Earnings Call: H1 2019

Jul 24, 2019

Well, good morning, everybody. Welcome to another, webcast from Croda. As usual, a few words from me then Jazz with more details and then back to me on strategy. I would say, welcome 38 degrees outside, but it feels like it's minus 38 degrees in here so welcome to the refrigerator, everybody. I hope you stay warm before you go out. Anyway, More on the overview from me, you know, resilient performance despite the subdued market conditions, you know, we think it's performance. Core business sales are in line with prior year despite the subdued market conditions and obviously strong comparator in the first half as well too. Operating profit unchanged and it's the strong it's the strength in our gross margins that's protecting our profitability. As you'd expect, great innovation behind that. Profit before tax slightly below slightly lower than last year due to primarily interest charges from the MANTA's surfactant plant, as we've called out before with you. And very strong cash generation, you through this capital ramp, you'd expect that most of our EBITDA converts to cash now. And we don't need a huge amount of CapEx in the business going forward to support the growth with 70,000,000 dollars, $75,000,000. So you would expect strong cash generation to continue. So very strong performance in cash generation and that's likely to continue. And the fundamentals in Croda are very strong. I'll come back to that, but NPP sales continue to increase climbing again and moving ever close to our 30% thresholds. Just a little more on the numbers, getting behind that, you've got, reported currency sales were up 2.4%, broadly flat in constant. A brilliant performance in Life Sciences outstanding performance in many ways. We don't use that word very much. Partly offset by some slowness in Personal Care, which we'll come back to USA China, confined to that but we'll explain more about that and Performance Technologies, we are with a weak auto slightly behind last year, but I mean, it's the life sciences, which is driving the highlights the big push in, behind that with our healthcare and crop care. If you look at the operating profit, it's through great margin improvement and strong innovation, but also good tight cost control as well this year with the or blip that you are seeing. And the margin is 25.1 percent excellent given the current climate out there and it's a tribute to the strength of the model that sits behind that. So continued progress. It's consumer markets that are driving the growth for Croda. If you add them together, life science, particularly But in terms of margin improvement, you know, very strong all round. And I just want to dwell on this slide, you know, because we normally call out external factors in Croda, we sort of see them as excuses for the management team when they come to us. We're very micro led as an organization. They are significant this year and they are impacting. So we need to call them out and explain a little bit more about what's happening out there and we're certainly not alone in the chemical industry with it. But there's 3 external factors primarily it's USA, China, trade disputes. If you're starting to apply in 20 25% duties on chemicals. It's a blunt instrument. It has an impact in the industry, all parts of our industry, not just in the commodity areas, it's in special to Chemicals too. And anybody who's got serious trade flows there will have some sort of short term impact. We're feeling that, to a degree, particularly in our personal care, but mainly in our, in businesses. The China, Daegu, it's pronounced, might be difficult for some people to pronounce that Daegu legislation. These are Chinese nationals going to Japan, Korea, liking the products coming back into China and then commercializing those products and an internet based social media approach. Chinese government are modernizing the channel, which we fully support but that has a knock on impact short term to small customer demand in China. And we'll, we'll bring that to life with you, through Jesse's slides. And of course, the auto slowdown, which I think you're well aware of with lots of other industrial companies that are out there. The fundamentals are great. This is a fantastic business. We've got a short term blip in macro. What we look at increasingly is The bottom 2, boxes, the innovation is stronger than Emma. The output of our activities is the most important thing in innovation. 28.3 percent innovation, more and more high quality, high margin products going to our customers, creating great value. And the other thing that we don't really show you, but internally, we have a number of KPIs for our customer engagement and increasing customer engagement and we've been deliberately vague there with the ticks, but we are very excited about, what's behind that NPP pipeline in all sectors well ahead 'nineteen versus 'eighteen. And you look at all other engagement in quite sample inquiries, product launches, customer launches, customer interactions, everything looks very positive, which supports our view that this is a macro blip rather something more structural in terms of recessionary characteristics out there. We don't see it that way. We think it's some 4 changes from politics, geopolitics getting in the way of true demand. And actually you can see that more than anything in the strong price mix effect. The volume decline minus 6% in Personal Care and minus 8% in Performance Technologies. Unusual. I'm in the industry 29 years now. You don't normally see that. You certainly don't see that for Croda in a normal trading year or 2. Actually when you get behind those volume numbers, quite a lot of NPP that our NPP volumes are down, which tells you that it's more macro demand rather than a market share issue. You know, nobody else, our customers don't want to reformulate away from our NPP. And, and not a competition, nor can competition substitute that. So it is a proxy for demand. And the important thing about the business model is the pricing element of the price mix. Gross margin percentage ahead in all three businesses driven by innovation. And the protection of profit comes from that margin improvement in the business. And actually the thing that we get most excited about is this life science price mix, there's a great chance for Croda to leverage facing in a different way franchise agreements, and profit shares under like great model in life And the Life Science business is starting to show hopefully you, but certainly us, how exciting that growth can look like going forward. And the margin improvement story in sciences, there's no reason in the near to medium term that those margins will, won't get to Personal Care margins 34%. And actually if you look back 2 or 3 years, in Life Sciences, they were there 34% prior to Incotec. So we expect them to get up to that level in the next 2 to 3 years. So all in all, robust, robust, for what we're in control of, it's a robust outlook. We just like this macro blip to be behind us sooner rather than later. So let me stop there and pass on to Jes for the details. Thanks, Steve. Good morning, everybody. So beginning with