Ladies and gentlemen, welcome to the Croda Interim Results Presentation Call. My name is Heidi, and I'll be coordinating today's call. I'll now hand over to your host, Steve Foot, CEO to begin. Steve, please go ahead.
Good morning. Many thanks for joining the call today. Hope you're all safe and well. We're sorry not to be with you in person, but the presentation as usual will follow the normal format to Croda. Some comments Then to Jes for the financials, and then I'll come back to talk about some key aspects of our strategy.
We'll take questions over the telephone and via the webcast at the end of the presentation too. So overall, our strong business model has delivered a resilient performance we've managed through a very challenging period. It goes without saying, I use the word resilient for a number of reasons. On the supply side, all of our 'nineteen principle manufacturing sites have remained in operation and nearly all of our workforce has continued to function as normal. Limited impact operationally around the world, and that's great credit to our teams and great credit to the local government support that we're getting as well.
On the demand side, we've seen a modest reduction in sales and the group margin has also held up well. As a capital light business, we've continued to generate strong cash. This has allowed us to continue investment in future growth, agree on exciting technology rich healthcare acquisition and pay a dividend to shareholders demonstrating our confidence in In response to COVID, we have 3 priorities from the outset. And as you'd expect, our major priority has been the health and safety of all of our people. We needed to look them in the eye at the end of the crisis and we're not there yet knowing we've done everything possible to safeguard their well-being.
And we have a more engaged workforce as a consequence of that more loyal and it generates a lot more goodwill. We're looking after our people, which is absolutely right. And next, we focus on keeping the show on the road, maintaining the performance of the business by closely controlling costs and working capital as you'd expect us to. And we've been talking to customers in a lot more frequent basis along the way. And finally, just as important, we have continued to plan for the future to ensure that Kuroda is taking full advantage of the emerging opportunities from the pandemic, which I will come on to later.
The key principle has been treating all our stakeholders fairly We didn't furlough anybody. We protected employee salaries. We helped a number of our smaller customers and suppliers with flexible payment terms. We helped communities around the Croda world with our active kindness initiative and we pay the final dividend to our shareholders. We've treated everybody fairly and we're doing the right things.
And all of this plays well to our purpose. Turning to the numbers, they are what they are, but you can see the resilience born out in them. Innovation and commercializing clever people's knowledge is what our business model is all about. And a modest reduction in sales, a resilient performance in margin and the output of which is strong profit and cash generation. And this is allowing us to further invest in the business.
Turning to the sector performance. In Personal Care, we continue to see positive trends from quarter 4 into quarter 1. Quarter 2 was significantly impacted by a downturn in consumer demand luxury travel department stores, This was particularly evident in Europe where a lot of our customers either closed or repurposed their facilities into making hand sanitizer gels. And in Latin America where there is a greater reliance on door to door selling. During the quarter, we've accelerated our customer interactions massively much more engagement than we normally would see.
And we're excited about what our customers are telling us. There's lots of innovation in the pipeline. We've also seen a very good recovery in China with personal care sales in China up 9% in quarter 2. And we remain confident of a good recovery once lockdown measures have eased further. Turning to life sciences, that's less impacted by COVID, strong underlying healthcare business, crop will be more second half weighted due to phasing issues and margin progress is in line with our expectations.
Avanti Acquisition, I'll come back to later in the pack. In Performance Technologies, Industrial end markets are clearly challenging this was partly offset by strong food packaging and home care sales for the group. So let me stop there and I'll hand over to Jes for the financials.
Thanks, Steve, and good morning, everybody. As Steve has said, the first half year saw a resilient performance Sales were 5.8% down in reported currency at 1,000,000. This reduction of 7% in constant currency sales terms translates to a 9% reduction in adjusted operating profit in constant currency. 1000000 to 1000000. Operating costs reduced with the benefit of cost savings delivered at the end of 2019 and lower discretionary spend during the first half of twenty twenty.
These cost savings were partly offset by the startup of the North America bio surfactants plant in the early part of 2020. Net interest was broadly unchanged at 1,000,000 with higher net debt from the 2019 special dividend payment mostly offset by lower interest rates following our refinancing. Adjusted profit before tax came at 1000000, 1000000, 10% behind the prior year period. With lower volume and a weaker product mix, return on sales declined by 1.1 percentage points to 24% a resilient performance reflecting the strength of Croda's operating model, with the tax rate broadly flat at 25% Adjusted earnings per share were 88.8p, just under10 percent lower than 2019. Having paid the increased 2019 final dividend in May, the interim dividend has been held at 39.5p per share.
Finally, the free cash flow remained healthy at over 1,000,000 in the half. Adjusting profit items charged in the first half totaled 7 point 1,000,000. This covered a further million exceptional charge for delivering the cost savings announced at the end of 2019, which are delivering up to 1,000,000 of annual benefits to reinvest in the business. Acquisition costs relating to Avanti totaled 1,000,000 and amortization of intangible assets relating to previous acquisitions was 1,000,000. Profit before tax on an IFRS basis was 1000000.
Now let's look at the key bridging items for the change in sales. Core business sales declined by 6%. Comprised a 2% reduction in volume due to the impact of COVID-nineteen and a 4% reduction in price mix. Whilst raw material prices were generally stable, this price mix primarily reflected a weaker product mix due to lower sales of higher value add products in personal care and performance technologies and relatively better sales of lower value add products used by consumers during the crisis. There was no impact from acquisitions during the period.
Industrial chemicals contributed to a 1% reduction in group sales and currency translation was favorable by 1%. Now looking at the key movements by core sector consumer product markets responded more rapidly to lockdown than industrial end markets, as Steve has described. As a result, personal care sales were hardest hit 9% lower. This, together with a weaker product mix, saw operating profit 17% lower. Margin was resilient though, staying above 10%.
We expect this to recover back to the low 30s once volume to return. Life Science sales were 2% lower as we highlighted at the full year results in February, this reflects in a strong comparative period from 2019, particularly in continued growth in target markets, health care saw operating profit rise by 7% and return on sales increased to 32.5 percent. Although sales in Performance Technologies were 6% lower due to slower industrial demand, impact of COVID-nineteen was seen later here than in personal care with customers initially moving to protect their supply chains. However, profit was hard to hit down nearly 20% and return on sales is just above 15%, still a strong performance compared with its peer group. Let's look at each of the core sectors in more detail.
Following a solid first quarter, which saw continued recovery in the North America market, The personal care and beauty industry was significantly affected by the COVID lockdowns. China was impacted in the early part of the year, but rebounded quickly As the bottom chart shows, Croda sales were down 4% in the first quarter before recovering to be up 9% in the second. The second quarter has seen European consumer demand heavily affected. As Steve said, most of the French cosmetics industry has shut down for several weeks, and consumer retail data showed a 14% reduction in sales in the quarter. By contrast, North America consumer demand has been less impacted with lockdown intensity varying state by state.
