Good
morning,
everyone.
It's
great
to
be
with
those
of
you who've
joined
us
in
the
room
and
a
big
welcome
to
those
that
are
on
the
webcast
as
well.
As
ever,
I'm
going
to
go
through
some
of
the
highlights
of
the
year
before
handing
over
to
Jez
to
go
through
the
results
in
more
detail.
I'll
then
come
back
to
talk
about
the
key
trends
driving
the
growth
in
Croda
and
explain
how
we're
well
positioned
to
respond
and
benefit
to
them
as
well.
So,
let's
get
started
then.
So,
2021
was
a
record
year
for
the
business,
an
excellent
performance,
demonstrating
the
benefits
of
executing
our
strategy
with
agility,
speed
and
fast
– and
challenge
in
a
fast
moving
environment.
Investments
and
acquisitions
have
driven
strong
progress
across
all
areas
of
the
business.
And
that's
leading
to
the
best
sales,
profits
and
margins
that
we've
ever
seen,
significantly
ahead
of
last
year
and
well
ahead
of
2019.
High
inflation
related
to
raw
materials,
energy
and
logistics
was
a
significant
headwind.
And
we've
leveraged
our
strong
operating
model
and
pricing
capability
to
control
a
steep
rise
in
costs,
one
of
Croda's
unique
advantages.
Innovation
is
at
the
heart
of
what
we
do,
you
know
that
now,
and
it
defines
Croda.
So
it's
very
pleasing
to
see
that
NPP
growth
is
so
strongly
ahead
this
year.
Acquisitions
have
boosted
our
growth
too.
Avanti
has
established
our
lipid
system
platform,
which
achieved
$200 million
of
sales,
primarily
to
our
principal
vaccine
customers.
And
our
F&F
business,
Iberchem,
delivered
an
encouraging
performance
with
integration
on
track
to
achieve
the
synergy
potential
we
talked
about
when
we
acquired
it.
And
we've
also
accelerated
investment
in
the
business
to
capitalize
on
the
enormous
opportunities
that
we
see
to
drive
future
growth.
So,
overall,
in
the
round,
strong
and
agile
execution
of
our
strategy
as
well.
In
the
space
of
18
months,
if
you
think
about
it,
we've
acquired
Avanti
and
Iberchem
and
we're
in the
process
of
selling
the
majority
of
our
industrial
business
as
well.
So,
Croda
is
looking
very
different,
the
shapes
changing
and
we're
moving
very
much
more
towards
a
pure
play
consumer
care
and
life
sciences
company.
If
you
just
look
–
turning to
the
headline
financials
then.
We
delivered
a
very
strong
increase
in
both
sales
and
profits.
Adjusted
sales
grew
36%,
reflecting
excellent
organic
growth
in
the
core
business
and
the
impact
of
acquisitions
slightly
offset
by
adverse
currency.
So,
you have
big
growth
in
the
core,
plus
acquisitions
on
top.
Profits
grew
substantially
too,
a
testament
to
our
sustained
focus
on
high
value,
high
margin
niche
areas
of
the
market.
So
adjusted
earnings
per
share
43%
higher,
underpinning
the
board's
proposal
to
raise
the
full-year
ordinary
dividend
by
10%,
delivering
30
years
of
consecutive
dividend
increases.
And
finally,
we
grew
organic
capital
investment
by
over
30%
to
nearly
£160
million,
which
will
drive
forward
our
strategy
to
scale
consumer,
health,
and
crop
care
businesses,
leading
to
a
more
consistent
sales
growth
and
even
stronger
profit
margins
in
the
years
ahead.
We're
seeing
strong
structural
growth
too.
If
you
cast
your mind
back, we're
well
ahead
of
pre-pandemic
levels.
2019
is
a
tool
we
use.
The
results
from
other
comparator
for
2019
is
a
tool
we
use
for
management
to
look
at
real
comparisons
rather
than
last
year.
And,
it's
great
to
see.
You
see
the
graph
in
the
top
left.
Great
to
see
all
the
businesses
double
digit
–
showing
double-digit
underlying
growth
in
each
of
the
sectors.
So
top
right
shows
the
reported
operating
profit,
up
38%.
And
below
you
can
see
how
EPS
has
progressed
to
be
35%
higher.
And
there's
also
been
a
marked
increase
in
NPP,
as
I
mentioned
earlier,
increase
from
28%
to
37%.
So
as
we
become
more
knowledge
– more
and
more
knowledge
intensive
company,
we
commercialize
people's
knowledge,
not
network
capacity
in
our
world.
So,
underlying
growth
in
2021
was
strong
across
the
board.
We
had
–
whilst
health
care
was
the
standout
performer,
Crop
Protection
in Life
Sciences
also
had
a
good
second
half
too,
contributing
to
this
40%
increase
in
the sales
of
Life
Sciences.
Consumer
Care
delivered
a
strong
set
of
results
as
well,
consistent
throughout
the
year.
We're
seeing
a
resurgence
in
Personal
Care.
Performance
Technologies
strengthened
in
half
two,
driven
by
improved
demand
in
its
more
cyclical
end
markets.
And
all
regions
also
delivered impressive
sales
growth,
with
the
consumer
recovery
strongest
in
North
America.
I
mentioned
inflation
a
moment
ago,
and
this
slide
helps
to
illustrate
both
the
challenge
and
our
ability
to
successfully
navigate
it.
2021
saw
the
highest
rise
in
raw
material
costs
in
a
decade,
up
17%
on
an
underlying
basis.
Energy
costs
rose
significantly,
with
freight
also
rising
by
25%,
big
headwinds
of
cost,
you've
seen
that
in
the
industry
as
well.
The
underlying
sales
volumes
are
very
healthy
and we're
pleased
about
that.
They
grew
9%,
reflecting a
very
strong
trading,
but
we
fully
recovered
the
impact
of the
higher
input
costs,
demonstrating
the
continued
strength
of
Croda's
operating
model,
and
alongside
an
improving
product
mix
as
well.
So,
if
you
looked
at
the
overall
mix,
up
17%.
The
consequence of
a
strong
demand
and faster
growth
was
record
profit
margins
increasing
to
24.8%.
Our
non-financial
metrics
are
just
as
important
as
our
financial
results.
And,
last
year,
we
became
only
the
third
chemical
company
in
the
world
to
have
our
1.5-degree
target
verified
by
the
Science Based
Targets
initiative.
Our
objective
is
to
be
Net
Zero
by
2050
and
to
ensure
that
we're
investing
in
our
site
decarbonization
roadmaps.
Whilst
the
divestment
of
PTIC
will
make
us
less
carbon-intensive,
we
will
rebase
our
climate
targets
to
maintain
the
challenges
that
we've
set
ourselves.
We're also
improving diversity
and inclusion,
achieving both
targets
of
the
Hampton-Alexander
and
Parker
Reviews
at
the
start
of
this
year.
The
proportion
of
women
in
leadership
across
the
business
now
increased
to
36%
leadership
positions. And
we've
established
the
Croda
Foundation
through
which
we're
providing
£1
million
of
funding
annually.
And
this
year,
we've
given
an
additional
£2
million
on
top
to
reflect
the
progress
in
Health Care
– our
Health Care
business
and
the
first
projects
will
help
deliver
vaccines
to
over
50
million
people
in
India,
Brazil
and
Uganda.
So,
a
sale
of
the
majority of
PTIC,
which
was
agreed
in
December,
was
a
significant
strategic
step
for
the
business
for
lots
of
reasons.
And
on
completion,
Croda
will
become
a
more
carbon-light
business
but
will
also
have
more
intellectual
property
as
NPP
sales
in
Consumer
Care
and
Life
Sciences
are
nearly
half
the
total
in
the
in
the
business.
So,
our
increased
exposure
to
fast
growth
markets
will
translate
to
faster
top
line
growth
and
increased
margins.
And
we
will
be
more
focused
and
an
even
stronger
position
to
drive
consistent
superior
returns
in
the
future.
So,
let
me
stop
there,
more
from
me
in
a
moment
and
I
hand
over
to
Jez,
for
a more
detail
on
the
numbers.
Thank
you.
J
Jeremy Kim Maiden
Group Finance Director, Croda International Plc
Thanks,
Steve,
and
good
morning
everybody.
As
Steve
has
said,
2021
has
seen
a
record
financial
performance
for
the
group.
Sales
were
up
36%
in
reported
currency
at
almost
£1.9
billion,
an
increase
by
43%
in
constant
currency.
Sterling
strength
means
that
reported
currency
numbers
are
about
7
points
below
the
constant
currency
numbers.
Adjusted
operating
profit
increased
by
47%
to
£469
million.
With
a
better
product
mix
and
volume
growth,
return
on
sales
increased
by
180 basis
points
to
24.8%.
Adjusted
profit
before
tax
was
£445
million,
up
almost
50%
on
the
prior
year.
The
tax
rates
reduced
to
21%
with
a
one-off
benefit
from
settlement
of
a
previous
uncertain
tax
position.
We
expect
to
revert
to
around
25%
tax
rate
from
2022.
Adjusted
earnings
per
share
rose
by
43%
to
£2.50
with
the
proposed
full-year
dividend
increase
to
£1.00,
up
£0.10
per
share
and
14%
in
cash
terms
following
the
Iberchem
funding
for
the
equity.
This
is
the
30th
successive
year
of
dividend
growth,
as
Steve
has
said,
and
earnings
cover
is
at
the
lower
end
of
our
range
of
40%
to
50%
of
adjusted
earnings.
So,
we're
in
a
good
place
there.
Free
cash
flow
reduced
by
13%
to
£154
million
due
to
higher
capital
investment
and
working
capital
build
and
I'll
talk about
that
later.
Adjusted
profit
items
charged
in
the
period
totaled
£34
million.
This
reflected
an
increased
charge
for
intangible
amortization
following
the
recent
acquisitions.
Exceptional
items
were
netted
to
pretty
close
to
zero.
Profit
before
tax
on
an
IFRS
basis
was
up
53%
to
£412
million.
The
left-hand
chart
shows
the
sales
bridge
for
2021
versus
2020.
Underlying
sales,
that's
from
the
existing
Croda
businesses
pre-acquisitions,
were
up
26%
in
the
year,
of
which
price/mix
was
plus
17%
and
volume
was
9%
higher.
We're
particularly
pleased
with
the
volume
growth
as
it
demonstrates
the
strength
of
the
existing
business.
Price/mix
includes
the
recovery
of
inflationary
costs
but
with
a
significant
benefit
as
well
from
product
mix,
reflecting
the
growth
of
the
high-value
businesses,
particularly in
Beauty
Actives
and
Health
Care.
The
first
year
of
acquisitions
added 17%
to
group
sales,
giving
the
43%
increase
in
constant
currency
sales.
Now,
the
right-hand
chart
shows
the
impact
of
lipid
systems
growth.
As
at
the
half
year,
this
has
had
a
meaningful
impact
on
the
full-year
performance
and
it
would
be
easy
but
incorrect
to
conclude
that
the
overall
record
result
has
been
driven
solely
by
this.
Of
the
total
constant
currency
growth
of
43%,
10
percentage
points
have
come
from
Avanti
and
the
lipid
systems
platform,
20
percentage
points
have
been
delivered
from
Croda's
existing
business,
reflecting
the
strong
growth
in
Consumer
Care
and
the
rest
of
Life
Sciences
as
well
as
Performance
Technologies
and
the acquisitions
in
Consumer
Care
added
13
percentage
points
of
growth.
So,
the
growth
is
very
broad-based.
This
sales
growth
has
also
been
reflected
in
the
profit
bridge.
The
underlying
business
delivered
£116
million
of
profit
growth.
We
saw
growth
across
all
sectors
and
all
businesses.
We're
now
trading
well
ahead
of
pre-pandemic
levels
across
the existing
Croda
business.
Acquisitions
are
shown
separately
up
to
the
first
anniversary
of
their
purchase.
Profit
from
acquisitions
added
£58
million
in
2021
and
currency
translation
reduced
overall
reported
profit
by
£25
million.
Turning
now
to
look
at
each
sector
and
how
it has
contributed
to
the
growth.
Consumer
Care
sales
grew
by
45%
and
adjusted
operating
profit
was
29%
higher.
The
lower
profit
growth
here
reflects
the
fact
that
Iberchem
operates
at
a
lower
margin
than
the
Personal
Care
business.
And
as
a
result
of
this
dilution
effect,
return
on
sales
overall
for
the
sector
was
around
25%.
The
standout
performer
was,
again,
Life
Sciences.
Sales
grew
in
2021
by
46%
and
with
a
stronger
product
mix,
adjusted
operating
profit
rose
by
two-thirds,
with
return
on
sales
of
36%.
Performance
Technologies
saw a
strong
sales
recovery,
with
sales
up
18%,
all
organically
driven.
The
benefits
of
greater
volume
and
the
operating
leverage
impact
saw
adjusted
operating
profit
32%
higher
and
return
on
sales
of
around
15%.
Now,
looking
at
each
of
the
three
principal
sectors
in
turn.
2021
saw
the
creation
of
the
Consumer
Care
sector,
comprising
Croda's
leading
Personal
Care
business
in
Personal
Care,
our
growing
Home
Care
business
and
the
Iberchem
fragrance
and
flavors
business.
Personal
Care
saw
a
strong
rebound
in
sales
in
2021,
with
underlying
sales
now
15%
above
the
pre-pandemic
level
of
2019.
Growth
was
strongest
in
the
high-end
IP-rich
engine
of
Beauty
Actives,
including
Sederma,
with
sales
up
by
29%
on
2020.
And
after
a
challenging
couple
of
years,
the
Beauty
Care
business
saw
a
progressive
improvement
in
demand
for
skin care,
sun
care,
cosmetics
and
hair
care,
with
sales
13%
higher.
The
business
is
focused
on
sustainability-driven
innovation,
including
products
from
the
US
ECO
plant.
After
strong
demand
for
hygiene
products
in
2020,
Home Care
sales
growth slowed
to
8%. Fabric
care
and
ECO
products
are
the
key
drivers
of
growth
here.
The
Iberchem
business
is
proving
to
be
everything
that
we
hoped
it
would
be.
The
innovation
in
particular,
is
very
exciting.
Integration
is
on
track.
And
the
first
cross-selling
synergies
are
being
delivered.
2021
saw
an
encouraging
performance
despite
combination
of
slower
growth
in
COVID-impacted
emerging
markets
and
a
lag
in
full
inflation
recovery,
but
our
profit
was
in
line
with
the
acquisition
plan.
Looking
at
the
bottom
chart,
with
Beauty
Actives
sales
strong,
product
mix
improves
in
Consumer
Care.
Price/mix
was
13%
higher
and
volume
was
5%
up.
Acquisitions
added
35
percentage
points
to
the
sector
and
the
consumer
sector
is
now
well
set
to
deliver
our
objective
of
mid-single-digit
percentage
sales
growth
before
inflation
recovery.
Life
science
continues
to
develop
into
a
business
to
rival
Croda's
long
held
leadership
in
Consumer
Care.
With
its
focus
on
drug,
vaccine
and
crop
science
delivery
systems,
the
sector
is
growing
sales
through
organic
expansion
and
by
leveraging
acquired
technologies.
2021
saw
sales
up
46%
and
adjusted
operating
profit
up
67%.
Within
this,
Health
Care
delivered
an
outstanding
performance
with
rapid
expansion
in
all
three
patient
healthcare
platforms.
Sales
of
vaccine
adjuvants
were
up
over
40%
alongside
specialty
excipients.
And
meanwhile,
the
lipid
systems
platform
saw
sales
of
approximately
$200
million
for
COVID-19
vaccines.
Crop
Protection
delivered
double-digit
percentage
growth
year-on-year
in
what
was
a
great
year
for
agricultural
demand
globally.
The
growth
in
Seed
Enhancement
was
more
subdued
due
to
slower
markets
in
Europe
and
North
America.
The
growth
of
Health
Care
and
the
top
end
of
crop
is
driving
a
focus
on
value,
not
volume.
Innovative
products
sell
at
much
higher
prices
and
volumes
are
measured
in
kilos,
not
tonnes.
As
a
result,
price/mix
added
35
percentage
points to
sales
growth,
whilst
volume
rose
by
6
percentage
points.
The
broad-based
sector
growth
can
be
seen
in
the
chart
on
the
right-hand
side,
with
an
overall
contribution
of
17
percentage
points
from
Croda's
existing
business,
supported
by
37
percentage
points
from
the
Avanti
acquisition
and
the
broader
lipid
systems
platform.
Life
Sciences
is
expected
to
see
high-single-digit
growth
in
the
medium
term,
excluding
inflation
recovery.
In
Performance
Technologies,
2021
saw
a
continued
improvement
in
sales,
driven
by
a
recovery
in
high-end
markets
and
sustainability-driven
demand.
Margins
also
improved
due
to
a
better
business
mix
and
operating
leverage.
Sales
increased
by
18%,
equally
split
between
price/mix
and
volume.
In
December,
we
reached
agreement
to
sell
just
over
three-quarters
of
the
combined
Performance
Technologies
and
Industrial
Chemicals
business
or
PTIC
and there
was
no
impact
on
the
2021
results
from
the
divestment
other
than
an
exceptional
charge
for
the
advisory
costs
incurred
during
the
year.
However,
had
the
divestment
occurred
at
the
start
of
2021,
we
estimate
that the
sales
in
PTIC
would have
been
around
£360
million
lower
and
the
impact
on
adjusted
operating
profit
from
the
divestment,
together
with
resultant
stranded
costs
in
the
business,
would
be
just
short
of
£60
million
per
annum.
We're
now
working
through
the
separation
process
and
expect
completion
during
the
summer
of
2022.
We've
already begun
the
redeployment
of
capital
from
the
PTIC
divestment.
In
2021,
we
increased
our
capital
spend
to
almost
£160
million.
We're
following
our
buy
and
build
strategy
of
acquiring
into
exciting
technology
adjacencies
like
vaccine
adjuvants
and
lipid
systems
at
sensible
multiples
and
then
expanding
them
organically
through
capital
investment,
which
reduces
the
risks
and
avoid
significant
goodwill
thereby
accelerating
returns.
In
2021,
we
invested
£70
million in
Health
Care.
We
also
expanded
our
range
of
sustainable
technologies
in
Consumer
Care.
And
we
began
investment
in
botanicals
and
fragrances
as
part
of
our
fast
growth
China
strategy.
The
other
key
cash
outflow
in
the
year
was
the
£100
million
working
capital
build.
This
reflected
an
increase
in
raw
material
costs
and
selling
prices,
higher
sales
volume
and
tactical
increases
in
inventory
to
mitigate
the
global
distribution
challenges
that
we
faced
similar
to
many
other
companies.
The
impact
of
higher
values
of
working
capital
at
a
constant
level
of
days
cover
added
almost
£70 million,
as
you
can
see
on
the
right-hand
chart,
while
the
increase
in
contingency
stock
added
a
further
£45
million.
And
this
will
reverse
as
price
increases
and
distribution
challenges
normalize.
As
a
result,
free
cash
flow
was
£154
million,
£23
million
behind
2020.
We're
following
our
long-established
capital
allocation
policy,
which
guides
the
way
we
deploy
capital.
Firstly,
we're
investing
in
organic
growth,
as
you've
seen,
while
increasing
the
ordinary dividend
as
part
of
our
long-term
commitment
as you've
seen, while
increasing the ordinary
dividend
as part
our
long-term
commitment
on returns
to shareholders.
We
invested in
acquisitions
through
Alban
Muller
and
Parfex
in
Consumer
Care,
and
closing
leverage
was
1.4
times
EBITDA,
well
within
our
target
range
of
1
to 2
times.
We'll
continue
to
follow
this
policy,
investing
for
the
future,
increasing
the
regular
dividend,
and
returning
excess
capital
as
and
when
this
is
identified.
I'll
now
hand
you
back
to
Steve
who
will
update
you
on
our
strategic
priorities.
S
Stephen Edwards Foots
Thanks, many
thanks,
Jez. Right.
A
little
bit
more
from
me
then
on
Croda's
strategy,
and
it's
all
about
moving
into
faster
growth
markets.
Yeah, you've
heard
this
from
me
many
times.
We're
focused
on
those
markets
that
can
value
our
innovation
and,
through
high
margins,
are less
cyclical,
as
well
as
capital
and
carbon
light.
So,
we'll
combine
our
leadership
position
in
sustainability
with
our
leadership
position
in
innovation.
You
need
them
both
to
deliver
profitable
growth.
And
at
that
intersection,
you
get
fast
growth.