the income statement overall, sales including industrial chemicals were up 1.7 percent in reported currency but 1% lower in constant currency. Operating profit broadly flat at 179,400,000 Interest costs 5,000,000 higher year on year. The primary driver behind that is that in the first half last year, we were capitalizing interest on the eco plant construction. That finished at the end of the first half last year. Therefore, that interest obviously flows now into the now rather than going to the balance sheet. So higher interest costs there, plus of course, we did the special dividend towards the end of the first half year. As a result, adjusted PBT $170,600,000 and after deducting intangible amortization, which really the only difference between that number and IFRS. And we have an IFRS profit before tax of 166,200,000 The basic earnings per share at 98.2p were 2% lower. There's no change in our tax rate. I in the first half year or anticipated for the full year. So just a little below 25% for the tax rate. And the interim dividend is being increased by almost 4%. So looking at the sales bridge, Volume was down 5% in the core business, but we had an encouraging improvement in price mix of 4%. Behind that price mix, are broadly stable raw material prices. So it's not a price recovery. It's all about mix improvement, better quality innovation, better quality and ingredients to our customers. And this is probably a point worth highlighting in terms of differentiation to a number of our peers in the chem in the specialty chemical space and in FNF. What we're doing, remember, is converting natural commodities into products. And in those markets, we haven't seen significant raw material price changes. So that price increase, reflecting, as I say, good innovation and also a reduction in low margin business. M and A added 1% growth. That's the bias track acquisition that we made in December, in life sciences and that left the overall constant currency sales it unchanged versus the first half of twenty eighteen. On top of that, currency added about 2% reflecting sterling's weakness primarily against the dollar in the first half year fairly stable against the euro and reported currency sales therefore up 2 percent. Looking at the impact on profit, actually not a lot going on here. A little change overall. Slight negative from the sales impact on profit and M and A slightly negative by a sector is profitable, but we had a full half year of on impact, the acquisition we made in April of 2018, which is loss making and that's now lapsed into the numbers the second half. A small currency benefit again on profit and therefore reported currency operating profit up 0.5% So looking at operating profit by down 1,000,000 driven by lower sales. Life Science grew by 1,000,000, reflecting strong demand in both healthcare and Croc Care. And the Performance Technology profit was 1,000,000 lower, reflecting reduced demand. Industrial Chemicals profit down a little bit as we continue to remove tolling and byproduct sales from that business. Return on sales, as Steve said, continues to be very robust. The personal care return on sales was 33.3%, down 80 bps the previous year. You return on sales gets a little bit more affected by the impact of lower volume. It's more of a volume business and therefore, reduction in volume to have a bigger proportion impact on the return on sales, which doesn't tend to be as true of the consumer businesses, which are less operationally, operational gear So the group return on sales down just 30 bps in the first half versus the first half last year. Although a subdued environment, the profitability remains strong. So in Personal Care, beginning there, really a game of 2 halves. External issues as Steve said impacting the U. S. And the North Asia markets, growth here minus 10% in the first half year, driven by the significant trade headwinds that Steve addressed, away from these markets remained in growth and probably broadly consistent with what we saw in the latter state, latter part 2018. So growth not particularly changing in the markets away from the U. S. And North Asia. Western Europe up 4% LatAm up 2%. So some quite encouraging growth numbers there. And as I said continuing to protect the margin 33.3%. So it's clear for us that the fundamentals in Personal Care haven't changed and that once the trade headwinds moderates expect to see a return to growth. So let's just unpack those 2 different halves of the Personal Care business. A little bit more. You will all be aware, of course, of the U. S. China trade disputes. And what we've seen as the impact here is firstly, reduced consumer confidence in the U. S. And China, which really probably started from the fourth quarter of 2018, and the first tariffs came in August of 2018. So that has definitely had some impact on consumer confidence. U. S. Beauty consumer sales, as we here have bumped around around flat. And in China, we've seen, hardest get consumer data in China, but weak PMI, generally running in negative territory at the moment. So that's impacted confidence. Secondly, U. S. Customers who are exporting to China have been hit first of all by tariffs in all this last year and then by an increase to 25% us in June of this year. And then we've seen lower demand from U. S. And Chinese customers. Some quite erratic sort of stocking patterns going on. So that's overall quite a substantial impact from the trade dispute. The second issue is a local one too. China, as Steve said, the daegu legislation is really all about harmonization. It's about Chinese regulation up to the similar standards that we see in other countries. It's about clamping down on surrogate shopping, about stopping consumers and entrepreneurs going to other countries, typically Japan and Korea, buying product and then selling it either locally or internet based. Without necessarily going through all of the legislative hurdles and the Chinese government's been clumping down on that. We think that's a good thing for the medium term. It normalizes the mark it, but clearly it has had some impact on local customer sales. It's also impacted our sales in Japan and Korea. Because they are important export markets into China. And that's been a big driver of growth in the last 2 to 3 years. Going through this period of standardization really. And then the final thing, which has had an interesting effect is we've seen a option in the tariffs charged to non U. S. Imports by China, with tariffs on European import coming down from just over 8% just under 3% on personal care products. And there's no doubt that we've seen a real benefit in particularly Western Europe Multinationals, who are now more competitive in the Chinese market. So our sales into Western Europe for re export to China have definitely benefited from that. So by contrast, the European South Asia and LatAm markets have continued in growth. Western Europe, the strongest performer, but LatAm seeing a progressive macroeconomic improvement and And that South Asia good in pockets, particularly around the Indian and Indonesian markets and recovering from the sort of halo impact of slowdown in China. If we look