Well, good morning, everybody. Welcome to another Croda webcast 2019 results I'm here with Jesmaiden and, let me start, give you just an overview of the results and then Jes with more details on the finances and then back to me on bit more about strategy in particular sustainability and where we're taking the sustainability agenda. So let's get started then. You know, a tough, a tough year for the group, a tough year for the industry as well. The subdued market conditions behind that, I would say, you know, probably the most difficult trading environment we've seen in the industry for 10 years, over 10 years.
I've been in it for long enough 30 years now. What we've had is a trade war, which is an expected de go effect, which is more specific to Croda's personal care business in China, an automotive industry that's trying to figure itself out, you know, weak automotive trading. And on top of all of that, it's an industry that's not great at managing stock, as we all know. And this unpredictable and erratic destocking is, has been, evident throughout the course of the year, in particular in quarter 3 and towards the end of the year as well. But taking that to one, to one side, pretty decent return from Croda, and it's a testament to the resilience of the organization's business model.
So the 4 key highlights in the pack that I'll just take you through, you know, they're they're there on the slide sales and operating profit slightly behind last year. Robustprofitperformance in consumer markets is consumer market the consumer markets for Croda have traded very well, in particular life sciences, big margin improvement story there, and also a good sales growth in line with where we expected that. Personal care has had a significant improvement in the second half of the year as well, particularly in margin improvement as well. So, you know, the consumer business is in good shape weaker outlook and trading in industrial markets for the obvious reasons that you see with other companies as well. But underneath all of this, it's the continued innovation, this robust margin, and the increasing margin environment in consumer, the consumer markets, which is driving our performance.
And also strong cash generation, through the, period as you'd expect from a good business. Just a little more detail on the numbers. You know, you can see for yourself, you know, it's sales slightly behind. The margin of 24.7 is unchanged, but that masks, as I said, a big improvement in the consumer margins, and move backwards in the Performance Technologies margin really is a consequence of volume shortfalls in that business. And if you look at the profits, just profits slightly, slightly behind too, but strong cash.
So, you know, all of our metrics broadly flat put great cash flow. So great margins, great cash flow, a sign of a really strong business. And in the model and the model still works very well, volumes down through most of the, which tends to mean raw material prices are down most of the, and we can capture that margin improvement, in our strongest business which is personal care and life sciences in particular. So you see that margin improvement coming partly with raw material, softening, but also with great innovation. Through as well.
So you get that double benefit. But as I said, great cash flow and, dividends up 3.4% this year. And if you look at each of the businesses, Personal Care, so, you know, when we talked to you last in the middle of the year, your Personal Care 2 headwinds, it was the trade war, North America and China related, and it had this Chinese government were modernizing the Daegu, modernizing the distribution channel, which in China, which is the Daegu effect that we talked to you all about. If you take them in turn, if you just look at actually the Chinese improvement and North Asia improvement, I mean, we're to where we would expect to trade prior to those headwinds. So China up, high single digits in quarter 4 and Japan and Korea up mid to high single digits as well.
So North Asia back to the growth we would expect and we're really pleased with that a lot of good work from the team to get there. North America getting there. You know, North America now trading in quarter 4, just 1% ahead. So the 1st quarter in the, in the year where they are trading ahead, which is good, you know, still subdued market conditions up there, but, you know, trading better than we were. So personal care at the end of the, importantly in the 3 big trading regions, of North, North Asia, Europe, and North America trading positively, and the margin improvement story to continue, because we still see raw materials pretty much subdued.
So good, good improvement there, particularly in profit in the second half. And, as I said, pleasing that those 2 headwinds, we feel like a broadly behind us now. And, we look forward with, with more confidence. So that business in Personal Care at the end of the year is in a stronger position than it was in the middle of the year, for sure. If you look at Life Sciences, this special, specialty excipient opportunity is really increasing.
We're struggling to keep up with demand, which is great, but it's a frustration as well. So we're up 9% in the 1st half and we're up 14% in the 2nd half in specialty SIPiens. This is this move into biologics, really important, probably the fastest growing business in Croda, well, it is the fastest growing business. And Our job is to satisfy that demand and, have unconstrained assets to make sure we can do that. So we're racing forward to put the expansion in there, which comes on stream later in the year, important that.
And well balanced in crop again, crops are a great business for Croda up mid single digits for the, always has volatile quarters, but tends to be up. And the disappointment, I think, and that you can see in half numbers has all been in two areas really. It's been in seed treatment, which is a quarter 4 effect anyway. 70% of seed treatment is traded in the quarter. Quarter 4.
And we had some softness in North America and in China. Both of those are short term issues. I've looked at them and they're fine. You know, we expect that to come back mainly destocking in both both areas and, some destocking as well in consumer markets as well, consumer health, we call it, and veterinary. So things like topical treatments for medical shampoos, conditioners, and the like, and also, in veterinary area.
And again, just a bit soft. Nothing else of that and there's nothing more to say on that. Fundamentally, if you're investing in Life Sciences, you're investing in the high purity specialty exit area, and that's growing very strongly. Really important, and that's driving the outperformance in margins as well. So 110 basis points ahead.
