Earnings Call: H2 2018

Feb 26, 2019

Good morning, everybody. Welcome to another Croda webcast. As usual, Stephen Jes and then some Q and A. We'll try and counter through the slides, if you don't mind. Got them in front of you and the, and the announcement as well. And of course, Q and A is very important these days, so we'll take your questions. As and when they come. So it's been a strong year of progress for the group. We're really happy with the shape of the business, top line momentum continues, margin improvement driven by innovation again and profits growing faster than sales. Nice shape to the business, vintage Croda in many ways. That leads to strong cash generation. Most of our EBITDA converts to cash. And we're using that cash wisely in technology acquisitions, primarily, and we've acquired bio sector, which expands our high value portfolio in Healthcare really exciting acquisition, which I'll come onto later on. And on top of that, there's a shareholder return, a special dividend. 150,000,000 dollars, $1.15 per share. In numbers, our core business in constant currency sales up 3.8% margin improvement 50 basis points and EPS growth just south of 9%. And if you look at the shape of the growth underneath, broad based growth, we would say is what we look for. And it's driven commercially by strong consumer sales growth. Personal Care up 6.8%. Life Sciences 2.8% when you include the API contract, but of course that's now we've had 4 quarters of that, as a negative in the numbers in buying growth in life sciences is as we would expect. It's similar to Personal Care at 6.7%. So in the life science business, very good business for Croda, more moderate with Performance Technologies, And across the regions, they're all growing, which is good. And its standout performance again is Asia for the company 7%, but we've been very pleased with the recovery in America too, up 9% as well. IP growth again continues to go up a lot of hard work involved in that, but, 28.2% percent now, more intellectual property in the business, more secure businesses, reducing cyclicality. We're in a better place at the end of the year than we are at the start of the year. Just taking you through the numbers in the sectors. Personal Care, we've been really pleased again, with the subsectors, there's 3 subsectors there. They're all growing mid to high single digits. Been really pleased with that performance. Yeah, all of them are healthy growth. All regions in Personal Care are growing too behind that. So no weakness around the world. The interesting start with the MNCs are coming back, but they're coming back with a lot of technology growth. We're just being coded into 1 or 2 big product launches with the multinationals and some of the biggest brands in the world, reformulated by Croda for them with our ingredients in. So we're really pleased that should continue the growth profile into 2000 and well across this year. As they roll 1 or 2 of them roll this out through their global franchise, into 2020. And also on Beauty Formulation cost of that growth coming, it's been mid single digit sales growth. It has a minor impact on mix, but the gross margin levels in this formulation business is improving all the time. So there's a modest mix impact. As a reminder to you all, we just want stable margins here, but we want healthy sales growth. That's what we're getting. This business screens were 33% to 34% margin. So we would expect margins to be in that period. With sales growth, 3% to 5% going forward into 2019. And if you look at the, as we stretch the growth, we've got this NPP sales growth which is really strong in this business. That's probably the standout number in the pack. 13% this year in Personal Care, outstanding performance in NPP and it's marching towards nearly 50% it's 43% now, but in a couple of years, we will be far away from 50 half this business, 50% of this business in protected technologies, you know, to great franchise. We're investing heavily in in technologies, we like technologies, but in a Croda way where we're watching the cost base as well and we're making sure that profit growth could still come through. Actors, we've doubled our capabilities in France, Sederma, IRB, on stream now, not just production, but R and D, And in terms of R&D, we're expanding Brazil and South Africa, getting close to local consumers, local customers, We've opened a new biotechnology laboratory in the UK more recently and we've got multiple digital projects looking to target our indie for next generation customers, indie customers. So Personal Care in very good shape. If you look at life sciences in very good shape too, there's a few a couple of one offs there. Sales have grown despite the Power effect 2.8%, which is pleasing behind that is good sales growth in health care driven by these high purity excipients. And good broad based growth across our crop business as well through the year. And that's driving healthy sales growth. In terms of the profits, your profits are up 3.1% and that includes a carrying cost of about GBP 5,000,000 from plant impact in there, as you've seen in the release. So despite that million year, we're still growing our profits and we expect that to moderate through 2019. Jes will talk to you in more detail about that. The impact on margin unplanned impact is 1.5% in that. So it just shows you the pace of the margin improvement in the rest of the business and that's something to call out. And we'd be really pleased with the acquisition, as we say, will come on to buy a sector separately and seed enhancement Incotec doubled its profit, more than doubled its profit over the 1st 3 years of Croda ownership and we've just started with that business. So we're in good shape with that business. We expect that profit growth to continue. So while over 1,000,000 worth of profit in that business now, And, plant impact, as I said, we're working on streamlining plant impact and it's all about sales growth in that business. It's biostimulance. It's the future of crop care and exciting opportunities there. So life science is in good shape. And then Performance Technologies, a hat trick, Sergio aguero type performance. 