at the 3 businesses in Personal Care Beauty Access, 1st of all, has continued in growth. The Prestige market has tended to have more and particularly in the developed markets of North America and Europe. So, that's good news. It would be the active supported by recent investment we've made in Sederma. In beauty effects, Europe and LatAm have been strong, particularly with millennial consumer, products and we're adding to the range of technologies we have in beauty effects, which is a business we do want to grow over the coming years. Beauty formulation has been the most subdued of the businesses. It is more exposed to a bit more of a mass market slowdown. But interestingly, we've seen the sales same sales impact on both NPP and differentiated products. What that suggests to us is that the market has slowed down rather than that we have lost business because classically if we lost business, we'd expect to see it away from the NPP products. So we think that that there's clear signs there that it's the market that's slower. Multinational relationships continue to be very strong doing well with multinationals and also local and indie customers where we're able to help them formulate their products. As Steve said, Life Sciences stand out performer in the first half year, double digit sales and profit growth and an increase in return on sales as well. Innovation is very much driving this business. We're at 29% NPP of sales now in this business. Healthcare pretty independent of macro. Driven much more by the drug development pipeline and the demand for complex oncology drugs and for biologic molecules is certainly helping our high purity excipient delivery system business. Sales up 15% organically and on top of that, we the first contribution from the bio sector vaccine business that we brought. And we're very excited about what we think that that technology can bring for So health care really strong. Crop Care actually really pleasing as well, 4% growth in Crop Care, which I think is good against the crop environment at the moment. North America was negatively impacted by both the impacts of tariffs on ex ports to China, particularly of Sawyer, and of course of severe weather earlier in the growing season. But the recent investment that Croda has made in growing out presence particularly in LatAm has really paid off and sales in LatAm in crop have more than doubled, in the first half year against 2018. So what's happening is LatAm farmers are picking up the slack on sales into China, created by North America farmers being advantage by the tariffs. So much more global footprint for us in crop and working very well for us. In Performance Technologies, in line with other competitors, we have seen some tough or some soft markets in Performance Tech in the first half year. About twenty 5% of sales in Performance Tech end up in the automotive sector and clearly that's been a tough area. It has it particularly impacts smart Materials. We do a lot of polymer and coatings additives that end up in the automotive business. By contrast, energy Technologies is a much more diverse business serving marine markets, renewable energy and after sales market in terms of automotive so less effective by the automotive slowdown, and broadly flat overall in its sales. Sector volumes are down about 8%, but that's been offset by an improvement in the price mix, which is good. But as said, there's more of a volume impact on the performance tech business and the margin. It has dropped a little bit to 18% But the NPP is good. We're at a record 19%. And of course, in the second half year, the Home Care business in particular will benefit from the startup of the biofactant plant, alongside personal care. So finally on cash, strong improvement in the free cash flow as we anticipated, better working capital management than in the previous period, lower CapEx, so now much more in line with our 1,000,000 sterling annual guidance on CapEx now that finish the biosefactant project and of course 150,000,000 special dividend paid in May, increasing the leverage one 0.5 times and therefore thereafter expected to decline. So thank you I'll pass back to Steve for, to talk a little bit about our strategy. Thanks, Jazz. And, yes, the short term blip certainly won't get in the way of credit strategy, which remains unchanged It's a great business, great story and a strengthening story as well. I just want to bring to life in many ways, our strategy with a new sense or a renewed sense of purpose that's coming with that. And let me explain a bit more. We want to see Croda more in the next 5 to 10 years as an organization that has working for the greater good. We want to deliver great financial results, but the non financial performance of the organization is becoming more and more important to us, to our employees and to all of our stakeholders. We, you'd be delighted to know, we had a competition internally to try and, really ask what define the sense of purpose around the organization rather than, spend 1,000,000 or 1,000,000 with management consultants, we decided to do it ourselves. So we had this competition. We are about twelve hundred people engaged in the organization with answers to the competition. And American employee won the competition and we've gone with Smart Science to improve lives. But, and it's really quite important to us because the organization really this, they're engaged with it. And we think it's going to drive a high level of commitment from the organization and a high level of performance. And the smart to improve lives is really there too. It defines us very well now. And in many ways, it links very well to our past. We're entrepreneurial in our spirit, but actually the application of our products is something that we want to spend more time on. We should be disappointed if we deliver great financial if our energy consumption or our carbon dioxide emissions are increasing, we think we can decouple that probably more important than that when we apply the United Nations Development Goals, we've got 8 there, which we think are the most important for Croda and there's 1,000,000,000 of pounds worth of investment going in there. I sit on the, the UK government board for the chemical group I chair that. And you can see a lot of money from the U. K. Going there. It's the same everywhere else. And what that's doing is leading to more opportunities for us. And Croda thrives on new market opportunities. So we think by applying our knowledge here, it's going to get us into faster growing markets. And that's the deep thought with this. And if you do that, we've We've worked with the board through our long lens strategy, 10 year strategy and coming out from that is a need to make more choices. And what what we, the output of that from the SDG mapping work would say that, yeah, we really want to expand life sciences as a priority where Croda is moving to, investment, incremental investment, acquisitions, people, we want to move there really quickly and we want the Life Science business to be as profitable as our Personal Care business as quickly as we can. And it's got great growth potential. And as Jes highlighted in the