms of, what was your third? I'll take your third question. July outlook. Yeah, July outlook. And I'll go back to Jess. So, yeah, I mean, we're cautious naturally, like everybody is. I think you'd be surprised if we weren't, given the noise around. But we're not really seeing the exit rates. It's best to look at it regionally rather than by sector. You know, the exit rates in quarter two are strong everywhere, with the exception of some moderation in America. um you know we've seen a couple of months of trading which is a bit softer but still positive but but softer than it was in the first four or three or four months and um so we're you know we're expecting we're you know we've we've we're trying to forecast into the second half that continued continued moderation um maybe a little bit of moderation elsewhere but you know the um you know, people forget, but, you know, people are just coming out of lockdown as well as, you know, the disposable income squeeze as well. So, you know, you've got, you've got a number of different trade-offs out there and it's very difficult to call, but our general view is one of caution for the right reasons. We don't want to get ahead of ourselves and neither do you, and you wouldn't believe us anyway. So, so I think that's, that's right. Jez, on the other one. Yeah.

Hi, Mubash. So I guess we, tend to use the sort of Avanti and Lipid Systems language a little interchangeably. So if I could just sort of start there. So the Lipid Systems platform obviously has at its heart the Avanti business that we acquired two years ago now. And then we have the second site in the UK, which is the ScaleUp site, which Kroda already owned. And then we recently announced that we're going to create another ScaleUp site, in this case, in this time in the US, partly supported by the US government. So I guess Avanti is the core of that, but it's the lipid systems platform really that we're focusing on. And within that lipid systems platform, you've probably got three components. First of all, you've got the business that has been built up over 50 years, which is the Avanti R&D business, and that's serving 3,000 customers in preclinical and clinical stages. And that's one of the excitements originally about acquiring Avanti was it gave us that access to R&D in pharma that we haven't had before through our existing pharma platforms, which tend to be late stage and commercial. So that Avanti business continues to trade really well, a $40 million business roughly when we acquired it, good profitability, and that's expanding as it expands its R&D presence. Second part of the platform is clearly the COVID piece around the principal customer contract. That profitability has come down a little bit. We indicated that the year one profitability for that contract was higher than the year two and year three profitability. But that just really reflects the fact that you get better at what you're doing, you get more efficient. So overall profitability in that contract is similar level. to where we were before. And then the third component, of course, is the pipeline of opportunities developing from the Avanti R&D engine. And we'd expect the profitability levels in that to be at least as good as what we've seen in COVID experience. So long answer to basically saying, no, the overall profitability of the lipid platform is consistent. And the profitability of that platform in the rest of health care is also quite consistent as well. So, yeah, we're not seeing significant erosion or anything like that. It's in a good place. And all of these important projects coming through for mRNA are going to keep the profitability very good in that platform.

Helpful. Thank you, guys. Thanks.

Thanks, panelists, please.

Hi, guys. Just on lipids, I understand that there's a greater proportion of non-COVID sales, but what gives you the confidence over the longer-term sales forecast, given that you've effectively just cut the H2 contribution by the best part of 50%? And a related question just on stocking, how much visibility do you have over inventory levels at Pfizer? And are we likely to see a situation where as demand comes off,

you get a destocking situation from them as well yeah i mean we've sort of tried to answer that with the uh other questions look i mean it's all around the pipeline um the innovation pipeline um you know as a reminder next year more than half of this revenue will be in pipeline projects you know non-covid projects and all of those are very you know from our point of view we can um we can forecast with quite a lot of accuracy. Clearly, they can move. And in 2023, two-thirds of these projects. So the innovation pipeline has got a lot of discipline to it, and it's mapped by individual projects. So that gives us the comfort and confidence of where we're going. So I think the point we're trying to make to your Pfizer thing is Pfizer becomes less you know, less, not less important, but it's less of the weighting of the lipid systems in 2023 and 24. It becomes, you know, well less than half and well less than, you know, round a third, potentially less than that in 2023. And a lot of that is because, 24. And a lot of that is because of, you know, that reaching a natural rhythm. I think we're not far from reaching a natural rhythm. That's why we're calling out with Pfizer the 20, 23 and 24 numbers now, because the difficulty in 2021 was because you're chasing your tail and it's going out as quickly as you're making it. And same for them. It's very difficult to sort of really guesstimate and get an accurate forecast on that. And that was Pfizer's comment. But now with this natural rhythm around the world where they've got a reasonable amount of government contracts that they have visibility on, they can work work back through that and they've got a stable stock position, then it's more forecastable in our way and in their way. So that's why we're sort of coming out with those numbers. So it's a combination of the business settling down to a natural rhythm with Pfizer and the innovation pipeline projects becoming more targeted from Crota in better understanding.