And, and moving very quickly towards the personal care margins, which we expect over the next few years, it will get to personal care margins and probably exceed them as well. So life science is in good shape, but a slight knock in the second half, which we don't believe is material going forward, which is one of those things, but taking the shine a little bit off the the great life science performs through the, the year. Performance Technologies, you know, what can I say, you know, tough trading conditions in industrial markets, you follow most of the industrial companies out there, volumes are down significantly and there's a bit of operation leverage there that drives profit deterioration as well? But I would say, don't forget this, in the last three years, this has had double digit profit growth 3 successive years. So it's a very good business.
It's had a jolt from weak industrial markets. 25% of that business is exposed to the auto industry particularly and we felt that particularly in Germany and North America. So let me stop there and let me pass on to Jes for more detail. Thank you.
Thank you, Steve. Morning, everybody. So, starting with the adjusted results, sales were down slightly in reported currency and 2.6% lower in constant currency terms. Adjusted operating profit was just under 1,000,000 behind prior year at 1,000,000. Interest cost was 1,000,000 higher year on year.
We had 2 effects in there. Firstly, In, 2019, we had higher debt due to the special dividend and also the acquisition of bio sector at the end of 2018. And also the prior year benefited from the capitalization of GBP 3,000,000 of interest associated with the, biostafactant plant construction, which we capitalized in 2018, but we stopped in 2019 as the plant was fundamentally finished at that point. The adjusted PBT was therefore GBP 9,000,000 lower than the prior year at GBP 322.1 1,000,000 serving. Pleasingly, as Steve said, the return on sales for the group at 24.7% demonstrates the resilience of the Croda model despite the impact of lower sales volume.
Basic earnings per share were 185p and as Steve said, the full year proposed dividend has been raised by 3 point This slide looks at things on a IFRS statutory basis. So taking that $322,100,000 down to the IFRS profit, key on here is the exceptional charge took charge of 1,000,000. That's associated with the cost saving actions that we've taken. We've reduced headcount in more mature regions. To reflect the sluggish trading conditions, we expect to see costs about 1,000,000 sterling lower in 2020 as a result We're going to reinvest that saving, and I'll talk a bit more about that later on.
After a higher charge for amortization of intangibles, which reflect the fact that we've done some recent acquisitions, the IFRS PBT was 302,300,000 sterling. Looking at the sales bridge, price mix improved by 3% in the core business, Once again, we saw very little overall change for the group in terms of raw material prices. So this is very much driven by mix. It's about the improvement in the quality of the, of the product portfolio we have, particularly driven by product innovation, notably in the beauty actives and the beauty effects businesses in personal care and also in the specialty excipients in life science. By contrast, life volume was down by 6% in the core business.
The main reductions in Personal Care impacted by U. S. And North Asia markets and in Performance Technologies reflecting the industrial market slowdown. M and A added 1% growth, primarily Bio Sector. And so overall, constant currency sales were down 3% in the core business.
Currency added 2% on the, dollar on the weakness of sterling, although the second half saw a markedly stronger Sterling. At this time at the half year, we were talking about a 1,000,000 benefit from currency translation. We came out near a 1,000,000 because of sterling's improvement. And so reported currency sales were down 1% overall. If we look at things by sector now, for constant currency sales, adjusted operating profit and return on sales In Personal Care, constant currency sales were 3% lower, but return on sales increased by 50 basis points, with a result that we actually have a small increase in operating profit overall, which reflects the very resilient profit model that we have in the Personal Care business.
In Life Science, we saw strong growth in both sales, up 6% and return on sales, up 110 basis points to now over 30% and that resulted in profit up 1,000,000. In Performance Technologies, we see the reverse significant headwinds saw sales 7% lower in constant currency with lower volume reducing the return on sales to 16.1%. And as a result, the profit declined by 1,000,000. So I'm looking a little bit more detail in terms of each sector. Beginning with Personal Care.
As expected at the 1st at the half year results, the second and third quarter sales were significantly impacted by destocking especially in the U. S. And North Asia markets. And as the bottom chart shows, U. S.
Consumer sales in Personal Care have remained pretty flat right the way through 2019. In addition, North Asia markets were impacted by legislation to restrict DIGO in ports from Japan and Korea and new internet selling rules and tariff changes in China. This resulted in our customers destocking ingredients through the summer months, Encouragingly, 4th quarter sales were back in line with consumer market performance and we lapped the daigou effect resulting in a return to modest growth across Personal Care for the fourth quarter. Beauty actives continued to grow and new R and D expansions in and biotech capability is exciting us for the future. Beauty effects is growing well and we're broadening the product range of that business.
Beauty formulation was the weakest area with sales declining, but with the Eco Plant now operational in North America, that should help support future recovery. In that beauty formulation. By contrast, Life Science had another excellent year with record sales and profit, The sales mix was richer, helped by the higher value specialty excipient growth, which saw healthcare sales up double digit percentage. New capacity is coming on stream, as Steve mentioned, in Healthcare in 2020, and we remain very excited by the prospects for this business. Alongside this bio sector, our vaccine adjuvant acquisition from Brenntag at the end of 2018, looks a great opportunity and we have already replaced the 3rd party distributors that we, that came with the with the business with our own direct selling model.
