Croda International Plc

Good morning, welcome everyone and many thanks for joining our half-year results presentation. I'm here with Louisa as well as David and we'll run through our respective sections of the pack and as usual there will then be plenty of time for your questions at the end. So a straightforward agenda this morning, a quick overview from me before I hand over to Louisa for a detailed run-through of our financials and outlook. I'll then provide an update on some key aspects of our strategy before the Q&A. Okay then, starting with performance. The results for the first half are very much in line with the changes that we announced to our full year guidance on the 9th of June. The significant volume decline that we've seen because of customer destocking inevitably impacted our profits and margins. And despite the challenging conditions, it is testament to the strength of our business that we continue to make good progress. Consumer Care delivered a sequential improvement in volumes, with sales flat for the half. Sales increased 8% in Life Sciences when stripping out the exceptional impact of COVID-19 lipid sales in the first half of last year. We saw improved free cash flow with lower working capital outflow, more than offsetting lower profit and higher capex. And the interim dividend has been maintained at 47p per share. As you've seen from us before in tough conditions, we've taken some immediate actions to address costs and protect profitability. Should current market conditions persist for longer, we'll look to do more in this area. We've also continued to increase investment to strengthen our platform for future growth. We're growing our R&D capability in Asia especially, expanding our manufacturing footprint to increase capacity, and whilst continuing to execute on technology acquisitions too, the most recent of which was Solus Biotech, a very exciting opportunity for Kroda. Turning to the sectors then, as we indicated in June, the speed and scale of customer destocking that we've seen impact consumer crop industrial markets is quite unlike anything that I've experienced before during my time in the industry. The brutal volume declines are indiscriminate to the segments we serve and are widespread across all parts of our industry. The IS decline is more significant in volume reduction than crop. But it's in challenging conditions such as these that the depth of and diversity of Crota's businesses really comes to the fore. In consumer care, whilst volumes were down 14% year on year, they were up 8% on the second half of last year. And we have continued to see good demand for innovation, with sector NPP remaining strong at 40% of total sales. Price mix was up 10%, reflecting price increases implemented towards the end of last year. Encouragingly, sales were up slightly in actives with positive mix whilst volume recovery was strongest in beauty care, driven by customer demand for sustainability. And our F&F business is doing exactly what we thought it would when we acquired Iberchem, growing sales by 20%, reflecting its high exposure to emerging markets and the progress we're seeing with Crudder-enabled growth. In life sciences, pharma sales were up 8%, excluding the impact of $60 million of lipid sales to our principal vaccine customers last year. We also saw growth in seed and crop protection, although crop was hit by earlier-than-expected destocking in the second quarter. Our nucleic acid delivery pipeline continues to develop well, with Crota supporting now more than half of the nucleic acid drugs in clinical trials that specify a lipid delivery system. This points to a strong medium-term growth trajectory for the business. And finally, as you'd expect, our industrial specialties business saw a significant deterioration in sales, highlighting the cyclical nature of this business and our rationale to exit this space last year. So just to unpick the destocking point in a little more detail, it's interesting to see from the publicly available data that inventory levels are significantly higher right across our consumer care customer base. The chart on the left shows the discrepancy between inventory levels pre-COVID, the dark green line and where they were at the end of 22. This correlates with the deterioration that we've seen in volumes in consumer care from quarter two last year. As you can see from this chart on the right, the evidence suggests that this is beginning to work its way through, with volumes steadily improving month on month from earlier this year. It is also encouraging to see NPP holding up well at 40%, reflecting the destocking cycle impacting both our NPP and non-NPP at the same rate. And as I've said before, our visibility is still restricted to two weeks, so we don't know when conditions are going to return to normal. But they absolutely will at some point, of that we are certain. And then in terms of our priorities, the current environment hasn't changed our strategy. There is no knee-jerk reactions at Coroda. And continuing to invest in the business remains a fundamental priority to support our growth trajectory in both the short and medium term. So top left, we've continued to do bolt-on M&A. Our acquisition of Solus is immediately transformational because it brings both ceramides to our consumer care business and phospholipids to our pharma portfolio. It will help to significantly strengthen our capability at the premium end of the market and also in Asia. And moving down the slide, Asia is a big opportunity for Kroda, probably the biggest, which is why we're continuing to invest in the region to drive fast growth. During the half, we have opened new R&D facilities in Shanghai, China, and Hyderabad in India. We've also continued to scale biotechnology. The fastest growth will come from sustainable ingredients, such as biotech-derived actives, so we're increasing our capacity accordingly. And finally, top right, we're also investing in our customer proposition. Our Doing the Basics Brilliantly program is introducing new ways of interacting with customers, leveraging digital to make engagement faster and easier. We're also finding ways to enhance productivity across our business. These initiatives will make us more efficient. Now let me stop there and hand over to Louisa to run you through the financial performance in more detail.