Latin America has been hardest hit, particularly in Brazil, where 50% of consumer sales are typically made on the door step. Whilst there are signs of lockdown conditions easing in Europe, Latin America is likely to remain difficult. Overall, this resulted in a 6% reduction in personal care volume and a 3% weaker price mix. As the more at home use staple products of the beauty formulation business proved more resilient than the higher value going out products. Also beauty actives demand is typically resilient in these circumstances, but disruption to the prestige distribution channels of duty free department and luxury stores had an impact on consumer buying patterns.
So We've not seen any signs that the long term drivers to growth in personal care have changed. Our strategy to strengthen to grow in personal care through organic and inorganic investment remains unchanged. Pleasingly, our digital investment has begun to pay off allowing us to maintain our customer intimacy through virtual contact and support. Life Sciences has seen limited adverse impact from COVID-nineteen. Healthcare demand has been modestly affected with fewer prescriptions issued and delays to some elective surgery.
There has been no discernible impact on crop. Volumes grew by 2% overall in the half. Oil price mix declined due to crop sales moving from the first half to the second half year. Growth continued in the key high value niches of health care. Our excipient delivery systems business grew by 11% as pharma customers look to high quality solutions from well invested stable and innovative partners like Croda.
The bio sector vaccine adjuvant business had a much stronger period growing sales by 25%. Consumer Health Product sales were broadly flat to year on year. Crop Protection sales were lower against a strong comparative period. Coupled with delayed plantings in Latin America due to adverse weather. We also withdrew voluntarily from products with a negative environmental footprint have announced at the last year end.
The outlook for crop looks strong with North America recovering from last year's U. S.-China trade dispute and a strong innovation pipeline with our global customers. Seed enhancement also recovered some lost sales from 2019 during this seasonally quieter first half period. Our expand to growth strategy for life sciences is working well. Return on sales for the overall sector has reached 32.5 percent, an increase of over 4 percentage points since the acquisition of Incotec at the end of 2015.
Our specialty excipients and vaccine adjuvants are being trialed in a number of COVID-nineteen related projects and we're investing for the future, both organically in plant expansion and inorganically through M And A. After week 2019, Performance Technologies experienced a steady recovery in demand during the first quarter. However, with significant closures of Automotive And Industrial plants, sales weakened progressively through the second quarter. Partially offsetting this, sales have been strong in both the home care and packaging markets due to COVID related demand and new innovation. This is shown in the top graph.
Home and fabric sales grew by 11% in the first half, whilst energy technology has saw sales declined by 18%. Reflecting its focus on automotive and industrial lubricants and on flow control in oil production. Smart Materials was more resilient down just 2% with polymer additives being used in many covid related applications, including PPE, medical devices and packaging. Overall volume was down 2% in Performance Technologies. Profitability was impacted by a combination of operating leverage.
And production constraints in our European and Indian plants. The refined to grow strategy will reduce the sector's exposure to more cyclical markets with growth in high-tech, higher growth markets. Innovation will be important and we are seeing strong interest and growing sales for Colteid Radiance we presented to you at the full year results, which doubles the life of fabrics. We are building towards an expected 1,000,000 sterling annual sales pipeline for this product by 2023. We're also investing in Asia with our new Shanghai R&D facility opening in the second half of this year, which will give greater access to many and supplier later in the year, we've secured our first two contracts for ECO Products in Performance Technologies, together with the 1st contract in Personal Care.
The ECO pipeline is now worth almost $20,000,000 in annual sales with sustainably positioned for the customer products launching from the end of 2020. While we are excited by the developments of new sales opportunities, COVID has provided something of a perfect storm for the plant with food grade bioethanol, which we use as a feedstock, in short supply due to hand sanitizer demand, resulting in a high raw material cost at a time when Petro derived ethylene is at record lows. We expect to be able to move the plant to a lower cost feedstock later this year, but in the meantime, anticipate that this will cost us about $10,000,000 in added top in 2020. Kroger continues to generate a healthy cash flow despite lower demand. Free cash flow in the first half year was 1,000,000 a reduction of 1,000,000 on 2019, driven entirely by the reduced EBITDA.
The change in working capital was 1,000,000 better than 2019, And it's pleasing to note that we have seen no material deterioration in the timeliness of customers' receivables during the COVID crisis. Capital investment increased by 1,000,000 to 1,000,000 in the first half year, despite some delays to projects during lockdown. I would expect investment in the full year to be just over $100,000,000, allowing us to complete key investments, including the doubling of specialty sitting in capacity in the U S, creation of a new customer in R&D facility in Princeton in the USA. And consolidation of our UK distribution facility. We're also expanding in healthcare in Japan and Denmark, investing in greater digital and innovation capability in China and expanding some of our European plants.
At a time when many companies are slashing investment, we believe that maintaining investment at this time will enable us to grow more rapidly in the coming years. Finally, Croda has a strong balance sheet having completed its debt refinancing in 2019. As the top graph shows, we have excellent liquidity with almost 1,000,000 in undrawn committed facilities at the 30th June. Furthermore, there are no material maturities before 2023 as the bottom graph shows with funding out 2030. And on top of this, we had in July added a $200,000,000 acquisition funding facility to allow us to complete on a bounty.
Therefore, preserving our ample liquidity. Net debt at the half year, which is pre acquisition, was 1,000,000. This is a leverage ratio of 1.5 times EBITDA. Our downside modeling shows significant leverage in liquidity headroom even in more extreme crisis scenarios. I'll now hand you back to Steve who will update you on our strategic priorities.
Thanks, Jes. Okay. So let me take you through our strategy update. As an executive team, we prioritized time to think through the impact of a post COVID world for the group. So if you just look at the slide on strategic priorities whilst our megatrends and sector strategies remain unchanged, which is very reassuring by the way, we've refreshed our near term strategic priorities and we have 5 key priorities.
Scaling drug delivery, which I'll come on to shortly, more proactive M and A, the pandemic could open up more opportunities and we want to be more focused with more bolt ons. As a reminder to you all, we're interested in more of anti type acquisitions, lots of IP, new technologies and clever people, And Asia is in as a region is the most significant growth opportunity for us and ambition too. It's there to build our aim is to build the Croda brain there especially in China. And we want to scale biotechnology as well. We have a lot of talented innovators, but nature does it better.
And here, we want to scale up a lot of our technologies. Both operationally and from R&D. And this will involve a number of smart partnership arrangements going forward there. And in digital, a real area of progress, which is creating new opportunities to engage with customers in many different ways. For the purpose of today, I wanted to provide more color on scaling drug delivery including how Avanti fits into our strategy, but first digital.