3 successive years of double digit sales growth, really profit growth, really pleased with that. 1 2 years is good, 3 years is outstanding, really, really pleased. And it's starting to impress upon Jasmine herself and need to invest in this business wisely over the next 2 or 3 good business. And it stands for square with anything out there in terms of those returns in industrial markets. Really good. 220 basis point increase in return on sales up to 18.7 percent moving towards that. How much we'd love 220 basis point increase this year? Think we'll get that, but we will get margin improvement, but we should get margin improvement moderating, but we should see sales growth increasing as well partly offset that. Investing in a lot of good technologies, but in particular energy technologies looks to be exciting business in there for next year or 2, driven by reduction in carbon emissions, big sustainability legislation, coming and it's going to create more opportunities for the group. So in good place performance technology, so all around, we're pleased with the performance from 2018 and we turned into the in good shape. So let me stop there and hand over to Jes. Morning, everybody. Okay. Let's start with the income statement. Sales up to just short of 1,000,000,000 as an increase of 2.9% overall for the group in constant currency. Operating profit, perhaps twice that effect, up 5.8% on the adjusted basis at constant currency, small reduction in net interest and the overall profit before tax up 6.2% in constant currency to reported 1,000,000 Looking at the IFRS profit, the difference between those 2 is the amortization of intangibles And also we've got an exceptional item of just under 1,000,000 in 2018. That's for the guaranteed, minimum pension adjustment following the Lloyds Bank case. I'm sure you'll see that in quite a lot of other companies as well. So relatively small adjustment for us for that GMP effect. Adjusted EPS up by 8.8%. So that reflects a lower tax rate, primarily driven by reduced tax rate in the U. S, that we reported on a year ago. And we see that rate going forward just the 25% effective tax rate as a sustainable rate going forward for the group. So we'll keep that benefit. And as Steve said, we've increased the the proposed dividend for the full of 115p, GBP 150,000,000. So looking at the sales bridge, So just decomposing that 2.9% increase in constant currency sales, beginning with Industrial Chemicals, chemicals, we continue to demarket where we can the byproduct streams that are within the Industrial Chemicals business. So clearly, we're always quite comfortable for that number to go down. Because that's the low value product that we make as a byproduct of our main business. Steve said really encouraging solid growth in the core business. Adding nearly 1,000,000 to around 1,000,000 of sales. And then we have a first small contribution from the technology led acquisitions we made, those sales of 8,800,000, driven by I'm phase primarily acquisition we did in December 'seventeen. And then a small impact from the early stage sales from plant impact. The rest of the acquisitions are doing technology only at this point, no sales involved in those So overall, that gives us 2.9 percent constant currency. And then we have the impact of currency translation now in 2018 reversing the trend of the previous couple of years. We saw sterling stronger, particularly in the first half, although slightly stronger second half as well. And that reduced their reported sales by 1.9% to give us 1% growth in reported we then look at that on a profit bridge basis. The underlying growth there, much faster than the sales growth, so 7.5% profit growth driven really out of the core business. But you see a reverse here in terms of the impact of the technology investments. So that's a loss of just under 1,000,000, as Steve said, very much driven by plant impact, the rest being fairly close to neutral. And if we combine those two effects, you can see 5.8% growth. So that's the shape we want to get. 2.9% constant currency sales growth, 5.8% profit growth. And that's in good shape for us. Then we apply the foreign exchange effect of -2.7 and overall, adjusted operating profit in reported currency, up 3.1%. We look at the sectors in constant currency now. First of all, Personal Care, really steady growth, the engine of the group in terms of the driving us forward, really good to see that profit growth come through almost 5% in constant currency. As Steve said, Life Sciences, good performance given that we have the 2 headwinds of the plant impact losses and the API exit, of course, we had 1,000,000 roughly sales in APIs in 2017, completely replaced in 2018. So that profit performance really good, demonstrate strength of life science going forward. And as Steve said, 3rd year of double digit growth in both percentage and 1,000,000 of pounds, for Performance Tech. So really good to see that. On Industrial Chemicals, a small reduction in profit, they're primarily driven by some difficult conditions in China, which impacted CECO because of issues around the the red seed harvest over there. We think that will reverse progressively through 2019. So it's more negative there. And then finally, the currency translation effect from the headwind. So turning to EPS, a really strong EPS growth. Reflecting both sales and margin growth here. So overall, you can see the 6.2% constant currency PBT growth. That was roughly equally split between the 2.9 percent sales growth, so the volume effect there. And then price mix, a good improvement in operating margin, from improved mix across the business, particularly in Performance Technologies, driving that growth there. So giving 6.2 overall. And then the tax rate benefit 2.6 percent to give us 8.8 percent constant currency growth in EPS overall before we take account of the FX effect. So very strong EPS performance. Looking at a few of the other key financials. First of all, top left, we have the, capital investment. As usual, I've split that between the North America bio surfactant plant. We we completed in 2018. So you can see that spend slowed down significantly. Most of that was in the first half year. At 1,000,000. And then in, we've just shown you everything else that we do in the group. So all the other spend on replacement of kits, but also the growth projects that we're running. We have growth projects running at the moment in health care. High purity excipients, in smart materials within Performance Technologies. That's all funded within that 1,000,000. And as a guide going