Thank you Steve and good morning everyone. I'd like to start with two orientation points. Firstly, it's only been six weeks since we updated the market and trading in June and therefore for the first half has been as expected. Secondly, the numbers need slightly more unpicking than usual due to the inclusion of PTIC in the prior period before its divestment on the 30th of June last year. The first three numerical columns on this page show our reported numbers and which include PTIC in the 2022 comparator. To estimate our like-for-like performance excluding PTIC, we've provided pro forma numbers in the two columns on the right hand side. As disclosed at the full year results, the divested business contributed sales and operating profit of £191 million and £39 million respectively in the first half of 2022, which we have adjusted for. On a reported basis, group sales of £881 million were down 22% on the prior period. but after adjusting for PTIC, pro forma sales were down 6%, largely due to destocking. Adjusted operating profit of £176 million is down 42% on a reported basis, but down 33% pro forma. Operating margin was negatively impacted by both lower volumes and the timing of COVID-19 lipid sales, which I will discuss in more detail later. The effective tax rate on adjusted profit rose slightly versus 2022 to 25.4%, driven by the geographic mix of profit and the increase in the UK tax rate. Adjusted EPS was 92.9 pence and we've proposed a flat interim dividend of 47 pence per share, reflecting our confidence in the longer-term outlook and the strength of our balance sheet. Pleasingly, free cash flow has improved to £76 million versus £21 million in the same period last year. And finally, turning to the IFRS reconciliation, in the bottom chart, intangible amortisation was unchanged at £17 million and exceptional items were £29 million, primarily an impairment of the goodwill in our Chinese joint venture, Sipo. The joint venture is trading below budget as a result of the same destocking trends that we're seeing in the broader industrial market, as well as increased local competition. Therefore, on an IFRS basis, profit before tax was £129 million, down from £637 million last year. with the 2022 profit on divestment of the PTIC business accounting for the majority of the difference alongside weaker trading. turning to the group sales bridge on the next page and moving from left to right on the chart. As covered, the estimate of not owning the PTIC business in the first half of last year results in a 17% adjustment to sales. And against this pro forma baseline, price mix added 9% in the period after a very strong increase for the full year 2022. The price of our raw material basket peaked in Q3 last year and has since seen modest declines. However, the annualisation of price increases in 2022 continues to support price mix. Proforma volume declined by 18%, largely as a result of extended customer destocking. And the weakness of sterling in the first half, particularly against the US dollar, helped to offset some of this impact, increasing sales by 3%. The next slide looks at the same bridge for adjusted operating profit. The estimate of not owning the PTIC business in the first half of 2022 results in a 13% adjustment, and against this pro forma baseline, the impact of lower volumes with reduced overhead coverage and the absence of COVID-19 lipid sales were the main contributors to the profit fall of 33%. Turning now to sector performance, this slide shows the percentage change in sales and operating profit, with industrial specialties and group shown on a pro forma basis. Sales in consumer care were flat, operating profit was 21% lower, with an operating profit margin of 20.9%, diluted by lower volumes, although the performance was an improvement over the second half of last year. In life sciences, there were no sales of COVID-19 lipids in the first half of 2023, with shipments due in the fourth quarter. This timing difference was the main contributor to the reported decline in sales of 8%. Excluding the impact of $62 million of COVID-19 lipid sales in the prior period, we were pleased that the rest of the life science business grew 8%. Operating profit in life sciences declined 39%, reflecting both the weak crop volume in quarter two and the phasing of COVID lipid sales, or it declined by 23%, excluding COVID lipids. Sales in industrial specialties declined 20% on a pro forma basis, with the sector experiencing more significant destocking than in consumer care and crop protection, as well as increased competition in China. IS margin was just under 7%, with volume declines affecting performance. Turning to the next slide, consumer care sales were flat in the period, a resilient performance in light of market conditions. The sector saw a price mix 10% higher, of which price accounted for approximately 6%, with positive mix, particularly in beauty actives, accounting for around 4%. Volumes were down 14% versus the first half of 2022, reflecting continued destocking, and currency translation added 4%. Although volumes remain down double-digit year-on-year, we remain encouraged that volumes were sequentially up by 8% versus half to 2022. We estimate that approximately 10 percentage points of the 14% volume decline is market-driven, mainly de-stocking, but the remainder is driven by Crota-specific supply issues and de-marketing that we discussed at February's results. At the bottom right of this page, we've provided detail on the price mix and volume dynamics of the four business units within consumer care. With the exception of fragrances and flavours, the consistent theme across each of these business units is positive price mix and positive currency, offset by lower volumes. These similar volume declines in beauty actives, beauty care and home care underpin our view that we are seeing a broad market adjustment. Beauty Actives has continued to counter volume declines with the highest positive price mix, driven by strong sales of Soderma Actives, particularly to China. And as mentioned, F&F is the exception to these volume declines, with sales growing 20% in the period, driven by its agile, cost-competitive model. Turning to life sciences, we've already covered the drop in reported sales of 8% driven by the timing of COVID-19 lipid sales, with underlying growth of 8% when lipids are taken out. The pharma business itself also grew by 8% on that basis. Crop protection had an exceptional 2022 and entered the year with good momentum, growing volumes with flat prices in the first quarter. But as we've said previously, the business began to see rapid destocking in the second quarter, something we'd actually expected to materialise more slowly in the year, with volumes down more than 30% in the second quarter compared with quarter one. Overall, crop protection grew sales 5%, with positive price mix and FX more than offsetting 12% lower volumes. Seed enhancement only has a limited exposure to stocking cycles, as a significant proportion of its sales are derived from services. It grew sales 18% driven by strong structural growth trends. The next slide shows the drivers behind the operating margin improvement in consumer care and life sciences. The consumer care margin declined from 26.6% to 20.9%. with weaker volumes accounting for approximately nine percentage points of the decline with reduced coverage of overheads. While volumes in consumer care have improved sequentially from the second half of 2022, they remain lower than historical averages and a step up in volume is required to deliver an improved margin. But encouragingly, price mix benefited margin by around 3 percentage points, with beauty actives particularly strong and partially offsetting the impact from lower volume. Life sciences margin declined from 36% to 23.8%. Volume accounted for approximately four percentage points, principally driven by the destocking in crop protection in the second quarter. And price mix was a significant driver, accounting for eight percentage points of the decline, with no COVID lipid sales in the first half year. The penultimate slide in my section focuses on cash flow. Halfway down the table, you can see free cash flow generation of 76 million pounds, was higher than £21 million last year. There are two significant contributors to this improvement. Firstly, a reduced working capital outflow of £10 million versus £184 million in the first half of 2022.

During 2022 we experienced a significant

The penultimate slide in my section focuses on cash flow. Halfway down the table, you can see free cash flow generation of £76 million was higher than £21 million last year. There are two significant contributors to this improvement. Firstly, a reduced working capital outflow of £10 million versus £184 million in the first half of 2022. During 2022, we experienced a significant increase in stock value, principally due to raw material inflation. As raw material prices moderate, this value is unwinding from the balance sheet, but the reduced outflow is also due to active stock management in our regions. Secondly, we saw lower interest charges as we benefited from holding cash from the PTIC divestments. These positive movements helped to mitigate the fall in EBITDA at the top of the table and the uptick in capital expenditure to £76 million from £62 million. Net debt increased to £349 million from the year-end balance of £295 million, a leverage ratio of 0.7 times EBITDA. And as Steve highlighted, we completed the acquisition of Solus Biotech post-period end and following payment of the consideration, leverage was 1.1 times EBITDA towards the bottom end of our target range of 1 to 2 times. And then to finish up my section, I'm going to run through the full year 23 outlook with you. So starting at the top, our guidance remains unchanged for adjusted profit before tax. with a full year forecast in the range of £370 million to £400 million. As a reminder, delivery at the bottom end of the range assumes no change in the second half for consumer care versus the run rate in the half year. We also have COVID-19 lipid sales in quarter four and an uptick of crop in quarter four, with the tax rate expected to remain in the region of 25%. Moving on to currency, our guidance on the 9th of June was given when the FX sterling to dollar rate was 1.23. With recent US dollar weakness, we're carrying greater currency headwinds into the second half of 2023 than we foresaw in June, with a total impact of around 5 to 6 million at rates prevailing at the end of last week, given both translational and transactional exposure. On cost, as Steve has already highlighted, we are maintaining tight cost control during this difficult time. but taking care not to short-term the business. And we will continue our Doing the Basics Brilliantly programme, which is focused on continuous improvement and good practice to optimise our business processes. And thirdly, should current market conditions persist for longer, as Steve said, we will look to do more in this area. And finally, capital expenditure is expected to be between £170 million and £180 million for the full year. This includes the specific investment programme of £175 million in pharma capacity that's phased over 2021 to 2024 to meet the growth in proteins, vaccine adjuvants and particularly nucleic acid delivery. But it also reflects the rich seam of organic opportunities for growth that are available to us and that Steve will cover in the final section of his presentation. And on that note, I will hand you back to Steve.