During COVID-nineteen, quite surprisingly really when you think about it, we've become more intimate with our customers. One of the big benefits has been even closer interaction with customers and potential customers. Digital is driven that. And if you look at the table on the left hand side, we've seen a 200% increase in webinars, a 400% increase in customer attendees. And these webinars often involve our marketing and R and D teams a powerful way of explaining our latest innovations and trends to our customers and again to our potential customers.
It's all about creating business opportunities and the stats are a great leading indicator for future business. We're also putting firmer foundations in place building our digital marketing brain. We've got over a dozen people around the world now in places like China, America, Europe, etcetera. We're building a new Personal Care website for indie customers and focused websites in China because of the rapidly developing growth potential there too. If you look at the case study on the right, you can see that we found new ways of bringing our innovation to life in China.
China digital users in China spend at an average of 6 hours online per day. So they're used to seeing technologies coming through. But the response has been amazing. 65,000 participants in one of the live stream trade events we participated in We're accelerating our conversations with customers. And in the old days, a good salesman would visit 12 to 14 customers per week Through digital channels, our customer audience is an order of magnitude bigger.
We're seeing a surge in customer interactions, particularly in personal care. And that bodes well for the future. Turning to drug delivery. As you know, I want life sciences to be as profitable as personal care as quickly as we can. That's the mandate.
For the group. Fast growing drug delivery platforms are an essential part of that. And we want to build drug delivery into a truly global business for Croda. You look at the trends on the left, some of these we've spoken about for some time, but some of them have emerged more recently. There's a shift from more traditional drugs to biological actives.
This is already happening. As you know, 9 out of the top 10 selling drugs around the world use these biological actives now. Biological drugs are challenging to deliver with the majority delivered by injection. Specialty excipients are chosen for their superior performance enhancing the API performance in sensitive challenging applications. Developing of next generation therapeutics is probably a new area to you and to us.
And that's things like small molecule and large molecule development of actives driven by immunology. And wider gene therapy in areas like vaccines and cancer drugs, really good technology for the future for the group. And of course, COVID vaccines are heavily profiled at the moment in gene therapy, but equally there's new solutions to address diseases outlined in SDG3, which are things like malaria, TV and HIV, and all of those we're investing in R&D. From a regulatory point of view, things like safety, transparency and traceability remain the buzzwords of the industry that have been there for quite some time. And customers are selecting our product increasingly because of the high performance purity and potency of our products.
And all of that is to derisk the supply chains. So a competitive advantage for us
and for them as well.
In terms of direction on the right, essentially we're moving from consumer health, which is like you can see that as non prescription drugs to patient health more prescription drugs to capture increased value. And with the price opportunity increasing from a few pounds per kilogram to 100 of 1000 of pounds per kilogram, you can see why we're interested in that. Our job is not to make the active ingredient though. It's their enhanced performance of the active we have a broadening set of platforms for drug delivery and lipid nanoparticles is the exciting emerging technology from Evanci. And it goes without saying, revenue and margin opportunities are increasing as we move from left to right.
As we move to drug delivery, we have an increasing breadth of technology in our portfolio, which is creating lots more opportunities for us. You all know about specialty excipients. We've been banging on about that for quite some time, but many others you don't know, there are new opportunities for the group. And one of the big ones, gene therapy for vaccine and cancer applications, a good example is Avanti's messenger RNA technology for vaccines effectively, it's an encapsulation technology that delivers of biological actives. Again, we're not making the active, but we've got ingredients that can facilitate the manufacture of these actives.
And also a number of nascent technologies coming through for respiratory diseases as well. The photo on the right at the bottom is a to Denmark our bio sector acquisition. And as Jes talked to you about really good growth this year already and we're expecting good things with that going forward. They have the only aseptic adjuvant manufacturing facility in the world for vaccines. Turning to Avanti then.
We bought Avanti because of their deep knowledge in drug delivery, exciting new technologies, rich IP, but above all clever people. If you look at the picture at the right, there's lots of R and D people there and a great age distribution, which you probably can't see. That was one of the central reasons for buying Avanti. They will become our central R and D brain in drug delivery as we globalize the drug delivery platforms. And most of the employees are scientists serving around 3000 customers.
They launch over 100 products per year, so a very impressive innovation culture, great track record. And the strategic rationale, it's all about buying knowledge in clever people. I think you've heard that a few times from me now. And it doubles our R and D capability in healthcare. We'll learn from them and they will learn from us.
No doubt about that. This isn't a technology start up, it's a great business in its own right, growing double digit and generating strong profit and cash. So in summary then, we've delivered a resilient performance, which reflects the strength of our business model, and we will continue to take advantage of our healthy cash flow and strong financial platform to invest further in the business. In outlook, it's very difficult to anticipate the future with the timing of recovery unclear, But the working assumptions are life sciences will benefit from the phasing of crop care sales and opportunities in healthcare Consumer markets were rapidly impacted by a lockdown, but expected to recover more quickly than our industrial markets, and the group margin and cash generation expect to remain robust. So the strategy unchanged, but refreshed, and that will underpin and even accelerate our future growth.
So let me stop there and hand back to the operator to take your
We have a question from Charlie Webb from Morgan Stanley. Charlie, your line is open.
Brilliant. Thank you very much and good morning, Steve. Morning, Jes. Just first off around, Personal Care, thank you for kind of breaking out pricemix and volumes. That's helpful.
But just on that volumes, the minus 6% you saw in the first half, can you when you look at the industry, you look at your customers, would you say that is reflective of that, of that environment that you see with them? Or would you say that given the tough environment, the typically your products are more geared to some of the higher end customers. There's been a bigger shift therefore perhaps
you have lost some share
in this more volatile market. Just trying to understand if it's in line with the market or is there some kind of share moving around given the overall product mix. First question, and this is the second question on life sciences, obviously a resilient first half.
Just trying to get
a better sense on gives you that confidence? I mean, it sounds like you're confident on the second half with phasing in crop and obviously the health care and scale up of your additional capacity. If you can give us some more context around what you're kind of expecting for health care and crop in the second half, what you're seeing in July, just so we can understand how that's going to play out for the rest of would be helpful.
Yes. Okay. Thanks, Charlie. Well, let's do Personal Care first
and I'll bring Jen in on the volume side, and then I'll come back from Life Sciences. Mean, personal care, so the trading is models are correlated very well with the government lockdowns everywhere around the world, we would say. And we monitor that. You can see that through the Nielsen data and the RII data, which we look at. We're probably a 2 months lag behind that, 2, 2 a half months lag.
So, what you see there is, is very directional to where we're going probably. But I think mean, you've got the, what you've got in there is the out of home and the in home differences. So, the out of home has been more affected. So, that's obviously things like high end skincare, you know, duty free hair salons and the like and people clearly haven't haven't been going out. So, that's been hit harder than the in home, which is more the shampoo's conditioners.