forward, we're expect in 2019 CapEx to be around about 1,000,000, 1,000,000, sterling. As a result of the lower CapEx and also reduced tax, particularly in the U. S. Associated with building the, building the plant, We saw a steady improvement in the second half year in free cash flow. That's got further to go in 2019 because we've only got sort of half of the benefit there, but a good improvement free cash flow. Leverage broadly flat around 1.1x at the end of the year ahead of the special dividend. And on the pension side, very minimal deficit there in the context of something over GBP 1,000,000,000 of some liabilities. The important thing on pensions is we have no cash deficit funding payments for the UK scheme, which is the the key scheme intentions. Finally, just to touch on some of the other components that are going on that have some impact on 29 18. The ECO plant, that's our bias surfactant plant in North America, that we've been building for several years. And that's completed from the build point of view, so no more CapEx to go through on that. However, about 6 weeks into production at the end of last year, we had a small leak of ethylene oxide, which caused us to, shut the plant down. We trace that to a faulty gasket that have been fitted. But what we are doing is checking every other part of the installation to make sure that problem hasn't been replicated anywhere. So we know the plant works well. However, we need to do this in a safe manner. The our best view on startup is that we'll do that around the midyear in 2019. Now that will have 2 impacts against what we've guided Q2 previously. First of all, we indicated that we expected to make about a million profit in 2019 on this plant. That's basically picking up the margin that our current petrochemical suppliers make on the product that we buy in from them and that we're now going to make ourselves So that GBP 3,000,000 profit I'd expect to be halved basically. We'll just have that in the second half of the year, if we hit the midyear start up. So about a 1,500,000 impact on the profit side. And then of course, we have operating costs that we're carrying while the plant isn't running. And those are about 1,000,000 per quarter. So if we start at the midyear, there'll be about a 1,000,000 headwind on operating costs. So overall compared with where we were when we talked last time, about a GBP 5,500,000 overly precise, but about GBP 5,500,000 impact on 2019 profit from the delayed startup. After that, it should just be timing. We should then catch up. Get the products, the new green products, which is the exciting part of this launched. On technology investments, we expect the loss that we had in 2018, primarily around plant impact to roughly half. So we had about a 1,000,000 loss, as I showed you on the previous slide. We expect that to be about a 1,000,000 loss in 2019 as we steadily build sales. And then we expect to be in breakeven certainly by 2020. No presentation will be complete without an accounting standard. So 2019, we adopted IFRS 16 on leases No material impact on the P and L from our adoption of leases, but we do bring about 1,000,000 of leased assets onto the balance sheet, basically properties, warehouses and so forth. So that will increase the debt by 45,000,000, that's, 0.1 of a turn of leverage. So fairly small and obviously non cash from there. Then finally, just to give you some guidance there. Those are the average rates that we had on dollar and euro. We probably have about 60% euro dollar, 40% euro exposure. So right now sterling running a little weaker on dollar, a little stronger on euro. So as of today, our currency effect would be 0. But of course, there's a lot of water to flow under that particular bridge before we get to the end of 20 19. So it will be what it will be. Okay. I'll pass back to Steve for strategy. Thanks, Jes. Well, let's take you into the future. As usual, we're investing in the future. And we're stretching the growth. It's growing the cost, stretching the growth. As a reminder, I keep saying to the board, it's not a pilates class, part of Croda's strategy. But we are investing and investing in innovation is something that's really important to grow to, but investing in innovation Croda style, let me try and shine a light on that. You've seen these six growth buckets before, I just want to spend time on the full highlighted there. And just bring to life that this growth and innovation, which is driving this margin in improvement. It doesn't happen overnight. There's a lot of hard work behind the scenes. Just first step, this is just looking at the internal R and D model We call it the organic R and D model. And we've doubled our capabilities in the last 4 years, 34 laboratories over 17 countries. We're trying to move the R and D brain around the world connecting to local customers. So we've more than doubled our capability in Asia, tripled in North America and in Latin America, and that's driving greater local discussions with our customers, their products, their formulations, with their team in our laboratories with our ingredients, a perfect model to innovate with them. So we're getting a lot of local traction and a lot of good growth. And surprise that we're starting to see good international growth across our emerging markets as well. And you've seen this as well before, but It's just to highlight the point that there's 3 legs of R and D growth now. The organic R and D in the top right is the traditional way that Croda has always looked at our innovation. It's into innovation. It's 100% through the Croda R and D teams working with our sales and marketing teams. But we now add over the years, we've added open innovation and technology investment and we're developing a big ecosystem around that. So we're working with many partners now around the world. And in open innovation, it's university establishments far and wide. It's industry specialists startup companies and we've got some great traction, very modest investment needed, but you get a lot of brainpower. So we're renting a lot of brainpower in. So they're working on, off in some projects that we bilateral or bilateral projects with our customers and actually some suppliers as well. Lots of funding available and we're internationalizing that as we roll this out. And at the pace of technology investment is increasing too and all of that's adding to