Crop protection grew sales mid single digit again ahead of market despite huge variations geographically as North America crop market suffered from the trade disputes, and LatAm was able to pick up the growth Our globally balanced footprint makes this crop protection business a very good business for us. Plant impact, our 2018 bio stimulant acquisition has developed a wider range of, crop treatments. We have field trials in 2020, with significant sales now not expected until 2021. Finally, seed enhancement has had a disappointing year with particularly weak for sales in North America, and China. As Steve said, after 3 years of double digit profit growth, it was a difficult year for Performance Technologies with profit reduced to 1,000,000 sterling.
With 25% of sector demand in automotive, half one saw the smart materials business in particular suffer lower sales into its polymer and coatings applications, particularly in that industry. But there was an improvement in that trend, at least a softening in that trend as we went later into the year. By contrast, the broader energy technology business held up very well in the first half year but saw a general slowing in demand across its broad range of industrial markets for lubricant additives in the second half, really reflecting manufacturing session biting in both Europe and North America. In the other parts of the business, oil and gas additive markets were weak. There were some signs of a flattening out of the sales trend in fourth quarter, but as Steve said, we remain quite cautious around the industrial market outlook in 2020.
We are optimistic though for the sector going forward. In smart materials, we're expanding capacity higher tech polymer applications, particularly for the Circular Plastics economy. And in Energy Technologies, our Revitech acquisition, into Additives for renewable energy, looks promising. And Steve will talk a little bit more about our fabric care opportunities in the home care business here. So I've included a slide just to show you what I expect to happen on the cost side in 2020.
At Croda, we're very much known for our relentless innovation machine, and for our customer intimacy model, but we're also very careful managers of costs. And in 2019, we reduced OpEx to offset the impact of lower volumes and therefore protect profitability. Some structural changes to reduce resource in more mature markets, which will save 1,000,000 in 2020. We're going to reinvest this Firstly, we're investing 1,000,000 in OpEx to deliver future growth opportunities, particularly focused around Asia, and globally in personal care and life science, where we'll be expanding our sales, marketing and technical results. Secondly, we're expanding our organic manufacturing capacity with quite a lot of assets coming online during 2020, which will add million and that's excluding the eco plant, which is sort of looked at separately.
The ECO plant will add probably of the order of 1,000,000 as we capture margin, from existing business during 2020. So with a higher pension charge, which reflects our lower corporate bond yield environment, we expect to be able to fully offset our investments in 2020 with the savings that we've made at the end of 2019 and thereby protect the overall profit margin, even though we're investing for the future. From a cash point of view, it was a strong year in 2019. Working capital was the key improvement over 2018 around careful management of inventory and receivables given the lower growth conditions. CapEx included 1,000,000 to complete the ECO Plant And therefore, I would expect CapEx probably to be more of the order of 1,000,000 sterling, in 2020.
We expect to see continued growth in free cash flow as we go through 2020. We also refinanced our debt facilities in 2019, which has seen lower interest charges and greater flexibility with facilities out to 2029 now. Got a few bankers in the room, so we give them one call out, which is that reflecting our new purpose, we've adopted a sustainability element to our interest to our interest margin, which will mean that if we achieve our aggressive targets around optimization, then we will see a lower interest bill, which we will then reinvest in our sustainability program And so great to see Croda as one of the very first adopters of a green, a green RCF. Finally, for me, some additional information to guide you for 2020, The first of all, foreign exchange, 2019 results were translated at roughly 1.28 on the dollar and 1.14 on the euro, and I've given you on the slide the impact of a 1% change in each of those currencies, which represent about 2 thirds of our exposure, to currency movements. If, I'll say today's rates, last week, end of last week's rates, remained unchanged for the rest of the year, which of course they won't, sales would be about 4% lower than 2019 and profit 3 percent lower simply because of the translation effect of those currency changes.
So to give you basically it's a mechanistic calculation. So just to give you the data there to plug those in. Secondly, in line with our purpose, we are voluntarily stingsome crop products, which we don't believe are consistent with our sustainability objectives. And just to highlight, this will take about 2% points offer life science growth rate, during 2020. And finally, we've clearly been monitoring the impact of the COVID-nineteen virus.
These have a relatively limited direct impact on us, China represents 6% of our sales, core business sales and 2% of the group production and we have relatively few raw materials which are sourced by us in China. So the main area of risk as we see it will relate what happens to our customers' product demand and to their supply chains. But from a Croda point of view, the direct impact is fairly limited. So I'll now pass back to Steve who's going to talk about how our new purpose is impacting our strategy.
Thanks, Jes. And you all know it's a different tie today than the picture, which is unusual for me, but do have more than 1, occasionally. Before we get there, I mean, purpose, we've talked to you about purpose before and we're rolling the purpose out through the organization. Getting very excited with the discussions we're having about that in the organization. Many conversations at different levels across the world.
And what that's guiding us to is the belief that actually there's new markets that are out there that are really going to drive the growth for Croda. And if there's one word that's going to do describe Croda's strategy for the next decade is sustainability. But what we mean by that is the application of sustainability to creating new markets and capturing new growth through the innovation machines that we've got. And as before we get into some of the case studies that I've pulled out, which I think are very important, we're seeing some emerging growth opportunities in a number of them. But before we do that, I'd just like to talk to you about, our targets for sustainability.
Again, we've had many conversations in the organization Chrugg has renowned, a number of you will know us from 19 25, some of you might have been in the room in that in 25, but I won't, I'm not looking at anybody in particular, Martin Evans. No, he's there. But they we have an ambitious commitment, but it's much more than in the old days, it was about taking renewable raw materials and converting them to innovative products. And then creating value in front of our customers. And of course, we'll continue to do that, but it has to be a lot more than that going forward.