And, things like shower gel, volumes are broadly where I would expect them to be. I mean, you can look at individual customers out there and see differences, some have got bigger volume negatives, some have got smaller volume negatives, very difficult to correlate on that. I tend to look at quarter by geography because of the national lockdowns in care. And you look at Personal Care in Europe, for example, so the quarter 2 effect has been more significant in Europe and Latin America. Different reasons.
Europe, primarily, it will roll in lockdown. So, that's obvious. But, the French beauty industry virtually closed for about 6 weeks. Because they were repurposing their plants on hand sanitizer gel. So that has an effect, particularly on our asking actives business and our FX businesses more than it does on the formulation business as a, for example.
And also, in Latin America, as you all know, it's excelling there. So nobody's knocking on the door, or very few people are knocking on the door. So, that's been more impacted. But you know, you look beyond that and you start to see really encouraging signs. China is the barometer that we use.
I think I've mentioned that before. We're up 9% in sales in quarter 2 in Personal Care, which is a good sign. And that's encouraging us to think that once the national lockdowns moderate further and your guess is as good as mine as to how quickly they are locked, they are moderated, then the personal care business will start to come strongly. So, there's no market share loss for sure. If anything, we're gaining, we're gaining in some areas, and we've got some good evidence that we're gaining in some areas.
Particularly across the board in there because we're, we're in a good position. We're looking out. We're not cost cutting and we're not looking internally. We're actually looking a lot more with our customers. And you can see that with the digital stuff.
So, that's, I don't know, is there anything else on volume, Jess, you want to say?
No, I don't think so. I mean, Charlie, the volume is down more in the cosmetics area, and that's consistent. I mean, if we break into that consumer data, that overall 14% drop in Europe. Within that, you see cosmetics down 41% in the U. S.
Although overall, the market's pretty flat. You see cosmetics down by 26%. So it's that going outside of things, which tends to be the higher the higher end, the higher value part of the portfolio, so there's clearly been more effective on volume with the simpler products and the everyday products used at the home of
the sea says, you know, being less effective. Yes. And Chuck, on life sciences, I mean, we're very very confident on life sciences. I mean, life science is effectively immune from, from the pandemic. I mean, first half, I mean, read into the first half, a very good underlying health care pharmaceutical performance, which is great.
Very good seed enhancement performance, one of the best performing first half in the mix of markets that we operate in. And it was crop that was behind. So, crop was the one that was behind, but no particular reason more phasing issue and we sort of knew that. And there was tough comparators, but a lot of that is, certainly in the second half, we can see that already I mean, the 3 things for the second half that I'd like to go in the favor of life sciences are a rebounding crop due to phasing. And as I said, we can see that that we have got some new committed healthcare orders for the second half of the year as well, which is in train now and obviously supporting that as a new capacity coming on stream.
But we also got Avanti as well, and we'll have, you know, we should close Avanti shortly we'll have Avanci for a good part of the second half as well, and that's growing very, very well. It's got double digit growth in there. So, we're really pleased with that too. So, life sciences is good. And you can see the margin projections are good.
You know, they're going towards what you would expect personal care margin to be in a normal environment. And, you know, they can easily get there soon and we would expect that. So, yeah, very confident on life sciences, but very difficult to predict on personal care and, performance technologies in the second half. But, you know, consumer markets will probably move ahead of, that will rebound quicker than the industrial ones.
That's very helpful, guys. Thank you very much.
Our next question comes from Matthew Yates from Bank of America. Matthew, your line is open.
Just a couple of questions please. The first one on the biosurfactant plant, which I guess continues to disappoint, and I appreciate anything any of us could have seen collapse in ethanol availability. But the million additional feedstock cost you're highlighting do you think you can recover any of that through passing through price increases to customers? That's the first question. The second question is around what you talked about the presentation and using these digital tools to interact with customers.
Just how good a substitute are you finding that virtual offering to the physical, working with customers on new product development And do you think that's going to have any impact on your NPP product development over the coming quarters?
Yes. Okay. Well, Bioethanol then, I mean, yes, we've, we, if you look at Bioethanol, the plant itself, it's not disappointing. I mean, it's disappointing to get us to get on track. It's taken longer than we'd like, but actually over the last 6 months, it's had a really clear run.
And operationally, it's in really good a good position. So, once you get these sites up and running, they're a bit like an airline. Once you get in the sky, they stay in the sky for several years before you bring them offline and And this one, this one is no different to that. So, that's working well. The customer engagement is brilliant.
We've got now, I think, you can see in the past, $20,000,000 of pipeline there already and lots more engagement. I think what you're going to see post is pandemic. Is a greater, you know, the pandemic is the big challenge of today, but the bigger challenge for the next 10 years is sustainability, I call it. And we're already seeing a much heightened interest around customers on, our specific composition of products, safety of our product ingredients, Renewability we think that's going to drive an increasing interest and future sales for that plant because that's renewable based on renewable ingredients. So, you know, all of that looks really good.
The disappointment, and we couldn't plan for that as being this bioethanol issue. You know, we didn't model that. Actually perfect storm in terms of raw material positioning. But, you know, the $10,000,000 is of gentle but probably 4,000,000 hit already in the numbers in the first half. So, you know, we've taken that hit potentially up to 6,000,000 in the second half of the year.
So, but it's just 2020 issue rather than anything else. What we can do to mitigate that is using non food grade bioethanol, which we are trialing and we expect to come soon through the second half of the year. So, that will, that will, and also, that will help, but also the demand will probably moderate as we get towards the end of the year for hand sanitizer gels as well. So, you know, in the round, actually, you know, it's disappointing largely out of our control, but things are in control about customer interaction pipelines, getting the plan reliable. They're all in great shape.
So, we see a really good opportunity for 2021, 2022. Of a really good growth being captured there. So, so that's the point on that. On digital, I mean, you know, it's amazing. I mean, that was a sales guy growing up and trying to do 14 customer visits a week was a challenge, and that wasn't just for me, by the way.
Everybody. So, I might say it wasn't. And then, what you're saying now is just amazing. The interaction is a magnitude different. The customer audience is just a different audience.
Now, over the last 3 months, we've obviously been tuned into that with our marketing teams and R and D teams. And it's definitely the future, but it won't replace direct face to face. I think, for me, we'll never do that, but it will be a very important part of our selling programs and marketing programs going forward. So, You need them both. It can, it will, it can, but it will accelerate NPP.
It just feels like it will. I mean, some of the we're really working hard whilst we haven't been able to spend time at the bench with our R and D facilities because a lot of them have been offline for quarter 2. We've been spending a lot of time promoting our products in front of customers. And you can see from those stats, some of these numbers are very significant and it's a great great opportunity to engage with the customers. As I said, we've become more intimate with them as a consequence of this.