numbers, we're very excited about that. And we are very excited about Personal Care as well. I don't want you to, to be misguided that we're not, and it's great business, but it's more mature because we've been in Personal Care for longer. So the growth profile in Life Sciences will be better. It's got margin improvement, in it and it's got sales growth in Our Personal Care, we're happy with the flat these margins where they are 33%, 34%. We just want more sales growth coming through on that and that continue, I'm sure. And then in Performance Technologies, we're getting excited about some of the opportunities for new market and new markets are opening up very quickly. And our job there is to invest in some of those faster growing new markets there and concentrate less on some of the the slower growing markets too. So all in all, so that's where we're going. Not a big change to where we are, but a bigger emphasis on life science is the message from the group. And if you look at each of the businesses, the expansion in Life Sciences is breadth and depth in technologies, but it's also geography expansion as well. We will major on investing in Asia in particular, North Asia, we see a lot of opportunities there. We have a relatively small team, a sales marketing and research team now, and we think just bolstering that up from day 1 will have an incremental benefit to the group, some really good opportunities there. I think the other thing to call out on the slide is, we haven't been a slow to acquire and invest into this space. The last 3, 4 years, you know, Incotec, plant impact and CSAP is a joint collaborative investment with, with a partner, there's some great, great technology in there, particularly in encapsulation and around poly chemistry as well. So really, really good potentials and a lot of them this is a thriving incubator now for Croda and lots of opportunities around the world. So, life science in a really good position, but we want to invest more and we will be investing more in that. And in Personal Care, we've got great strengths around the world, but in Emphasis terms, I think I'll guide you to the top right and bottom right book is we're connecting with Digital in a way that we haven't done before. And some of the stats you saw earlier about customer engagement, a lot of that is driven by digital. So we've got live chats now on our website. So when potential customers and customers connect with us on our websites, we can then have conversations with them and, include them in now in, and capture information in a way that perhaps we haven't captured before, which is leading to more engaged with customers and potential customers really important, we're rolling that digital model out around the world. We expect that to target new customers rather than big customers, so mainly targeted small indie type populations that are coming on board around the world and our indie customer growth world continue to, to excite us with the level of growth that we see in there. And also you shouldn't be surprised. We're supporting some of the world's leading some new launches coming out in the second half or through certainly through 'nineteen, 1 or 2 of them are out now, but it's not just boots, but Chanel, clinique, Estiloraden. Occurrence, we're in a lot of their product support in their next generation premium brands and you'd be you wouldn't be surprised that leading that technology with them. So, well placed for further growth. As we say, we'd like the American U. S. Situation to resolve itself quickly and personal care will be restored to growth. So in a good place. And also, you know, we're refining performance technologies, I call it refining because we want to move step up into higher margin opportunities and through sustainability, there will be more and more opportunities, probably more opportunities in Performance Technologies than in Personal Care in many way So, we're excited about some of those opportunities. The innovation now, if you look at the bottom left box is at a record level. It's still lower than the other two businesses, but you would expect that because it's still a younger business, but 19% it's getting there. We'd like that to 25% as quickly as we can. And we've just announced a technology acquisition in Rivertech, which is Renewable Energy. So very clever technology for wind turbines. So we're betting on, and they have path to technologies in that area and we're betting on the fact that I think there's going to be more wind turbines around in the next 20 years than where they are now. Great technology the anti aging of wind turbines we're calling it. It has a great it future proofs wind turbines for the next generation. And it's recommended by the lead insurers as well as the primary technology for wind turbine. So great, great little technology acquisition, not a huge amount of spend, but great potential. And I think the other thing there is this flow solve project at the top, we acquired a small business for about GBP 4,000,000 and we've increased sales ten times in the 1st 3 years, 4 years. And that's the type of model that we're looking at as an example. We take great technology late technology, we put it into the selling network of Croda and we can fast grow that big margins, limited, limited resource needed and certainly limited needed for these things as well. So very good in the back. This supports our sort of fundamental ethos of moving to quality all the time, leveraging our quality, getting more patent protection in the things, but it's there to maximize our positive impact and a lot of these you're aware of. But you know, if I look at the higher purity excipient expansion in North America on stream soon. And that's to satisfy fast growth in drug delivery. It's sustainability, it's driven by people wanting to. To feel good and look good. And high purity excipients are delivering great growth. And also plant stem cells, they're the next generation sustainable skin actives and some great opportunities there for the group. You can't think of anything more sustainable there. And lots of other good acquisitions which are around our thinking around betting on future growth markets through sustainability because that's where we're going. So really important to us, but it's not just about maximizing impact, it's about minimizing environmental impact. And we're taking a keen eye now on our factories and making sure that our investment there is to reduce environmental pollution, but improve efficiencies effectively. And a lot of whether it's a renewable heat capacity or water conservation at the bottom right, a lot of this is great for financial performance, but it's doing the right thing for the business as well, which we think is very important. And we're now trying to shine the lens of sustainability on our investment program in and around the Croda world. So finally, just returning to, summary of the strategy. You've heard it a lot before, it might be a broken record. It's consistent and we're growing in quality and we were not changing our strategy. This blip is a blip. We don't we shouldn't worry too much about that. We've got to make sure we're doing the right