nature of those and as i said you know repeating what i've said in the past you'll you'll hear a lot more about that in early october at the capital markets day thanks guys next question please hi good afternoon thank you um i just have one please you've mentioned in the past that you would slowly phase out the pt business by growing in other areas especially live appliances How should we think of the phasing of the remaining 200 million in the next five years? And also, are you happy with Koda's size in the consolidating industry?

Yeah, I mean, I think we haven't said it's going to reduce to nothing and it won't reduce to nothing. The IS business that's still with Koda is with us because there's lots of moving parts in there and they're in core assets. Now, in terms of... This is an industrial, the industrial question. So in terms of footprint in three to five years' time, it might be a little bit smaller, but it won't be nothing. It's still an important part, well, treated as very much an important part of of Crota, and it's got good margins. You know, there's quite a number of products in there, you know, margins that wouldn't disgrace the consumer care portfolio. You know, there's some good margins in there. So our job there is to run it and run it in the right way. The point we're trying to make is with the strategic divestment, it's to allow us to use those funds to invest, you know, 100% into life sciences and consumer care to turbocharge the growth there. So we've got these eight growth businesses and all of them, Jez and myself will look at it. They've all got growth in them. And our job is to invest in them in the right way, whether that's people or capex or inorganic growth. And we've got the choice. We won't invest the same in each of the eight, but we'll be investing in them because they're in growth markets with trends supporting our innovation. And our job then is just to allow them the environment to grow by continued investment. So industrial not shrinking to nothing, going to moderate, but not a huge amount.

Yeah, Isha, I'd probably add just to that, just the, also in the industrial specialist businesses, the supply agreement. So clearly the business we've sold to Cargill is bigger than the four sites, four manufacturing sites that we've sold. So we've also agreed a five-year agreement to supply some other products from other retained crudas sites so again that business we would expect to be you know reasonably consistent over five years but clearly it might drop off completely at the end of that five-year period it might slow down during that five-year period as cargo transfers some of that product technology into their own business as well. So you will have the supply agreement within industrial specialties. But yeah, initially it's going to be a business of getting on for 300 million of revenue. And, you know, we certainly, we expect its profitability to be, you know, low, low double digit, just above 10% probably.

Thanks, Asha. Next question.

Hi, thanks David. It's Georgina from Goldman. Two questions left. The first is, you've got the eco surfactant growth CAGR to 25 of 75%. If you can give an idea of the path, is that linear over the coming years? And then my second question, it was a really interesting comment that you made Steve about lipid systems not being continuous process. So therefore, you know, pricing in lipid systems is not going to be driven by asset utilization rate. So if I think about more batch process chemicals, I've got paints coming to mind and pricing is usually driven by raw materials. I'm assuming that's not the case in lipid systems. So just wondering if you could talk about, therefore, what are the key price drivers in lipid systems? Thanks.