So, we'll certainly be continuing that in different forms too.
Our next question comes from Andrew Stott from UBS. Andrew, your line is open.
Thanks for taking the questions. I have a couple, mainly on Avanti, I wonder if you could explain to Lehman, especially around what seems to be more complex chemistries and I can manage. What's particularly exciting about that acquisition for you? I appreciate the slides. Give us a lot of detail, but if you can try and tell us what does it really bring to Croda that you just didn't have?
And then on the technicals of that acquisition, How does the earn out work? Is it a 3 year target? How does that full payout potential? How does that reach? And then for this year, how many months do you expect to have it in?
And more are the questions, Andrew? When you say a layman,
I think we'll have to say, but I'll try and answer that. But yeah, I mean, the last question first, I mean, We expect to close in quarter 3. So, let's assume if we owned it for 4 months, there should be 3% to 4% growth to life sciences this year. So we start with that. I think secondly, your point, I mean, what we're excited about is, I'm site about drug delivery and you know that.
But I'm more excited about the depth of knowledge that we can create in drug delivery. Personal Care is brilliant for Croda because it has great, great knowledge. And we're developing that in Performance Technologies too. Here, we've got great, we're buying great knowledge. You know, you got 150 people, 100 plus scientists.
A lot of them PhDs as well. The previous chief exec would have a field day talking about propeller heads, but Brilliant R&D and they have a deep pharmaceutical expertise sitting in drug delivery And they've got 3000 customers, but they've got a lot of academic partnerships, which we can, we can leverage that. But their competence is R and D, not operations. And what they do is they're good at 1st phase scale of the farm project. Then what tends to happen is that, that's, farmed out to, to bigger contract manufacturers then they lose quite a lot of value with that.
Well, Croda can do quite a lot of those, because a lot of them scale up in our sites. And we've got multiple sites that could scale this up, their projects. So, so the technology, I mean, this is not a particle technology is what it is. It's liposomes. And more and more of the next generation drugs, whether it's cancer drugs, oncology drugs or vaccines, are using this type of technology.
And what it does is, it primarily uses encapsulation. It encapsulates the active and it delivers it into a cell. It opens the door of a cell effectively. And that's what it does. And it does it very differently to specialty excipients.
So, The example I used in the presentation was messenger RNA. That's a good example where it delivers it encapsulates around the RNA The RNA can't go into a cell directly, but what it can do through an encapsulation route, through the banana particle it can deliver that into the cell. It opens the door of the cell. So that's really, that's really important. We would say that.
So, that's a type of technology. The next generation counter drugs and oncology drugs are moving that way. And it's all about boosting the immune system as well. So, the immunology is called and a lot of new development in pharmaceuticals is about boosting immune systems. And they have very sophisticated technologies to do that.
So, that's that. On the earnout, I mean, the way we looked at an earnout, it's, we appreciate that's unusual for keeping it you certainly don't see that in the chemical industry and it's a significant earn out. But, I mean, how we looked at it is we paid $185,000,000 for the business, the base business, We wanted to detach the opportunities from the base business. And the base business was growing effectively, it's growing at double digits. So, we didn't want to pay for potential future projects that didn't pay out just in the base value.
So, we did that. And then, what we've looked at with them is, like in any pharmaceutical company, they have bigger projects that they're working on. We always have them as well, but a lot of them never get commercialized. Some of them potentially do. And what you're trying to do then is, is agree a sort of an earn out that effectively that captures the benefit for both parties, if it's material, if things, if things take off.
So we wanted to detach that away from the, the base business. So, we're not paying for it on any of our shareholders who want us to pay for potential potential business rather than the real business in the base business. But, Jeff, anything else on that one?
I mean, clearly on the earn out, it's the earn out pace in full or in parts and it could do either of those then clearly the value of that earn out to program is much more than the the amount we're paying away. So I think it's a it's a win win from that point of view. Yes, but as Steve said, the $185,000,000 is based on the existing performance.
Out or an EBITDA earn out?
Yes, it's revenue. It's a revenue earn out, but, it's, yes, it's, we don't need to take you through the detail, but it's the you don't really need to know the proportions, but it's revenue based, but it's, I mean, these are very high margins. So, the revenue base is significant a large part of the revenue is likely to be the profit. So it's, but it's effect technically, it's a it's a revenue based.
The key, the key being, obviously, we control from completion of the acquisition, we control the projects that are going on, the projects that are being delivered. So you're not going to end a position where you're paying the revenue earn out on something which is unprofitable because, you know, we're responsible for the company. So It's, just let put
it this way. We would be delighted to pay the full earn out. I mean, on behalf of the company, because the company would generate a lot more a lot more profit generation than that. And so, yeah, and that's obviously the, it goes without saying that, but Yeah. So, it's great.
Some of the projects that we're sitting on are potentially very significant, but we know a lot of them never get to market. That's the issue with these things. So, they're quite binary. I call them. So, they are now, is there just to cover that.
So, it's a, they've worked hard with these projects for quite a few years. And, you know, there's a contribution of the profit that effectively goes to them if, if they do come good.
Thank you. I'm sorry, just to follow-up, the group CapEx for 2020, do we just take 50 and double it? And then also any thoughts on 'twenty one?
So, we've got quite a lot of growth projects sort of going on at the moment. We've got the, we'll be completing this year, the doubling of capacity on the specialty excipient plant in the U. S. And we've started work on the UK and the Japan plant. We've got new customer centers being for the U.
S. And for an R&D in China So there's quite a lot going on at the moment. I think the 50,000,000 in the first half year was slightly constrained by COVID. Clearly, on some sites, we We took off the people who didn't have to be there, which would include construction workers. So we could just focus on the operations side of the business.
So I suspect second half will be a little bit higher than 50,000,000 just because of the number of opportunities we have. So something just over 100,000,000 for the full year should be good guide. We still think going forward that the overall level of spend should be around about sort of 1,000,000, £90,000,000. It's just the the way in which the projects are falling this year. And as Steve said, you know, the opportunity to, invest a time when a lot of people are slashing their investments, but we think that there's a lot of opportunities there particularly around the life science business.
So, you know, we'll continue to do the appropriate investment. But, yeah, we'll remain relatively capitalized. There's no major projects in there. The biggest one would be about 20,000,000 sterling. So this isn't big projects on the eco scale, but there's a number that are going to add meaningful capacity and capability over the next 6 to 12 months.
Our next question comes Chaton Udeshi from JP Morgan. Chetan, your line is open. Please go ahead.
Yes, hi. Thanks. You know, a couple of questions, maybe one suggest, you know, just looking at the depreciation in first half, there wasn't major or material swing. I think in the full year results, you were talking about maybe including bio surfactant plant and increase of of maybe £12, £30,000,000. So can you, help us understand if that is going to come primarily in 2nd half, or had something changed, in terms of numbers for full year.