So,
if
you
just
look
at
our
strategy,
our
strategic
priorities,
we've
done
some
of
our
best
strategic
thinking
during
the
COVID-19
pandemic
with
the
board
and
Executive
Committee
together
recently
finalizing
our
strategic
plan
for
the
next
five
years.
And
our
priorities
are
shown
on
the
outside
of
the
rim
of
the
circle.
And
in
addition
to
expanding
and
strengthening
our
core
sectors,
we'll
also
scale
biotechnology
and
invest
to
faster
growth
in
China
as
well
where
the
personal
care
market,
for
example,
is
growing
at
9%
a year.
We'll
continue
to
look
to
acquire
disruptive
technologies
as
well
along
the
way
and
also
continue
to
what
we
call
do
the
basics
brilliantly
and
increase
both
our
responsiveness
to
customers
and
engagement
from
our
employees.
So,
today,
if
you
look
about
sustainability,
consumers
care
more
and
more
about
it
and
their
impact
on
the
wider
environment
as
well,
too,
in
the
brands
that
we
sell
to.
Our
customers
want
us
to
deliver
novel,
sustainable
ingredients
that are
ethically
sourced
and
produced
from
lower
carbon
manufacturing.
And
this
is
how
we
think
about
sustainability
and
the
opportunity.
So,
we're
seeing
a
big
shift
from
the
pandemic.
We're
ramping
up
innovation
too,
and
it's our
lifeblood.
As
you
know,
we've
invested
50%
more
in
R&D
resource
in
the
last
year,
undertaking
bigger
bets
with
more
ambitious
projects.
And
we'll
roll
some
of
these
out
with
you
through
the
calendar
this
year.
So,
we've
got about
seven
major
projects
that
we're
working
on
at
the
moment. And
at
the
heart
of
our
strategy
is
our
Purpose,
Smart
science
to
improve
lives,
which
will
control
and
continue
to
guide
the
strategic
choices
that
we
make.
Across
the
markets
we
see,
we
like
trends,
and
there
are
two
mega
technology
trends,
which
we
think
are
the
most
important
for
us
driving
our
future.
The
first
is
the
demand
for
sustainable
ingredients.
As
I
mentioned
earlier,
consumers
want
more
products
from
natural
and
ethically
sourced
ingredients.
And
that's
benefiting
consumer
as
well
as
the
Crop
business.
And
the
second
is
the
move
towards
biologics
in
Crop
Care
and
pharmaceuticals,
which
offer
transformational
opportunities
for
Croda,
which
I'll
come
on
to
shortly –
big
opportunities
presenting
themselves
in
biopesticides
and
biopharmaceuticals,
which
is
really
exciting
for
the
group.
And
the
way
we
look
at
Croda
now and
the
way
I
want
you
to
look
at
Croda
now
is
we've
got
eight
growth
businesses
supported
by
industrial
specialties.
And
within
Consumer
Care,
most
of
you
are
familiar
with
our
Personal
Care
business,
where
we
deliver
thousands
of
products
to
thousands
of
customers,
all
of
which
with
rich
IP.
We've
got
eight
businesses
like
that
now
run
by
dedicated
management
teams,
and
thereon
forward-thinking,
customer-led
R&D
capabilities.
They're
all
supplying
critical
ingredients
at
low
inclusion
levels
and
often
selling
in
test
tube
quantities
rather
than tanker
loads,
replicating
the
model
we
have
in
Personal
Care
for
many
years.
So,
all
eight
businesses
have
excellent
growth
prospects
and we
see
a
great
opportunity
for
each
of
them
to
deliver
as a
minimum
1.5
times
GDP,
so if
there's
a
takeout
for
the
slide,
multiple
opportunities
for
growth
across
multiple
sectors. 10
years
ago,
some
investors
would
have
invested
in
Personal
Care
as
a
priority.
Take
a
look,
you
can
invest
in
Health
Care,
you can
invest
in
Crop
Care,
you
can
invest
in
fragrance
and
flavors,
and
you
can invest
in
Personal
Care
as
well.
You
can invest
in
all
of
them
now.
So
turning
to
each
of
these
areas
in
a
bit
more
detail.
Beauty
Actives
is
a
really
important
business
for
Croda.
We're
market
leader
in
peptides,
naturals
and
biotechnology,
all
of
which
are
seeing
higher
growth
than
the
average
global
beauty
market
and
we
expect
that
to
continue.
Our
genre-defining
peptide,
such
as
Matrixyl
are
formulated
into
80%
of
all
new
antiaging
products
containing
a
peptide.
We're
also
developing
next-generation
active
ingredients
including
peptides
using
synthetic
biology
and
80%
of
our
Beauty
Actives
R&D
pipeline
is
green.
We
acquired
Alban
Muller
deliberately,
which
develops
innovative
botanical
ingredients
such
as
anti-inflammatories
made
from
pomegranate
of
all
things.
And
we've
also
introduced
botanical
ingredients
into
China
as
well
and
acquired
land
for
a new
facility,
which
we
expect
to
build
in
2023.
So
a
third
of
our
active
products
as
well
are
biotechnology
derived
in
revenue
terms
today,
most
well-known
of
which
is
Majestem
for
skin
and
neck
lifting.
Some
of you
might
have tried
that
before.
And we
acquired
Nautilus
as
well
in
2018,
a
technology-rich
marine
biotechnology
business,
which
has
recently
launched Venuceane, an
active
derived
from
marine
microorganisms
as
well
to
repair
sun
damage,
Sederma
moving
increasingly
into
sustainable
ingredients
into
faster
growth.
And
we're
winning,
too,
in
sustainable
ingredients
in
both
Beauty
Care
and
Home
Care
as
well.
We're
the
market
leader
in
metal
oxides
on
the
left-hand
side,
use
a
sustainable mineral
UV
filters for
sun creams, and
have
invested in
Entekno
partnership, which
has launched
a
range
of
high-protection
mineral
products
with additional
non-whitening
benefits, so positioning
through
a partnership
to
meet
sustainable
ingredients.
And
in sustainable
surfactants,
we're
displacing
petrochemical
competitors
in
formulations
increasingly
with
our
broad
range
of
ECO
products.
And,
in
2021,
we
secured
a
three-year
contract
with
a
major
beauty
brand
covering
six
ECO
surfactants
for
high-end
skin
and
hair care,
the
start
of
things
to
come.
And,
in
other
areas,
we're
also
seeing,
in
sustainable
surfactants,
legislation
change
through
sulfation,
sulfate-free
brands
now
are
on
the
market
everywhere.
And
we're
getting
the
benefit
of
that
through
our
ingredients
through
clean
beauty
products,
with
sales
doubling
over
the
last
four
years.
So
we're
starting
to
see
this
big
shift
materially
improving
the
growth
profile
for
our
Consumer
Care
business.
And
in
Home
Care,
it's
just
the
same,
but
what
you
see
there
is
a
big
move
in
the
wash
cycle
to
low-temperature
washing.
That's
allowing
us
to
provide
active
biopolymer
ingredients,
and
we
just
signed
some
lucrative
contracts
with
a
big
customer
to
improve
their
fabric
conditioner
range
around
the
world
that's
been
launched
in
30
countries
improving
their
brand.
So,
lots
of
good
opportunities
coming
through
and
you're starting
to
see
that
in
the
numbers
with
Consumer
Care.
In
fragrances
and flavors,
as
Jez
said,
we're
really
happy
with
where
we
are.
We're
on
track
with
the
€48
million
of
annualized
revenue
synergies
by
2025, and
we're
leveraging
our
combined
sales
network
with
10 target
countries
identified
and
opportunities
across
customers
of
all
sizes,
including
major
brands,
regional
dynamos,
and
indies.
In
Brazil,
a
new
Iberchem
business
and
R&D
laboratory
has
been
set
up
and
established
at
an
existing
Croda
site
there,
and
it's
delivering
its
first
sales,
too.
So,
this
year,
we
also
acquired
Parfex,
again,
sustainable
ingredients,
big
shift
there.
They
create
fragrances
principally
for
premium
personal
care
and
fine
perfumery
markets.
And
we're
leveraging
their
natural
raw
material
base
to
their
portfolio,
all
part
of
the
plan
to
capitalize
on
growth
opportunities
for
Ecocert-accredited
products.
We
doubled
sales
of
these
product
lines
during
the
year.
So
turning
next
to
Crop,
we've
talked
to
you
a
lot
about
the
traditional
crop
care
market
on
the
left-hand
side
of
the
slide, a
big
market
with
compound
annual
growth
of
about
3%.
An
existing
partner
to
the
major
crop
companies,
we've
also
successfully
increased
our
sales
to
medium
size
and
small
customers
who
now
account
actually
for
about
50% of
sales.
So
it's
not
just
about
the
four
or
five
big
multinationals.
We've
got
a
broad
breadth
to
our
programs
now.
But
more
exciting
is
the
move
to
biopesticides.
Whilst
it's
currently
a
smaller
market,
it's
growing
rapidly.
And
we're
now
increasing
our
innovation
for
next-generation
delivery
systems
for
microbials
and
RNA,
things
like
that.
Sustainability
trends
are
driving
Seed
Enhancement,
too,
where
we
have
secured
our
first
customers
for
seed
treatment,
seed
coatings
that
are
microplastic-free.
And
we've
recently
opened
an
innovation
center
in
Brazil
too
there,
state-of-the-art
facility,
including
formulation,
microbiology
and
seed
treatment
laboratories.
And
keeping
the
best
to
last,
let's
talk
about
moving
to
biopharma
in
our
Patient
Health
business.
As
you
know,
our
drug
delivery
capability
is
founded
on
three
world-class
platforms,
all
of
which
meet
the
need
for
specialist
delivery
systems
for
biopharma
applications
and
where
we're
seeing
compelling
opportunities
for
future
growth.
I'll
talk
more
about
the
pipeline
shortly.
But
just
as
a
recap
slide,
growth
in
excipients
has
been
driven
by
expansion
in
injectable
drugs
using
biological
active
ingredients,
which
dominate
new
drug
launches.
The
opportunity
here
is
vast,
extending
to
the
newest
biological
drug
innovations,
such
as
monoclonal
antibodies,
say
that after
a few
[indiscernible]
(00:29:38),
more
than
5,000
of
which
are
currently
in
clinical
trials.
And
our
adjuvants
provide
the
important
accelerator
to
a
range
of
new
global
vaccines.
The
market
for
prophylactic
vaccines,
say
that
after a
few more
[indiscernible]
(00:29:52),
has
more
than
doubled
in
the
last
two
years.
And
in
addition,
more
than
1,500
clinical
trials
are
currently
underway
for
therapeutic
vaccines.
Lipid
systems
offer
significant
potential
beyond
COVID-19
as
a
preferred
delivery
system
for
the
developing
science
of
nucleic
acid
therapeutics.
You'll hear
a
lot
more
about
that
from
Croda.
The
mRNA
market
alone
is
expected
to
reach
about
$35
billion
over
the
next
15
years
and
180
clinical
trials
are
already
underway
for
applications
across
preventative
and
therapeutic
vaccines
and
therapeutic
drugs.
So,
we've
got
three
world-class
platforms,
all
of
which
are
offering
great
opportunities
for
Croda.
So
the
pipeline
then,
so
turning
to
it,
it's
getting
bigger,
much
bigger.
In
2021,
we
secured
130
new
customers;
250
new
clinical
and
preclinical
programs
with
our
products,
we're
involved
in;
and
interestingly,
two-thirds
of
those
programs
are
non-COVID-19
applications.
We're
not
a
one-hit
wonder
in
Croda
in
COVID.
You'll
have
a
look
at
the
non-COVID
growth
profile
for
Croda
in
the
next
few
years
in your
five-year,
ten-year
spreadsheets.
In
terms
of
providing
some
color
on
the
variety
of programs,
we
can
say
that
oncology
programs
make
up
the
majority
of
our
specialty
excipient
pipeline,
as
well
as
immunosuppressants
for
diseases,
such
as
diabetes.
In
vaccine
adjuvants,
we're
becoming
more
involved
with
the
fight
against
WHO-listed
diseases,
too.
So
we're
now
contributing
in
high
profile
projects
to
combat
15 of
those 24
priority diseases, including
new
projects
for things
like
HIV and
Ebola.
And
in
lipid
systems,
we're
involved
with
multiple
projects
and
multiple
customers,
and
we
have
relationships
with
over
two-thirds
of
companies
developing
mRNA
vaccines
and
drugs.
So,
we're
very
well-placed
there
to
satisfy
future
growth.
And
I
think
taking
a
big
step
back
from
this,
Jez
and
myself
will
say
these
are
the
hallmarks
of
a
terrific
new
Croda
business,
probably
the
most
exciting
thing
I've
seen
in
my
career
to-date.
And
given
the
rapidly
developing
pipeline,
it
should
come as
no
surprise
that
we're
investing
our
money
in
it,
putting
our
money
where
our
mouth
is,
investing
ahead
of
future
growth
to
satisfy
future
growth
as
well.
Our
preferred
approach
is
to
adopt
this
buy-and-build
model, secure
a
new
technology
platforms
like
Avanti
and
the
knowhow
that
we
get
through
that
with
modest
acquisition spends
and
building
site
expansion
around
that. Their
model
was
a
good
one,
but
it
didn't
capitalize
on
the
big
growth
coming
through
the
clinical
programs.
We
think
we
can
do
that.
So,
overall,
we've
invested
more
than
£100
million
in
the
last
two
years,
including £70
million
in
2021,
with
a
similar
amount
committed
in
the
future.
So,
in
speciality
excipients,
we've
doubled
capacity
–
yeah,
in
speciality
excipients,
we've
doubled
capacity
in
the
US.
We're
also
expanding
in
Asia,
investing
£15
million
to
increase
our
capacity
there
as
well.
And
in
adjuvants,
you'll
see
we've
doubled
capacity
at
our
site
in
Denmark
as
well.
And
for
lipid
systems,
we've
doubled
the
number
of
employees
at
Avanti
with
£35
million
of
investment
to
double
capacity
at
their
Alabama
site.
This
has
been
complemented
by
£20
million
of
investment
to
create
a
new
scale-up
capability
in
the
UK.
These
are
already
some
of
the
highest
returning
investments
in
our
portfolio,
and
we're
confident
that
this
trend
will
continue.
So
in
addition,
we've
also
increased
people
numbers
by
40%,
which
has
hit
the
Life
Science
margin
you've
seen
in
the
second
half
of
the
year,
but
it's
because
of
growth,
future
growth,
and there's
lots
of
it
so
lots
of
progress.
And
all
part
of
our
plan
is
to
build
an
unbeatable
global
drug
delivery
capability
with
three
world-class
technology
platforms.
It's
not
just
lipid
systems.
It's
not
just
vaccine
adjuvants.
It's
specialty
excipients
of
three
platforms.
So
finally,
coming
to
our
outlook,
we
expect
to
see
continued
underlying
growth
in
the
year
ahead
driven
by
this
robust
consumer
demand
we're
seeing.
We
expect
that
to
continue.
Raw
material
prices
are
increasing
and
growth
investments
are
offsetting
any
further
customer
destocking.
We're
navigating
inflation
very
well.
And
as
guided
to
previously,
we
expect
lipid
systems
to
be
at
a
similar
level
to
2021
and
margins
will
remain
strong
due
to
an
increased
proportion
of
sales
from
higher value-add
solutions.
So,
in
summary,
it's
been
an
outstanding
year
for
Croda
with
strong
financial
and
strategic
progress,
and
we're
well
ahead
of
pre-pandemic
levels
and
demonstrating
our
ability
to
navigate
this
high
inflationary
environment
very
well.
We're
more
knowledgeable
and
a
more
intensive
business
as
well
with
that,
focused
on
higher
growth,
higher
R&D,
higher
return
markets
in
a
stronger
position
to
deliver
more
consistent
sales
growth,
stronger
profit
margins
in
the
future.
And
it's
an
exciting
time
for
Croda.
Of
that,
there
is
no
doubt.
And
now,
Jez
and
I
are very
happy
to
take
your questions
from
the
floor
and
from
the
webcast.
Thank
you.
[Operator Instructions]
C
Charles Eden
Analyst, UBS AG (London Branch)
Charles
Eden,
UBS.
Thank
you
very
much.
Two questions
from
me,
please.
You
mentioned
strong
margins
in
Life
Sciences
in
2022.
Could
you
help
us
define
strong
if
possible,
please?
And
then
secondly,
you
mentioned
raw
material
inflation,
no
surprise.
Can
you
help
us
what
that
looks
like
for
Croda
in
2022
and
if
there's
any
variants
between,
I
guess,
core
Croda
now,
so
Consumer
and
Life Sciences
and what
it
might
be,
including
PTIC,
if
you
could
break
that
out?
Thank
you.
S
Stephen Edwards Foots
I'll
do
one.
Jez
can
do
two.
Yeah,
I
mean,
on
the
margins,
and
the
Life
Science
margins
come
off
in
the
second
half,
you've
seen
that.
But
it's
all
to
do
with
the
increase
in
numbers
that
we're
seeing
and
the
increase
in
capital
we're
putting
in
the
business.
So,
I'll
come
back
to
answer
your
question
in
a
minute.
But
Avanti,
particularly,
we
started
with
125
people
in
Avanti.
We've
now
got
nearly
300
people.
And
the
model
that
we're
adopting
is
that's
a
preclinical
machine.
It's
sending
out
samples
at
a
veracious
rate
right
across
the
spectrum
to
pharma
companies.
So,
we're
in
a
lot
of
preclinical
programs.
And
as
anybody
knows,
in
the
pharma
industry,
once
you're
in
pre-clinicals,
then
your
job
is
nearly
there,
nearly
complete
because
we
should
roll
into
the
clinical
one,
two
and
three
programs
with
the
support
we've
got
from
the
preclinical
relationships
that
we've
got.
So,
the
most
important
thing
is
making
sure
that
we're
responding
quickly
to
new
molecules,
existing
molecules,
and
synthesizing
things
in
a
slightly
different
way.
So,
the
lipid
system
market
needs
slightly
different
products.
So,
a
lot
of
these
clinical
programs
we've
got,
not
just
the
lipid
systems,
probably
multiple
products,
slightly
different
products
for
multiple
customers.
So,
there
isn't
one
standard
product
that
serves
this.
So,
there's
a
lot
of
craft
needed
from
our
Avanti
team
to
make
sure
that
we
are
adopting
the
right
products
in
the
preclinical
programs.
So,
we've
put
a
special
emphasis
on
that.
And
you've
seen
that
margin
come
off
in
the
second
half.
I
think
the
way
we
look
at
that's
stabilized
now
because
we've
put
a
lot
of
those
people
in. I think we're
talking
about
35%
margins
for
Life
Sciences
this
year
on
an
ongoing
basis.
The
growth
outside of
lipid systems,
the
growth
is
still
at
the
higher
margin
area.
So,
you
would
expect
that
margin
increase
to continue.
So,
we're
not
seeing
a
sort
of
deterioration
in
margin,
which
is
uncontrolled.
It's
all
targeted
for
growth
because of
our
confidence
in
the
growth.
There's
a
little
bit
of
depreciation
in
there
coming
off
some
of the
assets.
And
also
actually
to
a
smaller
degree,
crops
had
a
great
second
half
as
well.
So,
there's
a
bit
of
dilution
in
crop
in
there
as
well.
So,
there
is
absolutely
no
problem
with
margins
in
Life
Sciences,
far
from
it.
You're
just
seeing
a stabilization
once
we
put
a
lot
of
energy
into
these
preclinical
programs
through
people, putting
people
on
the
ground.
So,
that's
really
important.
And it's
testament
to
our
confidence
in
the
business
going
forward,
our
capital
confidence
but
also
our
people
confidence
in
putting
resource
in
as
well.
This
market
could
get
very,
very
interesting
for
Croda
in
the
next
decade.
Jez,
on
the
second
point?
J
Jeremy Kim Maiden
Group Finance Director, Croda International Plc
So,
Charles, so raw
material
recovery
and
so
forth.
So,
in
2021,
we
had, as Steve
said,
17%
increase
in
raw
materials.
So,
clearly,
there's
an
annualization
effect
to
flow
through –
probably
about
half
of
that
to
flow
through
in
2022, just
a
straight
sales
price
recovery.
And
then,
we've
seen
some
further
increases
in
the
first quarter
with
maybe
some
early
signs
in
the
second
quarter
that
there's
fewer
of
those
increases
because
we
feel
it's
got
inflation, raw
material
inflation
should
slow
down
at
some
point
and
maybe
we'll
see
that second
quarter.