Yeah, well, we'll do the lipid system one first, and I'll bring Jez in on the eco one. I mean, look, I mean, you know, the Crota model is about maximizing value in front of customers through knowledge, not commercializing the capacity. So it doesn't matter whether it's a continuous process or a batch process, as far as I'm concerned. It's how much knowledge have we got that we can commercialize. And, you know, what you never want to do is be disconnected with your customer. We want to be in with lipids. We're in really critical ingredients. You know, a step ahead of where the active business is in personal care. And the job there is to add great value. So our customers want the product. They need the product. They're going to make a lot of money out of the products. So our job is to make sure we get a fair value with that as well. And we're balanced with that. So the interesting thing in lipids is, you know, as we see with more and more of these treatments, they're going to be more niche treatments. They look like, particularly in mRNA, they need a lot more mRNA in them relative to the current vaccines. But the need bespoke ingredients and delivery systems. And I don't think there's a panacea for a standard number of products here that are going to be commoditized. We don't expect that. And that's why we're investing in it. So it all chimes to maximizing value. And when you start thinking about pounds per gram rather than. rather than pounds per kilo, you know, you get to a different figure. And the chief exec loves pounds per gram. You know, if we can have more and more of our business on pounds per gram, you know, we're not a chemical company. And, you know, we don't think like a chemical company. We think like an IP company. And we want more and more of our knowledge commercialized. And you just get to better margins. So I won't worry about how we manufacture it. I'm more bothered about the use of the product in application and how much value we can get from that. So And we'll get some interesting numbers. I think the other thing, though, is with this capacity that we're putting in, it doesn't change profitability if we're running it at 50% or 40% or 70% in real terms. I mean, obviously, the higher, the more profit we get. But the overhead issues in there are sort of non-existent for us because it's small scale. We're not building petrochemical refineries. We're building refinement purifications. Units rather than that. So. So in the end, it's about adding value through through pricing power and value in your intellectual property correctly. And I think the other thing in pharma as well is it's not just the product margin. On top of that, there's royalty potential payments, licensing agreements, profit shares. And that's something that we're alert to. It's still early days, but we think some of these pipeline projects, there's no reason why we can't get two margins out of them rather than just one.

And so, and of course, the liquid systems, when we say it's a batch process, I mean, that's like all of Crona's processes. So your other question is about our only continuous plant, which is the BioEO production. And so, yeah, where we are is we've obviously transferred all of the existing products onto BioEO, but the eco piece is really... about which of those products are sold under the bio label as opposed to just happening to have bio content that the customer may or may not be uh currently concerned about and that's where we where that growth should get faster and faster as we as we go because of course it's um it's really about customers launching new products with um using the bio credentials or relaunching their existing products and substituting their existing petrochemical supply with the bio feedstock and then wanting to make the label claim and therefore acquiring the certification from us and so on so that clearly is quite slow at first you have a couple of launch customers particularly in home care into product areas like ECOVA and so forth and then it's into more rapid acceleration as you get more and more customers to convert and as Steve said you know the exciting thing of the last 18 months has been the performance of the beauty care business within consumer care, which is really where a lot of these products fit together with home care. And that's undoubtedly being driven by both the consumers move to sustainability and wanting sustainable products and the customer making their sustainable commitments about moving to buy base material, as we see with customers like L'Oreal and Unilever. So I think that that growth should just accelerate. We're EBITDA positive now. You know, we should be moving to EBIT positive in due course and then really driving the returns through the more volume that we can drive through that plant because it is our one continuous plant in the whole group.

Great, thank you.

Thanks, Regina.

We've got two analysts in the queue, so Cheetan and then Martin. And as we're over time, we'll then wrap it up. Cheetan. Hi, Tristan. Sorry, we can't hear your audio. Apologies.

Is this better now?

Yeah, that's better.

Hi. I just had one question maybe for Jess. If I look at the outlook, it suggests maybe the second half EBIT on a continuing operations basis should be closer to £100 million, which seems a decent step down from The underlying number, XPTIC, somewhere around 250 million or so. So I was just wondering if you can give us some sort of bridging items from first half into second half. And also, sorry, just one more to squeeze in. The CapEx was a little lighter in first half, at least versus the run rate. Do you think you can catch up all of the, you know, to get to 160 million for full year? Is that likely now for this year or do we see some of that being pushed out into next year?