Absolutely more than that. These commitments have been developed over months rather than weeks, and they are very well thought through. So by 2030, our job is to be climate land and people positive. What we mean by that in climate terms is, to reduce carbon, in everything we do across every site, we'll have a decarbonization roadmap which is being rolled out everywhere. We expect everybody to deliver against that even if volumes are rising And even if financial performance is, is at record levels, we expect that to decouple that from the decarbonization agenda.
And, we're really excited about the opportunities that we'll bring. In land, we take from the land with our renewable ingredients, of course, as you all know, but what we want to do is give more back by innovating, We think our balance can be positive because of great innovation in that space. And just exciting the organization exciting the people in the organization to do more to think differently. And we're looking at a behavior change from them. We're looking at innovation, accelerating the innovation there And our minds are on customers all the time.
There's innovation, technology and customer and it's about winning with customers because they want it as much as we do. So we're talking to customers on a regular basis. And most of our opportunities are in our pipeline or because of sustainability, absolutely because of sustainability changes to us. We have reference to the key SDGs that we refer to around our business. They're really important to Croda What they're really doing is driving legislation change.
The chemical industry is we'll be targeting quite rightly and it has to respond in all aspects of what we do. And what that means is great opportunities. And you've got to, you've got to make sure you're on the right side of legislation change rather than the wrong side of legislation change. And we're very, we're very clued into that. That's probably the biggest differentiator in our industry in the next 3 to 5 years.
Some products you think are going to grow could you could be timed out on them because legislation is changing so quickly. Country legislation, but also industry industry legislation too. And, it's a great barrier and it's a great it's a great innovation tool as well for Croda as well. So we're tuned into that and we're tuned into that through our 3, our strategy in all three areas To deliver that strategy, it will be all about the capturing these growth opportunities in sustainability. And I say to the team, it's the When sustainability is when the sustainability trend comes towards you at the intersection with your great differentiation, if you've got something brilliant and you've got a great sustainability need, you get fast growth.
And what I want to show you now is 4 or 5 case studies that actually describe the early stages of growth coming into the, into the Croda model and the the opportunities for their future. So the first one, we'll start with Life Sciences because it's the biggest one by by a significant way. The big trend in the industry, you know this from the Capital Markets Day as they move to biologics, why their macromolecules, they work much better than the petrochemical accrual. That's the first thing. But you can't take them in a tablet.
They're labile and they disintegrate quickly in your body. And they have within the gastric environment, So the important thing is you have to inject them into your body, and the injectables is where Croda comes in because they are liquid drug delivery systems. 9 out of 10 of the top drugs are biologics now. And, something like 70% of those biological drugs are our injectables, liquid systems. If you look at the R and D in the world of pharmaceuticals, the biggest investment area, guess what?
Injectables, because of this. This is a big area. We're launching 7 products this year, specialty excipients 2019, and we're targeting China we're not in China yet with these and we will be very soon and that opens up a big market for us in China. So we expect the faster growth The products we call them are the technology specialty excipients, and that's all you're getting from us. We're not going to tell you any more than that.
We're deliberately vague, but what it really does is it gives the trust to our partners, big and small customers, that they are the highest purity products around. They give maximum potency. And more importantly, they stabilize these active ingredients. They are very tricky molecules to stabilize and Croda's got a suite of ingredients that can do that. And we're probably be launching about 7 to 10 ingredients per year for the next 3 to 5 years.
And as I mentioned earlier, Our job is to get capacity on stream as quickly as we can because the demand is very strong in this area. And we expect that to continue certainly for the next 3 to 5 years. Great driver, big margin driver for life sciences, big growth driver for the company. If you look at vaccines, I got interested in bio sector because I like vaccines, I really do. And the demand for new vaccines is going There's no doubt about it.
I think in 10 years' time, there's going to be more vaccines in the world than there is today. And it's a real worthy development for Croda as well. We're solving some of the world health problem. So we're in partnership with the World Health Organization and many of the big drug companies as well to deliver new vaccines The interesting stat for you, which is why we bought the business is, if you look at the number of vaccines that produce, and the importance of adjuvant increasing in the vaccine. So now 2020, 80 percent of vaccines that produced have adjuvants in them, but if you go way back, hardly any of them have.
So the adjuvants becoming a very critical ingredient in these formulations that's really important. And that's driving a sort of compound growth of these adjuvants are about 10% a year. So very high margin products, great barriers to entry our next generation technologies, saponin adjuvants bio based systems for the, the next generation vaccine, which is great. So a lot of good R and D and innovation and intellectual property around that. And the reason they come to Croda, the absolute differentiation, this X marks the spot of fast growth where sustainability trends meet Croda's differentiation, they have the world class number one site in the world for aseptic manufacturer of vaccines, gold standard vaccines.
So the barrier to entry here is you've got to have really high quality standards for your site. If you're going to get into this game and they have. So we bought into that and we, you know, we're, we've had 1 year with bio sector and, we expect bio sector to really push on and develop now over the next 2 or 3 years with this innovation. So playing in the right playing in the right growth, growth markets. And in life sciences, again, in crop, there's a big trend to feeding the growing population.