But
it's
still
quite
early
to
confirm
that
maybe
we're
seeing
that.
And
what
we
showed
in
the
model
is
we're
very
successful
in
recovering
that
little
bit
of
a
lag
in Iberchem,
which
is common
to,
I
think,
all
of the
flavors
and
fragrance
businesses.
But,
yeah,
they'll
get
there
and
so
forth
in
there,
but
the
Croda
model
works
very
much
on
achieving
that
recovery
on
a
quarter-to-quarter
effect.
And
as
you
can
see,
there has
been
no adverse
margin
impact
in
terms
of
doing
that.
So,
I'm
confident
of
seeing
that
recovery.
Now,
then
when
we
break
down
sales
and
margin,
we
sort
of
think of
sales growth
sort of
independently. So,
we're
certain
that
we're
going to
recover any
raw
material
inflation
that
we
see
sort
of
going
forward
as
we
did
last
year.
So,
what
we're
doing
is –
what
we're
then
saying
is,
okay,
so
then
think
about
the
underlying
sales
growth
that
we're
seeing.
And
I
think
in
Consumer
Care,
we're
seeing
that
as
mid-single
digit.
But
there'll
be
price
recovery
on
top
of
that,
but
that's
sort
of
passed
through
in
effect
to
maintain
profit.
And
in
Life
Sciences,
we
think
there'll be
high-single
digit.
So,
although
we
expect
to
see
lipid
systems
flat
in
2022
in
sales
terms
at
$200
million,
we
still
expect
to see
very
strong
growth
in
the
other
two
platforms.
And
we expect
to
see
strong
growth
in
crop.
So
I
think
we
can
see
high-single-digit
sales
growth,
as
Steve
says,
at
margins
which
is
certainly
in
the
mid-30s
for
the
Life
Science
business.
And
then,
in
Performance
Tech,
we'll
expect
growth
to
be
more
in
the
GDP
range,
but
again,
with
margins
at/or
a
little
better
than
the
level
that
we've
seen
in
2021.
So,
I think
what
we
should
be
seeing
is
some
really
steady
growth,
some
raw
material
price
inflation
recovery
on
top and
as
well
as
the
annualization
effect
and
then
some
margin
improvement
as
well.
So,
then
if
that
sort
of
deals with
the question.
C
Charles Eden
Analyst, UBS AG (London Branch)
Yeah.
Also
maybe
just
on
the
17%
raw
material
inflation,
is
there
a
big
different
by
divisions?
I'm
just
thinking
with
PTIC
being
here
for
half
the
year,
just
thinking
in
Consumer,
in
Life
Sciences,
is
17%
still
about
the
right
ballpark
or
is
it
more
or
less?
J
Jeremy Kim Maiden
Group Finance Director, Croda International Plc
Yeah.
It's
quite
interesting.
If
you
look
at
the
release
where
we've
broken
out
the
sort
of price/mix
in
the
underlying
businesses,
actually,
I
think
it's
pretty
sort
of
consistent.
So,
if
we
look
at
– 17%
raw
material
recovery
is
probably
about
6%
on
sales,
given
that
raw
materials
are
just
over
a
third
of
our
sales
value.
But
there's some
inflation
recovery
going
on
in
terms
of
energy
and
distribution
costs
and
so
forth
in
there
as
well.
So,
I
think
when
you
then
look
at
the, as
it
happens,
17%
increase
in
sales
price/mix,
that's
probably
about
half
of
inflation
recovery,
8
or
9
percentage
points,
and
then
the
rest
is
the
mix
effect
coming
through,
particularly
in
Consumer
and
especially
in
Life
Sciences.
So,
interestingly,
when
you
look
at
the
price/mix,
we're
up
13%
in
Consumer.
So
that
feels
like sort
of
9
percentage
points
of
sales
price
and
3
percentage points or
4
percentage
points
of
mix,
with
Actives
doing
well.
If
you
look
at
Life
Sciences,
it's
very
heavily
mix-driven,
because
you've
got
these
very
small
volumes,
but
at
very
high
values
per
kilo
compared
with
the
normal
model
of
selling
in
tonnes.
Then,
if
you
look
at
Performance
Tech,
you've
got
11%
and
you'd
expect
in
Performance
Tech
that
to
be
almost
all
price
recovery,
because
there's
some
innovation
going
on
there
obviously,
but
it's
not
of
the
same
scale
as
the
other
two
sectors.
So, I
think
from
that
point
of view,
you
can
see
that
actually
the
price
effect
is
pretty
equally
spread
across
those,
but
the
mix
effects
are
quite
different,
particularly
in
the
two
sectors
that we're
focusing
on
going
forward.
C
Charles Eden
Analyst, UBS AG (London Branch)
That's
really
helpful.
Thank
you.
J
Jeremy Kim Maiden
Group Finance Director, Croda International Plc
Thanks.
C
Charles Eden
Analyst, UBS AG (London Branch)
Thank
you.
N
Nicola Tang
Analyst, Exane BNP Paribas
Thank you.
Hello, it's
Nicola
from
BNP
Paribas
Exane.
The
first
question
was
actually
just
to
pick
up
on
the
outlook
and
the
comments
you
made
around
destocking
or
customer
destocking.
I
just
wanted
to
clarify
if
that's
something
you've
seen
already
and
if
so,
which
areas
and
what
should
we
be
looking
out
for?
And
the
second
question
was
around
investments.
You've
clearly
talked
about
already
reallocating
some
of
the
PTIC
proceeds.
You
talked
a
lot
about
the
Life
Sciences
investments.
How
should
we
think
about
CapEx
or
investment
going
forward,
not
just
for
2022,
but
in
future
years?
And
is
it
still
mainly
in
Life
Sciences
or
is it
also
on
the
Consumer
Care
side?
Thank
you.
S
Stephen Edwards Foots
Well,
let's
start
with
investments then.
I
mean
the
way
to
look
at
the
investments
really
and
new
Croda
really,
if
you
call
it
that
post
the
sale
of
majority of
the
Industrial
business,
we
still
screen
by
and
large
for
about
6%
of
revenues
in
CapEx.
It was
capital-light.
It's
not
getting
any
– it's
definitely
not getting
any
more
capital-heavy,
if
you
like.
The
incremental
spend
on
top
of
that
is
virtually
all
going
into
this
drug
delivery
platform
around
the
world
to capitalize
on
the
growth.
We're
sitting
on
250
big
projects.
There
was
a
time
in
Croda
where
one
or
two,
we
got
excited
with.
We've
got
a
lot
more
now.
So,
clearly
not
– a lot
of
them
won't
get
there,
but
all
we
need
is
a
few
of
them
to
get
there
and
we
can
satisfy
that
growth.
So,
the
model
is
about
the
normal
screening,
for
us,
about
6%
plus
the
incremental
spend.
That
incremental
spend
will
continue
in
2022,
but then
probably
moderate.
I
mean
it
all
depends
on
what
we
see
in
terms
of
looking
through
our
intelligent
platforms
around
the
conversion
rates
through
the
clinical
programs.
But
at
the
moment,
we've
guided
to
around
£160
million
for
this
year. But
a
lot
of
that
is
because
of
the
incremental
stuff
on
top
is
all
into
the
slide
you
saw
on
the
build
and
scale
for
drug
delivery.
It's
all
about
the
incremental
spend
there.
Jez,
mate,
I
don't know if
you
got
any
other
comments
on
investment on
top of that.
J
Jeremy Kim Maiden
Group Finance Director, Croda International Plc
No.
That's
fine.
So,
yeah,
it's
still
spread
across
the
two,
but
this leaves
us
the
extra
spend,
which
we
think
is
probably
a
three-year
period
of
additional
spend
at the
moment
that
we
can
see.
So,
we
think
we'll
run
at an
elevated
level
through
three-year
period
and
then
return
to
the more
normal
level,
which
is
probably
nearer
maybe
£100 million,
6%
of
sales,
that sort
of
level,
but
so
probably
three
years
of
this
elevated
level,
as
Steve
said,
very
much
focused
on
Health
Care.
S
Stephen Edwards Foots
And
I
think
in
terms
of the
demand,
we're
cautiously
optimistic
looking
at
next
year.
What
we
didn't
see
like
many
in
the
industry
in
quarter
four,
we
didn't
see
the
seasonal
downturn
expected,
it
just
continued
and
it's
continued
very
strongly
at
the
start
of
this
year
as
well.
So,
there's
no
surprise
there.
A
bit
of
inflation
in
there
as
well.
So,
raw
materials
are
going
up
further
in
quarter
one
and
we
expect
that
to
moderate.
And
the
inflation
around
Croda
businesses,
it's
quite
interesting,
because
it
means
that
there's
volume
growth
that's
demand-led,
by
and
large. So,
you
get
the
volume
growth
and
then
you
also
get
pricing
on
top.
So – but
we
would
expect
raw
materials
–
in
a
world
that
we
can
see
today,
we
expect
raw
materials
to
start to moderate
off
their
tops
from
quarter
two
onwards.
So, I
think
if
you
look
through the
12-month
period,
a
little
bit
of
raw
material
increase
weighted
to
the
front end.
In
terms
of
stocking,
I
mean
we
don't
see
any
big
changes.
And
there's
some
moderation
and
I
expect
it
to
come
in
the
consumer
industry
more
than
anything,
Consumer
Care,
where
L'Oréal, who
are at with
7%
or
8%
market
growth
rates
for them
2021
and
about
5%
for
Personal
Care
in
2022.
We're
not
too
far
away
from
that
in
terms of
what we
see.
So,
I
think
it's
still
very
buoyant.
There's
a
resurgence.
I
think
that
resurgence
will
continue
at
a
high
level,
but
there's
probably
a
little
bit
of
stock
trimming
that
comes
on
top
of
that.
So,
still
very
pleased
with progress.
So,
in
the
round,
we
don't
see
any
big
destocking
effects
coming,
but
just
more
trimming,
trimming
around
the
edges,
I
think.
J
Jeremy Kim Maiden
Group Finance Director, Croda International Plc
I
think
it
may
be
more
pronounced.
If
you
get
any
effect,
it
tends
to
be
in
the
Performance
Technology
business,
which
is one
of the
reasons
that
we've
gone
for
the
divestment
moves
us
away
from
some
of
the
cyclicality
that
Steve
spoke
about
on
one
of
the
earlier
slides.
So,
I
think
you
tend
to
see
a
little
bit
more
cyclical
variations
in
automotive
and
industrial
markets.
The
whole
move
to
Life
Sciences
and
Consumer
is
about
making
the
business
more
consistent
in
terms
of
– and
accessing
the
higher
growth
rate,
and
we
don't
see
that
changing.
S
Sebastian Bray
Hello.
Good
morning.
Sebastian
Bray with
Berenberg
Bank,
speaking.
I
just
have
a
few
questions,
please.
The
first
is
on
the
definition
of
lipid
systems
sales
and
visibility
out
to
2025.
Steve,
you've
talked
earlier
about
the
opportunity
from
preclinical
Phase
1,
Phase
2,
Phase
3
trials
in
this
area.
Can
I
just
confirm,
the
$200
million
sales
figure
that
Croda
cites
does
not
include,
as
a
rough
guess,
the
$40
million
to $50
million
of
sales
for
Polar
Lipids
separately
that
flow
to
the
preclinical
market.
And
if
that's
the
case,
Steve,
I
think
you've
mentioned
in
the
past
achieving
a
$200-million-sized
business
by
2025
or
maintaining
it
at
that
level.
Does
that
effectively
imply
a
net
loss
of
$50 million
of
sales?
Because
at
the
moment,
we
have,
let's
say,
$250
million if
you
include
the
preclinical
applications.
And
does
that
go
to $200
million
by
2025?
Or what
type
of
visibility
do
you
have
there?
J
Jeremy Kim Maiden
Group Finance Director, Croda International Plc
Yeah.
I'll get to –
hi,
Sebastian.
So,
the
lipid
systems
definition
includes
Avanti
sales
where
they're
going
into
the
LNP
platforms.
So,
Avanti
has
this
50-year
history
of
being
an
R&D
house,
basically,
of
being
able
to
produce
different
delivery
systems
for
customers
who
are
primarily
in
preclinical
and
clinical
trial
stage,
and
some
of
those
are
lipid-based
and
some
of
them
are
other
chemistry-based.
So,
what
we're
including
in
the
lipid
systems
is
just
those
which
are
going
into
LNP
applications,
which
right
now
is
pretty
much
COVID-19
applications.
So
they're
either the vaccine
contracts
with
the
principal
customers
or
they're
the
other
COVID-19
areas
that have
been
developing
over time,
and
those
are the
sales
that
we're
making.
You're
right
to
say
that
on
top
of
that,
there's
a
bunch
of
sales, $40 million, $50 million
might
be
a
little
bit
strong,
but
there's
some
more
sales,
which
are
all
part
of
that
R&D
development
capability
that
serves
about 2,000
pharmaceutical
customers.
It's
the
$200
million,
which
is
currently
very
focused
on
the
COVID
application
that
we
see
developing
into
non-COVID.
And
that's
where
the
projects
that
Steve
talked
about
in
terms
of
the pipeline
are
really
coming
through
with
two-thirds
of
those
being
non-COVID
applications.
And
we're
great
with
the
COVID
applications,
but
obviously,
the
non-COVID
ones
are
also
about
longer
term
treatments,
other
vaccines,
therapeutic
drugs,
et
cetera.
So, what
we
want
to
do
is
to
morph
this
portfolio
over
time
to
a
$200 million
portfolio
with
lots
of
customers
and
lots
of
applications.
So,
increasingly,
that
$200
million,
which
is
right
now
focused
around
three
or
four
pieces
of business
with
one
big
piece
of business
in
there,
obviously,
will
develop
into
multiple
customers
and
multiple
applications
in
COVID
and
non-COVID
applications.
So,
on
top
of
that,
you
have
the
Avanti,
I
call
it
catalog
business, but
that's
not
really
fair.
It's
the
sort
of
thing
where
R&D
people
in
the
pharmaceutical
industry
are
ordering
very
small
amounts
of
different
things.
That
business
will
carry
on.
That
carries
on
growing
very
nicely
at
probably
5%.
But
the
big
opportunity
is
the
development
of
the
lipid
systems
capability
into
a
whole
new
range
of
different
ingredients
for
mRNA
and
gene
therapy.
So,
definitionally
wise,
we're
just
focusing
on
those
sales
that
are
going
into
sort
of
LNP-based systems
basically.
S
Stephen Edwards Foots
So,
[indiscernible]
(00:51:04)
just
to
add
to that, the 2022
and
2023,
we
see
three
lipid
systems
with
three
different
types
of
revenue
stream.
We
see
obviously
from
the
big
partnership
we've
got.
That
will
continue
into
2023
as well. We're
contracted
there.
So,
the
rollout
will
continue.
We
might
think
in
the
UK
we're
near
at
the
end
of
it,
but
we're
just
starting
in
some
parts
of
the
world.
So,
that
rollout
will
continue
there.
And
also,
you've
obviously got these
booster
jabs
and
the
sort
of
regular
annuity
that
might
come
with
that.
And
also
on
top
of
that
for
that
revenue
stream,
one,
is
the
potential
flu
vaccine
and
RNA
together,
which
could
be
quite
significant,
and
again,
a
lot
of
R&D
in
there
as
well.
But
that
could
be
a
solution
which
extends
actually
RNA
a
bit
longer
than
you
think
in
COVID
because
it
could
be
wrapped
up
in
a
flu
vaccine
as
well
together,
which
would
be
a
neat
thing
to
do.
So,
that's
revenue
one.
Revenue
two
is
we
have
other
customers
in
the
COVID
space
with
lipid
ingredients.
So,
as
Jez
said,
there's
a
small
number
of
those
that
will
be
tracked
in
revenue
with
2022
and
2023.
And
then
also
on
top
of
that,
it's
the
non-COVID
applications
in
clinical
programs
and
we
already
have
some
revenue
streams
coming
later
this
year
at
the
start,
relatively
modest
but
hopefully
building
as
we
start
to
launch
our
new
products,
let's
just
say
that,
with
our
own
IP
in,
let's
just
call
it,
non-COVID
application
areas.
So,
three
revenue
streams
running
through
building.
But
as
Jez
says,
we're
looking
at
this
market
as
a
minimum of
like
$200 million
market
by
2025.
And
we
said
that
openly
with
everybody
last
time
but
with
lots
– this
has
the
hallmarks
of
hundreds
of
products,
hundreds
of
customers.
It's
not
one
product
and
it's
not
one
customer.
We
don't
want
to be
there. It's
like
the
old
API
days
of
a
lot
of
companies.
We
had
an
API
in
our
stock
a
few
years
ago.
It's
great if
you
get
them
in
but
they're
pretty
volatile.
So,
for
us,
it
looks
like
a
very
good
expanding
opportunity
for
us.
Our
job
is
really
to
update
ourselves
anew
as
we
progress
through
the
conversion
rates
through
these
projects
and
these
clinical
programs
through
the
next
few
years.
And
so,
at
the
moment,
three
revenue
streams
coming
through
in
the
next
couple of
years.
S
Sebastian Bray
That
is
helpful.
Thank
you.
If I could
quickly
follow
up,
I
don't
want to
outstay
my
welcome,
so
to
speak.
As
a
rough
guess,
if
I
look
at
the expected
Sanofi
RNA
flu
doses
and
then
your
potential
revenue
split,
is
it
fair
to
say
that
$200
million
is
roughly
50%
COVID,
50%
non-COVID
in
terms
of
the
split
or
could
you
comment
on
that
or...
S
Stephen Edwards Foots
What
today
or?
S
Sebastian Bray
No,
by
2025.
S
Stephen Edwards Foots
We
won't
comment
on
that.
No.
I
mean we
don't
know.
But I
think $200
million,
it'll
be
certainly
a
good
number
for
us.
And
a
lot
will
depend
on
the
speed
at
which
the
clinical
programs
[ph]
confer (00:54:05).
And
the
combination
of
flu
and
RNA
is
something
interesting
and which,
again, it's
in
advanced
research.
We'll
see
where
that
takes
us
as
well.
So,
we
can't
comment
because
we
don't
know,
not
because
we're
trying
to
be
evasive.
S
Sebastian Bray
Just
a
quick
one
on
the
quantitative
side,
am
I
right
in
saying
that
the
dis-synergies
now
guided
for
PTIC,
net
of
any
contractual
additional
volumes
or
tolling
arrangements,
is
about
£10 million,
is
that
right
from
the
number
that
was
shown
or?
J
Jeremy Kim Maiden
Group Finance Director, Croda International Plc
Yeah.
That's
the
sort
of
right
order
of
magnitude.
So,
yeah,
the
dis-synergy
costs
are
essentially
costs
which
are
currently
borne
by
that
PT
business
but
which
don't
change,
you
know?
Me and
Steve
might
be good
examples
of
that
because,
obviously,
we
charge
all
of
our costs
to
sectors.
But,
of
course,
it
will
be
transitory.
The
whole
idea
is
to
release
the
capital
from
the
majority
of
the
PTIC
business
and
reinvest
it
in
the
Consumer
and
into Life
Science.
So,
clearly,
as
we
look
forward
two,
three years,
you
would
expect
to
have
the
same
sort
of
revenue,
certainly
more
profitability.
So,
the
dis-synergy
costs
will
be
there
post-sale,
but
only
until
we
redeploy
the
capital
fully.
S
Sebastian Bray
Thank
you.
D
David Bishop
Steve,
there's
a
related
question
on
the
lipid
systems
from
Sam
on
the
webcast,
who
says
Pfizer
recently
spoke
about
their
relationship
with
Acuitas.
How
does
this
impact
Croda
in
the
medium term
with
regards
to
future
projects
outside
the
scope
of
the
COVID
contract?
S
Stephen Edwards Foots
Yeah.
I
mean
we
view
that
positively
because
what
it's
basically
saying
is
Pfizer
are
fully
committed
through
their
R&D
program
to
really
invest
heavily
in
the
new
generation
platforms
with
RNA.
And
Acuitas
have
technology
ownership
to
some
products
in
lipid
systems.
So,
what
Pfizer
have done
is
they've
agreed
effectively
a
scale-up
license
and manufacturing
license
of
some
arrangement.
So,
Acuitas
are
the
owner
of
the
technology
and
then
they
don't
manufacture.
The
job
is
then
partnering
up
with
the
Crodas
of
the
world
and
ultimately
the
Pfizers
of
the
world
to
make
sure
that
they
can
utilize
their
R&D
and
use
that
through
either
scale-up
or
scale-up
through
with
partners.