Many thanks, Louisa. As you know, a big part of our strategy over the last three years has been to align our portfolio with the exciting mega trends that we see set out here on the left hand side of the page. Beneath those, there are two massive technology trends. The first is the escalating demand for sustainable alternatives. Companies both big and small want to find ways of moving to safe, low carbon and more biodegradable ingredients. And even in the current environment, customers show no signs of reneging on their commitments to sustainability. And the second trend is the move to biologics, actives that come from a variety of living sources. We see big opportunities in gene editing, gene therapy, mRNA drugs more broadly, and of course in crop. And we expect a significant shift to biopesticides and RNA technology. We identified these key trends a long time ago. and have been reshaping our portfolio accordingly, both through organic and inorganic investment, and by divesting most of our exposure to industrial end markets. We report as two core business sectors, but in reality, Corda is powered by these seven dynamic businesses on the left hand of this slide. They are each run by MDs with dedicated P&Ls, as well as R&D and innovation responsibilities to drive performance. They're all focused on niche, high growth areas. Our job is to live our purpose and apply our smart science to improve lives in the form of taking an innovation and sustainable leadership position in all core markets. The opportunities in these emerging niches are much bigger than we've seen in the past. And as you can see from the charts on the right, there is a real depth and breadth in the business, both in terms of the portfolio and geography, which sets us up well for really exciting growth going forward. We have a clear growth strategy for each of these businesses set out on this page. I want to spend a bit more time talking to you about the progress we're making in consumer care, looking more closely at beauty actives, beauty care and F&F and also life sciences, focusing on our pharma business. We plan to do a deep dive on crop at our next investor day. So starting with beauty actives, then this part of our business has the largest actives portfolio in the industry and is really moving at pace. Two key points to note from the slide. Firstly, we're shifting the portfolio to faster growth opportunities in biotechnology, both plant stem cell and fermentation based ingredients, filing 10 patterns every year for new biotech derived actives. Secondly, we're expanding the transformational claims we can make in the application of our actives in the brands we supply. Our strategy is to scale our leadership position by continuing to add innovative technologies. Soderma used to be a peptide business, supplying anti-wrinkle actives, largely exclusively. Now we're also about making skin claims for rapid moisturization, reducing inflammation, anti-cellulite, and wider skin disorders. And for the hair, don't forget, we have actives to reduce grayness too, something the CEO is very keen on. And we're stepping up new product launches too. Here are six examples of launches this year. Along the top row, exciting developments in peptides and plant stem cells. Our Actors business has supplied peptides for the New Boots No. 7 Future Renew range, the biggest skincare launch in their history. And we've also developed peptides for a new Desiem product that repairs scars caused by acne. So Crota is supporting some of the biggest brands globally with their product launches. The second row are examples of the rapid scale-up of biotechnology in the form of fermentation that is opening up more opportunities for us. New launches here include anti-aging and anti-dandruff actives derived from marine biotechnology. And along the bottom, we're also benefiting from investments that we have made in novel delivery systems such as Avanti and Solus, allowing even better performance claims to be created. Turning to beauty care then, our strategy is to leverage our portfolio of market-leading sustainable ingredients, positioning ourselves as the go-to market partner for both small and large customers. The continued fragmentation of beauty care markets is playing to our strengths as we partner with customers, enabling them to launch their products quickly. Similar to the Actis portfolio, we're adding further high-performance replacements for fossil-based products, such as biotech-derived surfactants, to reinforce a number one position in sustainable surfactants. In hair care, our focus is on biodegradable ingredients and non-animal alternatives for hair conditioning. We've recently launched a new plant-based low-aquatoxicity conditioner, as well as a vegan-friendly conditioning agent. This is very much the future direction of travel for the industry. In sun protection, we specialise in mineral sunscreens that deliver superior SPF protection and are reef safe and appear clear on the skin. We're taking further steps to enhance our sustainability credentials by developing a Naturals Index 2 for all of our products, and we expect to launch this later this year. We're really pleased with the progress that we've made to accelerate growth in our F&F business, with sales up 20% in the half, a new record. Their performance is getting stronger under our ownership. The Crudder brand has brought added credibility to the businesses we acquired, resulting in increased projects and therefore a stronger pipeline. We're also picking up new business with large multinational brands and regional customers too. And as you would expect, we continue to invest in both innovation and sustainability in this business. We now have approved R&D and manufacturing investment programs in China, Indonesia, France and Spain, as well as shifting the portfolio to a lower carbon and more natural footprint. It's all about building knowledge in their fastest growth markets. And that is exactly what we're doing. And a key part of the group strategy is to drive even faster growth in Asia. It represents a big opportunity for both sectors, and not least in consumer care, where sales grew high single digits during the half. We also saw really strong demand for Suderma's premium actives, with their sales growing by over 30% in China during the period. So to support this strong momentum, we are selectively expanding our manufacturing capability across the region. We are starting construction of a new greenfield site in Dahej in India. And we're also doing early stage investment in a combined beauty actives and F&F manufacturing facility in Guangzhou to grow domestic sales in China. We've also invested in new consumer care laboratory capabilities in Shanghai too. And of course, there's also Solus Biotech, which has given us another state-of-the-art plant, in the region and significantly strengthened our presence across Asia. So there's a lot going on in consumer care. New product launches, new claims, moving ever more to sustainable ingredients and building a deeper knowledge brain in our fastest growth market of Asia. Turning now to pharma then, this is a variation of the slide that you've seen before and it highlights how we're investing across our pharma platform for both near and long-term growth. The big bubbles illustrate the market opportunity and layered on top you can see where the Crudder technology platform bubbles are allowing us to capture growth in most of these areas. Our legacy healthcare business is in small molecule injectables, where we started our exciting journey, and our leadership in small molecules and protein delivery has been enhanced by the SOLUS acquisition, which adds phospholipids into our portfolio, helping to stimulate additional growth in the near term. We started to expand in higher growth areas with our acquisition of BioSector by a specialist in the development and supply of vaccine adjuvants, giving us access to a market-growing double-digit and with a significant need for innovation. And of course, our acquisition of Avanti provides significant growth potential in next-generation mRNA vaccines and complex therapeutic drugs, an even higher growth trajectory. So whilst we're investing significantly in the medium term, which in itself is looking very exciting, we're also investing to develop a number of near-term opportunities too. Talking of which, we've recently expanded into bioprocessing aids, a target adjacency, launching Viradex as an aid for biopharma manufacturing and a superior alternative to a product that is now banned in Europe due to legislative changes in the industry. So through the Solus Biotech acquisition, we have added phospholipids to the pharma portfolio. These are naturally derived and can be used as delivery systems for protein and small molecule actives and for intravenous nutrition too. The Solis production site is fully GMP certified, providing us with an option for the manufacture of Avanti lipids in North Asia in the future too. So these are two good examples of near-term revenue growth opportunities from the second half of this year and beyond. Croda is also established as the leading independent supplier of adjuvants and systems, which are essential to the development of future preventative and therapeutic vaccines. And as you can see on the left, Biosector brought us a large heritage portfolio of aluminium adjuvants, as well as pioneering capability in next-generational adjuvants using saponin. We have been expanding our adjuvant portfolio through exclusive licensing agreements, and we've agreed to partner with Botanical Solution and Amaris in recent months to provide reliable and sustainable alternatives for adjuvants that are essential to many current and future vaccines. We've received multiple inquiries from major vaccine companies on the day the partnerships were announced, reinforcing our confidence in the potential for incremental sales. And we've also launched a new lipid-based adjuvant, which is a specialised fad. And I'm being deliberately vague about what it is. This is proprietary in-house technology, brilliant technology, developed using world-class science and is already being sampled into 70 vaccine projects. We have a really strong platform for future vaccine development. And finally, our nucleic acid delivery platform is growing rapidly. On the left-hand side, Avanti is leading the way, adding 70 new products to their catalog for drug discovery already this year. Again, this reflects world-class science and world-class R&D. Two-thirds of Avanti employees are in scientific roles, producing research that is frequently referenced in academic citations. This means the medical industry has referenced Avanti Lipids in journals and peer-reviewed publications 4,800 times in the last year. So all of this adds up to research sales growing by over 20% a year. And in terms of pharma clinical pipelines... there will be three phases of growth. First, near-term growth will be supported by mRNA vaccines for infectious diseases such as flu and combination COVID flu vaccines. And as highlighted in the second box along, the pharma industry trials of these vaccines have grown by more than six times in the last year. We expect mRNA therapeutic cancer vaccines to hit the market next. And there has been a seven-fold increase in clinical trials for cancer vaccines as highlighted in the next box. And then beyond all of that will come gene editing, where volumes of genetic material and delivery systems required are much higher. So clinical projects have increased one and a half times in the last year. Crozer is supporting more than half of the clinical programs that specify lipid delivery systems. and new mRNA vaccines are expected to come to the market in the next two years, initially vaccines for infectious diseases and then cancer, as I mentioned earlier. This will help to drive accelerated growth in our pharma business from 2025 onwards. So putting all of that together, and as we're in consumer care, we're investing heavily in our pharma business to support the significant growth potential that we see. In June, we opened a new laboratory in Hyderabad to meet growing demand for small molecule and protein delivery. We've also broken ground at Lamar, USA, as part of our partnership with the US government, where new capacity is due on stream in 2025. There's a lot going on in pharma. New launches, new niches, a clinical pipeline that continues to expand, as well as a continuous investment plan to globalise our drug delivery business. So in summary then, despite the current challenges in headwinds, we have continued to make good strategic progress during the half and that momentum will continue. We're leveraging our strong balance sheet, investing in both sectors where we see significant opportunities for future growth, both in the short term and beyond, and we're encouraged by the sequential improvement in consumer care as customer inventory levels steadily fall. And we continue to make very exciting progress in life sciences, in pharma especially. So in both sectors, we're responding to strong customer demand for innovation and sustainable solutions. And whilst visibility remains limited, Crota is well positioned to respond quickly when the environment normalizes, which it will. In the meantime, we'll keep doing the right things, including actions to enhance efficiency and address costs to protect profitability. And everything that I've seen in our business today underpins my confidence in Crudder's strategy. The future outlook for our business looks very exciting indeed. Let me stop there. Louisa and I are very happy now to take any of your questions. Thank 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 use the raised hand function. You'll then be invited to unmute your audio and video, introduce yourself and your institution, and go ahead and ask your question. I understand the first question comes from Chetanadeshi at JPM.