We know that's in Malaysia, so this is a case study of Malaysia, amazing government want to be more self sufficient. So we're working with the Malaysian government and with the farmers to make more of the the locally produced rice. They're importing too much. So what they want to do is be more self sufficient. So reducing imports, making more our technology is paddy rise, seed treatment.
There's no truth in the room with it. We named that after hour outgoing head of IR, Commerce Campbell, five foot one from Ireland, Patty rise. But he's probably listening to that as well. It's a, it's a really, I mean, a really important a really important development for the group and big trend to move to more rice manufacture, why is it interesting for Croda and why are the farmers interested? 24% yield improvement in the rice?
I mean, that's big. And what it's really doing is we are we're reducing the infestation of the rise through specialized coatings, so you're getting fast growth with that. There's an opportunity, we put a facility in place in quarter 3 in Malaysia, which is, yeah, which is starting this growth and starting to to capture the growth. The, the picture at the bottom right is 200 farmers coming to our open day in quarter 3, which is great. And it's a great cause.
We're doing the right thing. It's great innovation. There'll be a revenue stream and a profit stream for the group, but also we're, yes, we are, we're helping the Malaysian population, definitely are with our technology. Biobase surfactants, you've heard this a lot from us, it is on stream. Plans definitely on stream, start at the at the beginning.
We're interested because the trend is in clear, you'll have heard the expression clean beauty. Or sustainable trends. Clean beauty means, products free from pollutants, free from, free from toxic toxins and, and other things as well. So they want renewable materials, as pure as they can. The big, the big stat, I'm big onto that.
So that we've got a growth, where sustainability launches are increasing at a phenomenal rate. But actually behind that, if you asked to say to you in every personal care product, about 30% to 40% of them contain these materials. So the it's a big popular a big portion of the personal care industry uses these surfactants. So what we're moving So as we're accelerating the transition of our customers from petrochemicals surfactants to natural base surfactants, absolutely the right thing to do. So we call them bio based of actives and we've definitely got a first mover advantage.
Nobody else has followed us. From what we can see and no plans to it. So we've got 3 years, we've got a 3 year advantage to everybody. And of course, our marketing machine is now rolling it out in our innovation chain is rolling out new products as well. So we're in a good position to capture new growth with, bio based and new revenue stream for us over the next 2 or 3 years for sure.
Which is important. And then, another one, in Personal Care, you know, it's back on this clean beauty trend, sustainable skin actives is one of the big areas of growth for the group. So we bought this business, plant stem cell business IRB many years ago. It's got great growth and the growth is increasing, why? Well, people want plant stem cell.
So these are materials, benign materials, they're leaf cuttings, or pieces of, natural substrates around, and we can redirect the biological pathways of these to get great claims. And new claims. So this is a new example of, it is Majestem, which is a new stem cell from, from Sodirma reduces sagging. We've all got it under our chains. Men and women, so our first skin active to reduce sagging out on the market now.
You've heard it here first. And it tightens the skin. So we demonstrate that over 3 weeks, 3 week period. And from an ADAL VICE extract, this 1, but great performance. But what you company has this X factor again, sustainability trends moving towards us in clean beauty.
But absolute brilliant claims that have been made from Croda, which are 100% sustainable. That's where you get the growth. You have to have them both and we have that. So there's another growth stream and that's driving the margin improvement story in Personal Care, partly. So these are very high margin products.
And then finally, you know, Performance Technologies, this move away from throwaway fashion, one of the biggest polluting industries in the world, surprising to me, is retail, you're throwing clothes, 6 out of 6 out of 10 clothes, end up in landfill, very quickly actually. A lot of people only wear their clothes 2 or 3 times. And then they throw them away. So it's a big environmental polluter. So we've been targeting this and the If you can extend the active life of the garments through the wash cycle, you get a huge saving in, in, in sustainability, carbon, water and waste.
So it's a worthy cause, absolutely the right thing to do for the group. You're getting a big environmental trend moving that way. And we've got biopolymers. So these are active ingredients that are going to the fabric condition at very small inclusion levels transform the product. And under clever microscopes, you can start to see that they extend the fiber life.
So they're very similar to how you'd apply them on, on shampoos and conditioning treatments. So what you do, it sits on the surface and it reduces, so it allows you to improve, improve efficiency through the wash cycle, allows you to reduce temperatures, and it allows you to wear your clothes more regularly. Some of you wear them more regular than others. I won't talk about my wife. But there you go.
But it's absolutely, great technology and, sustainability trends meeting Croda's technology fast growth. So there are just some examples and these are starting to emerge through the group as potential good growth streams for the organization. A lot of them are nascent under there and there'll be plenty more. And I think what we want to encourage through the organization is thinking about the end trend first and then innovate more and more with the Croda ingredients and we can get to a very exciting place. But absolutely, most of Croda's growth will be because of the trends first.
There's a trend in the industry that's moving towards us. We've got to make sure that we can innovate towards them. And when we do that, we'll get we'll capture faster So just finally for me, just in summary, strategy firmly in place, it's been a tough year, no overreaction from us. We'll manage that in a disciplined way like we do. Of innovation going on.