But
that's
a
big
confidence
boost
for
the
world
of
RNA
because
it's
basically
saying that
they're
moving
very,
very
quickly.
There's
10 different
agreements.
So,
there's
a
minimum
of 10
different
types
of
product.
And
it's
back
to
our
point
that
the
rollout
of
this
through
clinical
projects,
it
won't
be
one
of
–
this
isn't
one
product
that's
going
to get
commoditized
like
you
might
see
in
the
battery
world.
We
don't
see
it
like
that.
There's
some
companies
that have
invested
in
that
and
you
see
prices
drop
very
quickly.
This
is
very
science-driven,
lots
of
complexity
and
lots
of
tweaks
needed
for
specifications
and
products
to
–
you're all
about
stabilizing
the
mRNA
and
that's
tricky
in
different
applications.
So,
we
like
that
because
we
like
the
complexity
of
it.
G
Georgina Fraser
Analyst, Goldman Sachs International
Hi.
Morning.
It's
Georgina
Fraser
from
Goldman
Sachs.
It's
good
to
see
you
in
person.
Thank
you
very
much
for
having
us
here.
S
Stephen Edwards Foots
We
as
well.
G
Georgina Fraser
Analyst, Goldman Sachs International
I've
got
three
questions.
The
first
is
if
you
could
comment
on
how
you
think
prices
for
lipid
systems
outside
of
coronavirus
applications
might
look.
The
second
question
is
a
clarification
from
your
print
this
morning.
It
said that
in
Life
Sciences,
the
double-digit
growth
can
continue
in
Patient
Health,
and
I
was
wondering
if
you
could
clarify
if
that
was
across
all
three
of
the
platforms
or
just
specialty
excipients
and
vaccine
adjuvants.
And
then
my
final
question
is
we've
seen
last
year
Consumer
Care,
the
top
line
outgrowing
the
bottom
line,
which
is
not
necessarily
the
typical
Croda
model.
Wondering
at
what
point
in
time
the
bottom
line
will
start
outgrowing
the
top
line
in
Consumer
Care
again.
S
Stephen Edwards Foots
Yeah.
Okay.
Yeah.
So
on
the
price, yeah,
I
mean
we
don't
expect –
we're
not
factoring
in
any
significant
attrition
in
price
in
the
lipid
space
generally
I
would
say.
But
in
particular
in
non-COVID
applications,
what
you
find
we've
got
a
lot
of
intellectual
property
in
that
space
as
well,
and
I
don't
think
we're
back
to
the
point
before
that
it's
not
one
product
that's
going
to drive
this
whoever
it is
going to
replicate
the
same
product.
I
think
you've
got
to
–
it's
on
a
case
by
case,
treatment
by
treatment
basis.
And
there'll
be
lots
of
similar
technology
platforms
but
slightly
different.
So,
we're
not
factoring
that
in.
I
think
the
big
thing
for
us
and
for
you
is
how
quickly can
this
be
commercialized
through
the
pipeline and
what
does that
mean
for
us
because
the
revenue
stream
and
the
profitability
in
those
products
is
very
high
as
you'd
expect.
We
really
want
chemical
industry
risk,
pharmaceutical
margins.
That's
what
we
want
in
our
products,
and
we
think
we
can
do
that
in
most
– because we're
selling
through
effectively
a
specification.
It's
slightly a
different
risk
environment
which
we're
looking
at
through
our
risk
framework.
But,
ostensibly,
it's
a
different
margin
in
pharmaceuticals.
Jez,
on
Life
Sciences,
do
you want
to –
and
I'll
come
back
on
the,
well,
on
Consumer
Care
on
the
shape
of
the
[ph]
profit (00:59:33).
[indiscernible]
J
Jeremy Kim Maiden
Group Finance Director, Croda International Plc
(00:59:34).
Yeah.
So,
the
double-digit
growth,
I
mean,
we
always
said
on
the
first
platform,
which
was
specialty
excipients,
which
is
one
we've
grown
organically
over
the
last
10 to 20
years,
and
then
moved
into
these
areas
on
biologics
and
oncology
drugs
and
so
forth.
I
mean,
we
certainly
see
10%
to
30%,
which
has
always
been
our
medium-term
range
on
that
platform
as
ongoing
because
there's
lots
of
opportunities
there.
We
doubled
capacity
last
–
well,
brought
that on
stream
at
the
beginning
of
last
year,
and
that
will
last
us
three
to
five
years.
So,
we're
thinking
about
the
next
project
sort
of
in
that.
So,
definitely
see
very
strong
growth
continuing in
specialty
excipients.
I
mean,
the
vaccine
adjuvants,
smaller
business
that
we
acquired
through
Biosector
in
2018.
But,
really,
we
could
sell
as
much
as
we
could
build
the
capacity.
Every
time
we
build,
we
expand
capacity.
And
as
Steve
said,
we
doubled
capacity
last
year.
It's
sold
out
within
a
few
months.
So,
we
think
the
opportunities
in
vaccine
adjuvants
from
a
smaller
base
are
very
exciting.
And
then
the
lipid
systems,
absolutely.
I
mean,
as
Steve
said,
I
think
that
what we're
trying
to
do
at the
moment
is
bridge
between
2021
and
2025,
I
guess,
in
terms
of
lipid
systems
platform,
which
is
why
we
sort
of
say,
look,
it's
$200 million today
and
it
will
be,
we
believe, $200 million
then,
but
a
very
different
mix.
And,
of
course,
from
there,
as
that
mRNA
market
rises
towards
the
$35
billion
that
Steve spoke
about, then
our share of that
market means
that,
that
should
be
growing
very
rapidly
as
well.
But,
clearly,
we're
getting
from
this
slightly
unusual
position
of sort
of
single
products,
single
application
to
the
classic
Croda
position
of
big
portfolio
of
customer's
ingredients.
So,
they'll
all
be
driving
growth
for
many,
many
years
to
come,
in
our
view.
In
terms
of
Consumer
Care,
probably
2021
is
the
low
point,
and
then
I
think
we
would
expect
to
see
margin
move
forward
in
2022
and
beyond.
I
mean,
clearly,
it's
just
a
function
of
maths.
It's
the
dilution
effect
of
having
a
full
year
of
Iberchem
having
acquired
it
in
November
of
2020,
and
its
margin
is
in
the
mid
to
high
teens,
sort
of
natural
level.
And,
clearly,
even
at
the
top
of
that
industry,
you're
only
looking
just
into
the
bottom
end
of
20%.
Whereas
in
Personal
Care,
last
year,
we
achieved
30%,
and
that's
despite
a
high
remuneration
charge
from
the
bonus
and
share
plan-based
costs
that
drove
there.
So,
that's
the
one-off
dilution
effect
effectively.
And
unless
we
see
exceptionally
strong
growth
from
Iberchem
or
we
do
some
more
acquisitions
in
that
space
which
are
dilutive,
then
you'd
expect
the
margin
in
Consumer
Care
to
move
steadily
forward.
Certainly,
into
the
high-20s,
we
believe,
is
achievable
over
a
period.
And
when
you
think
about the
drivers
to
that,
Iberchem,
we're
investing
now,
you're
going to
have
the
sales
synergies
coming
through
that
Steve
talked
about,
the
€48
million
by
2025.
You've
got
the
benefits
of
– we haven't
talked
about
it,
but
the
ECO
plant
in
the
States
where,
clearly,
that's
moving
from
a
loss
situation
to
a
profit
situation.
So,
that's
additive,
of
course,
it's
not
exclusive
to
Consumer
Care,
but
Home
Care
and
Personal
Care,
Beauty
Care
are
the
big
drivers
behind
that
area.
You've
got
stronger
growth
in
Beauty
Actives,
which
is
always
mix
beneficial
to
Consumer
Care.
So,
I
think
you've
got
lots
of
reasons
to
believe
that
there's going
to
be
good
margin
accretion.
It
would
just
be
a
little
bit
noisy
depending
on
the
relative
rate
of
growth
of
fragrance
compared
with
the
personal
care
market
in
particular.
But,
yeah,
good
strong
opportunities
there.
C
Charles Bentley
Analyst, Jefferies International Ltd.
Thanks.
Charlie
Bentley
at
Jefferies.
I
just
wanted
to
follow
up
on
the
kind
of commentary
around
lipids
into
kind
of
2023.
I
know
obviously
we're
quite
a
way
away.
But,
I
mean,
as
you
talk
around
the
balance
of
those
two
of
the
kind
of
three
pools
there,
can
you
just
give
any
kind
of indication
on
the
absolute
level
what do
you
think
it
might
be
today?
And
then
you've
talked
about
Nicola's
question
around
kind
of like
investing
in
organic
growth. If
we
talk
about
M&A
priorities,
I
mean,
are
they
still
squarely
bolt-ons
in
Life
Sciences
or,
I
mean,
there's
an
indication
on
Personal
Care
there.
Yeah,
just
any
color
you
can
give
there.
Thanks.
S
Stephen Edwards Foots
Yeah.
Well, I
mean,
we'll
start with
the
M&A.
I
mean,
M&A
for
Croda
is,
the
organic
growth
model
has
got
a
long
way
to
play
out
now.
We're
very
pleased
with
the
acquisitions
that
we've
done
recently
and
we
see
a
lot
of
growth
opportunities
there, and
you
can
see
that
we're
investing
in
that,
both
in
capital,
but
also
in
knowledge,
in
research,
and
in
clever
people.
So,
we
expect
that
to
continue.
But
we've
also
got
the
option.
We've
got
great
optionality
now,
once
we
get
the
proceeds
from
the
sale.
That
gives
us
flexibility
to
look
at
different
things
as
well.
But
the
priority
is
organic
growth,
plus
probably
bolt-ons.
We
like
the
Avanti-type
model.
I
think
you
do
as
well,
which
is
knowledge –
you're
buying
knowledge,
you
buy
125
people
and
you're
buying 100
of
them,
maybe
110
of
them
are
scientists. So,
you're
buying
clever
people.
And
what
we
do
is
commercializing
that
knowledge.
That's
what
we
do
very
well.
So,
that's
the
type
of
business
that
we're
looking
at.
And
there's no
surprise,
if
we
see
opportunities
in
the
drug
delivery
space,
we'll
move
pretty
quickly
if
we
thought
that
was
the
right
thing
to
do.
But
we'll
also
spend
quite
a
bit
of
time
looking
in
sustainable
ingredients,
positioning
of
Consumer
Care
as
well
because
there
is
a
shift
there.
You
can
see
it,
we
can
feel
it,
and
when
we
talk
to
our
customers,
that's
structural.
And
we
saw
it
before
the
pandemic
to
a
little
degree,
to
a
small
degree.
But
now,
it's
firmly
embedded
in
the
mantra
of
all
the
big
multinationals.
They're
all
moving
away
from
petrochemical-based
ingredients,
L'Oréal,
Unilever,
more
to
follow.
They'll
lead
the
industry
in
that
way. And
we're
starting
to
see
that
with
the
rest
of
the
industry
following.
So
that's
the
sort
of
the
direction
to
travel
from
an
inorganic
point
of
view,
and
there should
be
no
surprise
there.
In
terms
of
2023,
it's
a
good
question, as I say.
It's
a
difficult
one
to
answer
here,
but
we're
very
heartened
with
the
revenue
streams
emerging
from
these
three
different
areas.
The
big
–
with
our
big
partnership,
a
lot
will
depend
on
where
we
are
with
the
rollout,
where
we
are
with
the
booster
program,
where
we
are
with
the
vaccine
combination
hybrid
mRNA-type
product.
And
that
has
a
– that
could
have
a
very
positive
effect
as
well.
But
I
think
it's
– it'll
be
a
healthy
revenue
stream,
and
it's
not
going
to
deteriorate
to
nothing
as
some
people
say.
I
mean,
we've
got the
revenue
stream
we're
contracted.
We'll
get
what
we –
we'll
get
from
our
share
of
our
big
contract
there.
The
question
will
be
the
other
two
revenue
streams,
how
quickly
they
progressed.
And
I
think
it's
too
early
to
say
because
we
could
call
a
number.
We
could
give
you
a
number.
And
I
think
that's
difficult
to
back
up
at
the
moment.
I
think
as
we
go
through
the
year,
we
can
start
to
see
what
that
looks
like.
But
again,
as
we
say,
we're
heartened
with
and
very
encouraged
with
2024, 2025
plus
where you
can
start
to
see
this
business
emerging
as
a
really
–
a
great
Croda
business
like
a
nascent
Personal
Care
business
from
many
years
ago
with
a
very
different
shape
to
it.
So,
yes,
so
I
think
that's
the
difficulty
in
putting
a
big
number
on
that.
D
David Bishop
Thank
you.
There
was
a
question
from
[ph]
Andre
(01:07:09) on
the
webcast
who
asked
about
guidance
on
use
of
disposal
proceeds.
I
think
you've
largely
covered
that.
Anything
you
want
to
add
on
use of
proceeds from
the
PTIC
disposal?
S
Stephen Edwards Foots
Well,
I
think, we
just
say,
the
capital
allocation
policy,
which
Jez
led
when
he
first
came
to
Croda,
it's
very
clear,
very
consistent.
If
you
look
in
the
pack,
Jez's
last
slide
just
shows
you
how
we're
inconsistent
with
that.
We
have
no
problem –
we'll
follow
that
through.
So, we
first
look
at
capital
investment
in
the
business.
We
then
look
at
the
shape
of
M&A
as
an
opportunity
going
forward
for
us
in
the
next
12, 18
months.
If
we
don't
need
or
if
we
have
spare
cash
that
we
don't
need
to
deploy
in
either
of
those
two
areas,
then
we'll
return
it.
We'll
return
it
in
the
usual
way
and
we've
demonstrated
that
in
the
past
and
we'll
demonstrate
that
in
the
future.
So,
we're
not
going
to
sit on
an
inefficient
balance
sheet
for
any
length
of
time.
But
I
think
it's
fair
to
say
most
of
our
investors
will
want
us
to
invest
in
the
business
if
we
see
some
good
opportunities
for
it, particularly
if
it's
into
these
exciting,
fast
growth
spaces.
So,
that's
what
we'll
be
looking
to
do
if
we
can.
But
we're
not
here
to
waste
money.
We're
here
to
do
the
right
thing
with
it.
D
David Bishop
We'll
go
back
to
Adam
for
questions
over
the
telephone
line,
please.
Operator
And
our
first
question
today
comes
from
Matthew
Yates
of
Bank
of
America.
Matthew,
please
go
ahead.
M
Matthew Yates
Analyst, Bank of America
Hey.
Good
morning, everyone.
Apologies
I
couldn't
be
there
in person.
Couple
of
questions,
please. An
amazing
job
to
pass
through
so
much
raw
material
inflation.
Can
I
ask
about
the
volume
trends
in
consumer?
I
think
you
had
11%
volume
growth
in
the
first
half.
So,
if
you
saying
6% in
the
full year,
I
guess is
that
implying
that
the
second
half
was
basically
around
flat?
Is
that
right
and
is
that
the
sort
of expectation
that
you're
seeing
in
early
2022?
And
the
second
question
is
around
NPP
and
I
think
that's
slide
6 in
your
deck.
It
was
a
notable
step-up
as
you're
saying
that
most
of
that
was
acquired.
So,
there's
a
60 basis
point
increase
organically.
And
actually
over the
last
two
years,
it's
negligible.
So,
I
guess
the
question
is
are
you
getting
enough
innovation
coming
out
of your
internal
efforts
or
is
it
simply
that
the
target
is
to
offset
the
natural
attrition
in
the
portfolio
in
order
to
protect
your
overall
sort
of
pricing
and profitability
model?
Thank
you.
S
Stephen Edwards Foots
Yeah.
Fine.
And
thanks,
Matthew.
Yeah.
So,
on
NPP
first
then,
yeah,
I
mean,
the
way
you
should
look
at
that
is
what
we've
seen
in
the
last
two
or
three
years,
the
innovation
is
not
slowing
down
in
Croda.
What's
happening
is
the
base,
the
non-NPP
business
is
growing
very
well,
too.
So,
what
you're
seeing
is
normally,
you'd
expect
your
NPP
to
outstrip
your
base
business.
But
because
we've
seen
this
rebound
of
this
resurgent
Personal
Care
recovery
in
industrial
markets,
what
you
see
is
the
base
business
coming
back
very
strongly,
too.
So,
whilst
the
numbers
aren't
– the
percentage
of
NPP
is
not
changing
significantly,
you
shouldn't
read
into
that
the
innovation
projects
that
we've
got.
So,
that's
more
in
effect
of
the
non-NPP
rebounding
much
stronger
than
[indiscernible]
(01:10:22)
that
will
reach
its
natural
level
and NPP
will
then
outstrip
that.
I
think
the
other
thing
to
point
out,
though,
is
we
want to
buy
knowledge,
we
want
more
knowledge
in
the
business
anyway,
because
I
think
every
company
has
to
keep
reshaping
and
keep
doing
things
differently.
So,
it's
about
moving
into
new
markets
but
with
knowledge.
And
in
Avanti
and
in
Iberchem,
they've
got
a
lot and
you'll
see
that
as
we
start
to
show
you
those
facilities.
You'll
start
to
see
they've
got
some
great
innovation
programs
and
quite
a
high
level
of
R&D
scale.
Much
higher
R&D
in
their
businesses
than
in
the
average
Croda
business, across
the
board.
So,
that's
the
direction of
travel
we
want to
move
anyway.
So
we
would
expect
the
NPP
growth
generally
anyway
to
move
ahead
of
a
more
stable
looking
non-NPP
environment
when
things
start
to
moderate
in
the
next
probably
couple
of years.
So,
that's
that.
I
mean, it's
a
good
point
on
the
price/mix. I
mean we're
sort
of exiting
around
about
5%
volume
in
the
price/mix
generally
for
the
company.
And
Consumer
Care
was
below
that.
But
a
lot
of
that
is
a
function
of
just
capacity.
We're
flat
out
on
a
lot
of
our
units
at
the
moment.
And
the
order
book
is
strong
now
for
well
into
this
year,
much
longer.
Our
outstanding
orders,
for
example,
are
much
bigger
than
we
would
normally
expect.
But
I
think
that's
more
an
industry
issue
than
everything
else.
But
it's
a
reflection
of
demand.
Demand
is strong.
So,
our
model
for
this
year
is
clear.
There's
quite
a
lot
of
price
riding
into
this
year
with
some
probably
modest
volumes
in
Consumer
Care.
We'd
expect
some
volume
growth
in
Personal
Care
as
we've
been
investing in
the
past
for
this
year
and
next
year,
but
it
will
be
relatively
small,
low
digit
volume
growth
for
Consumer.
J
Jeremy Kim Maiden
Group Finance Director, Croda International Plc
Right.
Yeah.
Hi,
Matthew.
I
think
as
well,
think
about
the
comparatives
for
last
year,
I
mean
the
first
half obviously
was
compared
against
quite
a
weak
first
half
of
2020
because
of
the
COVID
impact,
which
was
sort of
down
20%
in
Consumer
Care
in
the
second
quarter
of
2020,
whereas
we'd
already
seen
full
recovery
by
the
end
of
2020.
And
therefore,
the
growth
last
year
is
on
top
of
that.
So, I
think
the
overall
5%
volume
growth
is
very
encouraging
on
top
of
that.
The
other
element
was
that
Home
Care
was
relatively
weak
last
year
because
it
had
such
a
strong
2020
on
the
back
of
hygiene
demand. But
we saw
good
growth in
Personal
Care,
particularly at
the
top end and,
as
Steve
says,
I
think
going
forward
that
mid-single-digit
growth,
excluding
raw
material
inflation
recovery,
that
should
be
a
good
mixture
of
volume
and
mix
driving
that
mid-single-digit
growth.
So,
we're
quite
comfortable
around
that.
S
Stephen Edwards Foots
Okay,
Matthew?
M
Matthew Yates
Analyst, Bank of America
Thank
you,
guys.
Operator
The
next
question
comes
from
Chetan
Udeshi
from
JPMorgan.
Chetan,
your
line
is
open.
C
Chetan Udeshi
Analyst, JPMorgan Securities Plc
Yeah.
Hi.
Thank
you
and
morning.
Can
I
ask
a
question
on
the
price/mix
in
the
Life
Sciences
business,
which
at
least
on
my
numbers,
went
to
like
29%,
30% in
second
half
from
42%
in
first
half.
So,
can
you
comment
on
what's
going
on
within
the
mix
in
the
Life
Sciences?
