Croda International Plc

Good morning everyone and a warm welcome to our full year results presentation. Great to see lots of you in the room and many on as well too. As usual I'm here with Jez, our final appearance on the public stage together after an eight year partnership. So it's official now, Hugh Grant is retiring. His successor, a lot of people think he looks like you. His successor, Louisa Burdett, here. Could have called you something else there, Jed. But his successor, Louisa Burdett, is here today. And I hope you get a chance to say hello and see her afterwards as well. She's looking forward to introducing herself over the coming months and formally taking over in three weeks as well. And I'm very much looking forward to working with Louisa. She'll be great for Claudia. Okay then, usual agenda then this morning with some overview comments from me before Jez on the numbers and then back to me to get you excited about direction of travel for Croda in terms of our strategy. We'll then of course be very happy to take any of your questions. Okay then. So on to the results then. It's been another milestone year for the group with a huge amount of progress across all areas of the business. Strong growth in core sectors and most geographies. And after adding £150 million of profit in 2021, we've delivered results, record set results again in 2022. We've added a further £50 million of profit. And that's despite divesting our industrial business halfway through the year. and much lower sales of lipid systems during the pandemic. So quite a remarkable achievement. And it demonstrates the strength of the organic growth in the business. And it also shows our ability to navigate a challenging macro environment too, while successfully managing significant input cost inflation and supply chain disruption. A major highlight this year has been the further portfolio evolution in the group. We've exited cyclical industrial markets, to increase our focus on faster growth niches in both consumer care and life sciences, bringing our business closer than ever with the exciting emerging megatrends that we see around the business. And we've continued, as you'd expect us to, to invest in innovation, bringing new products to market, whilst building our pipeline for continued growth in the years to come. The progress is driven by our operating model, the bedrock of our business. And it's reinforced by a relentless focus on commercialising people's knowledge. That's what we do. Alongside disciplined investment and strong execution. And for the first time in Crudas history, sales increased above £2 billion sterling and profits exceeded £500 million. Quite an achievement that too. And I've been really pleased with our ability to manage significant raw material cost inflation. We haven't seen that for about 15 years in the group. Sign of a strong business when you can move profits forward. Price mix was a massive 24%, reflecting the need to recover these costs. And we've announced an 8% increase in the full-year dividend, continuing our unbroken track record of dividend growth of more than 30 years. So turning to the sectors then, I'm very pleased with the strong progress that we've made in our core businesses. Consumer care is becoming ever more resilient, achieving record sales and profits last year. The renaissance in beauty care continues thanks to the strong demand for sustainable ingredients. Solar care was especially strong, reflecting high demand for minimal sunscreens. And while sales of eco, bio-based surfactants are a three-fold increase as well. F&F is bringing great balance to the portfolio. Whilst our industry had to manage significant destocking in the second half, they posted their best half for two years, growing more than 10% in constant currency. So very strong growth there in emerging markets, supported by sales synergies building too. We continue to see a structural shift in consumer demand towards sustainable ingredients, and we're responding to this with a shift to buyer-based and buyer technology across our portfolio. You'll hear a lot more of that over the next year or two. And as expected in consumer care, the second half was impacted by customer destocking following strong demand in 2021, particularly in North America. It also reflects selective demarketing that we've chosen to do on low-margin products due to some capacity constraints. This is a classic destocking cycle playing out in the industry, so important to look at consumer care's performance through the lens of the year as a whole. Life Sciences had another great year, building on exceptional 2021, where we benefited from the strong demand for COVID-19 vaccines. And whilst lipid system sales reduced for COVID vaccines, all other areas grew double-digit growth. Crop protection was a standout performer, as we continue to benefit from from a growing demand for sustainable solutions. We made excellent progress in pharma, not least in growing our pipeline of non-COVID delivery systems. And we've also repositioned the business to increase its focus on fast growth areas and empower further biologics delivery. As you know, we've got six strategic priorities and we've made excellent progress delivering against each one of them this year. We've continued to focus on strengthening consumer care and expanding life sciences, focus on fast-growing niche markets. We're continuing to see fast growth in Asia, where we now have over 1,500 employees, more than in North America. Our recent agreement to acquire Solus Biotech is going to further accelerate our progress, which I'll come on to later. We're scaling biotechnology with more than 100 biotech-derived products now in our portfolio. And our scouting network is building our pipeline of potentially technology acquisitions. So lots of momentum and excellent strategic progress this year. And we've been just as focused on delivering our non-financial targets too. As you can see from the slide, with progress against all of our KPIs, we've delivered a 20% reduction in scope one and two against our baseline year. and with 81% of suppliers now engaged to improve the sustainability of our products. And crucially, we're taking the organisation with us, with three quarters of our employees recommending Crota as a place to work. We're also giving back to the communities that we work in. It's about impact, positive impact. The Crota Foundation has committed £3 million to 21 grants across 19 countries, and it's impacting nearly 15 million lives, and we've just started. So many of these projects utilise the skills and expertise of our people. So, for example, we're helping to enhance the yield of seeds native to the Amazon so that indigenous people can use their land more effectively. So all in all, a great year, and we're all set for the year ahead, which I'll come back to. And we continue to do the right things in Crota, and we do them very well. Now, let me hand over to Hugh for a more detailed run-through of our financial performance. I mean, Jez.