Yeah. Okay, Chetan. In terms of the bridging items from first to second half year, I guess you've already called out the impact of the divestment, which we estimate is had we done the divestment on the 1st of January, it would have been £39 million. So that's to your £250 as you refer. I think the other two adjusting items would be the variable remuneration charge benefit that we had in the first half year. So that's essentially a function of we have a lot of share-based schemes across the group. Most of our employees are share owners and participate in share schemes. Save as you earn, performance share plans, et cetera, restricted share plans as well. And every half year, we have to mark those to market. So there's a number of shares outstanding. We have to mark them to market. And obviously, at the year end, we were marking at £100. And at the half year, we were marking at £65. So that gave us credit of around about 17, 18 million sterling, which I wouldn't obviously anticipate for the second half year. So you've got a one-off benefit in the first half year of 17, 18 million pounds in the first half P&L? And then the final component is the lipid step down. So, you know, we did $90 million of lipids in the first half year. We're expecting 60 in the second to take us to 150. And, you know, that 30 million of lipids, you know, you can convert to sterling and then take a typical healthcare margin. And that will give you a number probably not too far away from 10 million sterling as an adjustment. So those are really the three bridging items between first half and second half performance. And then you've got our normal seasonality. And we typically do, you know, around, I think if you look over the last three, four years, typically we've been around 53% first half, 47 second. And that's really a function of holiday timings, particularly in the European business, which mean that second half is always a quieter season. one for us because there are fewer, you know, working days, I guess, in there. I think if you do the maths, then, you know, then that gives you, clearly we're not setting a specific expectation, but I think that gives you the modest growth that we expect for the full year. On CapEx, yeah, it was a bit lighter, but we do have the part government-funded projects starting up in the lipid expansion, the UK expansion, part funded by the UK government, and the US expansion, part funded by the US government. They'll be kicking off as well. So it's just really phasing of projects. I'd expect us to be at about 150, 150 million for the full year. So about 90 million to spend in the second half. And that's consistent with our view of 100 million as a base to grow the business at organic rates and to replace existing assets. And then there'll be about 50 million from the health care program of 160 over four years. So, yeah, about 150 for this year. and about the same probably going forward for 23-24. Thank you, Chetan.

And the final question, I think, from Martin Evans at HSBC. He always gets the final one in, Martin.

I always do. Thanks, David. Thanks, Steve. Just a quick one. I don't want to pre-empt October the 5th with information on life science, but One of the numbers on the slide, 28, I think you've mentioned it before as a new opportunity, is this $300 billion biologic drug market. And Steve, you've referred several times to monoclonal antibodies as an area you're working on. I mean, in simple terms, yes. I mean, it's obviously a huge market if you were to get a share of it. But from a CRODA perspective, is it essentially the same chemistry? Is it the specialty excipient delivery systems that

sort of fast tracks absorption of of the protein is this is this what you're doing with these uh customers you're working on these projects with yeah i mean i mean primarily that fits into it so yeah it's the continuation of these you know we've called them specialty excipients with you so there's there's a there's a lot of specialty excipients that are gaining traction so it's um it's you know a lot of that's established chemistry there's one or two new chemistries from avanti that are coming through as well that you'll hear about but um in principle it's it's a continuation of development from where we are. I mean, what you're going to hear in, uh, you're going to hear a lot more about that. It's not monocolonial antibodies that the chief exec sometimes says, you know, you don't get these words right now. Um, and also there's things like nucleic acids, um, and things like that. So I think you're going to hear a bit more of a new narrative from, from Crota as we develop the story and, um, in pharma in, um, in October. And also, you know, the central theme there is going to be about how do we sort of figure all of this out from the individual projects that we've got in terms of, um, sort of future revenue streams to try and give some guide to that through the three, the three platforms. So, yeah, so it's nothing completely different. This is more a continuation of where we are. Okay. Thanks.

And thanks for the advertisement. So we're hosting an investor seminar on the afternoon of the 5th of October at the London Stock Exchange and virtually on our healthcare business website. Over to you, Steve, just to wrap up.

Yeah, no, great. Thanks, everybody. Lots of questions. It's been an excellent first half where we've demonstrated growth across all aspects of the business. So we're really pleased with where we are. And actually, the business now is in rude health. And certainly for any uncertainties in the future, we're much better equipped to deal with that through the sustainability leadership and innovation leadership we've got and all these eight growth businesses moving in the right direction. So we'll stop there. Hopefully by October the 5th, Sunderland will be top of the championship as well. So he's still hoping that as well. But what's for certain is we'll be there on October the 5th as well. Maybe Sunderland might not be, but we'll see you then. Thank you.