I
know
there
are
different
businesses,
but,
I
mean,
the
key
question
there
is,
is
there a
read
on
pricing
in
any
of
the
businesses
in
second
half
versus
first
half?
That's
the
first
question.
And
then, there
was
an
interesting
slide
in
the
deck
showing
the
growth
by
different
sub-segments
within
Consumer
Care
and
clearly,
the
Beauty
Actives
part
seems
to
have
grown
much
faster.
But
when
I
still
do
the
math,
ex
the
acquisitions,
ex
the
Home
Care
business,
the
margin
is
still
sort
of
29%
to
30%,
which
is
still
quite
a
bit
below
33%,
34%
that
you
guys
had
in
2019,
I
think.
And
so,
the
question
is,
even
with
the
mix
going
back
in
those
old
Personal
Care
business,
why
is
the
margin
still
lagging
so
much?
Thank
you.
J
Jeremy Kim Maiden
Group Finance Director, Croda International Plc
Yeah.
Hi,
Chetan.
So,
in
terms
of
Life
Science,
I
think
it's
– well,
it's
the
mix
that's
going
on
there.
So,
there's
no
price
erosion
or
anything
happening
in
any
of
the
platforms and
in
particularly
in
three
patient
health
care
platforms
in
Health
Care
there.
What
you've got
in
the
first
half
year
is
you've
got
a
very,
very
strong
growth.
We
were
up
over
60%
in
sales
in
specialty
excipients
and
vaccine
adjuvants
in
the
first
half
year.
And
that
was
really
a
function
of
really
uncorking
the
bottle.
That's
when
the
new
capacity
came
on
stream
in
both
the
US
specialty
excipient
plant
and
in
vaccine
adjuvants
in
Denmark.
And
so,
you
had
this sort
of
release
of
pent-up
demand
where
people
were
waiting
obviously
for
–
in
pharmaceuticals, you
can
have
several
months
of
stock
basically
in
the
pipeline.
So,
people
can
manage
on
a
longer
wait.
So,
you
had
this
very
strong
sales
of sort
of
60%
in
the
growth
in
the
first
half.
And
in
the
second
half,
it
settled
down
to
more
sort
of
growth
in
those
two
platforms
in
the
20s
and
therefore
overall
growth
of
over
40%.
And
as
I said,
the
20%
growth
is
much
more
consistent
with
where
we
see
growth
being
10%
to
30%
on
those
two
platforms
going
forward.
So,
because
you
have
that
big
effect,
that's
why
you
get
this
price/mix
change.
Although
35%
price/mix
is
still
pretty
stunning,
I
think,
in
terms
of
delivery.
So,
there's
absolutely
no
price
erosion
going
on
in
there.
We've
got
a
contractual
price
reduction
in
the
second
year
of
the
principal
contracts
in
lipid
systems,
which
reflects
the
fact
that
obviously
we're
now
in
full
scale
production
and
therefore
the
efficiencies
and
so
forth
improve.
But
that's
the
only
built-in
price
reduction.
As
we've
said,
we
expect
pricing
to
remain
strong,
particularly
as
lipid
systems
develops
into
a
wider
portfolio
of
products
for
different
customers.
In
terms
of
Personal
Care,
I
think
the
key
difference
between
2019
and
2021
is
remuneration
charge.
As
we
note
in
the
statement,
remuneration
charge is
about
2 percentage points to
2.5
percentage
points
of
margin.
There
were
no
bonuses
paid
in
2019
and
the
share-based
payments
were
relatively
low.
And
they
were
very
strong
last
year,
Croda's
variable
remuneration,
which
affects
the
top
600
people
in
the
organization,
is
very
much
about
profit
growth
year-on-year.
And
although
2019
and
then
2020
were
pretty
decent
performances,
they
were
still
down
by
5%
to
10%
in
terms
of
profit.
So,
there
was
no
bonus
paid.
In
2021,
you've
got
a
full
bonus
and,
of
course,
you've
got a
very
strong
share
price
into
the
end
of
the
year.
So,
that's
about
2.5
percentage
points. So,
as
I
said,
Personal
Care
sitting
around
about
30%
return
on
sales.
If
you
gross
that
back
up,
you'd
be
at
32.5%,
which
is
pretty
much
around
the
33%
peak
that
you
refer
to
back
in
2019.
So,
it's
just
a
function
again
of –
all
of
these
costs
have
to
be
borne
by
the
sectors.
And
therefore,
you're
going to
get
a
bit
of
volatility
according
to
what's
happening
in
those
variable
remuneration
programs.
Other
companies,
BASF,
et cetera,
they
pull
them
out
as
a
separate
division.
But
we
don't
do
that.
We
allocate
it
to
the
sectors
in
our
reported
numbers.
S
Stephen Edwards Foots
I
think
the
other
thing,
Chetan,
as
well,
is
we
look
at
it
from
a
divisional
point
of
view.
We
judge
them
on
gross
margin.
We're
glued
to
gross
margin
in
the
business.
It's
a
good
crude
indicator
for
us.
And
we're
not
seeing
any
gross
margin
attrition
in
any
of
the
businesses.
And
it's actually
quite
consistent
across
them
all
where
you're
seeing
this
robustness.
So,
we're
navigating
well
through
the
inflation
environment, but
the
central
cost
adjustment
is
significant.
And
we
can
talk
to
you about
that separately,
I'm
sure. Okay?
C
Chetan Udeshi
Analyst, JPMorgan Securities Plc
Thank
you.
Operator
The
next
question
comes
from
Charlie
Webb
of
Morgan
Stanley.
Charlie,
please
go
ahead.
Your
line
is
open.
C
Charles L. Webb
Analyst, Morgan Stanley & Co. International Plc
Morning,
everyone.
Again,
apologies
for not
being
there.
Just
a
couple
for
me.
So,
just
first
off
on
the
CapEx
in
the
Health
Care, obviously
not a
chunky
investment
year
ahead,
perhaps
just
give some
more
details
in
terms
of
which
platform
that's
kind
of been
allocated
to.
You
mentioned
high purity excipients
already
have
capacity
to grow
into.
Just
trying to
understand
where
that's
going.
And
maybe
if
you
could
let
us
know
the
type
of
payback
you'd
expect
on
that
investment.
Second
question,
just
on
working
capital, obviously
quite
a
big
working
capital
build
in
2021.
What
do
you
anticipate
there
in
2022?
You
built
up
some
stock,
just
wondering
whether
that's
likely
to
repeat,
unwind,
etcetera,
for 2022
would
be
helpful.
And
then,
lastly,
just
on
Consumer
Care,
as
you
think
about
the
mix
heading
into
2022,
what
trend do
you
continue
to
see?
Do
you
expect
to
continue to
see
Beauty
Actives'
effects,
etcetera,
outgrow
kind
of
formulations,
Home
Care,
and
therefore
you're
just
trying
to
sense,
where
does
that
take
margins
plus
at
this
point
for
Consumer
Care
in
2022
relative
to
where
we
ended
up
in
2021?
S
Stephen Edwards Foots
Okay,
Charlie.
I'll
let
Jez
do
the
working
capital
one,
and
I'll
kick
off
with
the
other
two.
I
mean,
CapEx
Health
Care,
there
is
a
slide
in
here,
I
don't know
if
you've
seen
it,
but
– which
sort
of
describes
that
sort
of
third
slide
of
the
biopharma
pack.
I
mean,
extensively,
what
we're
trying
to
do
is
the
Avanti
model
is
a
great
preclinical
model.
It's a
preclinical
machine,
and
it's
getting
samples
out
to
all
of
these
pharma
companies.
They
do
that
very
well.
We've
been
scaling
that
up
with
people
resource
to
turbocharge
that.
We
don't
really
know
how
many
preclinical
projects
were
in,
but
we're
in
a
lot,
which
is
great.
But
with that
model
wasn't
great
at capturing
the
future
growth
when
they
came
through
the
clinical
programs
because
they
outsourced
that
volume
to
two
other
providers,
CDMOs,
contract
manufacturers,
call them
what
you
want.
So,
our
job
is
to
then
build
that
capability.
So,
we
decided
to
build
that
capability
in
North
America.
So,
the
idea
there
is
in
our
Mill
Hall
facility
just
around
the
corner,
where
we're
looking
to
invest
space there
to scale
and
lease things
up. So,
it's
all
about
scaling
up,
expecting
some
of
these
clinical
programs
to
be
successful
and
being
available
to
scale
those
up
there.
So,
there's
investment
targeted
there
and
also
in
our
UK
lipid
facility
there
as
well
as
we
plan
for
future
growth.
But
I
mean
the
paybacks
are
very
modest.
The
paybacks
are
very
fast,
very modest.
So,
they
are
in
the
region
of
about
three
years'
payback,
maybe
even
less
than
that.
And
it's
not
huge
infrastructure
we're
putting
in.
We're
building
kilo
quantities
rather
than
oil
refineries.
As
they
say,
these
are
relatively
small
but
they've
got
to
have
flexibility
to
refine,
purify
and
separate.
That's
effectively
where
the
craft
is
and
we've
done
that
for
40
years,
50
years
pretty
well.
So,
it's
more
in
that
area
if
you
see
that
on
the
slide.
So,
that
was
the working –
that
was
the
CapEx.
In
terms
of
mix,
I
mean,
I
think
the
actives,
if
you
look
at
the
Consumer
Care
mix,
we
say,
as
Jez
commented,
we
expect
margins
to
generally
move
upwards
over
the
next
near
term
and
medium
term
steadily,
we
would
say.
You're
going to
see
the
mix
I
think
between,
as
you
say,
the
actives
and
the
formulation
area
will
be
broadly
similar
to
what
it
is
now.
I
think
we
would
expect
the
actives
business
to
grow
in
percent
levels
higher
than
the
formulation
business.
It's
a
smaller
business.
But
I
think
– we're
not
disappointed
with
the
formulation
growth
as
well.
So,
I
think
that
sort
of ratio
is
about
right
where
it
is
now
for
this
year.
And
I think
the
other
drivers
are
things
like,
as
you
say,
ECO.
We're
now
starting
to
displace
a
number
of
petrochemical
companies
in
formulations
now
on
the
back
of
L'Oréal,
Unilever's
moves.
Big
statements
on
moving
to
bio
based
by
2030
for
both
of
them.
You're
starting
to
see
that.
We've
seen
that
quite
significantly.
So,
we
expect
a
profit
move
forward
therefore
in
the
[ph]
Mantis (01:22:51)
and
therefore
that
tends
to
benefit
more
the
Consumer
Care
business
than
in
it
does
the
Life
Science
business.
So,
the
few
drivers
there
and
also
just
the
pace
of
the
projects
that
we've
got.
If
you
look
at
the
number
of
projects
that
we've
got
in
the
pipeline,
we're
starting
to
see our big
customers
really
now
moving
with
some
of
them.
There's
been
a
delay
at
the
– during
the
pandemic
as
you'd
expect,
but
a
lot
of
this
is
sort
of pent
up
innovation
demand
from
their
R&D
stables
as
well.
Jez,
anything
on
either of
those
and
then you
on
working
capital?
J
Jeremy Kim Maiden
Group Finance Director, Croda International Plc
No,
nothing
to
add
I
think
on
those,
Steve.
On
working
capital
Charlie,
the
–
so
we
have
these
two
components,
the £70
million
increase,
which
is
sort
of
pro
rata
to
the
increase
in
value
with
a
constant
number
of
working
days
cover.
So,
we
– I
expect
that
to
drift
upwards
at
the
moment
from
what
we
can
see
because,
obviously,
we've
got
price
increases
as
Steve
mentioned
in
the
first
quarter
of
2022.
So,
the
values
I
think
will
be
up
a
bit,
but
not
at
the
moment
by
that
order
of
magnitude.
And
then
on
the
tactical
contingency
stock
that
we
held,
£45
million
of
extra
stock,
one
would
hope
that
we
could
start
to
allow
that
to
reduce
now
and
to
reverse.
It
is
incredible.
I
mean,
it's
been
a
really
stellar
performance
in
terms
of
2021,
but
it's
been
delivered
against
the
backdrop
of
much
increased
customer
demand
at
a
time
of
really
challenging
global
distribution
position.
So
–
and
the
teams
internally
have
worked
superbly
well
both
at
manufacturing
level
and
at
sort
of
customer
service
and
distribution
level
to
overcome
those
problems.
We're
starting to
see
some
normalization
now
in
the
distribution
chains
around
the
world,
not
quite
so
stressed
at
ports
and
so
forth
because
I
suspect
that's
added
about
two
weeks
to
our
stop
that's
been
on
the
water,
just
the
difficulty
of
getting
things
through
ports.
So,
that,
hopefully,
is
starting
to normalize
now
and
that
can
mean
that
the
tactical
inventory
should
reduce.
So,
I
think
there
will
still
be
a
small
working
capital
build
in
2022,
but
nothing
like
the
same
scale
as
we
saw
in
2021.
C
Charles L. Webb
Analyst, Morgan Stanley & Co. International Plc
Pretty
helpful.
Thank
you
very
much.
S
Stephen Edwards Foots
Thanks,
Charlie.
Operator
Our
final telephone
question
comes from
Isha
Sharma
from
Stifel
Europe.
Isha,
please
go
ahead.
I
Isha Sharma
Analyst, Stifel Europe Bank AG
Hi.
Good
afternoon.
Thank
you
for
the
presentation.
I
have
just
one
left,
please.
On
the
Iberchem
margin
was
already
impacted
in
2021
as
far
as
my
calculations
show.
And
this
was
probably
due
to
the
raw
material
costs,
which
is
in
contrast
to
the
F&F
players
where
they
haven't
seen
any
impact
yet
with
the
guide
for
7%
to
9%
inflation
in
2022. How
should
we
think
in
general
about
Iberchem?
How
comparable it
is
to
their
guidance
and
what
kind
of
margin
impact
are
you
expecting
after
the
already
low-margin in
2021? Thank
you.
S
Stephen Edwards Foots
Yeah.
Okay, I'll
start,
and
then
Jez
can
add.
I
mean,
yeah,
I
mean,
we've
been
happy –
very
happy
with
the
trading
performance.
It
screens
for
about
10%
underlying
sales
growth,
and
it's
just
a
bit
below
that
at
the
moment.
But
when
you
think
about
it,
they've
had
the
perfect
storm
because
they're
in
most
of
the
emerging
markets
that
have
been
really
in
heavy-duty
lockdown
for
most
of
the
year.
So,
yeah,
trading
performance
is
good
despite
that.
So,
we're
pleased
with
that.
Margins,
yeah,
I
mean,
their
raw
material
increase
through
the
year
was
significant.
It
wasn't
17%,
but
it
wasn't
far
away
from
that.
So,
of
the
region
of
about
13%
to
15%,
they
see
it.
They
don't
have
any
clever
hedging
systems.
They
just
take
it
like
we
did
with
raw
material
costs
every
quarter.
So,
they've
had
that.
They've
carried
that
through
the
year.
I
think
that will
moderate
through
the year.
So, that's
obviously helped
the margin
improvement
as
well.
So,
I
think
the
worst
of
it
is
behind
them.
Whereas
with
some
of
the
other
players,
I
think,
because
of
– whether
it's
hedging
or
other
things,
they
have
to
carry
that
into
the
year
ahead.
So,
the
margin
headwinds
for
some
of
the
bigger
players
are
more
significant
than
the
smaller
ones.
Well,
certainly
for
Iberchem.
So,
for
us,
we
–
I'll
let
Jez
comment
on
the
numbers,
but,
we've
had
a
drag
on
margins
this
year
of
2021,
so
we
expect
some
of
that
to
come
back
next
year.
J
Jeremy Kim Maiden
Group Finance Director, Croda International Plc
Yeah.
Agreed,
Steve.
Hi,
Isha.
The
other
thing
to
remember
in
the
Iberchem
margin in the
short-term,
is
we've
put
additional
cost
in
like
Avanti
but
not
in
the
same
scale.
We've
put
an
additional
resource
so
that
we
can
really
take
advantage
of
these
sale
synergies.
And
therefore,
I
think
while
you've
got a
little
bit
of
short-term
dilution
in
line
with
our
acquisition
plan,
the
mid-term
prospects
looked
good.
I
mean,
we
think
that
with
those
sales
synergies,
every
reason
to
believe
we
can
get
the
margin
on
Iberchem
to
be
sort
of consistent
with
the
best-in-class
of
the
Tier
1
players,
even
though
Tier
2
players
have
traditionally
operated
probably
2
or
3
percentage
points
below
that.
But
because
of
the
synergies
we
can
release
by
leveraging
the
Croda
sales
force
and
leveraging
our
strength
in
developed
markets,
while
then
getting
more
sales,
particularly
in
the
Consumer
Care
business
from
their
emerging
market
exposure,
the
Iberchem
performance
itself
margins
should
certainly
get
up
into,
I
guess,
the
–
around
the
low
20
EBITDA
margins
that
you
see
at
the
top
end
of
this
industry.
So,
I
think,
yeah,
a
little bit
of
short-term
investment
to
make
sure
that
we
deliver
midterm
margins
that
are
best
in
class.
I
Isha Sharma
Analyst, Stifel Europe Bank AG
That's
very
helpful.
Thank
you.
Just
maybe
a
conclusion.
Is
it
– does
it
make
sense
to
assume
the
reversal
of
the
share-based
compensation
negative
impact
of
2%
next
year
and
take
the
underlying
margin
as
what
we
have
seen
in
the
second
half
for
the
group?
Is
that
rough
calculation
makes
sense
for
next
year?
S
Stephen Edwards Foots
You have
a
lot
of
Croda
people
on
this
call
as
well,
by
the
way.
And
we
will
be
delighted
to
pay
a
full
bonus
next
year
– this
year.
Very
much
delighted
for
the
bonus
and
the
PSP.
But,
yeah,
we
quite
like
it.
We
like
good
bonuses
as
well.
But,
yeah,
it
will
be
what
it
will
be
but
it's
a
significant –
it's
been
a
significant
impact
this
year
relative
to
a
couple
of
other
years.
That's
for
sure.
J
Jeremy Kim Maiden
Group Finance Director, Croda International Plc
Yeah.
For
Croda,
we
got –
we're
very
proud
of
the fact
that
over
80%
of
the
UK
workforce
members
have
share
schemes.
Over
60%
of
the
global
workforce
are
members
of
the
–
they –
that
use
of
share-based
payments
is
very
strong
across
the
organization
and
there's
two
functions
really.
One
is
performance
but
the
other
is
share
price.
And,
of
course,
the
share
price
was
very
strong
at
the
end
of
the
year.
So
that
– as
Steve
said,
it'll
be
what
it'll
be.
I
wouldn't
like
to
make
any
assumptions.
S
Stephen Edwards Foots
And
finance
directors
know
better
than
the
chief
execs,
by
the
way.
No.
And
I
think
the
other
thing
we
would
say
as
well
is
that
we've
just
agreed
a
free
share
plan
for
the
company.
So
when
the
senior
team
of
600
got
a
bonus
then,
we
expect
free
shares
to
be
delivered
down
the
organization.
So,
everybody
in
Croda,
the
junior
levels
gets
a
share
of
that
as
well
and
we
think
that's
very
much
good
for
distribution
of
the
reward.
Everybody's
been involved
in
a
great
year,
great
resilience
from
the
team
in
what's
been
a very
challenging
and
we've
delivered
knockout
results.
So, they
should
benefit
from
that
as
well.
D
David Bishop
No
further
questions.
I
Isha Sharma
Analyst, Stifel Europe Bank AG
I will go check the
careers
page
on
Croda.
S
Stephen Edwards Foots
Well,
thanks
to
everybody who's
attended,
both
in
person
and
on
the
call. So,
it's
great,
great
to
see
you
all.
And,
we'll
see
you
when
we
see
you
in
the
summer.
All
right.
Take
care.
Thank
you.
Good morning, everyone. It's great to be with those of you who've joined us in the room and a big welcome to those that are on the webcast as well. As ever, I'm going to go through some of the highlights of the year before handing over to Jez to go through the results in more detail. I'll then come back to talk about the key trends driving the growth in Croda and explain how we're well positioned to respond and benefit to them as well.
So, let's get started then. So, 2021 was a record year for the business, an excellent performance, demonstrating the benefits of executing our strategy with agility, speed and fast – and challenge in a fast moving environment. Investments and acquisitions have driven strong progress across all areas of the business. And that's leading to the best sales, profits and margins that we've ever seen, significantly ahead of last year and well ahead of 2019. High inflation related to raw materials, energy and logistics was a significant headwind. And we've leveraged our strong operating model and pricing capability to control a steep rise in costs, one of Croda's unique advantages.