Hi Chetan, morning.

Hi, morning. So just first question was, you know, you had that slide showing the progression of volumes in the consumer care division from second half last year onwards. I'm just curious how much of that is just your normal seasonality? Because I guess Q4 is always the weakest quarter of the year. So in other words, are you seeing a recovery which is more than what you would typically expect from a seasonal point of view. That's the first question. And the second question was on life sciences. I think you mentioned the visibility is still limited to two weeks. Is that across both the consumer and life sciences business or in life sciences you have a higher visibility at this point than consumer? And I think the question is more relevant for crop It's clearly you mentioned a rapid decline in volume, which we've also heard from a few of your customers. Just curious how you think about it. Thank you.

Yeah. Thanks, Chetan. The volume was turned up there so we could hear it in the end. So we couldn't hear the first bit of the question, but I got them both. Yeah, I mean, look, on volume recovery... I think that in an environment that we haven't seen before like this, and I haven't seen this for 32 years, the most important thing you look at is a sequential month-to-month trend to see what's going on, rather than the comparator against last year, because it's a very difficult comparator because it's changing all the time. So I think that the assumption we can make is that, look, we're seeing moderate improvement in consumer care. It is moving in the right direction. I think your point on seasonality is we would not necessarily see seasonality from quarter one, quarter two. You know, the comparators with those two, broadly the same. I mean, you can get into, you know, some care applications in the summer and things like that. We work through, you know, we work through... campaigns in those areas. But in the round, that's relatively trivial in the consumer care mix. So the best we can say is we're not seeing any deterioration. We're seeing steady progress ahead of us. You start from January to exit rates in June. We're progressing. And the chart in the slide, it's sort of trying to demonstrate that. You can see it's not a hockey stick coming back. As we all know, it's unlikely to materialize, but it's a steady improvement. And all the language in the business is we would expect that to continue in quite a moderate way. So the positive thing is we're not seeing any deterioration. It's moving in the right direction. But the other point to make is we don't have the confidence in the data points anymore. the accurate data points that suggest this is going to come back much stronger in the near term. But our visibility is two weeks. So we're, you know, we're cautiously, we're cautious with it, but it's improving. That's for sure is the message on volume. In terms of visibility, pretty similar. You know, we saw crop care, the visibility by and large in life sciences is the same. as in consumer care. Particularly when you see that customers are sitting in stock positions, then what you find is that they delay last minute orders generally. And that's indiscriminate. That's not just in consumer, that's in industrial markets. And I would say mainly in and also in crop and farmer markets as well. So because of that visibility, very difficult to predict, but you can get swings in the month because of that, more acute swings one way or the other. But by and large, that's where we are, and that's right across the industry, I would say.

Thank you. Thank you, Chetan. The next question comes from Sebastian at Barenburg. Hi, sir.

Hi, Sebastian. Hello, good morning. Good morning. Thank you for taking my question. So this is Sebastian Bray from Berenberg speaking. I'd have two, please. The first is on pricing strategy. If one were to create a graph for pricing similar to what has been done for volumes in consumer care, over the last few months, what would it look like? And how much agency do salespeople have to make price cuts at Crow Day, presumably to win back some market share? There may be reasons why market share have been lost, but it looks like there's been a bit. And the second question is on polar lipids for vaccine, COVID vaccine sales for 2024. Is it a reasonable assumption at this stage to put zero in the model for 2024? Or is there not enough visibility at this stage? Thank you.

Yeah, thanks, Sebastian. Yeah, just the first question on pricing strategy. Yeah, I mean, look, I mean, you know, we have a very sophisticated pricing strategy. I think in this type of climate, the most important thing we look at is, first of all, is the forward costings of our products. So what we're looking at is, you know, what raw material is doing first and then making sure that we cost, you know, the new product recipe costings into customers. Yeah. Generally, it's sort of, you know, the way we look at it is probably more around in the consumer care area, you start to think about this area of target business recovery. So in that target business recovery, we have very, we look at customer combinations in a very thoughtful way. And then we will buy ourselves, try to back into some business if we think we need to buy ourselves back into it. I mean, sitting above all of this, in consumer care is, you know, we believe about 75% of the decline in volumes. And we've done a lot of analysis, like many companies have, you can imagine, in this environment. And our analytics would show 75% of this is destocking and demand, but predominantly destocking. It's very difficult to decouple those two. So 25% is more self-inflicted quota, which is around things like forced demarketing because of supply issues, In particular, we mentioned on the last call around the one-off outage that we had in the U.S., which sort of brought down volume numbers in the U.S. So, you know, there's a recovery underway to buy back into some of those businesses and some of those lost products and customer combinations. So we're doing that. That doesn't come straight away. That comes through the air and we can map that. we can map that into um into our model and we can see the orders coming in so um what you find in the round though net net is you probably see raw material prices starting to to to drop further i mean in quarter three relative to quarter two we expect that to be five six percent so a little bit more than sort of quarter two to quarter three but it's in the round they're not falling down they're not broadly is still holding up quite well, we would say. So what you find is that in the margin, the margins are pretty rock solid because you give some at the bottom and you obviously hang on to it in the very secure bits of business we've got. So in the round, you get a pretty stable margin environment for that. So pricing is that. Clearly, our job now is to go after as much business as we can. But I used to be a salesman, Sebastian, and one of the big things is in the sales environment in Crudas, they haven't had much to sell in three years. Our factories have been full. It's been an oversold industry. So now, you know, it's a great environment to go out there and develop business. So, you know, we've got a lot of hungry salespeople around the world and, you know, chief execs spending quite a bit of time with the sales groups, just getting, you know, getting excited about the opportunities that are coming our way. So, you know, we're doing, you'd expect us to do all the right things there. In terms of In terms of the COVID vaccine sales, I think it's too early. I mean, you know, our general remarks would be, you know, for the Pfizer business is very secure for this second half of the year. It's all committed. It's contracted. So there's no change there. So those numbers that we've given you, no change to that. I think next year, you know, it's likely to taper the Pfizer, BioNTech volumes and value are likely to taper down further, as we would expect, because they're sitting on quite high stock levels. And that's government as well as themselves. And we're shipping in material for later in the quarter four, which probably will will will. will allow them to consume that for most of next year. So, um, there'll be maybe a little bit next year, but it'll be significantly less than what we've got now. Having said that, you know, we talked about the pipeline, you know, on one of the slides about the mRNA pipeline, particularly, and, um, the new fad launches that we've talked about as well. So, you know, the non COVID pipeline is, is growing quite significantly and we're really, we're really excited with that. And again, it's very difficult to put a number on that, but that will partly offset that shortfall in, um, in the Pfizer-BioNTech business for next year, but still moving parts. But the most important thing that we're looking at is making sure that we're doing everything we can to accelerate this pipeline because it's really, you know, it's here for many years rather than just, you know, one year with Pfizer. So, yeah, so I'm very pleased with that. So let me stop there.