things for the medium long term. So expansion of life sciences strength Personal Care Refining Performance Technologies. They are the big messages that you're going to hear more and more from Croda. And as a plug, I mean, we've got a seminar in October, I think it is Charlie, where we want to do a deep dive with you on life sciences. I think life sciences is a fast growth area. And We'd like to share some of our growth profiles there and technology platforms and the people who want you to see some of our people as well. So we're going to host that in London in early October. So I think that's important for you to get your heads around the life science agenda. And in outlook, we remain cautious. I think we've chat with each other and I've chatted with a few of you. We're probably more cautious than otherwise we would have been in the middle or early part of quarter 2. April and May were good due very quiet for the group and probably consistent with what you're seeing in the industry. So that's that's allowed us to be more cautious in otherwise we would have been and our caution is around just on this. We want this macro. We can't see this macro situation resolving itself overnight as a reminder, our order intake is about 4 weeks, 4 to 6 weeks, so we wouldn't see it. So we're just a bit more cautious and otherwise we would been given the exit rates for quarter 2. But overall, this is a great business, resilient business in good shape and poised for further growth. So I will up there and take your questions. Hope everybody's warmed up as well. Andrew? Yes, thanks. I'm happy to start UBS. A couple of things. So on Personal Care, the data we have on China doesn't look like the data you have on China. So you said that small customers, are your problem? So is the obvious conclusion that you are over indexed, if you like, with small customers in China and that you're off to some extent, but not enough, obviously, for the period is a L'Oreal sale in France that's then exported. So is that, is that what's going on? Because it's important. Most of our sales in China are smart to small and local customers. And our MNCs are all the small proportion. So it's not too different to the group. MNCs for personal care is 25% of personal care and 75% small customers. That's the similar profile in China. So the effect that we're having, which is unusual, is the small the MNC growth in China is still positive for growth. And we're in a very good position there. But the small customers and there's lots of them have a big negative in the first half. And this is just this jolt from the modernization regulation. So it's to they have to pause, they have to register, they have to comply and that's just taking time and then we expect that and we're starting to see that come back through small customers. So So it is a positioning effect with most of our businesses, small customers there. But the L'Oreal thing is an important one. So Jez made the point. So due to import duties for cosmetics in China have changed in the middle of last year. They were 8.6%, I think, and they moved them down 2.9%. What that's encouraging is the l'orials of the world from France to ship their finished products into China increasingly and not just their clarins. And so they encourage the premium, the brands, the top brands to ship from European production. And that's the major floor. It's not an American floor in there. Now of course, we look at our French and our French figures are good. We're not surprised with that. So we are very we're picking up business that way and our European numbers are a bit stronger than probably they otherwise would have been because of that. You've seen a slight diversion of traffic and L'Oreal will not see that will not be impacted in the trade issues as much as somebody like we are because it's Western Europe to China and they don't have that. Thanks. And the second question I had was, yes, you mentioned, on crop care that you're doing really well in LatAm. But if I look at SAES and Genter numbers on Friday and it sounds like BSF and Byron Corteva are even worse, the global number is negative and you're plus 4 in Crop Care. So is the obvious conclusion that you're just way bigger in LatAm than they are? No, I think the, I mean, LatAm is a big big market for the crop science players. So I don't think we're bigger. I think we were probably underrepresented previously and also we were importing most of our, adjuvants, our delivery systems in from Europe and North America, which meant that we were exposed to up 35% tariffs into Brazil and so forth. So we made the move about 18 months ago to move much more of the production into Brazil. So we were incontinent, which is good for tariffs, but it's also good for customers because they like you to be a bit more local. I think if you stand back and look at it, we cross crop care has been one of the probably the strongest performer organically for the group over the last 10 years. It's been the most consistent term growing business. And we've probably outgrown the market by an average of 3% to 4%. So I think our positioning in more towards the new products that are customers are producing through our collaboration agreements with them where we work with them alongside them on the bench with their latest actives has exposed us to the faster growing parts the market. So I think we are consistently outperforming the crop market, doing 3% to 4% better than wherever the crop cycle is. But also our increased presence in LatAm has undoubtedly gone down well with customers, and I think we're picking up a big share of business as well. So you have this overall move from North America to LatAm for the sales, particularly into China, biggest market for Sawyer, for example. But underlying that, you have this increased local presence, this strong position in R&D, and that's why we feel really good about crop and why we believe that medium term crop should be growing mid single digit growth, almost almost independently, not entirely of what the crop macro and cycle is Thanks. Tom Reguzwirth from Citi. So two questions, if I may. Firstly, on Healthcare 15% growth. Could you break out the price volumemix and also trying to understand how sustainable we should think about that type of that rate of growth and the order book that you have going forwards, for the Healthcare business. And then on the Personal Care side of the equation, is that the maximum impact that negative 10% and that and that's it? Or is the exit rate mean that there's a bit more to come? You talk about Asia getting progressively better. I just wanted to qualify the outlook on the impact versus that comment? Thank you. Sure. I mean, yeah, I mean, you saw the pricemix for Life Sciences, which is very positive. Price is up 10 11%. I would expect the health care bit of that to be bigger than that. I think we'll say that. And I think the thing that really excites us about health care bit is you can and in partnership with customers, they do accept franchise agreements, profit shares and royalty and the like. And that's what's attracting us to the space because our elevation, we can charge a product margin that we