Innovation is at the heart of what we do, you know that now, and it defines Croda. So it's very pleasing to see that NPP growth is so strongly ahead this year. Acquisitions have boosted our growth too. Avanti has established our lipid system platform, which achieved $200 million of sales, primarily to our principal vaccine customers.
And our F&F business, Iberchem, delivered an encouraging performance with integration on track to achieve the synergy potential we talked about when we acquired it. And we've also accelerated investment in the business to capitalize on the enormous opportunities that we see to drive future growth. So, overall, in the round, strong and agile execution of our strategy as well. In the space of 18 months, if you think about it, we've acquired Avanti and Iberchem and we're in the process of selling the majority of our industrial business as well. So, Croda is looking very different, the shapes changing and we're moving very much more towards a pure play consumer care and life sciences company.
If you just look – turning to the headline financials then. We delivered a very strong increase in both sales and profits. Adjusted sales grew 36%, reflecting excellent organic growth in the core business and the impact of acquisitions slightly offset by adverse currency. So, you have big growth in the core, plus acquisitions on top.
Profits grew substantially too, a testament to our sustained focus on high value, high margin niche areas of the market. So adjusted earnings per share 43% higher, underpinning the board's proposal to raise the full-year ordinary dividend by 10%, delivering 30 years of consecutive dividend increases.
And finally, we grew organic capital investment by over 30% to nearly £160 million, which will drive forward our strategy to scale consumer, health, and crop care businesses, leading to a more consistent sales growth and even stronger profit margins in the years ahead.
We're seeing strong structural growth too. If you cast your mind back, we're well ahead of pre-pandemic levels. 2019 is a tool we use. The results from other comparator for 2019 is a tool we use for management to look at real comparisons rather than last year. And, it's great to see. You see the graph in the top left. Great to see all the businesses double digit – showing double-digit underlying growth in each of the sectors.
So top right shows the reported operating profit, up 38%. And below you can see how EPS has progressed to be 35% higher. And there's also been a marked increase in NPP, as I mentioned earlier, increase from 28% to 37%. So as we become more knowledge – more and more knowledge intensive company, we commercialize people's knowledge, not network capacity in our world.
So, underlying growth in 2021 was strong across the board. We had – whilst health care was the standout performer, Crop Protection in Life Sciences also had a good second half too, contributing to this 40% increase in the sales of Life Sciences.
Consumer Care delivered a strong set of results as well, consistent throughout the year. We're seeing a resurgence in Personal Care. Performance Technologies strengthened in half two, driven by improved demand in its more cyclical end markets. And all regions also delivered impressive sales growth, with the consumer recovery strongest in North America.
I mentioned inflation a moment ago, and this slide helps to illustrate both the challenge and our ability to successfully navigate it. 2021 saw the highest rise in raw material costs in a decade, up 17% on an underlying basis. Energy costs rose significantly, with freight also rising by 25%, big headwinds of cost, you've seen that in the industry as well.
The underlying sales volumes are very healthy and we're pleased about that. They grew 9%, reflecting a very strong trading, but we fully recovered the impact of the higher input costs, demonstrating the continued strength of Croda's operating model, and alongside an improving product mix as well. So, if you looked at the overall mix, up 17%. The consequence of a strong demand and faster growth was record profit margins increasing to 24.8%.
Our non-financial metrics are just as important as our financial results. And, last year, we became only the third chemical company in the world to have our 1.5-degree target verified by the Science Based Targets initiative.
Our objective is to be Net Zero by 2050 and to ensure that we're investing in our site decarbonization roadmaps. Whilst the divestment of PTIC will make us less carbon-intensive, we will rebase our climate targets to maintain the challenges that we've set ourselves.
We're also improving diversity and inclusion, achieving both targets of the Hampton-Alexander and Parker Reviews at the start of this year. The proportion of women in leadership across the business now increased to 36% leadership positions. And we've established the Croda Foundation through which we're providing £1 million of funding annually. And this year, we've given an additional £2 million on top to reflect the progress in Health Care – our Health Care business and the first projects will help deliver vaccines to over 50 million people in India, Brazil and Uganda.
So, a sale of the majority of PTIC, which was agreed in December, was a significant strategic step for the business for lots of reasons. And on completion, Croda will become a more carbon-light business but will also have more intellectual property as NPP sales in Consumer Care and Life Sciences are nearly half the total in the in the business. So, our increased exposure to fast growth markets will translate to faster top line growth and increased margins. And we will be more focused and an even stronger position to drive consistent superior returns in the future.
So, let me stop there, more from me in a moment and I hand over to Jez, for a more detail on the numbers. Thank you.
Thanks, Steve, and good morning everybody. As Steve has said, 2021 has seen a record financial performance for the group. Sales were up 36% in reported currency at almost £1.9 billion, an increase by 43% in constant currency. Sterling strength means that reported currency numbers are about 7 points below the constant currency numbers.
Adjusted operating profit increased by 47% to £469 million. With a better product mix and volume growth, return on sales increased by 180 basis points to 24.8%. Adjusted profit before tax was £445 million, up almost 50% on the prior year. The tax rates reduced to 21% with a one-off benefit from settlement of a previous uncertain tax position. We expect to revert to around 25% tax rate from 2022.
Adjusted earnings per share rose by 43% to £2.50 with the proposed full-year dividend increase to £1.00, up £0.10 per share and 14% in cash terms following the Iberchem funding for the equity. This is the 30th successive year of dividend growth, as Steve has said, and earnings cover is at the lower end of our range of 40% to 50% of adjusted earnings. So, we're in a good place there.
Free cash flow reduced by 13% to £154 million due to higher capital investment and working capital build and I'll talk about that later. Adjusted profit items charged in the period totaled £34 million. This reflected an increased charge for intangible amortization following the recent acquisitions. Exceptional items were netted to pretty close to zero. Profit before tax on an IFRS basis was up 53% to £412 million.
The left-hand chart shows the sales bridge for 2021 versus 2020. Underlying sales, that's from the existing Croda businesses pre-acquisitions, were up 26% in the year, of which price/mix was plus 17% and volume was 9% higher.
We're particularly pleased with the volume growth as it demonstrates the strength of the existing business. Price/mix includes the recovery of inflationary costs but with a significant benefit as well from product mix, reflecting the growth of the high-value businesses, particularly in Beauty Actives and Health Care. The first year of acquisitions added 17% to group sales, giving the 43% increase in constant currency sales.
Now, the right-hand chart shows the impact of lipid systems growth. As at the half year, this has had a meaningful impact on the full-year performance and it would be easy but incorrect to conclude that the overall record result has been driven solely by this. Of the total constant currency growth of 43%, 10 percentage points have come from Avanti and the lipid systems platform, 20 percentage points have been delivered from Croda's existing business, reflecting the strong growth in Consumer Care and the rest of Life Sciences as well as Performance Technologies and the acquisitions in Consumer Care added 13 percentage points of growth. So, the growth is very broad-based.
This sales growth has also been reflected in the profit bridge. The underlying business delivered £116 million of profit growth. We saw growth across all sectors and all businesses. We're now trading well ahead of pre-pandemic levels across the existing Croda business. Acquisitions are shown separately up to the first anniversary of their purchase. Profit from acquisitions added £58 million in 2021 and currency translation reduced overall reported profit by £25 million.
Turning now to look at each sector and how it has contributed to the growth. Consumer Care sales grew by 45% and adjusted operating profit was 29% higher. The lower profit growth here reflects the fact that Iberchem operates at a lower margin than the Personal Care business. And as a result of this dilution effect, return on sales overall for the sector was around 25%.
The standout performer was, again, Life Sciences. Sales grew in 2021 by 46% and with a stronger product mix, adjusted operating profit rose by two-thirds, with return on sales of 36%. Performance Technologies saw a strong sales recovery, with sales up 18%, all organically driven. The benefits of greater volume and the operating leverage impact saw adjusted operating profit 32% higher and return on sales of around 15%.
Now, looking at each of the three principal sectors in turn. 2021 saw the creation of the Consumer Care sector, comprising Croda's leading Personal Care business in Personal Care, our growing Home Care business and the Iberchem fragrance and flavors business.
Personal Care saw a strong rebound in sales in 2021, with underlying sales now 15% above the pre-pandemic level of 2019. Growth was strongest in the high-end IP-rich engine of Beauty Actives, including Sederma, with sales up by 29% on 2020. And after a challenging couple of years, the Beauty Care business saw a progressive improvement in demand for skin care, sun care, cosmetics and hair care, with sales 13% higher.
The business is focused on sustainability-driven innovation, including products from the US ECO plant. After strong demand for hygiene products in 2020, Home Care sales growth slowed to 8%. Fabric care and ECO products are the key drivers of growth here.
The Iberchem business is proving to be everything that we hoped it would be. The innovation in particular, is very exciting. Integration is on track. And the first cross-selling synergies are being delivered. 2021 saw an encouraging performance despite combination of slower growth in COVID-impacted emerging markets and a lag in full inflation recovery, but our profit was in line with the acquisition plan.
Looking at the bottom chart, with Beauty Actives sales strong, product mix improves in Consumer Care. Price/mix was 13% higher and volume was 5% up. Acquisitions added 35 percentage points to the sector and the consumer sector is now well set to deliver our objective of mid-single-digit percentage sales growth before inflation recovery.
Life science continues to develop into a business to rival Croda's long held leadership in Consumer Care. With its focus on drug, vaccine and crop science delivery systems, the sector is growing sales through organic expansion and by leveraging acquired technologies. 2021 saw sales up 46% and adjusted operating profit up 67%. Within this, Health Care delivered an outstanding performance with rapid expansion in all three patient healthcare platforms. Sales of vaccine adjuvants were up over 40% alongside specialty excipients. And meanwhile, the lipid systems platform saw sales of approximately $200 million for COVID-19 vaccines.
Crop Protection delivered double-digit percentage growth year-on-year in what was a great year for agricultural demand globally. The growth in Seed Enhancement was more subdued due to slower markets in Europe and North America.
The growth of Health Care and the top end of crop is driving a focus on value, not volume. Innovative products sell at much higher prices and volumes are measured in kilos, not tonnes. As a result, price/mix added 35 percentage points to sales growth, whilst volume rose by 6 percentage points. The broad-based sector growth can be seen in the chart on the right-hand side, with an overall contribution of 17 percentage points from Croda's existing business, supported by 37 percentage points from the Avanti acquisition and the broader lipid systems platform. Life Sciences is expected to see high-single-digit growth in the medium term, excluding inflation recovery.
In Performance Technologies, 2021 saw a continued improvement in sales, driven by a recovery in high-end markets and sustainability-driven demand. Margins also improved due to a better business mix and operating leverage. Sales increased by 18%, equally split between price/mix and volume. In December, we reached agreement to sell just over three-quarters of the combined Performance Technologies and Industrial Chemicals business or PTIC and there was no impact on the 2021 results from the divestment other than an exceptional charge for the advisory costs incurred during the year.
However, had the divestment occurred at the start of 2021, we estimate that the sales in PTIC would have been around £360 million lower and the impact on adjusted operating profit from the divestment, together with resultant stranded costs in the business, would be just short of £60 million per annum.
We're now working through the separation process and expect completion during the summer of 2022. We've already begun the redeployment of capital from the PTIC divestment. In 2021, we increased our capital spend to almost £160 million. We're following our buy and build strategy of acquiring into exciting technology adjacencies like vaccine adjuvants and lipid systems at sensible multiples and then expanding them organically through capital investment, which reduces the risks and avoid significant goodwill thereby accelerating returns.
In 2021, we invested £70 million in Health Care. We also expanded our range of sustainable technologies in Consumer Care. And we began investment in botanicals and fragrances as part of our fast growth China strategy.
The other key cash outflow in the year was the £100 million working capital build. This reflected an increase in raw material costs and selling prices, higher sales volume and tactical increases in inventory to mitigate the global distribution challenges that we faced similar to many other companies. The impact of higher values of working capital at a constant level of days cover added almost £70 million, as you can see on the right-hand chart, while the increase in contingency stock added a further £45 million. And this will reverse as price increases and distribution challenges normalize. As a result, free cash flow was £154 million, £23 million behind 2020.
We're following our long-established capital allocation policy, which guides the way we deploy capital. Firstly, we're investing in organic growth, as you've seen, while increasing the ordinary dividend as part of our long-term commitment as you've seen, while increasing the ordinary dividend as part our long-term commitment on returns to shareholders. We invested in acquisitions through Alban Muller and Parfex in Consumer Care, and closing leverage was 1.4 times EBITDA, well within our target range of 1 to 2 times. We'll continue to follow this policy, investing for the future, increasing the regular dividend, and returning excess capital as and when this is identified.
I'll now hand you back to Steve who will update you on our strategic priorities.
Thanks, many thanks, Jez. Right. A little bit more from me then on Croda's strategy, and it's all about moving into faster growth markets. Yeah, you've heard this from me many times. We're focused on those markets that can value our innovation and, through high margins, are less cyclical, as well as capital and carbon light. So, we'll combine our leadership position in sustainability with our leadership position in innovation. You need them both to deliver profitable growth. And at that intersection, you get fast growth.
So, if you just look at our strategy, our strategic priorities, we've done some of our best strategic thinking during the COVID-19 pandemic with the board and Executive Committee together recently finalizing our strategic plan for the next five years. And our priorities are shown on the outside of the rim of the circle. And in addition to expanding and strengthening our core sectors, we'll also scale biotechnology and invest to faster growth in China as well where the personal care market, for example, is growing at 9% a year. We'll continue to look to acquire disruptive technologies as well along the way and also continue to what we call do the basics brilliantly and increase both our responsiveness to customers and engagement from our employees.
So, today, if you look about sustainability, consumers care more and more about it and their impact on the wider environment as well, too, in the brands that we sell to. Our customers want us to deliver novel, sustainable ingredients that are ethically sourced and produced from lower carbon manufacturing. And this is how we think about sustainability and the opportunity. So, we're seeing a big shift from the pandemic.
We're ramping up innovation too, and it's our lifeblood. As you know, we've invested 50% more in R&D resource in the last year, undertaking bigger bets with more ambitious projects. And we'll roll some of these out with you through the calendar this year. So, we've got about seven major projects that we're working on at the moment. And at the heart of our strategy is our Purpose, Smart science to improve lives, which will control and continue to guide the strategic choices that we make.
Across the markets we see, we like trends, and there are two mega technology trends, which we think are the most important for us driving our future. The first is the demand for sustainable ingredients. As I mentioned earlier, consumers want more products from natural and ethically sourced ingredients. And that's benefiting consumer as well as the Crop business. And the second is the move towards biologics in Crop Care and pharmaceuticals, which offer transformational opportunities for Croda, which I'll come on to shortly – big opportunities presenting themselves in biopesticides and biopharmaceuticals, which is really exciting for the group.
And the way we look at Croda now and the way I want you to look at Croda now is we've got eight growth businesses supported by industrial specialties. And within Consumer Care, most of you are familiar with our Personal Care business, where we deliver thousands of products to thousands of customers, all of which with rich IP. We've got eight businesses like that now run by dedicated management teams, and thereon forward-thinking, customer-led R&D capabilities. They're all supplying critical ingredients at low inclusion levels and often selling in test tube quantities rather than tanker loads, replicating the model we have in Personal Care for many years.
So, all eight businesses have excellent growth prospects and we see a great opportunity for each of them to deliver as a minimum 1.5 times GDP, so if there's a takeout for the slide, multiple opportunities for growth across multiple sectors. 10 years ago, some investors would have invested in Personal Care as a priority. Take a look, you can invest in Health Care, you can invest in Crop Care, you can invest in fragrance and flavors, and you can invest in Personal Care as well. You can invest in all of them now.
So turning to each of these areas in a bit more detail. Beauty Actives is a really important business for Croda. We're market leader in peptides, naturals and biotechnology, all of which are seeing higher growth than the average global beauty market and we expect that to continue. Our genre-defining peptide, such as Matrixyl are formulated into 80% of all new antiaging products containing a peptide.
We're also developing next-generation active ingredients including peptides using synthetic biology and 80% of our Beauty Actives R&D pipeline is green. We acquired Alban Muller deliberately, which develops innovative botanical ingredients such as anti-inflammatories made from pomegranate of all things. And we've also introduced botanical ingredients into China as well and acquired land for a new facility, which we expect to build in 2023.
So a third of our active products as well are biotechnology derived in revenue terms today, most well-known of which is Majestem for skin and neck lifting. Some of you might have tried that before. And we acquired Nautilus as well in 2018, a technology-rich marine biotechnology business, which has recently launched Venuceane, an active derived from marine microorganisms as well to repair sun damage, Sederma moving increasingly into sustainable ingredients into faster growth.
And we're winning, too, in sustainable ingredients in both Beauty Care and Home Care as well. We're the market leader in metal oxides on the left-hand side, use a sustainable mineral UV filters for sun creams, and have invested in Entekno partnership, which has launched a range of high-protection mineral products with additional non-whitening benefits, so positioning through a partnership to meet sustainable ingredients.
And in sustainable surfactants, we're displacing petrochemical competitors in formulations increasingly with our broad range of ECO products. And, in 2021, we secured a three-year contract with a major beauty brand covering six ECO surfactants for high-end skin and hair care, the start of things to come. And, in other areas, we're also seeing, in sustainable surfactants, legislation change through sulfation, sulfate-free brands now are on the market everywhere. And we're getting the benefit of that through our ingredients through clean beauty products, with sales doubling over the last four years. So we're starting to see this big shift materially improving the growth profile for our Consumer Care business.
And in Home Care, it's just the same, but what you see there is a big move in the wash cycle to low-temperature washing. That's allowing us to provide active biopolymer ingredients, and we just signed some lucrative contracts with a big customer to improve their fabric conditioner range around the world that's been launched in 30 countries improving their brand. So, lots of good opportunities coming through and you're starting to see that in the numbers with Consumer Care.
In fragrances and flavors, as Jez said, we're really happy with where we are. We're on track with the €48 million of annualized revenue synergies by 2025, and we're leveraging our combined sales network with 10 target countries identified and opportunities across customers of all sizes, including major brands, regional dynamos, and indies.
In Brazil, a new Iberchem business and R&D laboratory has been set up and established at an existing Croda site there, and it's delivering its first sales, too. So, this year, we also acquired Parfex, again, sustainable ingredients, big shift there. They create fragrances principally for premium personal care and fine perfumery markets. And we're leveraging their natural raw material base to their portfolio, all part of the plan to capitalize on growth opportunities for Ecocert-accredited products. We doubled sales of these product lines during the year.
So turning next to Crop, we've talked to you a lot about the traditional crop care market on the left-hand side of the slide, a big market with compound annual growth of about 3%. An existing partner to the major crop companies, we've also successfully increased our sales to medium size and small customers who now account actually for about 50% of sales. So it's not just about the four or five big multinationals. We've got a broad breadth to our programs now.
But more exciting is the move to biopesticides. Whilst it's currently a smaller market, it's growing rapidly. And we're now increasing our innovation for next-generation delivery systems for microbials and RNA, things like that. Sustainability trends are driving Seed Enhancement, too, where we have secured our first customers for seed treatment, seed coatings that are microplastic-free. And we've recently opened an innovation center in Brazil too there, state-of-the-art facility, including formulation, microbiology and seed treatment laboratories.
And keeping the best to last, let's talk about moving to biopharma in our Patient Health business. As you know, our drug delivery capability is founded on three world-class platforms, all of which meet the need for specialist delivery systems for biopharma applications and where we're seeing compelling opportunities for future growth. I'll talk more about the pipeline shortly.
But just as a recap slide, growth in excipients has been driven by expansion in injectable drugs using biological active ingredients, which dominate new drug launches. The opportunity here is vast, extending to the newest biological drug innovations, such as monoclonal antibodies, say that after a few [indiscernible] (00:29:38), more than 5,000 of which are currently in clinical trials. And our adjuvants provide the important accelerator to a range of new global vaccines.
The market for prophylactic vaccines, say that after a few more [indiscernible] (00:29:52), has more than doubled in the last two years. And in addition, more than 1,500 clinical trials are currently underway for therapeutic vaccines. Lipid systems offer significant potential beyond COVID-19 as a preferred delivery system for the developing science of nucleic acid therapeutics. You'll hear a lot more about that from Croda.
The mRNA market alone is expected to reach about $35 billion over the next 15 years and 180 clinical trials are already underway for applications across preventative and therapeutic vaccines and therapeutic drugs. So, we've got three world-class platforms, all of which are offering great opportunities for Croda.