this Cross's got high margins, big intellectual property. It's all about defensive business, but growing in the manner you would expect us to do The output of that leads to all of that increased IP, high margins, strong cash generation. It's a model that's delivered year on year, and we that to continue. And if you just look at the stats, some quite interesting stats now, you know, we've done 10 over the last few years, 4 last year. If you look at the new technologies that we've acquired, it's growing at pace, 250%. But perhaps the most important one is the bottom left, if you look at the partners we've got now, we've got 463 partners now in a sixfold increase in the last 5 years. And these are really intellectual academic partners as well as entrepreneurial partners as well. And that's really driving this this program underneath. We're very pleased with the we call it leading indicators. If you put that in a funnel, call it the sale of the R and D pipeline, we risk way just that. And we can see that in the pipeline for the next 3 to 5 years is about 20% of sales growth going forward. And for a specialty chemical company, that's where it should be. And it's significantly more than 20%. But the interesting thing as well with that, not just the number is historically it used to just all be in 1 one blob called R&D. Now we've got open innovation and technology investment really starting to play through the numbers and you'll start to see that in a minute. But so we're really pleased that actually if there's a take home message from this slide is, not all of the innovation has to come from Croda. We need our partners to help us boost that innovation and we're starting to get that. So through the sectors, lots of your products, which I won't bore you with, great doubling of NPP sales in the last 6 years. Personal Care has benefited more from our R and D rollout around the world than any other business. As we start to connect in those emerging countries, we're getting a lot of powerful engagement with the customers. And a great, great example is a case study in Japan. Japan for Croda's a good growth market. It's always been a big personal care base, but it's been growing about GDP for many years. We turbocharged the laboratory investment there over the last 2 or 3 years, put more people in, get modest in Croda terms, put significant in local terms. And you can see some of the engagement numbers, 8 80% increase in customer contact, 120% increase in projects, and we shouldn't be surprised we're getting big double sales growth. We've had that for the last 2 years in Japan. And that model is something that we're replicating, whether it's Brazil, South Africa and so on. So personal care in a very good shape More and more of the growth in Personal Care will go local. That's for sure, small, medium sized customers growing at pace with lots of niche niche products on the market for country specific end users. And then in life sciences, it's about acquisitions. We're really interested in looking to turbocharge that we call it the breadth and the depth of our technologies. This is probably the most exciting business for the next 3 to 5 years in terms of the growth profile. Top left is what we've done with Incotec. I mean, you've heard our story about Incotec at phase 1 was to reposition that business, which we've done. And it's pretty simple stuff is pointing the R and D at the customers rather than at the factory globalizing it through our selling network and pricing the products in a manner that we would expect from these type of technologies. We've doubled the profit more than doubled the profitability and we're at phase 1, we expect that to continue. So this is a good solid, strong growth driver in markets, which are growing higher than GDP, which is what we want. And then the other point I'd draw out is bio sector. These vaccine adjuvants are a great, great business that we bought and very similar along the same same lines as, Incotec, undervalued technology in very sensitive applications, these products go into about 75 percent of all vaccines around the world. And if I'm a betting man, we think probably it's going to be more vaccines around the world in the next five years than there is today. They'll be incorporating them. Particularly the human vaccine, they will lead us in human vaccine adjuvants, and we like the growth rate rates. And the compound growth rate is for the next 6, 7 years, and we expect good growth from that business as we go forward. Usual stuff make sure the R and D is pointed to the customer rather than the factory and also make sure we globalize it through the selling network. So we like businesses like this and we're on the lookout for more and more life sciences. We want, as I've reminded you a few times, we want this sector to be in absolute terms as profitable as Personal Care is we can. And we see no reason why it can't. And then you get to Performance Technologies. If there's a line for Performance Technologies, it's all about specialization. Bringing experts into the business and bringing sophisticated equipment into the business as well to help us drive that NPP growth. I think a good example there is the new lubricant testing laboratory in Singapore. It's called the tribology lab. I have to look I have to look that up, which says in myself, but tribology. So it's all about lubricant thing. But we're bringing experts into the field and quite rightly, trying to position this business at a high-tech business. Well. So very important. And lots of good growth in other areas too. And finally, digital, I mean, digital, you've got digital in all of your businesses like we have, what does digital really mean? It means lots of different things to everybody for Croda. It means one thing simply it's connecting better to our customer making life easier for our customers. We've got a great customer intimacy model with them, but we believe that can be even more sophisticated as we use digital tech now looking at different channels to connect with them. And we think there's a new customer base out there that's uncapped from Croda and we're using digital and digital strategies. To hunt those out and bring new growth to the company. That's really important. And also actually in new product development, it's starting to speed up product development. So a good example is high throughput screening in