That's helpful. Thank you.

Thanks, Sebastian. I'm just going to take a couple from the webcast. These come from the team at Waverton. The first question is, can you please talk about the increased competition in China? It appears to have impacted industrial specialties. Is this also seen in other divisions? And was the JV impairment also in industrial specialties? And then the second question is, how do you think about your market share in the various niche markets? And how do you think about that going forwards?

Right. OK, let me pass to Louise. Let's do the SIPO impairment, which is industrial, by the way. But let Louise explain that. I'll come back on Chinese competition and share.

Yeah, thanks, Steve. Yes, the JV is a 65 percent JV in China, which sits in our industrial specialties business. we've seen EBITDA down significantly in the period, and that's both based on demand and price. So similar destocking trends that we're seeing in our other parts of our business in industrial. So that EBITDA demand down is against the projections we use to support the goodwill value at the end of last year. So essentially, that's the main driver, the changes in the external environment, demand and price, which have led us to reassess that carrying value of Goodwill.

Yeah, great. And on the competition, I mean, I know a number of you have got reports out at the moment on that, which is, you know, the good reports on it. What you find what you normally find in a recessionary environment, particularly when it's sort of depressed market in China, is you do see competition coming out of China into other markets temporarily. So we're seeing that you can see that in parts of Europe and North America. Crud is largely unaffected because really these people, they don't have infrastructures in – their companies don't have infrastructures, R&D, sophisticated selling mechanisms, knowledge of people, and also in broader infrastructure like distribution hubs. So what you find is they target the big volume product-customer combinations, which tends to be at the more upstream end of the market and the more commodity end of the diversified market. business so that tends to be temporary and then once china um returns to normal um you know that that product gets diverted back into china domestic china so you see that you see you see that in a temporary way by and large for croda it's sort of it doesn't it doesn't really affect us i mean we we're aware of it but it really doesn't doesn't affect croda as we move the business more and more to a knowledge you know to a knowledge business but um the um the c4 competition is specific to china just on louise's um point on impairment so that's just more competition locally for for those markets and we don't have any control of the sales anymore for that business because that's now with cargo of course and it's been with cargo for many years so it's a we're a really a co-producer for them in the arrangement that we've got so um but it's all industrial that so that's why we've chosen to do that and the impairment in terms of um in terms of market share, I mean, we tend not to talk about market share, you know, this recent, you know, we reflected on the last six months and 12 months and, you know, we've done a far more analytical assessment of our business, particularly in consumer care. And it's quite, it's quite interesting to see it for what it is. And you can start to, you can start to really get to some really clever output and better understanding of the trends in terms of, you know, business loss against demand, against e-stocking and the like. And, um, But the most important thing for Crota is to create markets, new markets. You know, we're always in current markets and we watch out our positions in the current markets. But, you know, the real growth driver for Crota is continued growth in the underlying current markets, plus moving us into faster growing niches. And our job is to try and create as big a niche as we can and have as big a market share in those niches as we can as well. So, you know, around the board table, around the exec table, it's not about market share. It's about winning business, but it's about winning business by and large through, you know, clever innovation and taking an innovation and sustainability leadership in our markets there too. So hopefully that's answered your question.

If you are listening on the webcast, feel free to type your question in the box and we'll try and ensure that they get asked. The next question comes from Gunter at Bernstein.

Hi, thank you, David. Hi, Steve. Hi, Louisa. Thanks for the presentation. A few questions, please. Firstly, on the flavors and fragrance business, you mentioned 20% growth. That's quite impressive. Could you split how much of that is price and volume? And I'm sure there will be some effects component within that as well. Yeah. Do you want to take a look?

No, we were just looking at your informality today with your polo top on. It's summer, you know. Thank you. Thanks for noticing. Well, give us the other question as well, and then we'll come back to both.

Sure, yeah, yeah. Secondly, just following up on the previous question on SIPO, could you tell us how much book value there's left in the SIPO assets, please? And then lastly, I'm going to push my luck on that one. I think I know what the answer is, but you gave that interesting slide seven with your customers' inventories. Could you share how you rank order those companies on slide seven, please?

Well, look, on the F&F mix, I'll do the F&F mix. We'll get Louisa to give you a comment on the SIPO book value. And then I'll try and give you some sort of reflection on the inventory, comment on the inventory. Look, on the F&F side, I mean, it's in the slide actually, Gunther. I don't know whether you managed to look at the slide, but in the In the top left of page, whatever it is, there's one that shows the mix, which I think, if I can read it from here.

It's about 50-50. It's about 9% volume, 7% price.

So 9% volume, 7% price. The flavors business is... which is the smaller businesses at 13%. So the fragrance business is significantly higher than that. And most of the growth generally is coming from their heartland, we call it. So it's the Middle East and it's Asia. They've had some really great growth. And this Crota enabled growth. Our positions in our core market and the reputation Crota has with a lot of customers, both big and small, is helping them win more business. So we're really pleased with the team and that growth is... You know, as I said, I think in the presentation, it's a record period for them and certainly a record in our ownership as well under Kronos ownership. So, you know, that business goes from strength to strength. And one of the reasons we bought it is it's counter chemical industry cycles. You know, it's growing. it's growing well ahead and it doesn't suffer from the same sort of destocking mechanisms that we see in our industry because the model is different. So we're really pleased with that. I think back to Louisa on SIPO.