Okay, thanks, Steve, and good morning, everybody. As Steve has highlighted, through consistent execution, the group has another record financial performance in 2022. Reported sales and adjusted profit before tax both increased by 11%, with sales exceeding £2 billion and adjusted profit exceeding £500 million for the first time ever. EBIT return on sales was broadly flat at 24.7%. Adjusted profit before tax increased by £50 million to £496 million. The effective tax rate on adjusted profit rose slightly over 2021 to 22.8%. That's still a bit below our medium-term guidance of 24%. Adjusted EPS was up 9% at £272. And we've proposed an 8% increase in the full-year dividend to £108. Free cash flow has started to improve, with some softening in input cost inflation, with a 9% increase in 2022 to £167 million. Turning to the IFRS reconciliation, exceptional items worth £38 million, primarily an impairment of the goodwill acquired with the standalone Ibekem Flavors business in 2020, which is behind its acquisition plan. Intangible amortisation was unchanged at £34 million, and we delivered a profit on divestment of the P2TIC business of £356 million. So as a result, on an IFRS basis, profit before tax nearly doubled to £780 million. Turning now to the sales bridge, the chemicals sector has seen significant inflation since the start of 2021. with our raw material basket increasing by 23% in 2022, on top of 17% in 2021. Encouragingly, this basket peaked in Q3 and has seen modest declines in Q4 and into the current quarter, although we do continue to see inflation in the other operating expense areas, particularly labour and energy. In response, our powerful operating model has allowed us to successfully recover these inflationary increases. including the benefit of new innovative products, price mix added 24% year-on-year. Organic volume in the retained business declined by 6% year-on-year. The impact of divesting the majority of the PTIC business in June 2022 resulted in a 13% decline in sales. That's the impact on total sales of not owning the divested business in the second half year. Acquisitions added 1%. We also benefited from sterling's weakness, particularly against the US dollar, which increased reported currency sales by 5%. You can also see on the right-hand side what the impact would have been had we not owned the PITIC divested business at all during 2022. Sales would have been £191 million lower than we're reporting today, so that's the sales you need to deduct in order to arrive at the baseline number for 2023. So this slide looks at the same bridge, but for adjusted operating profit. Organic growth in 2022 added 53 million pounds to adjusted profit with growth across all three sectors. This was an excellent performance, particularly as Steve said, given that lipid sales reduced by 60 million US dollars from the peak of 2021's COVID driven demand. The PTIC divestment reduced operating profit by 27 million pounds, being the benefit we had in the second half of 2021 compared with not owning the business in the second half of 2022. There was again a small acquisition profit benefit and currency translation added £19 million. Again, on the right-hand side, you can see what the benefit was in the first half from owning the PTIC business pre-divestment. Operating profit would have been £39 million lower than actually reported. So again, that's the profit that you need to adjust for in baseline in the 2023 performance. So looking now from a geographic destination perspective, all regions saw good growth in sales and profit other than North America. Asia achieved a record year with strong demand, particularly in life sciences, and also delivered modest growth in China despite the pandemic lockdowns. Demand in Western Europe remained robust despite higher prices and energy costs, with strong growth particularly in crop protection and in beauty care. Latin America enjoyed good growth led by demand in the regional crop protection market and supported by consumer care demand, including the new F&F operation there. Eastern Europe saw a negative financial impact from the closure of our Russian business, which overall represented 1% of group sales in 2021. In North America, sales were very strong in 2021 and peaked in the first quarter of 2022. Since then, demand has softened in consumer care and pharma, the latter partly reflecting lower COVID-19 demand post-pandemic. Now we'll look at the global sector performance. Consumer care delivered a solid performance, with sales up 18% and adjusted operating profit 9% higher. Margin was, however, diluted by lower volume and an adverse business mix. 2021 had been an exceptional year in life sciences, so it was very pleasing to see continued sales and profit growth in 2022. Sales reduced to 33.6% due to crop protection being a larger proportion of the sales at a slightly lower margin, together with a normalising lipid systems margin. The new industrial specialties sector holds the remaining industrial businesses and the supply agreement with the new PTIC owner. Sales declined year on year due to the divestment, but were strong in underlying terms thanks to robust commodity prices globally. Despite the divestment, operating profits still increased year on year. Return on sales was in line with our expectations, close to 16%. Looking at that 18% sales growth for consumer care, the sector saw the largest impact from inflation recovery, with price mix 22% higher. By contrast, volume was 12% lower, which was driven by two primary components – Firstly, we had seen very strong demand from customers back in 2021 to meet post-pandemic consumer recovery, with customers also buying ahead to mitigate surging inflation and secure supplies in problematic global supply chains. In the second half of 2021 alone, personal care sales were 20% up year on year. Then during the first half of 2022, supply chain issues eased somewhat, and it became clear that there were significant excess stocks across both our customers and the retail supply chain. This led to destocking by customers in the second half of 2022, particularly in North America, which also has significant onward customer export to China, where retail sales were impacted by COVID lockdowns. Overall, destocking is estimated to have accounted for 5 percentage points of the 2022 volume drop. The second factor is that we suffered some capacity constraints. Earlier in the year, this was due to high demand in areas such as solar and hair care, but later in the year we suffered some plant downtime, constraining supply from some of our sites. Both these factors caused us to demarket, which we hope to recover as 2023 progresses. And this impacted sales by another 5 percentage points. In addition, we exited our Russia operation, reducing sales by 1 percentage point. Previous acquisitions added 2% to overall sales growth and currency added 6%. Across the four businesses in consumer care, beauty care and fragrances saw the strongest growth with increasing demand for sustainable ingredients and a recovery in emerging markets benefiting Iberchem after the weakness it saw in 2021. Asia continues to be a strong growth market in consumer care. We're investing more resource there as well as agreeing the Solus Biotech acquisition in South Korea. That will cement our presence in three key skincare technologies, peptides, retinol and ceramides. Profit in consumer care grew overall through a combination of underlying sales growth and currency benefit. However, return on sales declined to 22.8%. This was impacted by operating gearing on lower volume, particularly in the fourth quarter, together with a weaker business mix as beauty care and F&F were the stronger performers compared with the higher margin beauty actives business. Just under one percentage point of the decline also represents the reallocation of dissynergy costs following the divestment of the PSEC business, which will be recovered as proceeds are reinvested into more growth through acquisition. Now, following an outstanding year in for life sciences in 2021, with rapid expansion of the fire business following the Avanti acquisition, an exceptional COVID demand-driven vaccine, it was great to see further progress in 2022. Sales grew by 19%, with performance strengthening in the second half of the year. Price mix grew by 6%, and volume was 8% high, giving total underlying growth of 14%. There were no acquisitions during the period, but currency at 5%. 2022's strong performance was achieved despite the anticipated 40% decline in sales of lipid systems due to lower demand from our principal COVID-19 vaccine customers. But the balance of the farmer business, together with crop protection and seed enhancement, all grew sales double-digit percentage terms. Crop protection was the standout business, benefiting from strong agricultural commodity prices and a good demand environment. Within FHIR, the nucleic acid delivery systems business is developing its portfolio from the blockbuster COVID-19 vaccines, which drove demand in 2021, to the new mRNA and gene therapy vaccines and therapeutic drugs for the future. 2022 sales in the business were approximately $170 million, a little ahead of our expectations at the half year. mainly due to higher COVID-19 vaccine demand in Q4, although sales are still well down on their peak of $230 million in 2021. More excitingly, sales outside the principal COVID-19 vaccine customers represented almost 40% of the 2022 lipid business and are expected to overtake COVID vaccine demand in 2023. when we still expect to deliver £120 million of total lipid sales. Overall, 2024 lipid sales should be stable with 23, and then we will see growth from applications in mRNA and gene therapy from the growing innovation pipeline thereafter. Turning to cash flow, EBITDA grew strongly. Working capital increased by £134 million, reflecting the impact of inflation on inventory and receivables values, which added £82 million to working capital. with an underlying increase of £50 million in holding higher stocks and having higher receivables. With raw material prices peaking in Q3, working capital has started to reduce, a trend which we expect to continue in 2023. CapEx was a little below our guidance of £150 to £160 million. This is due to a delayed phasing. With the proceeds from the PTIC divestment, net debt reduced to £295 million, which is a leverage ratio of half a turn of EBITDA. On that theme, this is a reminder of our capital allocation policy, particularly relevant given our low gearing level post the PTIC divestment. The policy remains unchanged from what I've shown previously. The divestment is allowing us to deploy more capital to support expansion in higher growth, higher return in consumer care and life science markets. Firstly, we're investing organic capital spend with a rich seam of growth opportunities in new capacity, product innovation and geographic expansion. Our typical capex remains around 6% of sales or £120 million per year. And in addition, we're partway through our pharma investment programme to meet the growth in proteins, vaccine adjuvants and particularly nucleic acid delivery. Crota is investing £175 million in this programme, with an additional £75 million being provided by US and UK governments. Secondly, we're committed to pay a regular and increasing dividend to shareholders, with 22's 8% increase continuing an over 30-year unbroken record of dividend growth. Thirdly, we're complementing our organic investment with targeted acquisitions and technology adjacencies in line with our preferred approach to buy and build. Recently, we announced the acquisition of Solus Biotech and continue to look at target technology platforms in both consumer care and life sciences. And finally, we monitor leverage against our target policy of one to two times EBITDA, returning surplus capital to shareholders where that's identified. So I'll now hand you back to Steve to talk about those strategic opportunities. Thank you.

Thanks, Jez. Okay, then.