But the business model is intact very much intact as well. So we're really pleased with that and we're really excited with the purpose work that we're doing right around the organization. In outlook, you'd expect further progress we'll expect further progress in the consumer markets Pharma Technologies will be a bit weaker. We're not expecting any help from the external environment, but we had another year of great innovation in Croda. Which will help us in the year ahead for sure.
Thank you Gunther Sejmann from Bernstein. Can you just talk us through the assumptions behind by division for organic growth for the 3 core divisions? And secondly, can you say if you're comfortable with pretax profit consensus for the year of 1,000,000? Thank you.
Yes. Yeah, I mean, let me start by. I mean, generally, I think it's in the release as well if you look, I mean, the way to look at the growth profile would be we're not expecting any improvement in market conditions, but we expect Personal Care to grow 2 ish percent this, this next year, just on the strength of, some recovery through the end of the year. Your life sciences probably, we say 5% to 7% probably nearer 5% because we've got this 2% voluntary, reduction in crop which, which will knock that down to probably about 5%. And then, you know, the swing factor really for us is performance technologies, for the year.
And then, we'll be pleased if we can get to sort of not to minus 2% sales growth in Performance Technologies through the earning. We are beholden to market conditions more in that business than in the other 2. So we screen for that in constant currency with a bit of margin improvement still in in life sciences and maybe a little bit in personal care, but we don't normally guide for that, but mainly life sciences. I mean, Jes, on the, on the rest of it?
Yeah, I'm not sure I recognize that consensus number that you mentioned, Gunther, but basically taking Steve's sort of direction there, we should see some modest sales growth. We don't see any reason for margin attrition. As we demonstrated in tough conditions in 2019, and we should see 2 areas of margin pick up 1 in life science as we continue this journey. Towards personal care levels. And secondly, from the eco plant coming on stream because for 2020, that's effectively a margin capture.
We're capturing the margin currently made by our or previously made by our raw material suppliers in Petroio. So we'll pick up margin. Maybe we'll get to some new sales in Eko by the end of the year, but we're primarily thinking of 2020 as a margin capture as we convert everybody over to the bio feedstock. And then allowing customers a few months, obviously, to get their new products or their relaunched products using bio based materials to market probably means that we'll see more of a sales benefit in 2021 from Eco. So this year, more of a margin benefit.
So those should be the two things that should help margin. Clearly I've given you the guy well, I've given you the mechanics for FX, the rates will be what the rates will be and we're we're primarily earning our money overseas. So, therefore, that will come through, depending how sterling trades through the year.
Excellent. 3.40, I meant for the pretax profit. Yes, I was looking at the wrong year. And if I can just have a quick follow-up on the raw material cost side? What's the outlook you mentioned benign in 2019?
What do you see for 2020?
I mean, benign, but, reducing would say generally, I mean, certainly in the second half of the year, we've seen some further softening, which we've captured in margin improvement in the consumer businesses. I think maybe a little bit more softening in the industrial markets, we have lower russick, rape oil, which is a key raw material for the group, in 2 or 3 of our factories. So That's coming down, but the rest of them, you know, broadly stable on these, on these lower lower raw material prices that will come at the end of you know come out of at the end of the year.
It's Adam Collins from Liberum. I had three questions. So on the voluntary 2% hit to life sciences from exiting some nonenviro cells in crop. Could you just talk about the product areas that that relates to? On plant impacts, what was the negative impact on profits last year and what will the delta be this year?
And then if you could just talk us through the impacts on interest and depreciation this year is quite a few moving parts, just, a sense of how that will develop.
I'll do the first one. You changed on the other 2. So these are these materials are, algalphenol or FOXlets, they're called So these are classed as reaches, substances are very high concern SVH6. So the band in Europe, you can't Consumer in Europe, but we have, small amount of sales, 5,000,000 sales also in our Indian and North American plant. And it's also primarily crop crop care.
And, we shouldn't be making them. We should absolutely not be making them. So, and part of our purpose is to do the right thing. So we're surfacing this around the organization. I don't want to be connected with anything that we believe has a hazardous nature to them, you know, unnecessarily.
So in a difficult year where everybody wants turnover growth, we're still doing the right things, which is the most, which is the most important thing from that. So And I think that's, you know, tribute to our philosophy and our ethics, more than anything else, but it's crop alcalfino and sockliers.
In terms of Plant Impact, usually when we acquire a technology business, we acquire it with just a small number of people, and therefore, the sort of on cost for the, say, the 1st 5 years, while we're developing that technology to something of commercialized scale is pretty small so lost in the roundings. Plant impact was different because it came with around 60 to 70 people, was losing about 6,000,000 sterling when we acquired it. For early in 2018. For 2019, that that cost base has come down to about 1,000,000, by consolidating particularly the sales resource into the existing Croda Salesforce and also being able to clearly supply back office functions from the existing Croda base I think that will stay about the same for 2020, because we're in field trial mode primarily to have, you know, originally we bought was one treatment in one crop in one region. What we've done is to broaden that whole portfolio in terms of regions for crops and customers.
You need to do the field trials because this is a yield enhancer and you need to demonstrate to the farmer that in scientific trials you could show a 10%, 15%, 20% improvement in yield because that's hard for an individual farmer to actually observe unless you've got a big cooperative using the product I think 2020 will be consistent. And then in 2021, we would expect to see the new sales of those products particularly coming through and therefore the acquisition sort of achieving breakeven and then growing from there. Technology still looks very exciting. It's taken us probably a couple of years longer, than when we acquired it, than we probably thought of the acquisition date. In terms of interest, I wouldn't expect a big change.