normally do, but on top of that, there's a recognition that we can partner up with them. If we're in some of the biggest projects with, potential improvement with the 2nd margin as well, which is what we like and what's not to like about that. But, yes, that would be really important for us. But, a lot of it, a lot of it's driven by this high purity excipients, and we're deliberately vague about what it is, what it does, but increasingly a bit like what Jes in crop, we are moving into a sweet spot in health care with positioning of our innovation. More and more of the actives in health care are becoming three-dimensional biological. What that means is you need more stable excipients and delivery systems to deliver performance. And that's what those products do. So, I mean, the best way of looking at Life Sciences, we've always said, is sort of mid to high single digit sales through the cycle. We'd love it to do 13% overall every first half and every quarter, it isn't going to do that. It's going to have big growth shoots and then maybe more subdued growth, but it will of the cycle to mid to high single digits, really, really well positioned. We just want to invest more in that. So we'll do that. Your personal care point, we are cautious with it because it's difficult to read. We'll be honest with you, it's difficult to read this macro, this sort of confidence level, which is reducing demand and this erratic and unpredictable stocking, which is in the system. No, no, this chemical industry is not great for managing stock. It never has been 29 years in the industry, and it never gets it right through the cycle. And I think what we're seeing is a correction, absolutely a correction. And I think most of us would have said chief execs would have said second half in early part of the year when I was addressing you second half will be much stronger than the first half because we'll get through that in the first half because we think it's destock And I think I'm 1, and I don't think I'll be the only one that's saying actually, we're not seeing the market pickup and we're not guiding to see the market pickup. In the can happen. And it's because we can't see it in the short term. No, it may do and you probably know it better than we do when you see all the stats coming out. But, so it's difficult to read we'd like to think we're through there. We're certainly in China. It is starting you'd expect that to start to come back, through the second half. But we want to get through this and we still think Personal Care is a 3% to 5% growth, a growth machine for Croda through the normal cycle and there should be no reason why we can't get back to that. But we're rightly being cautious for the second half because it's a bit opaque, bit opaque out there. From Exane BNP. I actually wanted to follow-up on the comments you just made on the exit rate for Q2. And whether whether this was the comments you're making on the limited visibility on the order book were mainly due to the Chinese trade rules or also because of this dego regulation? And on the day regulation front, you're assuming a pickup in Asia in the second half, but was there any sort of stocking ahead of this regulation in H2 of last year? Okay. Yeah, it's mainly primary trade war related, we think, is the soft the exit rates are a function of mainly that if we're honest. The daegu issue is a specific issue. I'm talking group, but this is a specific issue for Personal Care in China. And I think I think the caution the exit due normally is a very strong month for the industry. It's normally a top 2 month or a top 3 month and it's quiet month for well, something for Croda. So that's what's given us caution. We just think it's, it's trade roll related. Some of the tariffs came on late quarter 2 as well. So there's a reaction that the application of the tariffs to 20%, 25% into China came on late in quarter to some of them. So there's probably a reaction to that. And it's difficult to work through at the moment, if we're honest, but, the Chinese factors we think are will be fine. There's lots of different challenges. And also in China, don't forget, we've got tiny market share. So we're still growing with other customers. America, we think is just going to take a little longer to come back, in Personal Care, but mainly in the industrial, particularly in the industrial areas take a bit longer and there's a weak auto effect out there, which will work its way through in the non way as well. Okay. And then I had a second question on, on the crop care side or in life sciences, can I confirm was all the acquisition due to bio sector and what did plant house plant impact getting along? Yes, I mean, everything's going well. Plant impact we really like the technology. The technology is great. It's ahead of its time and that's why we bought it. Sales are going to be a bit to come on because of that. And also don't forget in crop, it takes a bit longer to get it through the innovation programs of our customers. It's a bit longer approval time. So bit longer than we originally thought, but still in very good shape. And Ken has a potential of delivering really strong growth, but likely to be more twenty 20 than second half twenty nineteen. Thank you. Charlie Webb, Morgan Stanley. Maybe just one on Atlas Point. It feels like that has been the ramp up or the re ramp up of that plant has been kind of pushed back, pushed back. I think you're now expecting end of to get that up and running. How is that looking? How are the kind of buyer certifications going with customers? Are you still on track 2020? I mean, is this 'nineteen just a bit of a transfer year? It's fine. I mean, it's driven by me in many ways that process safety for Croda is very important and I'm wanting to make sure we're dotting is crossing Ts to get this plant on stream. It's the commissioning started. So you have start with pressure testing and everything. The regulation or the regulators that are supporting us, they're very comfortable with that. And quite rightly, they're wanting to make sure that everything's fine. So it's it will start it comes on stream. It takes a few weeks for it to build up. So we'll be making product through the next term towards the end of quarter, quarter 3. And we'll be selling products at the end of quarter 3. So the impact on P and L and the finances is really a quarter 4 effect rather than the quarter 3 effect. So I think some of you might have had for quarter 3, which is fair enough, which might be a part to question, but it's really quarter 4 effect. But I'll tell you, the interest in bytes of actives is really good, really strong. And as I as I reminded you all in February, the, the prolonged delay in this is not delaying innovation because we've managed to get a lot of the samples out our customers beforehand. So there's we're still managing to talk to a lot of the marketing teams and the R and D teams of our customers. So they're positioning their brands. In anticipation of us coming on stream. So we should see some quick wins coming through. But realistically, by the time they've positioned the product, they've launched the going to be a 2020 effect rather than a 2019 