So, as I said earlier, the portfolio evolution has been a major part of...

population and living sustainably and that's what drives us and these are the mega trends giving us a greater demand for more sustainable ingredients and this move to biologics which is just starting for us and that's transforming medicine and today and we'll transform agriculture over the next decade too. So we're planning ahead and as you can see we're reshaping our portfolio and over the last five years with strategic technology acquisitions enabling Crota to meet the big changes that we're seeing. And following the successful sale of our industrial business in the summer, we're now a stronger margin, higher returning, less cyclical and higher knowledge intensive business. It's about commercialising people's knowledge and growth. And we'll invest the proceeds from this sale, as we normally do, on building our knowledge base all around the world and strengthen our market leading propositions. We go to market via these seven businesses, dynamic businesses, highly focused businesses that you're familiar with. They all have managing directors running them. And they're enabling Crota to expand within each of these industry niches, which are growing fast, some much faster than others. And what's even more exciting is these niches are all getting much bigger. So the growth profile for Crota in the next four or five years is a lot different to the last five years. This underpins our confidence in being able to deliver more consistent sales across growth across pharma, crop, and in consumer care over the next three years. There is a much greater depth and breadth as well to our portfolio, if you can see on the top right, very well balanced now relative to three years ago. And all these businesses have strong growth characteristics. They all should grow. And this is reinforced by a very well balanced geographical footprint now. We're strong in all parts of the world. So as we look to 2023, no surprise, but our six strategic objectives remain unchanged. It's all about delivery, delivering further progress in each of them. And in particular in Asia, we will move quickly to integrate Solus Biotech, once under our ownership, and we'll also launch a Scope 3 emissions index to reinforce our sustainability leadership in consumer care. and continue to commercialize our exciting pharma pipeline in life sciences that we talked to you about in October. We'll focus on ensuring that our biotech investments delivers higher MPP, too, and expand our pipeline of potential acquisitions and deliver additional benefits to customers through automation as well. So coming back to each of the sectors and in turn shining a light on strengthening consumer care, the chart there shows how we're growing our business in Asia. It's been a top priority and we've been steadily increasing our investment in the region over the last few years. The personal care market is growing rapidly and as our technical marketing and sales network has evolved, we're generating strong growth in the region, as you can see from the chart at the bottom right. And within the region, China is growing fastest, no surprise there. And we're very well established there, serving the domestic market through imports and local production. We are replicating our US model too, increasing our ability to serve a growing customer base of indie brands. And we've committed more capex to build a sustainable surfactant plant in India and scale up a site in Singapore to develop sustainable biopolymers. All about this shift to sustainable ingredients. So turning to innovation then in consumer care now, one of our big innovation projects is scaling biotech to harness its potential alongside our conventional chemical technologies. Crota is already a leader in biotechnology-derived beauty actives. Again, you've heard that from us before. And we're bringing more and more products into the market. These include on the left, nortel, an anti-aging active that makes skin look younger by enhancing oxygenation. One for our senior cell side in the room, an analyst. Not looking at you, Mark. And there's also Mona as well, which treats skin pigmentation disorders associated with menopause. Both are based on technologies we've acquired over the last decade. And biotech's potential extends well beyond actives to things like animal keratin and also on hair care and microbial cleaners rather than chemical ones. So, you know, biotechnology for Croda is very much carbon reduction with great performance. And as I mentioned, our strategy is to strengthen consumer care. And our acquisition of Solus Biotech in South Korea, announced earlier this month, will just do that. Very exciting for us. It's a global leader in biotech skin actives. It's been around for 30 years. It's got a lot of knowledge in the business. So Solus brings a very exciting portfolio of ceramides. phospholipids, as well as an emerging capability in bioretinol as well. Effectively, we bought three businesses. That's how we look at that. Very exciting ones, too. The number of new personal care products containing ceramides, you can see in the graph, has doubled over the last five years, principally for skin care. You'll see it as premium skin care, but increasingly for hair care formulations, too. And ceramides are essentially the glue that holds our skin cells together. And keep our skin barrier intact and healthy. So they have a big role underneath the surface of the skin. And whilst this capability opens up opportunities for us all around the world, the fastest growing ceramide market is in Asia. So this gives us a strong foothold in the region. Phospholipids are very exciting too. They are natural and sustainable, filling a gap in our portfolio, which will bring real benefits to our customers as delivery systems for cosmetics. And under our ownership, we'll be able to significantly accelerate Solus's growth through access to our technical and innovation capabilities around the world, particularly in formulation and by leveraging our global selling network, still the most valuable thing in Kroda today. We're targeting five times growth over the next five years. And it's a strategic bullseye, as you can see from the wheel. It gives us a bigger portfolio of natural skin, sustainable active ingredients for our consumer care business. Products containing natural ceramides are at the luxury end of the market. So it's premium skin care. Soderma 2.0. So it will increase our exposure there. And SOLUS also brings a GMP-certified plant focused on high-growth Asian farmer markets. So their natural phospholipids are an immediate plug and play into our excipients portfolio, providing important delivery system ingredients for injectable drugs and intravenous nutrition as well. They're also developing lipids which are complementary to Avantis, so there's real opportunity for us to accelerate nucleic acid delivery growth here as well. So phospholipids are very important for the pharma business too. It's Soderma 2.0, we'll help them deliver that, and it's Avanti 2.0 as well, help them deliver there. So importantly, the two premium franchises in the group, Solus will strengthen both of them and transform them to the next level. That's why we're interested in them. We'll also be able to establish a central hub from which to scale our biotech capabilities in Asia now. Their skills and knowledge will enhance our current activities and help us deliver on our ambitious sustainability targets. And finally, as our first manufacturing location in Korea, Solus accelerates our fast-grow Asia plan, providing a springboard to premium and luxury markets across North Asia and beyond. So a great deal for Kroda. We're very excited. Great for personal care. Great for pharma as well. Just turning to life sciences then, the opportunities here are also very significant across all three businesses. Remember, it's crop, it's seed, and it's pharma. In crop protection here, conventional pesticides are by far the biggest market where sustainable delivery is a critical need. Croda is a leading innovator here in this area with technology to help our customers grow. reach their new sustainability goals. For example, Syngenta awarded Kroda its reduction in carbon supply award on the left here. Daniele in the picture there as well. Reducing carbon benefit. We're creating value for customers by reducing carbon as well as giving them great products. We're also investing in systems for biopesticides as well that use microbials and RNA. They're starting to come on the market. It is a much smaller market at the moment, but growing much quicker. And for example, here is a delivery system for a biofungicide that is far more specific than chemical equivalents. Again, our ingredients are driving the next generational biopesticides. And in seed enhancement, our range of microplastic free seed coatings are generating successful results from field trials with all major customers. across all regions. So this is creating significant growth opportunities for the seed treatment business as well. And turning finally to pharma, our drug delivery technologies are generating revenue across all stages of the drug cycle. So working from left to right, excluding COVID-19 vaccines, the balance of the pharma business delivered good double-digit growth in 2022. And our delivery systems play a key role in thousands of patented and generic drugs. This is really exciting and underpins our double-digit percentage sales growth target for pharma that we talked to you about in October. And with the possibility of breakout growth clearly on top of that if some of these hit the market with big blockbusters. The pipeline is fed by our relationships in the third column, the 5,000 companies and research institutes that we are working with. That feeds the pipeline into the clinical programme. And then finally at the end, You know, we have our own innovation pipeline that pulls it together of new technologies that haven't been launched yet. So overall, when you look at it all, you know, it's really exciting to see. It's the breadth and the depth of the program that we're involved in that's really exciting. And that will support our one billion pharma business ambition by 2030. And again, you know, you heard that from us before. So just to shine a light on some examples for you, on the left, in operation today, Herceptin is the world's leading drug for breast cancer. It uses monoclonal antibodies to stop the cancer cells from growing and dividing and uses our specialty excipients in its delivery system. So on the market now, we're saving lives with our products. Smart science to save lives. And also with only one commercialised mRNA application today for COVID-19 vaccines, not surprising that most nucleic acid delivery drugs are in clinical development or discovery. Interesting ones that are not far from the market are the ones where you use a combination of COVID and flu vaccines. We're in a stage three trial right now with a number of other flu projects behind as well. So, you know, a combination drug of COVID and flu, not far from the market. And how to deliver drugs to the brain is an important question when we look at drug discovery. The blood-brain barrier, for example, does a great job keeping out unwanted substances, but also impedes drug transport to the brain. We're working with an Asian biopharma company, which has developed a carrier technology to solve this challenge, opening up the possibility of treating an array of rare diseases. And in terms of our own innovation, we're working with a leading Danish health institute, research institute, to develop two new adjuvant systems there too. These are for novel therapeutic vaccines that have huge potential for treating already contracted diseases. So in summary and wrapping things up, we've had a good start to the year with the group trading in line with our expectations. In consumer care, customer destocking should end in the first half, supporting continued sales growth this year there. And in life sciences, good sales growth in crop and our non-COVID pharma business should offset lower COVID lipid sales through the year. So overall, our performance is expected to be more second-half weighted, reflecting the divestment of our industrials business in the first half last year and phasing of COVID-19 lipid shipments too. So as ever, the power of our operating model and focus on fast-growing niches will enable Crota to deliver consistent, superior returns. So there's a lot to be excited about. We feel like there's a growth machine in Crota, which is bigger than it was in the past, coming to you and to us. A portfolio that is more aligned to the fast-growth megatrends, more opportunities that are getting bigger. a transformative pharma pipeline with increased resilience in consumer care and a strong balance sheet to support continued investment to deliver this growth and value to you and our wider shareholders. So finally, I just want to thank Jez very much for the role that he's played with me for eight years. We've been a great partnership and he's done a terrific job for CRODA and it leaves with our best wishes for a long and happy retirement. So thanks for everything, Jez. OK, we'll stop the webcast there, if that's all right, and then we'll take some questions. There is some bacon sandwiches or sandwiches with some description? Oh, sorry, I beg your pardon. We're staying with the Q&A, yeah, but after the Q&A, when it's finished, if people want to stay around to see Louisa and everybody else, Daniele's here and Fitz is here as well, you're very welcome to have a coffee with us and a sandwich afterwards, if you haven't eaten this morning. Right, let's start now. Come on, Gunter, we'll let you go first again.