We'll get a very a small decline in interest in 2020, because net debt will continue to come down because free cash free cash flow is strong. But so that will be the main driver to slightly reducing interest charge. On depreciation, As I highlighted on the chart, we have about 1,000,000 of incremental depreciation expected to come from the non ECO investments we've been making. Around the specialty Alty excipient startup, the investments we've made in the Sedona business to expanded botanicals. We've expanded the Cepo facility in China.
So a number of investments we've made which will come on stream. Then in addition to that, depreciation wise within the ECO project, you're probably looking at 1,000,000 to 1,000,000 of depreciation annually. I didn't include that in the chart because my guidance is that we would expect to see a delta of around about 5,000,000 sterling in profitability obviously that profit is a big margin number, less the costs of running the plant, less the depreciation. But when you look at the depreciation number, yes, you'd see it go up for the eco effect. But as I exclude that because it's in my overall guidance on on the profit benefits of ECA.
Hi,
Eisha from MainFirst. Just on the Life Sciences business, please. So we you talked about growth prospects and also margin improvement that we should think of it as the next personal care business. In the second half, now we've seen a little bit of weakness coming from seat enhancement. Should we consider this as a normal volatility coming from the crop business as a run rate or was it only something special this year.
So how should we just look at it? Because margin wise, maybe it's more stable just like personal care as you guide, but how should we look at the top line? Thank you. Okay.
Yes, I mean, there's 2 responses to that for the second half. One is the consumer health. So we've got 3 businesses, we've got consumer, the excipient business, which is 60% of health care and we've got 40% of what we call consumer health which is the rest. And that's things like medical, shampoos, topical treatments. There's veterinary in there as well.
A little bit of omega-three in there as well. I mean that bit was quite, quite soft at quarter 4. I mean, when we looked at that, it's 2 or 3 geographies it looks right across the board as well as some destocking there more than anything else. There's nothing structural in there. We think it's a sort of one off effect.
That normally, high period excipient screens for sort of double digit growth in our mind. The consumer health business, the 40% screens were about 3% and we would expect that to get back to those levels, next year, The seed treatment part was the surprise because you only see that in quarter 4 because it's their biggest, it's their biggest crop period in the the whole year, 70% of their activity is in the quarter. There's 2 geographies that, were soft. 1 was China and 1 was America, and again, for similar reasons. I've been all over that, just to assess that as a one off issue.
We don't expect volatility in that business. And that market, see treatment markets growing at about 5% the seed treatment should grow at similar levels to the rest of the crop business. So we don't expect any sort of any volatility coming in mean, you can get volatility in the main crop business, but as we've seen for years now that 1 quarter is you can get the variant, but over an annual cycle tends to be tends to be positive. So that's a sort of background to it, but I won't worry about it. I mean, if people are investing in it, I said earlier, it's high purity excipients that you're only investing in.
Andrew,
Yes. Thanks, Steve. I'm Andrew. UBS. I'm just coming back to that comment on the seat treatment business.
I don't really understand why it's one off. Can we go back to the basics. So what did it do in 2018? Why is it down 10% in 'nineteen? And most of that in Q4 Because when I remember when we went to Cincatek, we were told it's not a large field crop business, mainly, it's specialist crops.
So the U. S. Weather impact corn, soybean, you wouldn't have thought it has a big imprint. So just a bit confused as to what's coming up.
Yes, I mean, so there's incotec Holland side is fine. So the European business from, from Holland is trading pretty well. So we've had our issues are related to, you know, further affairs. So in North America, it's mainly it is mainly down to sort of the malaise in the crop world. You've got these trade flow issues, and the impact has been that demand has been just a bit soft I mean, you can get that.
We look at the quarters for the state treatment business a bit like crop and you can get swing factors. You can get customers not taking as much one quarter as as they do in another. So I mean, it is, it is down it sounds, it sounds a bit wish it's just a bit flat. There's nothing in there that would suggest that we've got a sort of existential problem. The China problem, was a bit more about, service over there as well.
What you have to do is have a service provision these people and
you've got to be able
to respond to that. And behind the China problem was a service issue that we had as well, which didn't help, but it was keystocking primarily, but a bit of a service issue, which we've corrected over there as well. So, yes, but both of those are the relatively small in nature, but they've had they've had the impact that they've had. Yeah. Go on, Jess, do you want to I'm just going to add
a little bit, Andre. The, I think we are when we bought the business, it's very vegetable seed orientated to high value. The a lot more of the growth potential comes out of the field crops. So a lot of the work has been around corn encrustment and so forth. So we have gone further into that And certainly in North America, we saw this significant reduction in both demand from China, but also from weather.
And I think the difference in crop protection is the crop protection business is a much more globally balanced business. So last year, as I said, we saw a 40% reduction in crop protection demand in North America, but 100% pickup in LatAm in the first half year. And they compensate each other. We don't we have a presence in LatAm in seed. It's not as big, so we don't get quite that natural compensation going on as well.
But
it's had a good start. I'd say treatments had a good start. Let's say that, but we're 2 months into the year, but, most of their business is in quarter 4. So it's had a good start on relatively small. So, but it's encouraging that they're back to what I would say is normal growth rates.