our Liverpool formulation lab. And now we can stability test formulations, which used to take 3 months will take 2 hours now. So if you start to replicate that into your personal care business, you start to think actually it can move forward with product launches in a much swifter time than we could have done in the past. So starting to really have a positive effect on our new product pipeline too as well. So really important But we're deliberately vague with this because we don't want to tell you too much about it, but when it becomes exciting, really exciting, then we'll talk to you, but we've created a digital excellence central excellence in the group, with some modest investment, but big impact potentially. So that will roll out through the course of this year too. So digital is becoming an important enabler for Croda. We see it as an enabler, but it's trying to connect better with customers and sort of the message from digital for the group. And if I try and pull it all together, this, the take on message from innovation is we've got this broad R and D base internationalized now connecting with local customers and we've now got 3 legs to R and D. We've got internal innovation and we add to that open innovation and technology acquisitions. And that's driving accelerated innovation. You can see that in the numbers and nothing better to show you as the that that 2000 new customers in the last 2 years. That model of R&D in the local countries is picking up new customers all the time. And we're increasing intellectual property all the time as well. And we're starting to see that open innovation projects are playing their part in the numbers as our technology acquisitions as well. So in good shape, and the leading indicators would say that there's no reason why that can't continue through the next 3 to 5 years. We just want to keep propelling this forward. The center of our value is innovation. Let's not forget that. And then just turning to outlook, Yes, we're in pretty good shape, delivering strong performance. All the sectors are in good shape. We can say that. And all the regions are in good shape as well in Croda too. Investing in stretching the growth in our modest way and excess capital, you'll see as we're disciplined on making sure we the capital allocation policy is delivered excess capital returned. And then outlook for the year is we're pretty confident with the year it's uncertain out there, but in terms of the shape of our growth, we should expect a similar year to 2018. So let me stop there and take your question. Come down. You're always first, don't you? Trying to get a settlement from Bernstein. Can I kick off with 2? First of all, can you update us how the year has started for you? How we should think about the growth guidance that you've given for the full year, bearing in mind current trading and comps from last year? Would you think about facing, throughout 2019? And then the second on the M and A strategy, you said mainly focused on Life Sciences. You've done a relatively sizable special dividend as well. So is that a continuation of small technology add ons, or is there anything more lumpy that we should think about? Okay. I mean, the trading, I mean, how to look at trading for 2019 is very similar shape to what we've seen in 2018. In our minds, it's sort of if you look at it, it's 3% to 5% sales growth with a bit of margin improvement. That should deliver a little bit more profit improvement. That's the sort of model for Croda, more second half weighted than first half because of the tough comparators, we would say. In the first half, you could look at the reverse of 2018 actually. So there's no slowdown in Personal Care, for example, in the second half of the year. It's just a comps it was a comps issue second half to the year before. So that's how you should look at it. And I think in terms of the sectors behind that, we expect Personal Care 3% to 5% within that average. We expect life sciences to be probably 5% to 7% this year, and we expect Performance Technologies probably 1% to 2 then, you know, along the towards the bottom end, but with margin improvement. And we still think margin improvement, but definitely in Performance Technology and probably in life sciences as well. So shape of that in good and we've started as we would expect and we're bringing into the new year big margin improvement, significant margin improvement story from quarter 4 as well. So while sales were slightly light in quarter 4, margins were very strong. In Croda. So, we're very pleased about that. And a lot of that is just the hard work that's going on with this innovation, this innovation model. So that was the first quite M and A strategy. Look, I mean, we, nothing big and lumpy. Don't expect that. I mean, we like Incotec type acquisitions. So more of that type bio sector we're targeting a niche area that is perhaps not we're not in at the moment and it's allowing us to globalize this through the network. So it's of that magnitude and of that size. It's whether or not we can pick them up at the speed. So the M and A strategy is around life sciences and the top of Personal Care as well. But over the if we look at the cash generation in the business over the next 3, 3, 5 years, very strong. And we're through the as a reminder to everybody, we're through the capital ramp from the ECO plan. So that cash generation, we're just thinking about how do we put that best to you over the period. And if we'd be with Incotec, we can double the profit in about 3 years, then why can't we do that with as well. Of course, we can. So we're interested to do that, but in our own way. And just a quick follow-up on Incotec, you will drive that business now that it has 20 percent EBIT margin more for volume growth? Is that I mean, for growth now, so we should see sales. The sales growth consistent sales growth and more margin improvement as well coming through. We're there without it being firing on all cylinders, I would say. So we're now It's Classic Group. We're investing in Incotec, so R&D Labs investment in North America and China. So we're expecting continued growth in that business. Adam? A couple of questions maybe related to Jez's area, one on cash flow and the other on Brexit risk. So on cash flow, am I right in thinking, that in the statement you talked about an unexpected increase in inventory, which you're