And, you know, maybe one for Steve, I appreciate the lack of visibility on how what is the pace of recovering personal care, but are you seeing any of that yet in the numbers or is it still pretty patchy to call out in terms of any noticeable signs of recovery?
Okay. Okay.
Hi, Justin. Yeah, so on depreciation, yeah, as said, the key driver of the depreciation was, commissioning of the advised fact and ECO plant in North America because that came on during the first quarter. We only have 1 quarter of depreciation, the 2nd quarter. The overall impact of that is about around about 8,000,000 sterling in a full year. So there's a couple of 1,000,000 in the first half and there'll be couple 1,000,000 more in the second half because of having 2 quarters of depreciation.
Okay?
I mean, the first care recovery, you know, it's hard to say, and it's very difficult for us to forecast. And if you wanted us to put a focus together, you wouldn't believe it. And we And we wouldn't believe you, we all forecast as well. It's just very difficult to have that. But, you know, it's going to be evidence based and we look at China.
We're very pleased with China. How that's recovered. We're looking closely at the Nielsen data and the RII data, RII data from the U. S. And they're good indicators for us that people are starting to purchase personal care products again, and that's probably the best.
And we're starting to see that the Nielsen data is improving. It's less negative as is the IRI data as well. So, that bodes well for recovery and we're related to SARS when SARS was, was upon us, we recovered pretty strongly. But I think before we, before we get there, we just have to see how these national lockdowns moderate further because personal care is exposed to people getting at the more people that are out. Then obviously the more people that will use cosmetics.
There's no doubt about it. So, getting back an improvement, and I think that will gradually improve certainly over the next few weeks months. So, yeah, so, and it's a great business. It's a very solid business for Croda. There's lots of technologies in there.
We're in lots of countries around the world. So, we would expect that to come back. So, we'd like Europe to, I think the big thing for us is Asia, certainly China doing well, but the rest of Asia coming back and North America too, which is encouraging signs in North America. And we want to see Europe starting to come back. We would expect that.
Over the next few months as well. Latin America will take a bit longer because of where they are in the pandemic at the moment. That's sort of where we are with it.
Our next question comes from Kevin Fogarty from Numis. Kevin, your line is open.
Just a couple for me. I guess if we look at sort of the Performance Technologies, the drop through there in terms of the operating leverage was much more significant than we've seen in previous periods. I just wondered is that sort of purely driven by the sort of mix change or is there anything else that's going on there? Just secondly, in terms of working capital, you know, I guess it's sort of year on year improvement on lower volumes. We still saw, sort of increased investments in inventories, and I just wanted sort of what business is kind of requiring that sort of increased investment on the inventory side and Finally, if I could wrap up with, a sort of general question on, benefits from COVID-nineteen, perhaps in terms of market share gains, where do you see the equation potential for that, coming through?
Yeah.
Okay. Well, let me let Jeff do performance technologies, and I'd just like to comment on working capital and the benefits.
So, yeah, I think first of all, probably about half of the plants, that we have sectors. So clearly, one of the issues you have when volumes are dropping in 2 of the 3 sectors is it's a better operating leverage position when you've got some sectors rising as we normally do while other sectors are falling. So clearly you have a bigger impact on operating leverage when several businesses are going down at the same time as we've seen during the COVID situation. But overall, in terms of operating leverage, yes, it is a more operating leverage business, but the other thing we saw was we did see significant impacts just on production, from a couple of the European plants where we had shutdowns going on and also from the Indian plant, which is quite a main performance technology producer. And India is the one place, the one site where we've had significant restrictions on our ability to produce volume to ship it in India and outside of India.
And the only products we've really been
able to allow us to
produce in India for a couple of months now has been life science products because they're sort of on a list that you're allowed to make. So you had a sort of double or triple whammy probably. You've had the operating gearing effect you've had, the fact that other businesses are not picking up the slack in volume and therefore carrying more of the cost and you've got the specifics around the European and India sites. So I think it's an extreme position on that, but not generally a sign of how much gearing effect we would expect to see in that business.
And on working capital, I mean, the working capital increases are 100% deliberate. It's been, there's been actually quite a bit of intervention from the CEO in stocks you have been here before 4 or 5 times in a recession. And, and I've made sure that we've got stock in the right place around the world for a recovery. And we haven't had that in some in some cases in the past. And what I mean by that is, you know, we would expect Asia and North America to come out come out of it pretty quickly.
And then Europe shops soon after the U. S. Is sort of our working assumption. So, There's one thing about getting the right stock, getting the right stock in place. And the other thing is making sure it's in the right location.
So, we've been making sure in Asia and North America that we've got stopped from all assets globally in the right place rather than in the wrong place, if you know what I mean. So, so that, and we feel comfortable with the stock holdings we've got around the world. We'll monitor that closely in the second half. But, we're there ready to respond when demand starts to come back, which of course it will, the $64,000,000 question is how quickly it responds, but we're in a comfortable position. So, don't worry about working capital, just see that is a great opportunity to capture fresh growth for, for later in the year and probably next year.
So, that's the point on working capital. The benefits of COVID-nineteen, I mean, we're, we'll come through this. We're weathering the storm very well. As one or 2 of you have mentioned. What that means, we always invest.
I mean, we just talked about maintaining, but we're actually increasing We're increasing investment in R&D And Digital, in acquisitions by buying a bungee. We're doing the right thing and we're investing in our people as well. And the best time to invest, I've always said, it's called a mantra that goes through decades as you invest in the downturn as well as the upturn. And that's what we're doing. And I think in a year or 2 time when we reflect on it, we'll be in a much better place because of that.
So, we'll be capturing, we are capturing business. We're particularly capturing business in Personal Care, we feel. Life sciences is, it's just great growth from the technology platform. And we also, we're also capturing new business in, in some parts of the technologies by the coal tide radiance and things like that, which is just great, great, great technology. So I think we're in a very good position.
We're doing all the right things. We're planning ahead we've got time to do that and we're putting our programs in place to accelerate those strategic priorities I talked about earlier. So, in good shape, certainly for a rebound whenever that comes.
Great. That's really helpful. Thank you very much.
Our next question comes from Yvesa Sharma from MainFirst Bank.
Good morning, gentlemen. Thank you for taking my questions. Could you help us with the monthly progression? How did you see the personal care business developing, especially how do you see, July 1st few weeks if that is possible, please? Is it, incrementally better than June or flattish, that would be really helpful.
My second question is on Life Sciences. Now that you've already achieved a margin of 32.5 percent. Is it fair to assume that the expansion might even be beyond the 33% level in the midterm and more accelerated? And the last one is on raw materials. What is the reasonable assumption for the full year, year over year, given the decline in oil derived short materials, please?