So the pipeline then, so turning to it, it's getting bigger, much bigger. In 2021, we secured 130 new customers; 250 new clinical and preclinical programs with our products, we're involved in; and interestingly, two-thirds of those programs are non-COVID-19 applications. We're not a one-hit wonder in Croda in COVID. You'll have a look at the non-COVID growth profile for Croda in the next few years in your five-year, ten-year spreadsheets.
In terms of providing some color on the variety of programs, we can say that oncology programs make up the majority of our specialty excipient pipeline, as well as immunosuppressants for diseases, such as diabetes. In vaccine adjuvants, we're becoming more involved with the fight against WHO-listed diseases, too. So we're now contributing in high profile projects to combat 15 of those 24 priority diseases, including new projects for things like HIV and Ebola.
And in lipid systems, we're involved with multiple projects and multiple customers, and we have relationships with over two-thirds of companies developing mRNA vaccines and drugs. So, we're very well-placed there to satisfy future growth. And I think taking a big step back from this, Jez and myself will say these are the hallmarks of a terrific new Croda business, probably the most exciting thing I've seen in my career to-date.
And given the rapidly developing pipeline, it should come as no surprise that we're investing our money in it, putting our money where our mouth is, investing ahead of future growth to satisfy future growth as well. Our preferred approach is to adopt this buy-and-build model, secure a new technology platforms like Avanti and the knowhow that we get through that with modest acquisition spends and building site expansion around that. Their model was a good one, but it didn't capitalize on the big growth coming through the clinical programs. We think we can do that.
So, overall, we've invested more than £100 million in the last two years, including £70 million in 2021, with a similar amount committed in the future. So, in speciality excipients, we've doubled capacity – yeah, in speciality excipients, we've doubled capacity in the US. We're also expanding in Asia, investing £15 million to increase our capacity there as well. And in adjuvants, you'll see we've doubled capacity at our site in Denmark as well.
And for lipid systems, we've doubled the number of employees at Avanti with £35 million of investment to double capacity at their Alabama site. This has been complemented by £20 million of investment to create a new scale-up capability in the UK. These are already some of the highest returning investments in our portfolio, and we're confident that this trend will continue.
So in addition, we've also increased people numbers by 40%, which has hit the Life Science margin you've seen in the second half of the year, but it's because of growth, future growth, and there's lots of it so lots of progress. And all part of our plan is to build an unbeatable global drug delivery capability with three world-class technology platforms. It's not just lipid systems. It's not just vaccine adjuvants. It's specialty excipients of three platforms.
So finally, coming to our outlook, we expect to see continued underlying growth in the year ahead driven by this robust consumer demand we're seeing. We expect that to continue. Raw material prices are increasing and growth investments are offsetting any further customer destocking. We're navigating inflation very well. And as guided to previously, we expect lipid systems to be at a similar level to 2021 and margins will remain strong due to an increased proportion of sales from higher value-add solutions.
So, in summary, it's been an outstanding year for Croda with strong financial and strategic progress, and we're well ahead of pre-pandemic levels and demonstrating our ability to navigate this high inflationary environment very well. We're more knowledgeable and a more intensive business as well with that, focused on higher growth, higher R&D, higher return markets in a stronger position to deliver more consistent sales growth, stronger profit margins in the future. And it's an exciting time for Croda. Of that, there is no doubt.
And now, Jez and I are very happy to take your questions from the floor and from the webcast. Thank you. [Operator Instructions]
Charles Eden, UBS. Thank you very much. Two questions from me, please. You mentioned strong margins in Life Sciences in 2022. Could you help us define strong if possible, please? And then secondly, you mentioned raw material inflation, no surprise. Can you help us what that looks like for Croda in 2022 and if there's any variants between, I guess, core Croda now, so Consumer and Life Sciences and what it might be, including PTIC, if you could break that out? Thank you.
I'll do one. Jez can do two. Yeah, I mean, on the margins, and the Life Science margins come off in the second half, you've seen that. But it's all to do with the increase in numbers that we're seeing and the increase in capital we're putting in the business. So, I'll come back to answer your question in a minute.
But Avanti, particularly, we started with 125 people in Avanti. We've now got nearly 300 people. And the model that we're adopting is that's a preclinical machine. It's sending out samples at a veracious rate right across the spectrum to pharma companies. So, we're in a lot of preclinical programs. And as anybody knows, in the pharma industry, once you're in pre-clinicals, then your job is nearly there, nearly complete because we should roll into the clinical one, two and three programs with the support we've got from the preclinical relationships that we've got.
So, the most important thing is making sure that we're responding quickly to new molecules, existing molecules, and synthesizing things in a slightly different way. So, the lipid system market needs slightly different products. So, a lot of these clinical programs we've got, not just the lipid systems, probably multiple products, slightly different products for multiple customers. So, there isn't one standard product that serves this. So, there's a lot of craft needed from our Avanti team to make sure that we are adopting the right products in the preclinical programs. So, we've put a special emphasis on that. And you've seen that margin come off in the second half.
I think the way we look at that's stabilized now because we've put a lot of those people in. I think we're talking about 35% margins for Life Sciences this year on an ongoing basis. The growth outside of lipid systems, the growth is still at the higher margin area. So, you would expect that margin increase to continue. So, we're not seeing a sort of deterioration in margin, which is uncontrolled. It's all targeted for growth because of our confidence in the growth. There's a little bit of depreciation in there coming off some of the assets.
And also actually to a smaller degree, crops had a great second half as well. So, there's a bit of dilution in crop in there as well. So, there is absolutely no problem with margins in Life Sciences, far from it. You're just seeing a stabilization once we put a lot of energy into these preclinical programs through people, putting people on the ground. So, that's really important. And it's testament to our confidence in the business going forward, our capital confidence but also our people confidence in putting resource in as well. This market could get very, very interesting for Croda in the next decade.
Jez, on the second point?
So, Charles, so raw material recovery and so forth. So, in 2021, we had, as Steve said, 17% increase in raw materials. So, clearly, there's an annualization effect to flow through – probably about half of that to flow through in 2022, just a straight sales price recovery. And then, we've seen some further increases in the first quarter with maybe some early signs in the second quarter that there's fewer of those increases because we feel it's got inflation, raw material inflation should slow down at some point and maybe we'll see that second quarter. But it's still quite early to confirm that maybe we're seeing that.
And what we showed in the model is we're very successful in recovering that little bit of a lag in Iberchem, which is common to, I think, all of the flavors and fragrance businesses. But, yeah, they'll get there and so forth in there, but the Croda model works very much on achieving that recovery on a quarter-to-quarter effect. And as you can see, there has been no adverse margin impact in terms of doing that. So, I'm confident of seeing that recovery.
Now, then when we break down sales and margin, we sort of think of sales growth sort of independently. So, we're certain that we're going to recover any raw material inflation that we see sort of going forward as we did last year. So, what we're doing is – what we're then saying is, okay, so then think about the underlying sales growth that we're seeing. And I think in Consumer Care, we're seeing that as mid-single digit. But there'll be price recovery on top of that, but that's sort of passed through in effect to maintain profit.
And in Life Sciences, we think there'll be high-single digit. So, although we expect to see lipid systems flat in 2022 in sales terms at $200 million, we still expect to see very strong growth in the other two platforms. And we expect to see strong growth in crop. So I think we can see high-single-digit sales growth, as Steve says, at margins which is certainly in the mid-30s for the Life Science business.
And then, in Performance Tech, we'll expect growth to be more in the GDP range, but again, with margins at/or a little better than the level that we've seen in 2021. So, I think what we should be seeing is some really steady growth, some raw material price inflation recovery on top and as well as the annualization effect and then some margin improvement as well. So, then if that sort of deals with the question.
Yeah. Also maybe just on the 17% raw material inflation, is there a big different by divisions? I'm just thinking with PTIC being here for half the year, just thinking in Consumer, in Life Sciences, is 17% still about the right ballpark or is it more or less?
Yeah. It's quite interesting. If you look at the release where we've broken out the sort of price/mix in the underlying businesses, actually, I think it's pretty sort of consistent. So, if we look at – 17% raw material recovery is probably about 6% on sales, given that raw materials are just over a third of our sales value. But there's some inflation recovery going on in terms of energy and distribution costs and so forth in there as well.
So, I think when you then look at the, as it happens, 17% increase in sales price/mix, that's probably about half of inflation recovery, 8 or 9 percentage points, and then the rest is the mix effect coming through, particularly in Consumer and especially in Life Sciences. So, interestingly, when you look at the price/mix, we're up 13% in Consumer. So that feels like sort of 9 percentage points of sales price and 3 percentage points or 4 percentage points of mix, with Actives doing well. If you look at Life Sciences, it's very heavily mix-driven, because you've got these very small volumes, but at very high values per kilo compared with the normal model of selling in tonnes.
Then, if you look at Performance Tech, you've got 11% and you'd expect in Performance Tech that to be almost all price recovery, because there's some innovation going on there obviously, but it's not of the same scale as the other two sectors. So, I think from that point of view, you can see that actually the price effect is pretty equally spread across those, but the mix effects are quite different, particularly in the two sectors that we're focusing on going forward.
That's really helpful. Thank you.
Thanks.
Thank you.
Thank you. Hello, it's Nicola from BNP Paribas Exane. The first question was actually just to pick up on the outlook and the comments you made around destocking or customer destocking. I just wanted to clarify if that's something you've seen already and if so, which areas and what should we be looking out for?
And the second question was around investments. You've clearly talked about already reallocating some of the PTIC proceeds. You talked a lot about the Life Sciences investments. How should we think about CapEx or investment going forward, not just for 2022, but in future years? And is it still mainly in Life Sciences or is it also on the Consumer Care side? Thank you.
Well, let's start with investments then. I mean the way to look at the investments really and new Croda really, if you call it that post the sale of majority of the Industrial business, we still screen by and large for about 6% of revenues in CapEx. It was capital-light. It's not getting any – it's definitely not getting any more capital-heavy, if you like. The incremental spend on top of that is virtually all going into this drug delivery platform around the world to capitalize on the growth. We're sitting on 250 big projects.
There was a time in Croda where one or two, we got excited with. We've got a lot more now. So, clearly not – a lot of them won't get there, but all we need is a few of them to get there and we can satisfy that growth. So, the model is about the normal screening, for us, about 6% plus the incremental spend. That incremental spend will continue in 2022, but then probably moderate. I mean it all depends on what we see in terms of looking through our intelligent platforms around the conversion rates through the clinical programs.
But at the moment, we've guided to around £160 million for this year. But a lot of that is because of the incremental stuff on top is all into the slide you saw on the build and scale for drug delivery. It's all about the incremental spend there.
Jez, mate, I don't know if you got any other comments on investment on top of that.
No. That's fine. So, yeah, it's still spread across the two, but this leaves us the extra spend, which we think is probably a three-year period of additional spend at the moment that we can see. So, we think we'll run at an elevated level through three-year period and then return to the more normal level, which is probably nearer maybe £100 million, 6% of sales, that sort of level, but so probably three years of this elevated level, as Steve said, very much focused on Health Care.
And I think in terms of the demand, we're cautiously optimistic looking at next year. What we didn't see like many in the industry in quarter four, we didn't see the seasonal downturn expected, it just continued and it's continued very strongly at the start of this year as well. So, there's no surprise there. A bit of inflation in there as well. So, raw materials are going up further in quarter one and we expect that to moderate.
And the inflation around Croda businesses, it's quite interesting, because it means that there's volume growth that's demand-led, by and large. So, you get the volume growth and then you also get pricing on top. So – but we would expect raw materials – in a world that we can see today, we expect raw materials to start to moderate off their tops from quarter two onwards. So, I think if you look through the 12-month period, a little bit of raw material increase weighted to the front end.
In terms of stocking, I mean we don't see any big changes. And there's some moderation and I expect it to come in the consumer industry more than anything, Consumer Care, where L'Oréal, who are at with 7% or 8% market growth rates for them 2021 and about 5% for Personal Care in 2022. We're not too far away from that in terms of what we see. So, I think it's still very buoyant.
There's a resurgence. I think that resurgence will continue at a high level, but there's probably a little bit of stock trimming that comes on top of that. So, still very pleased with progress. So, in the round, we don't see any big destocking effects coming, but just more trimming, trimming around the edges, I think.
I think it may be more pronounced. If you get any effect, it tends to be in the Performance Technology business, which is one of the reasons that we've gone for the divestment moves us away from some of the cyclicality that Steve spoke about on one of the earlier slides. So, I think you tend to see a little bit more cyclical variations in automotive and industrial markets. The whole move to Life Sciences and Consumer is about making the business more consistent in terms of – and accessing the higher growth rate, and we don't see that changing.
Hello. Good morning. Sebastian Bray with Berenberg Bank, speaking. I just have a few questions, please. The first is on the definition of lipid systems sales and visibility out to 2025. Steve, you've talked earlier about the opportunity from preclinical Phase 1, Phase 2, Phase 3 trials in this area. Can I just confirm, the $200 million sales figure that Croda cites does not include, as a rough guess, the $40 million to $50 million of sales for Polar Lipids separately that flow to the preclinical market.
And if that's the case, Steve, I think you've mentioned in the past achieving a $200-million-sized business by 2025 or maintaining it at that level. Does that effectively imply a net loss of $50 million of sales? Because at the moment, we have, let's say, $250 million if you include the preclinical applications. And does that go to $200 million by 2025? Or what type of visibility do you have there?
Yeah. I'll get to – hi, Sebastian. So, the lipid systems definition includes Avanti sales where they're going into the LNP platforms. So, Avanti has this 50-year history of being an R&D house, basically, of being able to produce different delivery systems for customers who are primarily in preclinical and clinical trial stage, and some of those are lipid-based and some of them are other chemistry-based.
So, what we're including in the lipid systems is just those which are going into LNP applications, which right now is pretty much COVID-19 applications. So they're either the vaccine contracts with the principal customers or they're the other COVID-19 areas that have been developing over time, and those are the sales that we're making.
You're right to say that on top of that, there's a bunch of sales, $40 million, $50 million might be a little bit strong, but there's some more sales, which are all part of that R&D development capability that serves about 2,000 pharmaceutical customers. It's the $200 million, which is currently very focused on the COVID application that we see developing into non-COVID. And that's where the projects that Steve talked about in terms of the pipeline are really coming through with two-thirds of those being non-COVID applications. And we're great with the COVID applications, but obviously, the non-COVID ones are also about longer term treatments, other vaccines, therapeutic drugs, et cetera.
So, what we want to do is to morph this portfolio over time to a $200 million portfolio with lots of customers and lots of applications. So, increasingly, that $200 million, which is right now focused around three or four pieces of business with one big piece of business in there, obviously, will develop into multiple customers and multiple applications in COVID and non-COVID applications.
So, on top of that, you have the Avanti, I call it catalog business, but that's not really fair. It's the sort of thing where R&D people in the pharmaceutical industry are ordering very small amounts of different things. That business will carry on. That carries on growing very nicely at probably 5%. But the big opportunity is the development of the lipid systems capability into a whole new range of different ingredients for mRNA and gene therapy. So, definitionally wise, we're just focusing on those sales that are going into sort of LNP-based systems basically.
So, [indiscernible] (00:51:04) just to add to that, the 2022 and 2023, we see three lipid systems with three different types of revenue stream. We see obviously from the big partnership we've got. That will continue into 2023 as well. We're contracted there. So, the rollout will continue. We might think in the UK we're near at the end of it, but we're just starting in some parts of the world. So, that rollout will continue there. And also, you've obviously got these booster jabs and the sort of regular annuity that might come with that.
And also on top of that for that revenue stream, one, is the potential flu vaccine and RNA together, which could be quite significant, and again, a lot of R&D in there as well. But that could be a solution which extends actually RNA a bit longer than you think in COVID because it could be wrapped up in a flu vaccine as well together, which would be a neat thing to do.
So, that's revenue one. Revenue two is we have other customers in the COVID space with lipid ingredients. So, as Jez said, there's a small number of those that will be tracked in revenue with 2022 and 2023. And then also on top of that, it's the non-COVID applications in clinical programs and we already have some revenue streams coming later this year at the start, relatively modest but hopefully building as we start to launch our new products, let's just say that, with our own IP in, let's just call it, non-COVID application areas. So, three revenue streams running through building.
But as Jez says, we're looking at this market as a minimum of like $200 million market by 2025. And we said that openly with everybody last time but with lots – this has the hallmarks of hundreds of products, hundreds of customers. It's not one product and it's not one customer. We don't want to be there. It's like the old API days of a lot of companies. We had an API in our stock a few years ago. It's great if you get them in but they're pretty volatile.
So, for us, it looks like a very good expanding opportunity for us. Our job is really to update ourselves anew as we progress through the conversion rates through these projects and these clinical programs through the next few years. And so, at the moment, three revenue streams coming through in the next couple of years.
That is helpful. Thank you. If I could quickly follow up, I don't want to outstay my welcome, so to speak. As a rough guess, if I look at the expected Sanofi RNA flu doses and then your potential revenue split, is it fair to say that $200 million is roughly 50% COVID, 50% non-COVID in terms of the split or could you comment on that or...
What today or?
No, by 2025.
We won't comment on that. No. I mean we don't know. But I think $200 million, it'll be certainly a good number for us. And a lot will depend on the speed at which the clinical programs [ph] confer (00:54:05). And the combination of flu and RNA is something interesting and which, again, it's in advanced research. We'll see where that takes us as well. So, we can't comment because we don't know, not because we're trying to be evasive.
Just a quick one on the quantitative side, am I right in saying that the dis-synergies now guided for PTIC, net of any contractual additional volumes or tolling arrangements, is about £10 million, is that right from the number that was shown or?
Yeah. That's the sort of right order of magnitude. So, yeah, the dis-synergy costs are essentially costs which are currently borne by that PT business but which don't change, you know? Me and Steve might be good examples of that because, obviously, we charge all of our costs to sectors.
But, of course, it will be transitory. The whole idea is to release the capital from the majority of the PTIC business and reinvest it in the Consumer and into Life Science. So, clearly, as we look forward two, three years, you would expect to have the same sort of revenue, certainly more profitability. So, the dis-synergy costs will be there post-sale, but only until we redeploy the capital fully.
Thank you.
Steve, there's a related question on the lipid systems from Sam on the webcast, who says Pfizer recently spoke about their relationship with Acuitas. How does this impact Croda in the medium term with regards to future projects outside the scope of the COVID contract?
Yeah. I mean we view that positively because what it's basically saying is Pfizer are fully committed through their R&D program to really invest heavily in the new generation platforms with RNA. And Acuitas have technology ownership to some products in lipid systems. So, what Pfizer have done is they've agreed effectively a scale-up license and manufacturing license of some arrangement.
So, Acuitas are the owner of the technology and then they don't manufacture. The job is then partnering up with the Crodas of the world and ultimately the Pfizers of the world to make sure that they can utilize their R&D and use that through either scale-up or scale-up through with partners. But that's a big confidence boost for the world of RNA because it's basically saying that they're moving very, very quickly. There's 10 different agreements. So, there's a minimum of 10 different types of product.
And it's back to our point that the rollout of this through clinical projects, it won't be one of – this isn't one product that's going to get commoditized like you might see in the battery world. We don't see it like that. There's some companies that have invested in that and you see prices drop very quickly. This is very science-driven, lots of complexity and lots of tweaks needed for specifications and products to – you're all about stabilizing the mRNA and that's tricky in different applications. So, we like that because we like the complexity of it.
Hi. Morning. It's Georgina Fraser from Goldman Sachs. It's good to see you in person. Thank you very much for having us here.
We as well.
I've got three questions. The first is if you could comment on how you think prices for lipid systems outside of coronavirus applications might look. The second question is a clarification from your print this morning. It said that in Life Sciences, the double-digit growth can continue in Patient Health, and I was wondering if you could clarify if that was across all three of the platforms or just specialty excipients and vaccine adjuvants.
And then my final question is we've seen last year Consumer Care, the top line outgrowing the bottom line, which is not necessarily the typical Croda model. Wondering at what point in time the bottom line will start outgrowing the top line in Consumer Care again.
Yeah. Okay. Yeah. So on the price, yeah, I mean we don't expect – we're not factoring in any significant attrition in price in the lipid space generally I would say. But in particular in non-COVID applications, what you find we've got a lot of intellectual property in that space as well, and I don't think we're back to the point before that it's not one product that's going to drive this whoever it is going to replicate the same product.