working to reduce in the coming year. I wonder if you could just sort of talk about the context behind that And then in the context of Brexit, what are the hard Brexit implications for, the WTO costs that you might incur? And what would be the strategy to defray those? And then perhaps on the working capital side, what would be the implications for working capital and perhaps some safety inventory? Okay. Thanks. Thanks, Adam. Yes, so on cash flow, we had a 1,000,000 increase in working capital. Part of that is explained by the end of the ECO project because clearly when you're doing a big construction, you're always carrying quite a chunk capital creditors. So clearly at the end of the project, those cleared through. So about a third of that increase of capital creditors, about a third was receivables. Which is a function of the normal growth 1,000,000 increase in inventory. And that's higher than we would expect it to be. So that's really the area I would target 2019, where we're just making sure that that inventory comes back under, back to the right level. I mean, our model is 1 where we primarily to stock. So we have a lot of inventory close to customers around the world, which is to make sure we can deliver, yeah, service in, you know, 8000 different products. But nevertheless, just felt that it, it just crept higher than it needed to be. Now of course, in the short term coming to your second question, We are actually increasing inventories somewhat anyway. So I think that by the end of March, will probably be carrying about $20,000,000 to $25,000,000 of extra extra inventory in a combination of raw materials and finished goods, raw materials in the UK, because obviously it's the UK production sites that we're concerned about with the hard Brexit. Having enough raw materials, particularly for the items that come in from overseas, EU, particularly. And then of course, having finished goods, but they tend to be out in the continental European warehouses. So we're just running some additional safety stocks a couple of weeks on top of the normal level of cover that we have. But clearly, one would hope that they had cleared through. Certainly, by the time we report in the year end and moved by the half year. So they're just a little bit of contingency planning around the hard Brexit. In terms of the impacts overall, Yeah. Our the key flows for us are we have, we make about, 225,000,000 sterling of sales value in our UK plants. Some of that stays in the UK, not very much. As a UK is only 4% of our total group sales. So about 1,000,000 of those sales go from the UK to the EU. And then we have about 1,000,000 coming from the EU sites plants to the UK. So those are the flows that we're focused on. So about 120,000,000 in flows, and we estimate the WTO effect will be between 3% 5%. So maybe something of the order of 5 1,000,000 if we ended up in a tariff situation for a hard Brexit. So, yeah, some of that would be defrayed quite clearly. I mean, we would need to discuss discuss those with customers, in terms of those additional costs associated with that. But, a relatively small number in the context of the group, I think, is the key thing And our contingency planning is all around. We don't see Brexit as a big issue for us, but clearly a hard Brexit and issues borders ports is really what our contingency planning is trying to protect just to make sure we can keep service levels high because customers in both the UK and the EU. So hopefully, well, hopefully we won't go there. And, but, but we've put the plans in place to try and make sure that we can through any disruption. Yes, thanks. Andrew start UBS. Just a couple of things both on Life Sciences, Steve. I noted in Ashland's release that they've put in a lot of new capacity in excipients, and they had a huge growth rate in Q4. I'm just wondering whether any short term and medium term locations of that, or we'll be talking about different categories? So that's the first question. And the second question was, I'm not too clear on how the Brent ag bio sector acquisitions fits into life sciences. Is it a stand alone business unit going forward? Or are there some soft synergies there? Yes, okay. Yes, I mean, Ashland, it's, the health care business is in different areas really to Croda dental fixatives, and the like, there are some excipients in there. But I mean, where it is consistent with Croda is the end market, some of the customers that they're they're working with. So most of it is independent of ours, but it probably tells you that there's quite a lot of growth in the health care generally, I would say. If you can find it, there's definitely growth there. So no real overlap with Croda, I would say by and large. Separately your Brenntag question, I mean, Brenntag would be a stand alone business. Look at it like a high purity excipient business that we've got already. Got all the hallmarks of that undervalued intellectual property. A dedicated team, there will be some back office synergies as you'd expect from that business. So there's a bit of cost probably coming out, but not much. It's all about growth. We really like it. And it's been on London Brentag, would be the first to tell you that Brentag bought this business, not for this part. It was for the distribution arm many years ago, if you read back through the back story. And this business has been really just plodding along, and it needs a bit of investment, but it just needs to internationalize and global and pointed in the right direction. Crucial mission critical ingredients in lots of the biggest vaccines in the world, big customers and small customers. We like the customer base. We like the fact that's going into really expensive finished products. So I'm excited about the possibility there, runs separately, but we then see it as another leg of health care it. Charlie Webb, Morgan Stanley. Just a question perhaps building on that last question there around the contribution from some of these small bolt ons and technology acquisitions. Perhaps you can help us with, first, the bio sector 1 what do you expect in 2019? Where do you see you can take that business over the next few years? But also perhaps plant impact as well. We were talking about perhaps breakeven this year, now not so much the case. How should we see that kind of into 2020 and where we're going? Fine. I mean, when we look at businesses