Thank you, and thanks, Jess, for your communication to the markets as well and your role at CRODA. Steve, if I can start with a couple, please. The first one you mentioned, softening in raw material costs, you're starting to see. So if there's a guidance you could provide for the full year, what are your planning assumptions for raw material costs and any guidance around energy and logistics, which you said is still increasing? Second of all, coming back to slide 17, minus 5% for customer destocking. How do you calculate that? And another way of putting it, what are the error bars around it? And what are the error bars around the guidance that this will end with H1? And bonus question is, why did Kroda not increase the dividend 30 years ago? You've been with Kroda for 30 years.

I joined in 1990, so just before I joined. But, no, I mean, let's do raw materials. Interesting, raw materials softened quarter four from quarter three by 4%. We expect about a similar figure into quarter one from quarter four. But we're not seeing a big slide of raw material increases, and we're not forecasting that this year. Still quite a lot of moving parts, and that's a positive because that means demand is still holding up pretty strongly. The proxy for that, 70% of our, a large portion of our raw materials are veg-related. And natural related. And they're a function of demand. So you would see that come off if demand dropped. So that's reinforcing in many ways of this strength in demand, which we think this destocking is the main area there. Jez, on the energy costs, I'll come back to the demarketing in a minute.

So we will have an increase year on year energy demand. Costs in 21 were about 2.4% of sales value. Last year they were about 3%. So we're anticipating some energy cost increases, but of course they look a lot lower now than they did just three, four months ago. We have hedging in place typically on a rolling basis for about four to six months. So we won't benefit from all of the recent reductions. So I'd expect some increase, but I mean, we're probably talking up to 50 basis points of sales. So we're in a relatively small sort of area. I suspect we're probably a little bit more focused on labour inflation because that tends to be a bit more of a drag. I think logistics is settling down now, but obviously labour is quite big. Cost of living increases tend to go through a little bit, obviously, in arrears. So I think in 2023, you'll see a bit more of that increase in labour costs coming through. But nothing that we haven't planned for. And as Steve said, in a slowly declining raw material environment, that hopefully allows us to just protect margin around the delayed inflation or the later inflation that comes through those OPEX lines.

Just on the slide 17, demarketing, we were out in the summer and I think we messaged very clearly that we expected a correction in volume in the second half of the year, which we've seen. If we reflect on that, though, it's quite mixed. Asia's been delivered more positively than we thought. We thought the volumes would come down a bit more in Asia. We thought they would a little bit more in Europe as well. But the big slide has been in North America, and that surprised us on the downside. But in balance, actually, so this demarketing is not rife everywhere right around the world. Yes, there is some volume moderation in Asia and Europe, but it's relatively small from what we expected in the middle of the year. So the center of attention for us is North America, where you have seen this jolt. And you can argue that you can look at that in different ways and say, well, they were first out of the pandemic. You know, America always spends its way out of problems. So there's been a huge. rebuilding of demand. And actually, when you reflect on it, probably quite a bit of that's gone into stock in the first part of this year. So what you see is a big correction, and that's what we're seeing at the moment. In terms of defining that and how we measure that is we look at patented products. So what you can see with all of our product-customer combinations is in destocking is they don't cancel orders, they just move them back. And they move them back for a month or two months or even three months. So we can map um quite well in a geography a certain part of geography um you know how that's moving some sometimes it moves forward sometimes it moves up so if we see a restocking you find that orders that were placed on the books for two months time will come forward and vice versa so we then so that five percent comes from a very close look at and we tend to look at patented product products because you know the cruise products they've got you know, 100% patterns, nobody's going to, nobody can, we're not competing with business or having two sources in with customers. So you find with that, that it's a pure look at. you know, our demand. You can get a good idea. And because we've got thousands of products and customers, you can get a reasonable assessment of that. So that's our assessment of the 5% on demarketing. And your bonus question was 30 years ago, wasn't it? What was the share price 30 years ago? Gareth will know. Probably about two quid, I think, I would imagine. £1.50 even. But there you go. So, yeah, we think half of that is destocking. And the industry is calling it destocking. And if it's calling it destocking, it's because it comes to an end sometime. We're not calling it about... I don't think anybody... We're not seeing it, this demand reduction or this attrition or this trading down. We're not hearing that from a lot of our customers. We're just seeing quite a lot of stocking points coming and what you're seeing is this unravelling and it's very hard to see when it comes back but my history would say you know we've gone through six cycles now and it's It always takes a little bit longer to come back. When it comes back, it comes back quite quickly because there's always an exaggeration at the ends of the cycle, whether you're going into the cycle or you're coming out of the cycle. You either have not enough stock or you have too much stock. So our assessment is that's why we're thinking it's more a sort of first half rather than a quarter one impact.