You need to harvest to get the seeds and then you've got a plumber for spring, which is why this business unusually for Croda is so seasonal. So, there's a lot of positives, but one could clearly not be certain until one got there, which is why it came as a surprise to us on fourth quarter.
Yeah.
Thanks. I was just going to ask a little bit more clarity on the coronavirus impact. I understand that as a small percentage of direct sales for Croda, But I imagine there would be a bit of a weaker consumer and reduced flight traffic travel. So with that in mind, what are you hearing from your multinational customers? What are they seeing?
And then when we're thinking about that improvement to 1% to 2% organic growth next year. Is that just taking into consideration a weaker consumer as well? Or how should I think?
Yes, I mean, generally, I mean, overall, we'd say it's like most companies, it's very difficult to predict, but our exposure in we tend to look in China for this like most companies do. Explaining 6% of sales, 2% production. What we're in our factories are starting up now. There's been an extended Chinese holidays, everybody knows, so people have been remaining at home for probably 2 or 3 weeks, now getting back to their offices. And encouragingly in China, so this year, February is a supply chain out of China everywhere and the impact that has.
I'll come on to that in a second, but the encouraging thing is the trade floor is mobilizing across across the country and across provinces now. It was restricted to certain provinces. Now it's across provinces. The shipping flow has started as well, and clearly there's big catch up work to do on supply chain change there. And the people are getting back to slowly but surely getting back to normal.
There's no impact in January, an impact in February. We still see it as a sort of quarter 1 impact, but no more than that, but it's difficult to, to see where this goes at this stage. The supply chain, so there's 2 elements of the supply chain that we worry about. 1 is the supply of raw materials from China into Croda factories around the world, and we're fine with that. And our biggest raw material is Walgreens.
People remember that from the early days. We buy Walgreens from about 6 different countries. We buy some significant Walgreens from China, but we have comfortable stock levels for the remaining part of the year anyway. So we don't expect any issues with that. In supply chain into the credit factories, we don't believe there's a sort of an issue that's going to stop us making things, which is important.
So the impact potential is on the supply change with our customers, which is back to your original point. And we're not seeing anything yet. I mean, we're looking closely at that If you look at the trade flow of supply chain for chemicals outside of China, apart from the usual surrounding countries, the big trade flow goes into Germany and it goes into America. So they're the 2 that we watch. We're watching closely with customer demand in those countries and of course the multinationals as well.
But there's nothing alarming in that at the moment from what we can see. And I think in terms of, and we'll see where this this takes us. But before the Italian and Austrian news, we were getting encouraged about supply chains in China. This is mobilizing quite well. And they catch up, but it'll take a while for them to catch up.
So we were getting ourselves more confident with that. So in our guidance, we're not assuming any, we're not taking into consideration a further impact with the COVID-nineteen. And we're assuming at the moment it's a sort of quarter 1 impact that we'll recover with through the rest of the year.
Thanks. This is Matthew from Bank of America. Just a couple of questions on Personal Care. First is the incremental OpEx investments you're making. Can you just elaborate a little bit on what you're expecting from that?
It sounds like it's in part to deepen your China position? And the second one is about the more mass market formulation part of it. Which I think your chart showed has been sort of fairly anemic. Is there anything you or the customer base are doing that you think can accelerate the whole category? Growth?
Yes. Well, I mean, well, let's do the, the first one, well, the second part of your question, the formulation area is, It's something that we're always looking to differentiate. So a lot of that is, we think that's a function of the market where it is now. There's no structural changes And that's always going to carry a bit more of the volume weight in personal care than actives and effects. So you get a bit of effect there.
I mean most of our R and D in that area is on digital, which we're not talking too much about with you, but to differentiate ourselves a lot more capturing new growth. Looking at formulations as a service provision as well, we've got great deep knowledge in formulations. We're so we can advise the big multinationals on how to make shampoos and conditioners as well. And we do. So when they come into our laboratories, they, it's amazing how many of the big multi come in and we sort of help them guide them, teach them into making, into making these things.
So we think there's a way of improving that. And of course, biosapactants is the big opportunity because a lot of those products go into the formulation area. So it gives us it will give us better opportunities to innovate with those as well. I mean, in terms of the wider investment, I mean, we invest in knowledge. We're not investing in metal capacity for the sake of it.
The industry invests in metal capacity we don't like to. Of course, we will invest in factories when we need to, but the most important thing is to develop our brain in personal care. And the, and that's in China, particularly as priority 1, India, probably 2. And in there developing the brain is more R and D, more mark more digital capabilities, and connecting better to customers. They're underneath all of this, you've got the the constant growth of the indie population, the indie community.
I wouldn't underestimate that. It's not there's you can read lots of different things in the in your notes. The Indy growth is here for quite some time to come. Some people think it's run its course, it hasn't. So it was, there was clusters of it in California, New York, in parts of China.
Now it's popular in everywhere. So our job is with digital to connect better with them and, and with our formulation capabilities to capture that growth at the early stage. So we're in good shape there, but it doesn't need, as Jes will say, it doesn't need a huge amount of OpEx to get that growth. We're talking about incremental incremental investment here. So Great.
Is that it? Well, great. Well, thank you very much, for attendance. And I'll let you go to your next, your next one. Thank you.