of this shape or size, we're looking to effectively double the profitability in 3 years is sort of our mantra. Incotec is a great example. But nothing happens I mean a lot happens in year 1, but financially, not much happens. So year 1 is a positioning year because we've got to get the samples to customers in a different way. We've got to price the product a slightly different way and we've got to look at sort of the marketing data in a different way. So that all takes the year to position year 2 3 is when we start to really grow these businesses and it was exactly the same with Tech. So Biocepta will be a positioning year 2019 with more significant growth beyond that 2021 margin improvement sales growth as well. Plant Impact, I mean, much to say, when we set out, Plant Impact is really we bought Advanced Research, so we're going to buy a stimulant. The market moving to bio stimulants. We're in early with bio stimulants. The way to look at that for 'nineteen is it just needs sales growth, we've got the cost base where we need it, we've got the samples out to customers, given it's into a crop end market, it does take sometimes a little bit longer to get products through the approval stage. So we think sales will start to come through the second half of the year rather than the first half. But I mean, the way to look at it from numbers it's probably carrying a 5,000,000 loss this year. What do we think, Jess? 2, around 2,000,000. If we're $2,000,000 loss. So it's going to be there's going to be a delta positive improvement, but it's not going to breakeven, but it's probably start to breakeven in the second half of the year. And just an IMPs, any Well, we can go through it more if you want, but we won't, but I mean, we expect that to be positive, turning positive, small small, small positive improvement. But I mean, when you add them all together, the start to have played their role, and it's it's technology led, some of it's advanced research, some of it's businesses and just growing growing current businesses. But when we add it together, they all have their Rolls. The only real impact we're calling out is a plant impact because it's a new it's unused we knew that when we bought it, it's unusual, but it's absolutely the right thing for crop care for the next 5, 10 years. Sebastian. I just have a question on your innovation pipeline. The more than percent sales growth that you're indicating there over the next 3 to 5 years. How much of that is substituting existing products and how much of that is really incremental new product? Good question. I mean, most of it is on top. It's supplementary. It's not tried to destroy. I mean, we're very good at destroying our own technology to replace it with our own. But the vast majority of that is new on the market for new niches. So a lot of what we're working with with this, what I'd call the e system landscape that we've got now is on you. It's creating new markets, rather than destroying existing ones. So I would say the major proportion is new new Could you benchmark the mix of crop protection versus seed care in life sciences? And then could you talk a little bit about how the reception of the biosurfact sense. I mean, what the customer reception is and how we should think about margin impact over 3 to 5 years. Okay. Let's just do the first one, but let me chip in first on the bio and bisphax. I mean, it's frustrating that we've got this delay, but absolutely the most important thing for the group is is the safety of our people and just making sure we bring this back online in a disciplined forensic way. So we're pleased with the progress there. Even more pleased with the customer reception has been outstanding. As we get towards the launch, we've been engaging with a lot of the biggest brands in the world, but also a lot of the small and medium size, but it's also broad based, mainly in consumer, if we're honest, there's no surprise there, not just in personal care, it's in the home care area as well, of which we you would see in Performance Technologies. Very engaging. And we're in we're already into some early stage and medium stage discussions with brand managers about how they position the product. So we're very, very confident the team team are very confident that we would hit the ground running with that. It's just going to be a second half effect rather than a first half effect now. Which is the, the sort of message from today. Jes, do you want to talk about the max on the bio sector? We should look at margins and then back to the Yes. Sorry. Could you just clarify the question for or high exposure, the split between the seed protection and the crop chemical? Yes. So, a essentially, yeah, the crop protection side of the business, the above the ground sort of crop spraying really is probably now about twice the size of the seed enhancement business. So seed is up and coming as a generally generally stronger growth, although we're seeing sort of mid single digit growth in the crop protection area outside of the current issues in North America between and then, of course, I think, by the North America China uncertainties and over trade, We are seeing very consistent growth. And indeed, over the last 5 years, crop protection has been pretty much our fastest growing organic sort of business. So crop continues to grow well, but the seed enhancement opportunity is stronger. And then of course, we have the bio stimulant as the 3rd leg of crop. So we think that can be meaningful in a few years' time. Martin? Didn't recognize you there. Just back on life sciences and the sort of expansion into the farmer vaccine drug delivery area. We're familiar obviously with the emphasis you put on agrochemicals but there now seems to be more mention of the world of drugs generally. And obviously, those are very different end markets, but presumably, potentially much larger. So is there an increased emphasis on building your position in the pharmaceutical industry now alongside AG? Or is it just opportunistic as and when these smaller deals mean, we spent a lot of time mapping the sustainability development goals on to Croda's business. And we haven't really talked about it today, but we're spending an awful lot of time What does that really mean for Croda in the next 5 or 10 years? And you're going to hear a lot more about that. And one of the best businesses to be in, we