James, anything else? I think that's fine. And we do cross-check. the broader product range. So we map obviously whether, you know, what the sales pattern for every product is and so forth and do some data analytics against that. And then we compare that with the sort of customer relationship management system that tells us, you know, because you always follow up the customers. I mean, the difference I think in our ingredients, which have relatively small quantities is, you know, the customer's reaction to having too much stock is literally to cancel two, three months worth of orders. You know, it's not like filling up a tank where you just sell a bit less to top up the tank. because stuff's moving more slowly. In our case, you literally take two, three months out, and we've seen that most particularly in North America. So it's fairly easy to track and so forth. Obviously, on the demarketing side, it's relatively easy for us to do, because that's a positive decision by us, because either we're very capacity constrained, as we were in the first half, or because we've had to take some plants offline, as we saw in the second half, to catch up, really, and catch up with maintenance. So we can map those. You don't get all of that business back straight away, but you work to recover that business with the customer. So I think we'll get a steady recovery of the second half demarketed product, but it won't all come back in one go because clearly these are non-patented products and the customer has gone elsewhere because we couldn't supply them.

Charlie? Charlie? Thank you, Charlie Webb, Morgan Stanley. Maybe just following up on the consumer care piece, as we look at 23 and you're talking about destocking, which is hard to see when it ends, but you expect to end at some point. How do your expectations look for consumer care in terms of growth, price mix versus kind of lagging or lapping positive price for inflation? And likewise, also margins, obviously, are very important. divergent margin performance first half, second half and 22, how do you expect that to kind of expand and kind of go into 23? So that'd be the first question. And just secondly, on life sciences, when you think about your biolipids business, X-Pfizer and the developments you're seeing both in 22 into 23, and you look at your guidance 24 kind of flat, but the COVID piece isn't moving all that much. Is there a chance you're being too conservative there? I mean, what are you seeing in terms of the orders, in terms of demand for sampling for new products, etc.?

OK, let me start then. I'll get chairs to pick up margins and back to me on lipids. Yeah, I mean, as we look through the year now, you know, we're a bit like the demarketing, but we look at data points. More of our data points are positive than the negative. I mean, they're not all positive, but they're more positive than negative. And in terms of real data that we can see, China started very well for Croda, led by actives. So the premium skin market is coming back in China. Duty-free travel, borders opening up, people spending on expensive skin creams. So we expect actives to have a good start in China. And that should pull some volume to North America as well, because people forget, but probably about 20 or 30% of the ingredients that we ship to America are formulated in America, then they go into China. So China should drive a bit of recovery in North America too. So we've seen that. We had a good start geographically in most regions. America's still soft, not getting any worse. And signs that the order books are improving through March, April in North America. So we would expect that. And that sort of chimes with the China comment I just made. I think if you look at the businesses, Life Sciences has had a very good start across the board. The F&F business is continuing to strengthen. That's a good balance in the consumer portfolio. That's growing in emerging markets. Actives has had a good start. So actually, so you look at it in the round, and it's really just the beauty care business for that to come back fully. which is when you work the maths out, is what, 20% of the group or 18% of the group. So actually, most of the businesses have started reasonably well. Regions are fine. Our one area that we want to see recovery is North America. So that's where the area of focus is for the group. Jez on margins?

Yeah, so in terms of if you look at the impact on margin in the second half year, really three factors. You've got reduced volume, so you've got this operating gearing effect of significantly lower volume, you know, falling down nearly 20% in consumer in H2. You've got a business mix effect because of beauty care and FNF being the stronger parts and actives being relatively quiet. And then you've got the dis-synergy effect from... which is really about regional and central costs that used to get allocated to the PTIC business, it's a sort of fixed cost. And until we deploy the capital in new businesses and they pick up their share of the cost, they've got to go somewhere. So they go to consumer and to life sciences, basically. So those are the three effects. If you look at 2023 and look at how that could recover, we'd expect the volume effect to unwind progressively, obviously, as the destocking comes to an end. We've already got through our... own capacity constraints and plants offline, so therefore that parts back up, so now it's all about market demand and the end of destocking. So I think you'll get a steady unwind of gearing. On mix, as Steve says, more encouraging actives is usually the first to slow and then the first to recover, and we're certainly seeing some early signs of that, so that should help the mix. The dis-synergy effect, which is You know, a bit less than one percentage point of margin across two businesses will stay with us until we've reinvested that capital, you know, hopefully later this year into 24. So I think we can get margin-wise, you know, we do see consumer care as a business that should be averaging about 25% return on sales. You know, we're a bit below 23 in 2022. And therefore, I think we can probably get sort of halfway back in 23. But it'll probably be 24 before you see the full recovery, given, you know, we know the first half is going to be a bit slower.

And back to lipids, in good shape, as you said, the 120 for 23 is less than half of that now becomes the principal partner. And if you think where we were two years ago, the majority of that was the principal partner. You can't see that through the numbers. So we de-risk the principal partner revenue. And that's very firm, I would say. The nuances of the contract there are very committed. But that second half, the principal partner is second half, in the second half, all of those sales. And that's just because of what we talked about, this de-stocking. Every government was running around trying to purchase things. We're in a normal, what I call a normal, supplier-customer relationship where there's stock on the ground. But it just so happens there's quite a bit of stock in the system. So it's second half weighted because of that. Demand's still there, but it's firm. Those orders are very committed. So the principal contract is fine. So then, as you say, the question is the majority of the business now is lots of moving parts. And people forget we bought Avanti. It was $40 million of lipids. We paid the headline figure for the core business. We had the earn out for the principal partner. So the core business is growing well. And we shouldn't forget that. So that's got a lot of growth in it. And that's got, you know, core lipid growth plus quite a lot of the discovery into clinical programs and growing. I think, you know, 120 is fine. We're fine with that. We don't want to change that. A lot will depend. As you know, there's moving parts. There's a few in clinical three. We really don't know when these hit the market. If they do, eventually hit the market. If they do, if we thought they were significant, then we'd update the market on a regular basis. I think the interesting thing there is the COVID flu vaccine, which looks like it's not far away. Now, again, we're in a lot of different pharma projects there, and we don't know which one's going to hit the market first. So the 120, we think, is still a very good guide for next year, but the principal partner's amount in there is second half, in the second half of 23. Sebastian?

Thank you. Sebastian Bray of Berenberg Bank. Two questions, please. The first is on the Avanti Lipids COVID-19 vaccine project. From memory, when the contract was announced in 2020, late-ish time, there was a three-year period after which it would come up for partial renegotiation towards the end of 2023. What is up for renegotiation there, baseline volumes or price? And the second question is also on polar lipids or lipids more broadly, but it has a different tack. It's quite an ambitious sales target for solar biotech to increase fivefold the number of sales over the next five years. Is it using of anti-capacity? Do you just take the technology and run it on the fermentation tanks in the US and Europe? Because my thinking is come 24, 25, unless there is a real pull through, of flu vaccine demand some of that capacity which will be newly built will probably be a bit underutilized is the idea just to put personal care lipids in there to fill it thank you