Just a quick answer to the SIPO question, Gunther. It's a full impairment of the goodwill value of SIPO. So there's no goodwill value left after we've taken this impairment. There's obviously...

of asset value but i think that's probably a level of detail we don't need to get into but it's a full impairment of the goodwill value yeah and then in terms of inventory i mean i probably won't be asking answering your question directly going to but i think the best it's best to say look two comments i think first comment is a lot of the multinationals um you know a lot of the issue in d stocking for for crota and for many organizations is the big customers you know the big customers find it difficult to manage stock So their stock swings can be much bigger than small customers. And you can probably imagine, you can imagine the reasons why. It's much bigger infrastructure and more complex businesses. So to unwind stock is quite tricky for these people. I think the second point I would say, there is a range there. I think at one extreme, you've got Esther Lauder, who is sitting on quite large stock levels, or have been. And the other extreme is L'Oreal, who are replenishing virtually fully now. So... And part of that is their nuances in their business models, I think, as well, where people, you know, some of you are following the consumer companies as well. But, you know, it's a lot more sensitive to Chinese consumers and travel. um more than l'oreal and that's been a bit more effective so you know they could see a more drastic change to their near-term horizon than l'oreal can so and l'oreal is a bit more combination of lots of things but quite a lot of mass market as well in l'oreal which is more predictable so it's no surprise probably when you see that play out that you know you've got that that range in in sort of stocking accuracy forecasting and the like but um Yeah, what it's done actually, more than anything else, it's got us closer to our customers because we're talking to them on a regular basis, literally weekly now, not just about stock management, but just about everything. So I think, you know, that's been a sort of a really positive that's come out of this period that we're in.

Thanks, Good sir.

Thank you.

Two questions from the webcast and then we'll go to Isha Sharma at Stiefel. But first, the webcast questions. So Andrew at Mirabeau says, could you kindly provide some colour with respect to regional growth and destocking in your large geographical regions? And then George Haggis at Evelyn says, please comment on the divergence between growth and particularly volume growth in beauty actives and beauty care.

Right. I'll have a go at the first one and I'll play Louisa in. And both of us will have a go at the second one as well. But on the regional thing, I think I mentioned on the call a few weeks ago, you know, these stockings are not homogenous. And it's a function of the timing at which countries have come out of the pandemic. And so we see it in different, you know, logically you see that in different periods around the world. So North America, for example, was first out of the pandemic, you know, spending their way out of it. So, you know, the consumer spending was significant. And our sales into the consumer, effectively indirectly through our big customers, you know, have never been stronger through 21, 22, you know, record results for Crota. So Clearly, that starts to settle down and unwind. And we've been probably now about 12 months in America where we've seen some sort of destocking to different degrees. And I think it's clear in North America that it's a combination of destocking and demand. But all of our evidence says, you know, back to my point earlier, that this 75, sort of 25, 75% destocking struck demand and 25% is effectively sort of crud self-explanatory. And you have self-issues. So so we're managing that 25 percent ourselves, you know, trying to regain business and things. So but most of this is still this stock correction. I think Europe still Europe is not too dissimilar as well. You know, you've got that that combination there as well. So I think the major the major stocking, the stocking issues we've got have been in America and Europe. We're seeing a little bit around the edges in Asia and Latin America, but not significantly. So when you look at that, you know, we're looking closely, probably the most closely we're looking at is North America, because North America is where you would expect, given the time period that we're now in, you know, it's 12 months since they sort of, we started seeing a slowdown of some description. You know, we're expecting that to start to come back first. So, you know, all eyes are on America for us, like probably you as well. So that's something interesting. We'll be monitoring closely. But as I keep saying, you know, visibility is about two weeks, which is the shortest visibility I've seen. So you will see it when we see it, you know, is the sort of message that we're giving you.

If I could start with the second question around the volume, the differential volume and price patterns in consumer care. I think we said when we came out with the full year results that we did expect to see some support from the price increases, the annualisation of the price increases that we put through last year with some tempering as we came through this first half and then hoping that volume would pick up through the end of the first half and the second half. Now, obviously, the volume story hasn't panned out like that and we're rather weaker on that angle than we thought, but we are really pleased referencing slide 14 to see that price is holding up, particularly in the upper end of our portfolio. But as I said in the presentation, the fact that we've got sort of similar double digit declines in volume across beauty actives and beauty care does underpin the fact that we are seeing quite a big market correction here. But that differential between the price mix and beauty actives, where we've got a lot of our innovative MPP sales, is obviously clearly stronger than in beauty care, where we tend to see more competition at the bottom end of that portfolio. So I think the trends are pretty much what we thought we would see. And we're really encouraged that that beauty actives price mix piece is holding up quite strongly.

Thanks for those questions. Isha Sharma, Seaford, please. Hi, Isha.

Hi, good morning. Isha Sharma from Stifa. I have two questions left, please. If I adjust for the 62 million sales in the first half last year with a 50% EBIT margin, it only explains around two to four percentage point decline year over year in the EBIT margin for life sciences, but you have indicated this to be around eight percentage points. What am I exactly missing here, please? And the second question is on the guidance of 120 million US dollar sales and lipid sales for 24. Is it still valid? And could you please talk about the sequential trend that you see from Q1 to Q2 in your healthcare pipeline in general outside of the COVID-19 sales? Thank you.

Yeah. So you're correct. The COVID-19 mix piece does account for the majority of the eight percentage points of decline that we saw in the life science margin. The other couple of factors are we are seeing a little bit of mixed pressure from some adjuvant adjacencies that were also effectively in the COVID market, just at the edges there. And also we've got a little bit of mix in the underlying life science business around some of the higher value adjuvants versus protein delivery. But the majority of it is around that COVID piece to the principal customer.

Great. Thanks, Louisa. Yeah, we'll start with the trends. I mean, the second question I have answered already. Somebody already asked that, so I don't know, Isha, whether you missed that. On the sequential trends, it's all around, I think the main trends we're looking at is the pipeline. You know, I referred to that in the RNA slide. So we've got multiple pipelines. In pharma, we've got, clearly we've got a big pharma pipeline that we talked to you about late last year at the Capital Markets Day. And we're obviously monitoring that on a regular basis. And I think the general trends are, of course, more and more projects coming into the clinical one, clinical two, but also into just the early stage projects as well. And we don't profess to know everything we're in, but I think I made the point that we've got 4,500 or 4,800 citations from Avanti. So that means in medical journals around the world, Avanti is being talked about in lipids in 4,800 reports, which sort of is a great proxy to say it's a leading indicator for activity in the early stage of development. And then obviously we can monitor publicly clinical one from clinical one stage onwards because that's public domain data. But I mean, we're encouraged with it. And I think the summary of sort of my narrative was You know, the near-term opportunities will be in influenza, you know, flu and combination COVID flu treatments. And that in itself is looking interesting. But again, you know, it's not in our hands. We don't know when the big pharma are going to launch these. So it could be quite lumpy when it comes, but it could be quite significant too as well. So that's in the next probably two years, more 25 than 24. But we could see some sales next year, certainly, as we ramp up advanced sales. sampling and small-scale material to sell. And then beyond that is obviously this whole cancer treatment area, which is looking very interesting in itself. But influenza first will probably come to the market if the science is proven. And then the next step would be one or two cancer treatments, maybe more than that, coming on the market after that. So I think that's the summary of what we think is happening. Again, we're beholden to our big pharma customers, most of them are big pharma, by the way. So, you know, they're sponsoring them themselves and they've got deep pockets to invest in that. So we don't see any biotech squeeze in the pipeline that, you know, we see from others in this area. A lot of these pharmaceutical companies have, you know, really put in a ton of effort and cash into making sure these are successful. So that's sort of where we are, Isha.

Thank you, Isha. Charles Edith at UBS.