Okay. I mean, I mean, it's, I mean, personal care, that's to look at the trend of when we would say May, June, July, and pretty, pretty stable. So, it's weak book broadly flat, we would say. And it's patchy everywhere and it's all correlated with the lockdown. So, we'll be watching that closely as things develop.
In terms of life sciences, I mean, you know, the margin improvement is great and that will continue. I have no doubt. And the Avanci acquisition is very high margins as well. So, you know, the growth that we've got in the core platforms, which are things like lipid nanopart the vaccine adjuvants from bio sector and specialty excipients. They are the major drivers in there at the higher margin.
So, we would expect, continued margin progression now. Let's call it that. And we've always said we want to get to 33%, 35% margins like personal care, and there's no reason why they and who knows getting beyond that is not, is something that's certainly achievable too. So, so,
I would say that on those 2 raw materials, just Yes, I mean, we saw the picture as broadly flat. Obviously, we're buying primarily naturals, commodity grown raw materials. So overall, the basket has been flat. It's subject to a lot less volatility overall than you would see in a more petrochemical centered basket. So, yeah, overall with the increase on around bioethanol and some decreases in other areas, I would say pretty benign raw materials as we've seen for a number of years now.
I think on Life Science Margin, we might get a small bit of initial dilution on Avanti just because it's it's at a very good margin, but probably 25 percent to 30 percent EBITDA type level. So it will be quite small dilution. But again, opportunity wise, we certainly see it as a as a life size plus margin opportunity.
We have a question from Adam Collins from Liberum.
Good morning. I think I've got 3 loose ends, please. So first of all, on Life Sciences. I think at the beginning of the year, you were talking about a 2% growth impacts as you deliberately exited some crop products with poor Enviro footprint. Just wanted to understand is that happening?
And then on the sort of broader growth story, understood it's a very defensive area. But was there not some negative impact from the fact there's been lower GP visits and elective surgeries during the period. I'm thinking now of the sort of consumer health business, a smaller part of your operations, but nevertheless affected by the frequency of prescription activity? Basically, I'll do it in turn. That's the first question.
Yes, Mike. Yes, I'll do the first thing. Jeff can do
the GP. GP visits.
We go with the GP more than I do, so you know these things seem a bit older than me. The 2% thing I like that, yeah, that's happened. I mean, you know, we took the decision. I mean, very much part of our sustainability agenda is we don't want these algalphenol systems in our plants or any other hazardous material of that nature. So, toxic ingredient, So they're out and they've gone out, so they're impacting and they have impacted.
So, but that's fine. It's one of those things. But the underlying strength in the life science result in the first half has been driven by the health care platforms generally and Jes talked about those in his pack and also see the enhancement, which has been great. It's only been cropped. It's been down just on facing issues.
But Jes, do you want to talk about GP? Yes, we saw
a modest impact out of on, in the sense of, look, we're a bit removed from it and the the inventory pipeline in Pharma can be anything up to 12 months. But we could see that there was clearly some impact from the reduced number of prescriptions being written. And the reduction in elective surgery going on. So we could definitely see some impact of that when we look at the customer product mix. But the general field was in the, in the excipient side, yeah, we still saw very good 11% growth, and that cross focus that excipients and the specialty excipients, so the specialty excipients continuing to grow 10% to 30% year on year.
So we didn't really see a change in that. Consumer Health, yeah, we were flat to sort of plus 1% on that. So that for us picks up more sort of topical treatments, oral care, that sort of side of the business. And it's been relatively steady. So I don't think anything that we would be concerned about there.
And as we've said, you know, the second half outlook and beyond look very positive on both health and crop.
So, within 6 months, we could be heading for hard Brexit in the U. K. You mentioned that you are comfortable with the inventory position and sort of touched on being rightsized for Asia and North America in particular as it recovers. But What would you anticipate to be the impacts of the business in the event that we do see a hard UK exit from the year? So that's the first one.
And then the second one was just on the OpEx issues. Jividend yesterday was talking about puts and takes, lower travel costs, no product testing in its personal care areas, but more freight costs. Have there been any significant movements there either positive or negative?
Well, let me start with Greg and now Gentle is the Brexit team internally. So, so I'll get him to comment on the details. Well, I mean, so, we've got a chemical industry group that works with government on a 2 weekly basis to talk about Brexit. So I'm involved in that and other chief execs are as well for the industry. We're encouraged with where they are behind the scenes with the development of, of, their discussions, let's call it that.
The, I mean, the impact for Croda is modest. We have 95% but more than that now of our sales outside of the UK. So, the impact is always likely to be, too small. I think the, the area that we're focused on at the moment is making sure we keep the regulatory playing field the same. As Europe and the UK, which has got reach, and making sure that, you know, the European, our European partners in Suffolk, want the same thing.
So, we're still hoping that that will be, that will be the case. Although, I think that was where that goes, but, we'll lobby in government hard on that at the moment, but that's the only one for the industry point. But, Jed, do you want to go into detail anymore detail on credit?
The, I guess, a couple of areas that we've looked at. I think now actually we're at the point where from the trading point of view, it's sort of almost to some extent from the point of view, the changes we need to make doesn't really matter now whether we're in the hard Brexit or whether we get a basic free trade agreement at the end of the transition agreement in the sense that under both systems, we're going to have to account for sort of VAT duties, etcetera. In, in Europe where in the past we've just shipped from the UK and not have to worry about that. Obviously, what we prefer in that is a free trade agreement where the duties are set at 0, rather than having to have duties. But we did evaluates the tariff impact of moving completely to WCO for the UK, and the European manufacturer a couple of years ago and we were looking at mid to high single digit £1,000,000 annual impact from So that's our sort of backstop, I guess, that, you know, one could end up with, you know, £57,000,000 of duties and so forth, which clearly one wouldn't want I think mechanistically now, you're going to have a VAT and a duty system.
It's just whether or not those duties are set at 0. So I think we can manage that sort of those impacts on the trading model. As Steve said, more of a focus on trying to avoid duplicating an entire regulatory system, we can clearly do it but it would just incur additional cost to implement and then to maintain, but clearly we already run multiple regulatory systems around the world So we can do another one. It's just that it's a bit it's a bit pointless from that point of view. We don't really get any value from it.
So, and I think, you know, the general view would be that, you know, hopefully one would see less immediate issues come January in terms of goods getting blocked borders and so forth, particularly given the UK's announcement that goods would be able to flow into the UK, which affects us more on the raw material side. I think we're in a good place on the Brexit planning. We'd rather not have tariffs, we'd rather not have a separate regulatory system but they are manageable with a bit of cost if those, if those come along. In terms of the off side of things. Overall, we were down about £1,000,000 in OpEx.