So in relation to SOLUS, yeah? Yeah. Well, we'll do SOLUS first and I'll come back to lipids. I mean, you know, SOLUS is a capital-light business. You know, we buy knowledge. So we think, you know, as we grow this business significantly, it doesn't need a huge capital injection. So don't worry about that. And they have biotech facilities and partnerships locally. So it doesn't need to be scaled up in Europe and North America for us. But one customer order with one contract can half that multiple. you know, this insignificant business to be had there. And, you know, I'd like to think we are very well known in the consumer industry. And we have a number of our strategic partners encouraging us to buy things like this because they're single-sourced or they're just desperate to globalise these products. And it's a bit like that planned stem cell business we bought several years ago where one or two of our leading multinational partners could not formulate with them globally because they didn't have the strength that, they could support them globally with the rollout. In this case, you know, Crota's number one in the world in sustainable active, so we know what we're doing. So this is a great opportunity for us. It doesn't need a huge amount of capacity, but the other synergies or the black box synergies will be it opens up a biotechnology brain for Crota in the fastest growth area of the world for Crota, which is North Asia. And we've got, you know, you've talked to Dr. Chaloner, Dr. Layden, Professor Layden now, Our issue is not launching products. We've got a lot of products to launch in Kroda. The issue is operational scale. So we see this as a vehicle for operational scale as well. And it's got a potential for a farmer as well, as you say. So we're fine with that. We've got lots of opportunity, 7,000 customers in consumer. And we haven't even talked about phospholipids yet. Because everybody thinks it's a ceramide business. It is. Phospholipids. We've wanted to get into phospholipids for about five years. And this is a great vehicle for Croda to get into phospholipids. Because phospholipids goes three different application areas in pharma and one big one in personal care. So phospholipids cuts across everywhere. So don't worry about capacity. In terms of your other question was connected with Avanti Lipids. Yeah, you're right. I mean, it's interesting because the relationship with our partner always changes. I mean, in the outset, it was just about supplying it. Now it's about partnering in lots of R&D programs because, as you can imagine, mRNA now is in several applications, not just with Pfizer, but with BioNTech separately as well. So I think our next generation contract will reflect that. So there'll be discussions around the existing business, but there'll be discussions more about the partnership potential of the future as well. And if we've got anything to say on that, we'll let you know.

I think in terms of the key thing to remember that we did $119 million roughly with the principal customers in 2021. We did just around $100 million in 2022. We're estimating $40 to $50 million in 2023. So yeah, there is some You could say directly on that application, there is some uncertainty because there's only a framework ingredient for years four and five. But at that point, you're at 40 to 50 million. We think there is residual COVID demand for vaccines. So we think that you could well carry on at that sort of level going forward. But clearly, you know, we have to put this in context and say. That's been the great surprise, really, of buying Avanti for the medium-term R&D development and actually getting this huge opportunity, which has clearly also helped pay for Avanti much sooner than we expected. But Steve said, you know, we're managing that down to a level where it becomes a bit more noise, I guess, in the overall performance and the opportunities of the new areas. So, yes, I think there's opportunities to carry on at that sort of level going forward on COVID specifically, but it isn't that meaningful in terms of then how the business performs going forward. On your point about capacity, I think, yes, we're very clear that on the pharma expansion on nucleic acids, it is unusual for us in that we are putting the capacity in before the market needs or at the time that the market needs, hopefully around 24, 25, the cusp there, whereas we would traditionally probably see how market developed then get capacity in and maybe end up constraining the market growth. And we're very clear that nucleic acids and lipids is so exciting. We don't want to be in that position as a real first mover advantage for having been the first company to commercialize the lipid delivery system. And we believe that we need to be there offering these projects that Steve's talked about the opportunity. So, yeah, there could be a little bit of managing that capacity through 25 as projects come on stream. But we're absolutely convinced the right thing to do has been to invest this 175 million pounds to be ready for that market real explosion in 25, 26.

Thank you. Just to clarify, can you use Avanti capacity to make SOLUS biotech products, or is that you don't know yet to this stage?

We can, but we're looking at it the other way as well, of course. We can use SOLUS site to make Avanti products. That's a better benefit and more exciting for us, because can we make mRNA lipids ultimately, potentially, or, you know, really high-quality farmer ingredients in North Asia, for North Asia. You know, you look at the China market and the North Asian market generally. So, you know, we see this. This has got a lot of opportunities for us. Matthew?

Sorry, Chet, I'll come to you separately. Thanks, Matthew from Bank of America.

Maybe just to follow up on the solar thing, you're describing it as sedentary. It's completely incremental.

And also what it does as well is Sederma is a great vehicle for indies in the world. Entrepreneurial startups always start with Peds Peptides, but they also start with Ceramite as well into their formulation. You need them both in the same formulation. One reduces aging, the other one gives you rapid moisturization.

they have a brilliant product out there and they're all in but they're mutually exclusive in terms of competition and they're used in different vehicles for the surface of the skin so yeah maybe this one's for Jez on the Iberchem impairment 35 million or so just to be clear on this you're saying this is principally on the flavours part rather than the fragrance part if I understood correctly when you yeah when you did the deal there was a question over whether flavors was core and to be kept can you sort of update as you're thinking on that and just from a sort of accounting nuance why why shorten the forecasting period from 10 years to five which obviously aggravates any short-term changes i'll take the first bit and then jess yeah so i mean um

They're a bit unlucky. I mean, we went down to have a look at them. I mean, the issue they've got is they've had a one-in-a-15-year event, which is 34% increase in raw materials. It's all on the flavours. The fragrance business is ticking along very well. So what you've seen is a strong revenue growth, as we expected in line with the management plan, but the margins are squeezed, so it's hit profitability in the short term. And that was a question. So it's a technical consideration in the maths that say, well, how quickly can you get back to your management plan? And then we ended up taking the decision that we did, which was just to give it... Because we can't be sure that the raw materials are going to rebound very quickly. But when we look at the business, it's a very good business. There's no structural change in the business. It's just had one of those... one in a 15 year event and in impairment calculations, audit partner in the room as well, that's what happens you have to take a view of that and I think you'll see that a lot in the industry this year for people who have bought recently acquired businesses that for some reason you got caught with a margin squeeze but really you can't, you're best to take the impairment and that can reverse in the future but that business, just your second point about the future of it it's a business that we like to really run for a while to better understand it, and it's got great growth trajectory. You'll see a margin improvement performance. You know, it started well. It's got a nice geographical spread of its assets, and it doesn't really bother us at the top of the company. You know, it's growing. It's got good growth. It doesn't need much capital. And we'd like to grow the EBITDA for two or three years and then take another view because, you know, I think it's a prize asset for people. But, you know, we want to improve the profitability after we come out of this big shock. on the raw materials. Chas, anything?

Yeah, so absolutely. Completely flavours, completely that standalone business unit. The fragrance headroom on Cairn Valley of Goodwill is over £100 million, so we're very happy with where fragrance is performing. um relative to the acquisition plan um so so and of course that's our strategic business within that that's sort of 75 of that business um so very much a standalone business and just taking a view around around that that that recovery um in terms of the shorter period that's basically accounting uh guidance basically um you should generally be using five years and then a terminal rate on new fast growth businesses we've tended to use 10 in the past but we've come into line with normal practice there so it's 5 years and as you allude to you do remove that outperformance that you would probably normally have in your model for years 6 to 10 so that also provides some impact but it's the right thing to do to reduce the goodwill carrying value there and we'll see how that business develops as Steve said

Okay, Matthew. Chetan, you have your hand up as well.

Chetan from JP Morgan. So two questions. First, maybe for Jas. In terms of the split of profit between first half and second half, usually it's 47-53. How are you expecting that seasonality or split this year? The second question was just going back to the discussion around destocking and capacity constraints in the consumer business. I was just looking at, maybe my calculation might not be entirely correct, but the volumes in the consumer business are down probably 6%, 8% versus 2019. I mean, clearly the market has grown in that period. So I'm just trying to understand why should there be any capacity constraints for CRODA? And also, how do we tie that destocking comment? Given that since 2019, the volumes for Crota hasn't grown in that consumer business. So I think those are the two questions.

Yes, do you want to start on the seasonality in Spurton?