Hi, morning. Thanks for taking my questions. Just a couple left for me, please. So firstly on consumer care, you highlighted that volumes in June were above the first half average. Could you comment on how July has been trading and whether this trend gives you quiet confidence that the second half performance in consumer care might be somewhat better? and what you achieved in the first half. And I asked that in the context, obviously Unilever's results this morning, where inventories have come down sequentially, which I guess at least at the margins is positive for the destocking trends sequentially. And then second question, a bit of a broader question on the balance sheet, 0.7 times net debt to EBITDA at the half or a little over one times when accounting for the Solus acquisition. I guess with more cash generation to come in the second half, presumably, How are you thinking about using this balance sheet? Is the intention still to pursue bolt-on M&A, or could we see some shareholder returns here? Thank you.

Yeah, thanks, Charles. I mean, I'll do the first one. I'll let Louisa comment on the second. I mean, difficult to say. We can't talk about July yet. I mean, it sounds daft, but we haven't finished July yet, and we haven't done the analysis, and we do quite a lot of analysis now. But it's still difficult to see a trend, I think, even now, to say that we're shooting forward and you're going to see a massive recovery. I mean, we just simply don't have the data points now. So we're still quite cautious with that. Tone's very positive with our customers. Innovation pipelines are great. But we're still working that through. And as Gunter mentioned before in his question, or I mentioned to him, It's a spectrum of stocking points in the customers, and that's why it's quite 25% of our business in consumer care is in the big multinationals. So we can get a cross-sectional view of what's happening there, but it's very different across the piece there as well because there's so many multiple touch points. So I think we just say, look, we'll have a better understanding. I think the big month for the industry is September. Sometimes it can be when people don't normally change stocking positions as they go into the summer. I know that's an old saying, but it still applies now probably more so. And I think once you come out of the summer, then people will start to look and replenish. Most customers replenish in September for the rest of the year. And you can get a better view of outlook then from our customers. So I think that will be quite significant and quite important. So towards the end of September, I think we'll start to better understand what that demand is. that outlook looks like we'll get a better understanding of what the trends are, Charles, to be honest. But, you know, two weeks, two weeks visibility, you know, it's a tough call for anybody at the moment. You know, you can probably, you'll all rattle your big brains as well as ours and we'll put them together and we'll probably be wrong. But, you know, who knows? We just don't know. So that was that. Louisa, on the other point, which is what Cheryl says, I can chip in.

Yes, the question was about balance sheet strength. So, yes, we're at 0.7 times at the end of June. We nudge up to 1.1 times after we've paid the consideration for the SOLUS acquisition, which closed just after the period end. And clearly that's even at 1.1 times, that's at the lower end of our targeted range of one to two times. Look, we continue to believe that we have good organic investment opportunities in the business, which is our priority for capital allocation. Steve's highlighted a couple of things in his presentation, particularly in China, where we think we have good returns for our investment. And I'd just like to take the opportunity to just draw your attention to slightly elevated capital capex levels this year. at around 170 to 180 as we absorb largely the capacity investment in pharma, as well as some of the opportunities that Steve's talked about. We are really interested in bolt-on M&As. We continue to be scouting for those, but obviously that's serendipitous when assets come up and whether they're at the right value. So the ultimate answer to your question, Charles, is If we find ourselves at the lower end of that range for a period in the medium term, then yes, we would have to consider whether there was a better use for that through shareholder returns. We're not yet at that point, but clearly we are looking at that landscape.

I think I would just add, Charles, that it gives us great optionality at the moment. And for Crota, it's a balance of making sure we keep things tight in the short term while we get through this headwind in the industry that everybody's facing. And then we're strengthening, but importantly, we're strengthening the future of Crota through this period as well. And we've always done that. This is the sixth cycle I've lived through. And in every other one of them, we take the opportunity to strengthen our business. And we've got that firepower to do that. Now, we can do that in different ways, but as Louisa said, CapEx is the most important because there's a lot of growth in the business for the medium term, and that's the cheapest and the best return in many ways for us. And then the swing factor is bought on M&A versus some sort of share return, and that's something that we'll keep monitoring. But there's no black hole to fill in CapEx, so we're not expecting a big ramp-up again of capital. And I think once we've – once we've assessed what capital, because we'll always reassess through these periods as well, how much capital we need in the business to deploy over the next three or five years. We'll do that through our senior team. And then that might create actually more opportunities to deploy some more funds as well. Because we're always reassessing what capital we need in the business. But it's in a slightly higher level now because the growth potential is good. And our job is, the most important thing in Crota, there's no knee-jerk reaction to what we're seeing. You won't see that. We'll react in our normal way, which is tightly controlling costs. but strengthening the business as well. And it's keeping that balance and making sure we don't damage the business for the future because we're very well positioned for the future when the recovery comes.

Understood. Thank you very much.

Thanks, Charles. Matthew Yates, Bank of America, I think is next. Hi, Matthew.

Hi, Matthew. Thanks, David. Hi, everyone. Morning. I've got a question. First one around Iberchem. So the numbers that you put in the presentation, both in terms of volumes and sales look pretty good. So I guess if you can just confirm that you're on track to deliver the three to five year synergy targets. And then the reason I ask, if I'm not mistaken, you've released some accruals on the earn out, which would suggest something is either behind budget or perhaps not making the stretch budget. So I'm just trying to understand the tone, which sounds very positive on that asset versus what's gone through the accounts. Second question, still, I mean, the benefit of hindsight, well done on the timing of the PTIP sale, but it has left you with some small stranded costs that the rest of the business needs to absorb. Is there a plan or a timeline from getting some of those costs out or are we just stuck with them for the foreseeable? Thank you.

Yeah, all good questions. I mean, let me start with the F&F position, and then I'll play Louisa into the rest of F&F and the stranded costs. I mean, look, F&F is delivering what we expected to. The run rate growth is significant. And the growth is coming from where we expected it, you know, Middle East, Asia, and actually Latin America now. We've opened up our Brazil operation there. So, you know, it's good all-round growth. I think the synergies, if we're honest, are probably a year behind. They're about one year behind, Matthew, partly because of the pandemic and partly because it's just a bit of inertia with our customers, you know, approving the products. I think the positive in synergies has been that we are starting to see through produce. Brand positions and just our good strategic positions with a lot of multinationals that were starting to win some business, particularly where I became a strong locally. So, you know, multinational business in those areas like North Africa, parts of. Southeast Asia and North Asia, where their manufacturing is nicely positioned to some of our customers' brands as well. So we're starting to win there as well. So we're being really pleased with the top-line performance. Synergies are building a year behind. The other area that's just slightly behind where we want it to be is the profits. And that's just because of this raw material headwind, particularly that they've had sort of a one in a 10-year event for them, probably one in a 15-year event, where they had, if you remember, 35%. uh increases coming through their business which is um you know very unusual so they're just they're just unwinding and it'll probably take the rest of this year to unwind so we should see some margin benefit going into next year um as as as raw materials sort of get back to then probably normal levels i would say so there's um so it's it's it's two things it's inertia with customers on on top line synergies although we're quite happy with the top line growth and it's um

bottom line it's it's some raw material increases which are unexpected over the last 18 months which are going to unwind so a combination of that yeah matthew i'll pick up a few extra points and then segue into the equus piece um i think steve's done most of the work for me on the first question uh but from a technical point of view we obviously have to look at that contingent consideration considering some of the points that steve's made around synergies and stretch targets. And we assess that liability at the end of the period and fair value that. And that's led to this single digit million benefit to the P&L. It's less than a percent on the consumer care margin and obviously much smaller than that at the group level margin. But actually, it's a good counter on the ECWIS piece, because even though we've got a slight benefit from that Contingent Consideration Unwind was still carrying, as you've correctly pointed out, about a million pounds of headwind, sorry, a million, a percentage point of headwind in the consumer care portfolio for the Equus stranded costs. So we're pretty neutral at that level. And therefore the sequential improvement in the consumer care margin from last year to this half still stands. But on the Equus stranded costs, Look, I guess there's two strands. One is if we're successful in buying another business and deploying those P-TIC processes where we can actually spread some of those costs across new sales and new volume. Obviously, as I said before, we're looking for that, but that just depends on timing. And then the second thing is loops back around to doing the basics brilliantly and just looking at our cost base in a sensible, considered way. to see if maybe we can do things slightly differently internally to increase productivity and our cost base. But those would be the two strands of the plan over time to try to mitigate the effect of that.