You'll see that I have made an adjustment to the way we report the OpEx in the income statement just to make it a bit more consistent with the way peers report and so forth. That's just a flip between the cost of sales and the OpEx lines that you'll see in the income statement for those of you who are looking. As the OpEx overall was down about £1,000,000 year on year, that's a function of the £50,000,000 to £20,000,000 of savings that we implemented last year. Less the additional resource that we've reinvested in areas like China. It's a function of definitely reduced discretionary spend around travel and submissions because clearly, that's not happening at the moment.
And then it's offset partly by the eco plant startup because obviously that creates a bunch OpEx costs that we didn't have previously and the depreciation that we touched on earlier. Overall, we've kept the, that's a tight rein on operating costs. So in the same way on the investment side that we're not slashing investment, but this is the time to invest. We're also doing the same on the resourcing side of where we can see opportunities such as China and digital China. We're investing behind that because it's the right thing to do now.
And given our model, we're a pretty lean operating model anyway.
Our next question comes from Martin Evans from HSBC. Martin, your line is open. Please go ahead.
Yes. Thanks very much. Just getting back to the potential for Avanti looking forward. Do you think in terms of its significance, is the equivalent to your suderma deal years ago in personal care in terms of giving you the critical mass you need and the potential or do you still feel on drug delivery there's the need for another add on? And secondly, just in terms of the customer offering going forward that you can offer the 3000 plus customers that have actually given your, as you say, your ability to A last in their ability on R&D, is that important if you could almost offer a sort of one stop shot offering to customers or doesn't it really matter in the world of pharmaceuticals?
Thanks.
Yes, great. Thanks, Martin, for questions. Yeah, I mean, you know, Sedona, I just wanted to remind people, I mean, what Sedona brought personal care was they, we learned from them and we were a very personal care business reported, but they, and we learned a lot from, they created pentopeptide and they had a brilliant R and D and marketing function, and we learned a lot from that. We're still learning from them now. In many ways, there's lots of parallels with Avanti.
I mean, still early days, we haven't got them on board yet just about to, but they have the potential to do very much the same and so much that we'll learn from their drug delivery experience. They've got deep knowledge there and their R and D, their R and D and track record in R and D over the last several years has been outstanding. It's excellent. So, it's great. So, and they'll take us into areas that we either, we're not aware of at the moment or or certainly can leverage, going forward.
So it has the potential. I think 6 months, 12 months, when we come back, who knows where it plays it won't stop us doing more though as well as the point there is, we think there's other opportunities there as well that we, we want to look at too. Think in terms of the customer base, the way to look at it, Martin, is we're trying to move to more pharmaceutical services. So, what you need there is you need a very good R and D base to that. You need to then have scale of potential in, preferably in your organization, which is sort of manufacturing led.
And you need to have a great selling function to take them to market. And we've got great selling function. We have the great ability to our operational capability is strong in this area, but we didn't really have the deep expertise in R&D. So, we see this as a sort of So, again, you triangulate around those 3 functions, and this will bring a lot to the other 2 as well. So, you know, they're very, very North American business.
So, they don't have huge sales outside of North America and parts of Europe. So, we think from a selling point of view, we can can get a global reach that they couldn't get before, which is what we did with Sederma, if you remember. And I think just generally, we will have more appeal to our customers and our future and our new customers because of that R and D manufacturing and selling strength now. So, we become a real operator in the space. And of course, that's important.
Our job now is to create really terrific value from it. So, when we think we can. So, it'll be exciting journey, but it is definitely the most exciting acquisition under mine leadership as CEO. Certainly at the moment from what we can see. But that will be proved out and borne out by results and yield holders to that.
And that's absolutely right.
Great. Thanks.
Next question comes from Tom Rigguschwag from Societe. Tom, your line is open. Please go ahead.
Hi, gents. Thanks very much for presentation. Just a quick one now, because just on that on that, that transfer from the R and D side of the Banti, to the manufacturing, are the margins similar on the manufacturing side? And you've said that you can use your existing sites to manufacture some of their products is there a point at which you would then have to consider expanding that manufacturing capacity? And is that something that's 1 to 2 years away or something that's more 5 years down the road?
Yes. I mean, good question. I mean, it's still to be proven because we're learning as we go along. I mean, there looks like the similar margins. I think the issue is not so much the margin, it's the capability to make it.
At the moment of ANTI, loose it's a great business model, but it's not the perfect business model because they can have a lot of these small scale, 1 kilo, maybe half kilo quantities 5 kilo quantities, you know, something in that area, they can satisfy from their own, their own plan. But anything beyond that, when you scale up, they have to have some to another partner. So, they lose, I think they lose a significant contribution when they do that. And, clearly, we want to pick contribution up. So, I think it's not so much margin.
The margin is still, very high. I'm not sure if there's much change between that, but the losing out of the opportunity to scale up, which is very rewarding. That's the lucrative part is the manufacturing of it. And just to give you some feel for these things, you know, we, we've moved along that continuum from consumer health is £3.4 a kilo. And some of the AVanti products, you know, you're into 100 of 1000 of pounds a kilo.
So, you're talking about a different ball game, which is great. So, we'll, we'll certainly, whilst we've got a selling global reach, we'll certainly learn how to price the product correctly in this space as well because, you know, we think good, but we, we can be better. So I think that's going to be great as well. So, lots of good opportunities, but we, we just want to get them on board and really get them working with the rest of Croda. Jes, I'll just go to that additional point for you as well.
Investment side, it's a well invested site in Alabama, and then as it happens, we're already well into the expansion obviously of the main site in Pennsylvania. Site and then we have the 2 other sites in the UK and in Japan and we have expansions already underway in those. So generally to just broaden the volume of, of the specialty excipients and drug delivery systems that we can do. So I think that's already part of our plan and these expansions typically between £10,000,201,000,000 sterling each. So they're quite, you know, modest in the scale of of expansions and things that we can cope with in the normal program really.
And it's just about getting the capacity in place in time to meet the market growth.
We have no further questions. So back to you, David.
Yes. Let me just wrap up. I mean, what we didn't, what I didn't do at the start and my mistake was to welcome David Bishop to the organization, despite it being a nottingham forest fan. We think he's going to do really well for us. So, you've all probably had conversations with him now.
So, usually, like you did with Converse, and I'm sure you'll get responses that you want. But I think just in summary, a resilient performance, and I think more than that is we're investing in the business. We're accelerating our investment where we can. And we've got these refreshed strategic priorities, which I think are going to be very important to us than the medium term to capture new growth. And of course, we're, you know, we're investing in R&D in digital, but we're investing in acquisitions as well.
So, you know, we feel like we're coming out of this that's stronger than we were going in and that bodes well for, certainly in the near and medium term group. So, thanks very much for your questions. And, We'll, we'll see you
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.