think, for Croda, for going forward apart from where we are now is accelerating into what I call the whole life science space. And that's as broad as it sounds, but of in the health care arena, there's quite a lot of nice opportunities in pharmaceuticals. I look at vaccines for the next 10, 20 years. And if you're a best and there's going to be more vaccines in the world in the next 10, 20 years, I think so. The American government just legislated recently that shingles vaccine should be administered to everybody over 5, great for some of the big companies. You start to look at some big legislation moves like that, you think, well, that's great. I mean, it's going to be, they need adjuvants and they're the only people that can supply some of them. So we're well positioned for that. We just when we're probably to bring to life our life science strategy in more detail with you all, which we will do. But it's got an excitement about it that we, which is classic Croda, which we're quite Steve, if I could just add a couple of points. I think we got into the health care area in the sort of standard excipient in the oral care area and so forth. And I think over the last few years, we've seen this growth in the complexity of drug molecules. And when we look at the development development pipeline in terms of what that needs from high- high purity excipients has become incredibly exciting for us, which is why we're doubling the capacity in North America for production, and we're adding an additional purification technology. So we feel that this is a very exciting space. And therefore, if we can do the same as we've done in crop, which is to grow find adjacencies and grow more legs, I think that's really exciting. And one of the reasons that we do find life science space, very exciting and the idea that it could be generated as much profit as personal care in due course. And it's got a great franchise model as well. It's not just selling prices, it's about license agreements as well. So there's potential for lucrative profit shares on top, a bit like what we had with the API contract. So that's what we're great with adding value, but we think there's another there may be another value stream that we can capture in pharmaceuticals as well. Hello, Nicola Tang from Exane. Can I ask a question on Personal Care, which we haven't talked about yet very much today? Would you be able to talk a bit about the split between volume and price that you've seen through the year? Because you talked about significant improvement formulations, but was that mainly volume? But you also talked about the significant pickup in NPP. So was there a good price? And you also talked about some of the multinationals rolling out some products in 2019 2020. So how do you expect that to impact both volume, but also margin Could you mention it might be margin dilutive? I'd like to do point 2 and Jess could do the mix. So I mean, just on the multinational move, of course, we have private ships with them, so we can't talk about it. But the there's 2 big global rollouts that are ongoing now. During the numbers from 2018, but these global rollouts started in the early part of 'eighteen and will likely roll out through 20 it shows you how big these are. As well as the big multinationals, you can guess 1 of the 506, but we can't say any more than that. I mean, margins very similar. The margins in there are similar to what we declared 33%, 34%. You'd expect that's considered not dilutive in that respect and it should boost. As we said, it should and it continues to boost sales growth. Although, it's not just a multinational story anymore in person care, a lot of good growth everywhere else too. So, yes, so if that will continue well, both of them will continue through 2019 into 'twenty in the rollout. So they tend to these big companies tend to look at regions. They globalize the rollout by individual regions. So we've gone halfway around the world, they now need to go halfway around the world with their 2019 program into 2020. And Jes on the mix? Nick, so about 3% price mix, about 4% volume in the personal growth. The price mix, obviously, key things to draw out there is it's not really a raw material effect. We haven't seen particularly raw material inflation apart from an individual sort of pockets of materials. So that's very much reflecting this drive in NPP. So basically enriching the quality of the portfolio. And the volume, 4%, strongest growth in the beauty actives we generally expect, the top end of Personal Care, but they're really encouraging thing over the last 18 months has been the beauty formulation business growing consistently because, of course, that is 60% of our total sales and personal care, and that's particularly where the multinationals play. So the encouraging part is that volume growth is very broad based. And so we've got growth in personal care across all three customer groups and across all three businesses. And that's a really strong position for us to be Hi. Theodora Joseph Goldman Sachs. I have a question on your technology acquisitions. You mentioned that you have actually identified quite a number of citing opportunities within the space for 2019. So I'm just wondering if the magnitude of loss from plan impact, is this considered an anomaly, or should we expect it as continue making these acquisitions that we should factor this into your bottom line as well? Yes. I mean, it's unusual, but we knew about it beforehand, it was, sorry, in many ways that that business came available. It just ran out of cash, but we knew that we're probably buying it a year or 2 earlier than the market wanted the product. So when you, there was a sort of cost overhang because of that. So, they're more, don't expect too much like that. I mean, most of our businesses that were buying like that, we call them Advanced research or nautilus Enza, the things that were disruptive technologies for the future, the carrying costs are nothing really. You're buying a few chemists and you're buying you're buying biochemists or dermatologists, but you're buying patents, really. So they're pretty small scale. And then what we expect to do pretty quickly is turn them into products for and commercialize. And so if there are one offs, there may be one offs going forward, but there'll be, few and far between, but if there are, we'll call them out when they come.