Yeah, so I think we'll be a little bit, well, we'll be more second half weighted. I mean, the key things, obviously, when you do the comparisons, the two big biggies are £39 million of profit that we made in the first half of last year on the PTIC divestment. So we won't have that £39 million. And then secondly, across the year as a whole, we'll be $50 million lower on lipids. And you can put that sort of in a... sort of healthcare margin and sort of get the effect of those. So I guess that's the year-on-year comparison. In terms of the seasonality, we'll also be a bit more second half. The principal customer on the COVID lipid side has said that they don't want to take the volume until the second half year. They've talked publicly about inventory levels and so forth. But it is firm demand. So we know it goes in the second half of 23. But they don't need any in the first half of the year for the COVID vaccine. And then in terms of the consumer care balance, yeah, it'll be a little bit more second half weighted. So I think we'll be, you know, something around 50-50, maybe slightly more of that in the second half year than the normal seasonality of 53-47, as you say. So some year-on-year comparisons and then some seasonality pushing that into the second half year basically for COVID demand in life sciences and for the rate of consumer care recovery from destocking.

Andy, do you want to kick off the second one?

Yeah, it's a good question. I need to go back and look at the comparative volumes. But I mean, I think the key thing that was, you know, as well as the destocking effect, you know, we're in the position on the consumer care where we had been running flat out really for 18 months from the beginning of 2021. I mentioned On the slides that we had, you know, 20% increase in personal care sales in the second half of 2021. I mean, completely way above our cycle, you know, where we sort of expect about mid single digit growth across the cycle as a whole for consumer care. and obviously initially you're working from and it's very hard for the chemical industry to react and do 20% more and therefore you are using inventory to some extent and you end up with a constrained inventory for the products that are selling really well and you've always got more inventory of the products that are not selling so well So you start to basically not have the capacity to meet the customer's service needs. The other thing is you need some downtime on the plants to do the essential maintenance and so forth. And we just got to a situation on the second half where we had to have two or three plants offline for a period of time to do that maintenance work. So you get a bit of an artificial constraint to the volume, which we do think comes back, although it doesn't come back straight away because you need to win that business back. And, of course, the business you shed is the lower margin business where the customer can go to somebody else to get it. You don't shed the products that they're entirely reliant on you for. So I think you've got that artificial break in the second half year, even though there's a big impact from de-stocking, there's a de-marketing effect as well in there. So we've finished that work now, and so we're back fully on stream within that.

Thanks. Yeah, I'll just add to that. I mean, the weakest part of your business is where that disappears, is the bigger volume as well, naturally for us as well, because most of our protection... This will be a good question from our head of IR.

It's on behalf of Isha Sharma at Stifel. And Isha asks, Europe seems to be holding up well. Are you considering a possibility it might follow North America in destocking? And her second question is, what are your thoughts on Givadan's acquisition of some of Amaris' ingredients and more generally on synthetic biology?

Yeah. Yeah, I mean, we're not seeing it. That's a question that we ask ourselves quite regularly. This is the Europe one about Europe. But, you know, we've had a good start. And again, with Crota, there's a lot of moving parts in Europe in each of the countries. So we've got a good set of data points there. So we're not expecting that. We don't see that. We see just it's located in America and we would expect that to rise. I mean, yeah, you're going to see more announcements like this from Crota as well in partnering with some organizations where they've got biotechnology capability. We've all got probably great ideas and great products, but what sometimes we don't have is that capability to scale up quickly in the business as well. So Amris is one partner which we're very aware of, and there's plenty of others as well. But their products that they've partnered with are not potentially competing products for us, but they're in a lot of those probably similar formulations as well. There's it on Squalane more than anything else. So, yes, but you'll see a lot more for the industry because the industry has to move, you know, is moving to biotechnology and it has to move pretty quickly. So, you know, moving to partnership agreements is one way of quickly commercializing your IP. So we have in our strategy, we have a buy, build and rent model effectively. And we need a combination of all of those. So we'll be scaling up biotechnology in Suderma in Korea. the UK, North America, but we'll also be partnering as well. And our issues we've got in our pipe, our pipeline, we have a lot of biotechnology products ready to go. So it's the handbrakers on commercialising through scale-up, operational scale-up. That's probably a few questions. Come back to you, Charles.

Thanks. Hello, it's Nicola Tang from BNP Paribas. Actually, it did prompt some questions to you because there was a follow up on that. I was wondering if you could talk about the broader sort of M&A pipeline and the areas that you're looking at or whether we should expect much to happen in 2023. And related to that around capital allocation, could you remind us, Jez, in terms of with that 175 million of investment into pharma, how much between 21 and 24, how much is left? Just to kind of confirm CapEx above the usual base 120 million for this year. Thank you.

Yeah, I mean, very active as you'd expect us to be on M&A, but the priority, and you've heard this probably a thousand times from the CEOs, we're interested in really great technology, intellectual property, clever people. Provincial businesses, really, in many ways. But they have the ability or we have the ability to globalise these around the world. So, you know, Avanti is a good example. You know, Denmark, the vaccine business, now Korea, they've all got brilliant intellectual property. We diligence that really robustly, brutally in many ways, because we have to be sure that that technology can be globalised. And then we use the selling network to really globalise this. So that's the type of businesses we're looking at. Daniele's here. He's got a scout, a chief scout, we call them. Works for him. We've got Dave Shannon. We've got a chief scout for him as well. So their job is to hunt the technologies. We have a list of technologies, which is probably the most valuable thing in the group, and it's a list of technologies that probably not many will have on their list, so we know what we're looking for. And it's interesting, the list is going, as you get focus in there, we put our best business development people on that, so they understand the technology. So we'll see, we'll see what happens, but it's going to be more in the same line as the Avantis, the Solus, Biotech, it's really brilliant technology that can be commercialised around the world.

In terms of the pharma capital programme of £175 million from 2021 through 2024, we're probably about halfway through the net spend, so we've spent about £90 million so far. We're probably a bit less than that because more of the government funding comes in the latter stages of the programme, so a bit less than halfway through overall, I guess, in terms of progress. We were a bit behind, as I said, in terms of where we expected. I think I was guiding you around 150 at the half year. We came out, you know, sub 140. So I think there'll be some catch up in 23. So I think for 23, I'd be thinking 160, 170. That's sort of 120 million of the base program. That's very consistent because it's spread across sort of 20 plants around the world. But on the farmer program, I think, you know, we'll probably be spending more of the order of 50 million. So I think for this year, a bit of catch-up from the 20, or catch-up the 22 underspend, then complete the programme in 24. Okay.

Thanks. Sam Perry from Credit Suisse. Can I ask about the dynamics and expectations for crop care into 23? Because if I look at the LATAM growth of 19% this year, I think 21 was also a very strong year. And compare that with the expectations across the crop technologies for sort of mid to high single digit. What do you expect in terms of demand destruction in 23 and maybe pricing and ability to hold on to that as well? Thank you.

Yeah, our view is, I mean, it's had a great 18 months. You can see that in the numbers. And it should continue like that. I mean, it's got a very favourable market around it. So we think, you know, we took the crop team, probably the first half will continue very similar to what we've seen in the last 12 months. And then probably moderate in the second half to its normal growth level. You know, it's normally around a mid-single digit. growth environment if you look at it for the last sort of 10 15 years in Crota you get the volatility quarter to quarter but actually annually it normally trades around that mid single so the model is a strong first half and a more normalised second half And, you know, raw material prices are staying pretty high. So there will be some discussions with customers around pricing inevitably. But it's, you know, it all depends. That could increase, depends on what raw materials do. But, you know, we're well versed in managing those relationships.

Does things like fertiliser prices coming off impact, or that's sort of an alternative way to increase yield, impact your ability to hold pricing or not so much?