effect, but we'll get some financial benefits because as Jess has described to you in pass up. Yes, it's on stream. We'll be on stream. There's no operational issues commercially now. We're getting tuned into capturing that growth as quickly as we can. Okay. And just thinking about that, the financial effect. So we've kind of talked about 1,000,000 benefit from Atlas Point on an annualized basis. Obviously, Q2, we continue to lap some sort of costs in Q3 and then we get some of that positive effect in Q4. So is it roughly a 1,000,000 headwind now expected for the full year or a bit more than that? So yes, we guided to 1,000,000 a quarter while we were not running the And then on initial startup, a 1,000,000 profit, as you say, Charlie, and now initial million is simply from the replacement of buying in feedstock to making it ourselves. That's not the big benefit. Obviously, the plant, the big benefit is then a bio based volumes of sales to our customers and substituting for competitors petrochemical product. But million is sort of startup number. So yes, that's about right. So we'll have about a, yeah, we'll have net probably around about a million net cost in 2019, based on three quarters of not running subject to what Steve just said there's a handover and then 1 quarter of picking up that benefit. So you have a fair number. And then next year, 1,000,000, but then of lease starting to build new volumes with customers in home care, personal care and indeed some other areas. And then maybe just secondly on Healthcare obviously a very strong first half. Just thinking about that, I know we already kind of had the question, but just to get a bit more of a sense, In terms of the growth profile there, as you said, very strong first half, we've obviously got by a sector to contribute again, sorry, yeah, by, by a sector to contribute again in the second half. But what kind of runway are you looking? Cause you're obviously lapping perhaps comps in life sciences, but should we still expect to be more at the upper end of that range you've given that kind of mid to high single digit mean, the question for second half? 2nd half. Yes, I mean, yes, we it will moderate. I think it will moderate in the second half, no doubt. But it'll still be a mid high single digit sales growth, I think, in health care from what we can see. But, I mean, through the cycle, it's certainly gonna that and hopefully a little bit more, going over the next, yep, through the cycle. So there isn't really a cycle of health care, but over the next 2, 3 years, we're really excited and think what we're watching closely is how bio sector integrates. How do we see that ramp up? Classic encoder is the 1st year is positioning. I've always called it that we have to get that products through the right channels to the right customers or more or to more customers. We've just unraveled a major distributor of theirs in North America and we're being very delighted with the number of customers that are behind that. We get a lot of customers that we can then target with our innovation. And so there's some margin improvement there to come through as well that you expect. So we're positioning ourselves well, but it's that base higher period excipient is which is the core the core driver and all of these are sort of additive to that. So yes, so I mean, it will moderate second half because it's had a very strong first half, but we feel we're in very good position with it. And margins likewise moving in the same direction? Yes, I mean, it's some of the highest margin businesses in Croda, if not the margin performance there. And the margins in Life Sciences will start to climb. I think we've always talked to you about, Performance Technologies 20%. But Life Sciences, we're getting more comfortable now that we've had the up and down of par in and out of the business. You're starting to see the business for what it is, which is moving towards ever closely to 34%. And I know the internal business teams would love to be ahead of the Personal Care Margin personal care margins are very stable 33%, 34%. But they were there. If you look back prior to winter our margins in health care were life sciences were 34%. So we expect to get back there. So we can see a run a runway to that now. So that's good. So and good sales growth. So that's the sort of the excitement that when we look at it that you've got sales growth and you've got margin improvement in isn't. I just had a quick question on your tweak to your strategy. Is there any additional CapEx or restructuring costs above what you've previously discussed associated with Thanks. No, I mean, no, I mean, it's not really tweaked actually. It's just a refi look, looking 10 years out and then coming back to now, it's more an emphasis change. It's making better choices with our capital anyway. But we've got a lot of cash comes off the business, you can see that in your forward projections. The strategy is there to make sure that we do the right thing with the how do we deploy the cash is a key question for Jez it myself. And what we want to do is to put it into high technology growth markets. And so, and we're betting on big on sustainability. We're betting on new market opportunities being created in the next 3, 5 years and that's where we're targeting. And if there's any excess that comes back, Jess is very clear. We're very disciplined with that. And for allocation purposes, there will be cash terms if we go below one times, but we would rather much prefer to invest in the business. I think you'd want us to. Hi, isha Sharma from MainFirst. I just quickly wanted to ask you what are the kind of trends that you're actually seeing in the US and your end market, especially for personal care. And how the competitive space is developing given that some of the flavors and fragrances players for example are claiming to grow very well. And so just as an idea of how the competitive space is developing? That's my first question. The second would be, is it fair to assume that improvement in Performance Technologies that we should have seen already in 2019 is kind of now deal it because of the market environment? Or do we still expect that to we still expect to see some in the second half of the year? Yes, okay. Yes, I mean, personal care, I mean, so I mean, trends in personal care the you see the Nielsen data or the RI data. So Personal Care broadly flat in Consumer data trends. And that's skin and hair. So skin and hair care are broadly flat. But what you have to think about with North America is it's still a big R and D brain for the world for innovation. So we do a lot of innovation in North America for Croda for for customers that export their products as well. So there's a lot of attention needed for that, but generally there's just it's a softness. I mean, our logic to that is we think with the trade war, the disposable income available to U. S. Families reducing because what's not happening is the China products are still coming in and everybody's still paying for them because they're not being filled by U. S. Manufacturer yet. Whether that happens and that's the strategy, whether that happens in the end, we'll