Thank you, Louise. Thanks, Matthew. Thanks, Matt. Georgina Fraser at Goldman Sachs.

Hi, thanks for taking my questions. I've got two left. The first is just going back to capex. Is it fair to say we've got a bit of a higher capex guide for 2025 as well as this year and 2024? And if that's the case, is this kind of broader scope of capex opportunities or is it that the capex you were planning is coming at higher cost? And then second question, there've been a lot of moving parts in the portfolio and then we've had some major kind of external cycle swings. So just wanted to get your sense of where margins should normalise to, and if that's something that you're expecting to see in 2024, or will that come later? Thank you.

Yeah, well, let me start on the margin point, Georgina, and play Louisa in on margin and capex. I mean, the margin, you can see in the numbers, the revenue lines are holding up pretty well in this period. this trading environment, it's the margin that's significantly changed in the return on, when you look at it, when I look at it from a return on sales point of view, a lot of that, the majority of that is a function of volume, you know, which is unusual for crowd. You know, we talk about volume more in these meetings than we've done in 30 years. Um, So I think a lot depends on the visibility is so short that if we do get volume swings back, clearly that's going to significantly help margins. The product margin I keep talking about with people is really solid. It's rock solid. So our gross margin is the raw material in the pack. And we make the margin versus the selling price. We relate that to the selling price. That's holding up very well. The good thing is if volumes come back, the margins should continue to come back pretty strongly. I think a lot of it is dependent upon how quickly the volume comes back, when it comes back, how quickly it comes back, how significant that rebound is, and then margins will come back. I think it's way too early to think about where they're going to be for 2024. We'll have a much better understanding later in the year. And we've mentioned before that we probably will give an update, an October trading update as well, because there's just a volatility in the market. And a number of people have come back to us and said, why wouldn't you do that? And I think that's right. So we reflected on that. But we're still in half yearly reporting from then on in, I think. But we will give an update probably in October just because of this unusual period that we're all going through and we're living through. And I think it's only fair that we update the market on the trends that we're seeing. So we'll probably give you a better understanding of that in October.

Yeah, the only thing I would add on margin and probably a little bit of a repeat of what Steve said is that I guess there's a more linear path back to normalised margins with consumer care. once those volumes come back. And obviously the trigger point depends on when we get to that tipping point and how strong that is. But as we've already alluded to, we've got a few more moving parts in the life science portfolio, particularly with the lipid business. And we've really got some encouraging news in the underlying business, but that is going to remain a bit lumpy. So predicting 24 at this point, I would agree with Steve, is probably a bit premature. Look, on the CapEx, I think it's been well trailed that we're investing £175 million in pharma capacity across particularly nucleic acids, and that that was going to run from 2021 to 2024. And we're well on with that and probably spent over half of that money. So we are going to see elevated capital through this year and next year, largely driven by that. I've already emphasised that we have got some other capital choices that we're making within that committed envelope of capital. But once we're through that bolus, we should be reverting more to a lower capital envelope. But I think the business case for that investment over the short term has been well trailed around that nucleic acid volume.

Thanks, Georgina. Thank you. One final analyst question from Nicola Tang at Exane. Thanks for your patience, Nicola.

Thank you. Thanks for squeezing me in with the question. Just some small stuff left. Following up actually on the comments around CapEx, Louisa, I was wondering if you could give us a bit more colour on some of the other moving parts on Free Cash Flow in the second half of the year. I think in the outlook you flag an increasingly negative working capital. So could you talk about where you are on working cap, not just with the receivables, but also inventories? And I guess maybe interest and tax will step up in the second half of the year. And then the second one, in terms of, you talked about the 25% of volume impact in H1 in consumer being kind of self-inflicted CRODA issues with the capacity and the demarketing. Can you just confirm that all the capacity is now back online again? and how quickly or do you think as volumes come back, you can win back those volumes or is it, could it be sort of lost volumes? Thanks.

Okay. We'll let Louisa start with the first question then.

So we've covered CapEx, working capital. We said in the statement that we'll have an outflow at the end of the year. Largely, the driver for that is receivables, because just the maths of a large COVID shipment in the fourth quarter and a presumption of crop uptick in the fourth quarter, we will obviously be carrying a higher receivables balance at the end of the year. We continue to do good work on inventory. I've talked again about the fact that we've got the unwind of value from the balance sheet, but we're also improving days. Difficult one to call, though, whether we're in build mode by the end of the year or continuing to unwind. But I expect the receivables piece to be the major driver. And look, there's some internal stuff around creditors, less material. But this time last year, we've obviously got a big sort of REM creditor in the books that we won't have this year. So that's another thing. a negative call for working cap. But, you know, we'll obviously update you a little bit more, but those are the reasons why we're probably in an outflow situation versus inflow. But we'll do the best we can and continue to do that on inventory. Before I pass over to Steve on the four points of the 14% decline in volume that we've attributed to our own internal pieces, capacities back, And I would just remind you that we said at the end of the 22 results that we expected it might take a couple of years to fully get that back. The charm offensive is starting to work, but I don't think it's going to be an immediate hockey stick back to win that business.

Yeah, and I think you've probably answered the second question as well. I mean, just a wider point on, you know, we don't have any constrained assets at the moment. I don't think we're alone with that in the industry, by the way, Nicola. And then, so importantly now, it's just trying to target recovery of that business that was self-inflicted, you know, this forced demarketing, as Louisa mentioned, and that just takes time. You know, it will come through gradually, and we can monitor that because we can target that. And then, Starting to come back, but we'll take a few quarters before it fully comes back. And we understand that. So that should build through the second half and into next year as well.

Thanks, Nicola. Just over to Steve for a couple of questions. Closing remarks, and then we'll end the webcast there.

Yeah, thanks, David. Well, thanks, everybody, and thanks for the great questions. I mean, for Crota, there really isn't no knee-jerk reaction. The important thing is, as you'd expect us to do, is keep tight control of costs in the short term as we manage our way through these headwinds, and also with our mind on strengthening the business too for the short, medium, and long term as well. So it's a combination of both of those things. But we're in a good position. We'll do the right things. for ourselves and for our investors too. And then we're very well placed for the recovery because we continue to continuously invest in this business. And it's all about innovation leadership, as you know, and sustainability leadership for Crudder. And when we come out of this, we'll be in a very good position. So thanks very much, everybody. And we'll see you when we see you, as we say. Thank you.