There's some macro drivers, but it's not really fertilised. I mean, a lot of ours is innovation pipeline. You know, we're into some of the sort of next-generational stuff. So the most important thing for the crop customers is how do they get more bang for their buck on the field? So can they get products out that deliver X percent yield savings, you know, 5%, 10%? So there's always an encouragement to launch new things. So... that you find with Crota we're always in some of those, we're number one innovation partner in the industry now in crop. People forget that, they always see us as personal care and farmer. We're number one in crop. So we have early sight of a lot of, and we have a lot of strategic partnerships there. So I think with Crota, the work that we did three or four years ago is starting to bear fruit because it takes three or four years to get these to market. So there is some macro, don't get me wrong, it's not, I wouldn't peg it on fertilisers, There's a bit of everything, really. But, you know, the growing areas that are really important to us are Europe, Latin America and North America. And all three for 18 months have been strong. And we expect those to continue in certainly in the first half. So, yeah, but it's, you know, it's a great, it's a really good business for Crowe. Charles, I am going to come back to you, but seeing that your next...

Mubasher from Citi. There's a couple of questions on IBACAM. If you can update us in terms of how the synergies are going, how the modern development is going, especially with 2022, and then what you feel like is the right number for 2023. And then a couple of comments on specialty acceptance. That had quite a strong year in 2021. How has that developed in 2022? Just a few for the top line, please. That would be helpful.

Well, F&F are really pleased. We've talked about the impairment question, but on the flavour side, it's growing very well through the... Don't forget, it's emerging market exposed. Sorry, fragrances, yeah. 83% of our F&F business is exposed to emerging markets. So fragrances has done very well throughout the year. And actually, it's got stronger through the year, which is interesting. And that's part of the reason we're buying the business, because it's a nice balance to the chemical industry portfolio and consumer care as well. Synergies are developing well. I don't think we'll... You might push us on a number. We're not going to give you a number, but it's moving in the right direction. We're capturing good synergies now. And I think the big thing that's coming through in the synergies is our relationship with some of the, either the multinationals, we call them, or the regional dynamos, where we didn't expect to pick up some business, but we're picking up business where, particularly where Iberchem assets are strong, North Africa, Latin America, Southeast Asia, and where they match the locations of our strategic partners, we're starting to win some business there. On the flavors side, I mean, it's going well. The issue is they've had a big raw material increase, so it's recovering that margin through this year. But both of them have got very good sales growth characteristics in the business. So we expect, you know, we expect 23 to be good for both sides of that business. Jez, do you want to add anything?

No, that's fine. Do you want me to talk about specialty excipients? Yeah. So, yeah, so I think it's interesting because if we look back, I think it was 2019, we did the Capital Markets event on... the specialty excipient platform, which was obviously the sort of homegrown platform within what's now the pharma business and sort of unveiled just how strong that was. And we've consistently seen growth of 10 to 30 percent across that delivery platform. And that continues with much more focus now. Well, we talk much more about vaccine adjuvants, which, of course, we acquired in 2018. in December 2018, and then, of course, the lipids platform of nucleic acid delivery acquired in 2020. which, as Steve said in his chart, are less mature and therefore more development growth opportunity. But the biggest area of sales is still in those protein specialty excipients. And the growth is still very much there in terms of, you know, injectable delivery systems for drugs. So continuing to expect, yeah, 10 to 30 percent growth across that platform. And that's why, you know, you struggle to see that big drop in lipids post-COVID-19 because the protein and excipient platform is growing so well and the vaccine adjuvant platform is growing well. So, yeah, we're just building each of these platforms on in turn and getting more and more excited as we do that.

OK, Charles has been waiting patiently over here.

Thank you. Yeah, just one follow up for me. It's Charles from UBS. Just in the life science business, obviously, you've got some headwind from a revenue perspective from the lipids business, but clearly crop seems to be going well. Still, the health care X lip is going well. Are they growing well enough to offset the lipids? Will you grow organic cells in life sciences in 23 as you see it today? And then maybe you could just talk a little bit about the margin expectation, because I appreciate that mix is a negative on the on the margin. But could you help us versus that 33.6 margin in 22, how the margin might look for 23? Thank you.

James, do you want to kick it off? Absolutely.

No, really, really good question there, Charles. So at the sales level, we would expect the growth in crop projections, seed enhancement and non-COVID lipid pharma to offset the $50 million decline. Because if you put the numbers in the model, you know, we have about... We've reported 680 million of life science sales, so it's about 550 of the non-COVID part of that. And that market should be growing between mid-high single digit, really. So I think if you put that in, we should be generating enough growth at the sales level to offset the lipid decline. So I think overall, as we look at the year, we think life science is broadly flat. But as you say, at the margin level, you probably won't quite get there in terms of profit because healthcare platforms tend to be at a higher margin, a bit higher margin than the crop care platforms. As Steve said, it's still very much crop that's growing there. So I think that we'll do well to keep the profit flat year on year in life sciences, but we certainly should keep the numbers whole in terms of life sciences sales, if that makes sense. He's smiling gently, so I think I'm all right.

Martin at the front.

Thanks. Martin Evans, HSBC. Just back on Nicola's question, really, on M&A. I mean, the technology space generally is... has fallen, C-rated, valuations have come down. And yet, in your particular niche, is it the case that price is still non-negotiable? I mean, Solus was, I think, roughly 10 times sales, whatever. And it's all to do with whether the seller wants to join the Crota group and not so much on negotiating the price down. Or do you see valuations potentially this year as the cost of money goes up?

It's mixed. I mean, you know, just for everybody's benefit, I mean, when you look at really relatively small EBITDA businesses which have got brilliant growth and, you know, they're into sort of second generation or third generation proven growth but needs to be scaled, then of course we look at the multiple like we always would expect us to and we look at that probably more than most. But the most important valuation to Crowder is in our hands, you know, with this technology, around the Crota world, what does year three and year five and year seven look like? And then we have to value these businesses on the strength of that. The other way of looking at this, if we didn't buy this business and we wanted to buy it in three years' time, it would be a much bigger figure, and we probably wouldn't want to buy it. So we're trying to buy them at their early stages. It might look like they're big multiples, but for this type of business... It's de-risked on the strength of the strategic bullseye where it ticks so many boxes. There's growth streams everywhere. But I think it will be different. Normally, we would expect quite a lot of our businesses to be mid-teens in terms of multiples and things like that. So valuations are coming down in certain areas, but they're not in others as well. And so I think it's a mixed picture. But, you know, there will be opportunities in the future to get things at relatively modest multiples. But if there's something that looks really interesting for us at big multiples... And we think for us and for you and for everybody else, we can create enormous shareholder value. Then we'll do that. You know, you look at Avanti. It's a bit like the Avanti model. We paid $175 million for that. You know, there's some of that value in our books now. And if we wanted to sell that, which we're not, by the way, is a lot more than that. And that's the type of thing that we can do very well. So we're more interested in rapidly growing, brilliant technologies than we are at doing big deals. I wouldn't say for the sake of it, but big deals that are out there, that's not really where we see the direction of travel because we see a lot of good opportunities in that technology space. But I think my point in summary to that is the valuation is dependent upon the individual business. It always will be. And we look at all of the right metrics to look at that. But the lens is always 3, 5 and beyond as to how we turbocharge that growth.

can I also echo our best wishes to Jez for a long and happy retirement I think Jez we first met in 98 so that's what is that 25 years at another chemical company in Yorkshire it's another age a lot of waters pass under the bridge have a great retirement Jez

I think on that, that's a great way to finish. So thanks again, Jess, for everything you've done. And thanks. Good questions. We'll stop the webcast now. Happy with that, David? And then if people want to stay around, hang around. We're upstairs for a second.