see. So everything's a little bit more costly. And I think what you've got is a just a subdued consumer environment because there's a bit of disposable income squeeze out there. But in the round, it's a great personal care in North America great. We've got a strong position. There's nothing in our numbers that says our flavors and flavor friends are coming into our space they're not, you can just see that through the MPP program. So yeah, and we wouldn't expect that as well. So yeah, so we just want to see that come back. And your other question on Performance Technologies, yes, I mean, we still think it will take time for that sales to come back. We don't expect it to deteriorate any further from the first half, but it's all the auto supply chain, as you see, it's just coming back to the suppliers now. It's quite a little there's 2 or 3 levels in the supply chain and now we're just starting to see the real demand. So the real demand, I think, on us is a proxy for the true demand for their, their demand for the car. So it feels like it's more in line. So I think if we start to see a pickup and we'll see a pickup too. But the other thing we will constantly refine that business. So the innovation underpinning this it's getting a strong it's getting a stronger business. And the weakness is just in the smart materials area. It's only a part of that which we are sort of macro. The Energy Technologies business is broadly flat, which that's a good really good business and in this current climate, broadly flat in that business, I think, is a good result. Thank you I apologize for this one. Significantly apologize, but Halloween is approaching. I'm not that bad, Alan. Can you just remind me what you said earlier in the year about hard Brexit and what you've done with raw materials and how you plan around WTO tariffs, etcetera? Yes, I mean, we're, you know, Jess leads a team, so Jess could comment as well. Yeah, we all take it seriously. I think a lot of it is around the edges. It's stock management. It's making sure your stocks are in the place where it can be, and we do that very well. We're lobbying the government on behalf of the industry, our chair industry group. So our big message is we don't want to hard Brexit and we want if we we have to have the Brexit, we want some sort of pathway to it rather than a cliff edge because that will be disruptive for our industry. There's a lot of trade flow in the chemical industry across multiple borders. We are impacted in a sort of minor way Croda. We have less than 5% of our sales in the UK. So I think for Croda, it's a management around classic stock management, making sure we do the right thing. And then we'll see but I think it's going to be an interesting ride as we all know. But so, we'll, we'll say, but, Jess, do you want to comment on the detail? Yes, I'd say probably more ground day than Halloween, Andrew, but, so we got it all ready for the end of March and, we're just going to kick it all off again and get it ready 31st October, just in case. So yes, Steve says from the sort of from the from the soft Brexit point of view, very, very minor impacts 4% of sale in the UK, 16% of production in the UK, tariff impact from WTO low, well, mid to high single digits millions of which there'd be some sharing of that between ourselves and our customers. So we're not really concerned about tariff impact from point of view of profitability, or the risk around that. So as Steve said, it's all about physical contingency planning to make sure that we've got, Europe and we put those in place through the first quarter. We unwound in the second. We'll rewind from now through to the end October in case, we see some physical disruption and that's really all we're managing for regulation all in place. So we've reread just did all the overseas products that are sold in Continental Europe under a U. K. Registration, which is obviously valid under EU laws. We've reregistered all of those products in a continental Europe entity so that, so we can do that. We would do the same with the UK product manufactured products as and when the European regulator accepted those re registrations, they won't at the moment because the coverage are still valid because we're still in the EU. So those are the things that we've done. So we've done everything that we can and it's a it's a tactical to planning exercise not a structural or strategic impact on us. Theodore Joseph Goldman Sachs. My question is with you outlook, you actually expect for a slight improvement in the second half. And with that, I'd like just like more color around how you kind of quantify slight And your assumptions behind it, considering that actually within life sciences, you expect a moderation in growth. And Personal Care, you talk how it actually is quite opaque. So kind of your assumptions behind your guidance? So I think there's a few items we can bridge, about why the second half profit is better than the first half profit, we were down 1,000,000 in reported currency PBT in the first half, that included a million headwind from capitalized interest, which we stopped capitalizing interest when we finished the main construction phase of the Biose Factor project in June last year. So half 2 to half 2, you don't see that headwind. Obviously, was higher last year. We were about 1,000,000 of interest in the second half year. We were 1,000,000 in the first half year. But clearly lapping will be much close to that. The only change in interest will be driven by the special dividend that we made. So it'll be a little bit higher in interest, but not for that. We don't have a we're lapping plant impact, whereas we had a bit more than 1,000,000 loss in the first quarter on impact as it's effectively no sales with about a 1,000,000 cost base per year. So you haven't got that lapping effect. So you've got those sorts of changes. I think in terms of overall trends, as Steve said, we wouldn't particularly expect Performance Technology sales to be I don't think you can point to a short term rebound in automotive and other demand in industrial and technical applications. Life science, yes, we're guiding to our more of our medium term numbers rather than saying, will be double digit every period. Personal care, we do think personal care will probably be closer to flat because we can see an improving trend in Asia, but we're not yet seeing an improving trend in the U. S. And, of course, the paratroopers do get a little easier as we get into fourth quarter on Personal Care, where we were seeing this slowdown. So I think those collectively make us feel that we will be slightly better in the second half in the overall profitability performance but not, you know, orders of magnitude better. It's not the environment to make that call. I think I would add the big caveat to all of that is we're not assuming markets to improve through the second half, but we're also not expecting the markets to deteriorate as well. We're expecting exit rates, exit rates of quarter 2, sort of quarter 2 trends continue. And it is very opaque at unusual, tis unusual. Okay. That's great. Wrap up one, won't you? Can you go out of here? Thank you very much.