I think you've got to – it's on a case by case, treatment by treatment basis. And there'll be lots of similar technology platforms but slightly different. So, we're not factoring that in. I think the big thing for us and for you is how quickly can this be commercialized through the pipeline and what does that mean for us because the revenue stream and the profitability in those products is very high as you'd expect. We really want chemical industry risk, pharmaceutical margins. That's what we want in our products, and we think we can do that in most – because we're selling through effectively a specification. It's slightly a different risk environment which we're looking at through our risk framework. But, ostensibly, it's a different margin in pharmaceuticals.
Jez, on Life Sciences, do you want to – and I'll come back on the, well, on Consumer Care on the shape of the [ph] profit (00:59:33). [indiscernible]
(00:59:34). Yeah. So, the double-digit growth, I mean, we always said on the first platform, which was specialty excipients, which is one we've grown organically over the last 10 to 20 years, and then moved into these areas on biologics and oncology drugs and so forth. I mean, we certainly see 10% to 30%, which has always been our medium-term range on that platform as ongoing because there's lots of opportunities there. We doubled capacity last – well, brought that on stream at the beginning of last year, and that will last us three to five years. So, we're thinking about the next project sort of in that. So, definitely see very strong growth continuing in specialty excipients. I mean, the vaccine adjuvants, smaller business that we acquired through Biosector in 2018. But, really, we could sell as much as we could build the capacity. Every time we build, we expand capacity. And as Steve said, we doubled capacity last year. It's sold out within a few months. So, we think the opportunities in vaccine adjuvants from a smaller base are very exciting.
And then the lipid systems, absolutely. I mean, as Steve said, I think that what we're trying to do at the moment is bridge between 2021 and 2025, I guess, in terms of lipid systems platform, which is why we sort of say, look, it's $200 million today and it will be, we believe, $200 million then, but a very different mix. And, of course, from there, as that mRNA market rises towards the $35 billion that Steve spoke about, then our share of that market means that, that should be growing very rapidly as well. But, clearly, we're getting from this slightly unusual position of sort of single products, single application to the classic Croda position of big portfolio of customer's ingredients. So, they'll all be driving growth for many, many years to come, in our view.
In terms of Consumer Care, probably 2021 is the low point, and then I think we would expect to see margin move forward in 2022 and beyond. I mean, clearly, it's just a function of maths. It's the dilution effect of having a full year of Iberchem having acquired it in November of 2020, and its margin is in the mid to high teens, sort of natural level. And, clearly, even at the top of that industry, you're only looking just into the bottom end of 20%. Whereas in Personal Care, last year, we achieved 30%, and that's despite a high remuneration charge from the bonus and share plan-based costs that drove there.
So, that's the one-off dilution effect effectively. And unless we see exceptionally strong growth from Iberchem or we do some more acquisitions in that space which are dilutive, then you'd expect the margin in Consumer Care to move steadily forward. Certainly, into the high-20s, we believe, is achievable over a period. And when you think about the drivers to that, Iberchem, we're investing now, you're going to have the sales synergies coming through that Steve talked about, the €48 million by 2025. You've got the benefits of – we haven't talked about it, but the ECO plant in the States where, clearly, that's moving from a loss situation to a profit situation. So, that's additive, of course, it's not exclusive to Consumer Care, but Home Care and Personal Care, Beauty Care are the big drivers behind that area.
You've got stronger growth in Beauty Actives, which is always mix beneficial to Consumer Care. So, I think you've got lots of reasons to believe that there's going to be good margin accretion. It would just be a little bit noisy depending on the relative rate of growth of fragrance compared with the personal care market in particular. But, yeah, good strong opportunities there.
Thanks. Charlie Bentley at Jefferies. I just wanted to follow up on the kind of commentary around lipids into kind of 2023. I know obviously we're quite a way away. But, I mean, as you talk around the balance of those two of the kind of three pools there, can you just give any kind of indication on the absolute level what do you think it might be today? And then you've talked about Nicola's question around kind of like investing in organic growth. If we talk about M&A priorities, I mean, are they still squarely bolt-ons in Life Sciences or, I mean, there's an indication on Personal Care there. Yeah, just any color you can give there. Thanks.
Yeah. Well, I mean, we'll start with the M&A. I mean, M&A for Croda is, the organic growth model has got a long way to play out now. We're very pleased with the acquisitions that we've done recently and we see a lot of growth opportunities there, and you can see that we're investing in that, both in capital, but also in knowledge, in research, and in clever people. So, we expect that to continue.
But we've also got the option. We've got great optionality now, once we get the proceeds from the sale. That gives us flexibility to look at different things as well. But the priority is organic growth, plus probably bolt-ons. We like the Avanti-type model. I think you do as well, which is knowledge – you're buying knowledge, you buy 125 people and you're buying 100 of them, maybe 110 of them are scientists. So, you're buying clever people. And what we do is commercializing that knowledge. That's what we do very well. So, that's the type of business that we're looking at. And there's no surprise, if we see opportunities in the drug delivery space, we'll move pretty quickly if we thought that was the right thing to do.
But we'll also spend quite a bit of time looking in sustainable ingredients, positioning of Consumer Care as well because there is a shift there. You can see it, we can feel it, and when we talk to our customers, that's structural. And we saw it before the pandemic to a little degree, to a small degree. But now, it's firmly embedded in the mantra of all the big multinationals. They're all moving away from petrochemical-based ingredients, L'Oréal, Unilever, more to follow. They'll lead the industry in that way. And we're starting to see that with the rest of the industry following. So that's the sort of the direction to travel from an inorganic point of view, and there should be no surprise there.
In terms of 2023, it's a good question, as I say. It's a difficult one to answer here, but we're very heartened with the revenue streams emerging from these three different areas. The big – with our big partnership, a lot will depend on where we are with the rollout, where we are with the booster program, where we are with the vaccine combination hybrid mRNA-type product. And that has a – that could have a very positive effect as well. But I think it's – it'll be a healthy revenue stream, and it's not going to deteriorate to nothing as some people say. I mean, we've got the revenue stream we're contracted.
We'll get what we – we'll get from our share of our big contract there. The question will be the other two revenue streams, how quickly they progressed. And I think it's too early to say because we could call a number. We could give you a number. And I think that's difficult to back up at the moment. I think as we go through the year, we can start to see what that looks like. But again, as we say, we're heartened with and very encouraged with 2024, 2025 plus where you can start to see this business emerging as a really – a great Croda business like a nascent Personal Care business from many years ago with a very different shape to it.
So, yes, so I think that's the difficulty in putting a big number on that.
Thank you. There was a question from [ph] Andre (01:07:09) on the webcast who asked about guidance on use of disposal proceeds. I think you've largely covered that. Anything you want to add on use of proceeds from the PTIC disposal?
Well, I think, we just say, the capital allocation policy, which Jez led when he first came to Croda, it's very clear, very consistent. If you look in the pack, Jez's last slide just shows you how we're inconsistent with that. We have no problem – we'll follow that through.
So, we first look at capital investment in the business. We then look at the shape of M&A as an opportunity going forward for us in the next 12, 18 months. If we don't need or if we have spare cash that we don't need to deploy in either of those two areas, then we'll return it. We'll return it in the usual way and we've demonstrated that in the past and we'll demonstrate that in the future. So, we're not going to sit on an inefficient balance sheet for any length of time.
But I think it's fair to say most of our investors will want us to invest in the business if we see some good opportunities for it, particularly if it's into these exciting, fast growth spaces. So, that's what we'll be looking to do if we can. But we're not here to waste money. We're here to do the right thing with it.
We'll go back to Adam for questions over the telephone line, please.
And our first question today comes from Matthew Yates of Bank of America. Matthew, please go ahead.
Hey. Good morning, everyone. Apologies I couldn't be there in person. Couple of questions, please. An amazing job to pass through so much raw material inflation. Can I ask about the volume trends in consumer? I think you had 11% volume growth in the first half. So, if you saying 6% in the full year, I guess is that implying that the second half was basically around flat? Is that right and is that the sort of expectation that you're seeing in early 2022?
And the second question is around NPP and I think that's slide 6 in your deck. It was a notable step-up as you're saying that most of that was acquired. So, there's a 60 basis point increase organically. And actually over the last two years, it's negligible. So, I guess the question is are you getting enough innovation coming out of your internal efforts or is it simply that the target is to offset the natural attrition in the portfolio in order to protect your overall sort of pricing and profitability model? Thank you.
Yeah. Fine. And thanks, Matthew. Yeah. So, on NPP first then, yeah, I mean, the way you should look at that is what we've seen in the last two or three years, the innovation is not slowing down in Croda. What's happening is the base, the non-NPP business is growing very well, too. So, what you're seeing is normally, you'd expect your NPP to outstrip your base business. But because we've seen this rebound of this resurgent Personal Care recovery in industrial markets, what you see is the base business coming back very strongly, too.
So, whilst the numbers aren't – the percentage of NPP is not changing significantly, you shouldn't read into that the innovation projects that we've got. So, that's more in effect of the non-NPP rebounding much stronger than [indiscernible] (01:10:22) that will reach its natural level and NPP will then outstrip that.
I think the other thing to point out, though, is we want to buy knowledge, we want more knowledge in the business anyway, because I think every company has to keep reshaping and keep doing things differently. So, it's about moving into new markets but with knowledge. And in Avanti and in Iberchem, they've got a lot and you'll see that as we start to show you those facilities. You'll start to see they've got some great innovation programs and quite a high level of R&D scale. Much higher R&D in their businesses than in the average Croda business, across the board.
So, that's the direction of travel we want to move anyway. So we would expect the NPP growth generally anyway to move ahead of a more stable looking non-NPP environment when things start to moderate in the next probably couple of years. So, that's that.
I mean, it's a good point on the price/mix. I mean we're sort of exiting around about 5% volume in the price/mix generally for the company. And Consumer Care was below that. But a lot of that is a function of just capacity. We're flat out on a lot of our units at the moment. And the order book is strong now for well into this year, much longer. Our outstanding orders, for example, are much bigger than we would normally expect. But I think that's more an industry issue than everything else. But it's a reflection of demand. Demand is strong.
So, our model for this year is clear. There's quite a lot of price riding into this year with some probably modest volumes in Consumer Care. We'd expect some volume growth in Personal Care as we've been investing in the past for this year and next year, but it will be relatively small, low digit volume growth for Consumer.
Right. Yeah. Hi, Matthew. I think as well, think about the comparatives for last year, I mean the first half obviously was compared against quite a weak first half of 2020 because of the COVID impact, which was sort of down 20% in Consumer Care in the second quarter of 2020, whereas we'd already seen full recovery by the end of 2020. And therefore, the growth last year is on top of that. So, I think the overall 5% volume growth is very encouraging on top of that.
The other element was that Home Care was relatively weak last year because it had such a strong 2020 on the back of hygiene demand. But we saw good growth in Personal Care, particularly at the top end and, as Steve says, I think going forward that mid-single-digit growth, excluding raw material inflation recovery, that should be a good mixture of volume and mix driving that mid-single-digit growth. So, we're quite comfortable around that.
Okay, Matthew?
Thank you, guys.
The next question comes from Chetan Udeshi from JPMorgan. Chetan, your line is open.
Yeah. Hi. Thank you and morning. Can I ask a question on the price/mix in the Life Sciences business, which at least on my numbers, went to like 29%, 30% in second half from 42% in first half. So, can you comment on what's going on within the mix in the Life Sciences? I know there are different businesses, but, I mean, the key question there is, is there a read on pricing in any of the businesses in second half versus first half? That's the first question.
And then, there was an interesting slide in the deck showing the growth by different sub-segments within Consumer Care and clearly, the Beauty Actives part seems to have grown much faster. But when I still do the math, ex the acquisitions, ex the Home Care business, the margin is still sort of 29% to 30%, which is still quite a bit below 33%, 34% that you guys had in 2019, I think. And so, the question is, even with the mix going back in those old Personal Care business, why is the margin still lagging so much? Thank you.
Yeah. Hi, Chetan. So, in terms of Life Science, I think it's – well, it's the mix that's going on there. So, there's no price erosion or anything happening in any of the platforms and in particularly in three patient health care platforms in Health Care there.
What you've got in the first half year is you've got a very, very strong growth. We were up over 60% in sales in specialty excipients and vaccine adjuvants in the first half year. And that was really a function of really uncorking the bottle. That's when the new capacity came on stream in both the US specialty excipient plant and in vaccine adjuvants in Denmark.
And so, you had this sort of release of pent-up demand where people were waiting obviously for – in pharmaceuticals, you can have several months of stock basically in the pipeline. So, people can manage on a longer wait. So, you had this very strong sales of sort of 60% in the growth in the first half. And in the second half, it settled down to more sort of growth in those two platforms in the 20s and therefore overall growth of over 40%. And as I said, the 20% growth is much more consistent with where we see growth being 10% to 30% on those two platforms going forward.
So, because you have that big effect, that's why you get this price/mix change. Although 35% price/mix is still pretty stunning, I think, in terms of delivery. So, there's absolutely no price erosion going on in there. We've got a contractual price reduction in the second year of the principal contracts in lipid systems, which reflects the fact that obviously we're now in full scale production and therefore the efficiencies and so forth improve. But that's the only built-in price reduction. As we've said, we expect pricing to remain strong, particularly as lipid systems develops into a wider portfolio of products for different customers.
In terms of Personal Care, I think the key difference between 2019 and 2021 is remuneration charge. As we note in the statement, remuneration charge is about 2 percentage points to 2.5 percentage points of margin. There were no bonuses paid in 2019 and the share-based payments were relatively low. And they were very strong last year, Croda's variable remuneration, which affects the top 600 people in the organization, is very much about profit growth year-on-year.
And although 2019 and then 2020 were pretty decent performances, they were still down by 5% to 10% in terms of profit. So, there was no bonus paid. In 2021, you've got a full bonus and, of course, you've got a very strong share price into the end of the year. So, that's about 2.5 percentage points. So, as I said, Personal Care sitting around about 30% return on sales. If you gross that back up, you'd be at 32.5%, which is pretty much around the 33% peak that you refer to back in 2019. So, it's just a function again of – all of these costs have to be borne by the sectors. And therefore, you're going to get a bit of volatility according to what's happening in those variable remuneration programs. Other companies, BASF, et cetera, they pull them out as a separate division. But we don't do that. We allocate it to the sectors in our reported numbers.
I think the other thing, Chetan, as well, is we look at it from a divisional point of view. We judge them on gross margin. We're glued to gross margin in the business. It's a good crude indicator for us. And we're not seeing any gross margin attrition in any of the businesses. And it's actually quite consistent across them all where you're seeing this robustness. So, we're navigating well through the inflation environment, but the central cost adjustment is significant. And we can talk to you about that separately, I'm sure. Okay?
Thank you.
The next question comes from Charlie Webb of Morgan Stanley. Charlie, please go ahead. Your line is open.
Morning, everyone. Again, apologies for not being there. Just a couple for me. So, just first off on the CapEx in the Health Care, obviously not a chunky investment year ahead, perhaps just give some more details in terms of which platform that's kind of been allocated to. You mentioned high purity excipients already have capacity to grow into. Just trying to understand where that's going. And maybe if you could let us know the type of payback you'd expect on that investment.
Second question, just on working capital, obviously quite a big working capital build in 2021. What do you anticipate there in 2022? You built up some stock, just wondering whether that's likely to repeat, unwind, etcetera, for 2022 would be helpful.
And then, lastly, just on Consumer Care, as you think about the mix heading into 2022, what trend do you continue to see? Do you expect to continue to see Beauty Actives' effects, etcetera, outgrow kind of formulations, Home Care, and therefore you're just trying to sense, where does that take margins plus at this point for Consumer Care in 2022 relative to where we ended up in 2021?
Okay, Charlie. I'll let Jez do the working capital one, and I'll kick off with the other two. I mean, CapEx Health Care, there is a slide in here, I don't know if you've seen it, but – which sort of describes that sort of third slide of the biopharma pack.
I mean, extensively, what we're trying to do is the Avanti model is a great preclinical model. It's a preclinical machine, and it's getting samples out to all of these pharma companies. They do that very well. We've been scaling that up with people resource to turbocharge that. We don't really know how many preclinical projects were in, but we're in a lot, which is great.
But with that model wasn't great at capturing the future growth when they came through the clinical programs because they outsourced that volume to two other providers, CDMOs, contract manufacturers, call them what you want. So, our job is to then build that capability. So, we decided to build that capability in North America. So, the idea there is in our Mill Hall facility just around the corner, where we're looking to invest space there to scale and lease things up. So, it's all about scaling up, expecting some of these clinical programs to be successful and being available to scale those up there. So, there's investment targeted there and also in our UK lipid facility there as well as we plan for future growth.
But I mean the paybacks are very modest. The paybacks are very fast, very modest. So, they are in the region of about three years' payback, maybe even less than that. And it's not huge infrastructure we're putting in. We're building kilo quantities rather than oil refineries. As they say, these are relatively small but they've got to have flexibility to refine, purify and separate. That's effectively where the craft is and we've done that for 40 years, 50 years pretty well. So, it's more in that area if you see that on the slide. So, that was the working – that was the CapEx.
In terms of mix, I mean, I think the actives, if you look at the Consumer Care mix, we say, as Jez commented, we expect margins to generally move upwards over the next near term and medium term steadily, we would say. You're going to see the mix I think between, as you say, the actives and the formulation area will be broadly similar to what it is now. I think we would expect the actives business to grow in percent levels higher than the formulation business. It's a smaller business. But I think – we're not disappointed with the formulation growth as well. So, I think that sort of ratio is about right where it is now for this year.
And I think the other drivers are things like, as you say, ECO. We're now starting to displace a number of petrochemical companies in formulations now on the back of L'Oréal, Unilever's moves. Big statements on moving to bio based by 2030 for both of them. You're starting to see that. We've seen that quite significantly. So, we expect a profit move forward therefore in the [ph] Mantis (01:22:51) and therefore that tends to benefit more the Consumer Care business than in it does the Life Science business.
So, the few drivers there and also just the pace of the projects that we've got. If you look at the number of projects that we've got in the pipeline, we're starting to see our big customers really now moving with some of them. There's been a delay at the – during the pandemic as you'd expect, but a lot of this is sort of pent up innovation demand from their R&D stables as well.
Jez, anything on either of those and then you on working capital?
No, nothing to add I think on those, Steve. On working capital Charlie, the – so we have these two components, the £70 million increase, which is sort of pro rata to the increase in value with a constant number of working days cover. So, we – I expect that to drift upwards at the moment from what we can see because, obviously, we've got price increases as Steve mentioned in the first quarter of 2022. So, the values I think will be up a bit, but not at the moment by that order of magnitude.
And then on the tactical contingency stock that we held, £45 million of extra stock, one would hope that we could start to allow that to reduce now and to reverse. It is incredible. I mean, it's been a really stellar performance in terms of 2021, but it's been delivered against the backdrop of much increased customer demand at a time of really challenging global distribution position. So – and the teams internally have worked superbly well both at manufacturing level and at sort of customer service and distribution level to overcome those problems.
We're starting to see some normalization now in the distribution chains around the world, not quite so stressed at ports and so forth because I suspect that's added about two weeks to our stop that's been on the water, just the difficulty of getting things through ports. So, that, hopefully, is starting to normalize now and that can mean that the tactical inventory should reduce.
So, I think there will still be a small working capital build in 2022, but nothing like the same scale as we saw in 2021.
Pretty helpful. Thank you very much.
Thanks, Charlie.
Our final telephone question comes from Isha Sharma from Stifel Europe. Isha, please go ahead.
Hi. Good afternoon. Thank you for the presentation. I have just one left, please. On the Iberchem margin was already impacted in 2021 as far as my calculations show. And this was probably due to the raw material costs, which is in contrast to the F&F players where they haven't seen any impact yet with the guide for 7% to 9% inflation in 2022. How should we think in general about Iberchem? How comparable it is to their guidance and what kind of margin impact are you expecting after the already low-margin in 2021? Thank you.
Yeah. Okay, I'll start, and then Jez can add. I mean, yeah, I mean, we've been happy – very happy with the trading performance. It screens for about 10% underlying sales growth, and it's just a bit below that at the moment. But when you think about it, they've had the perfect storm because they're in most of the emerging markets that have been really in heavy-duty lockdown for most of the year. So, yeah, trading performance is good despite that. So, we're pleased with that.
Margins, yeah, I mean, their raw material increase through the year was significant. It wasn't 17%, but it wasn't far away from that. So, of the region of about 13% to 15%, they see it. They don't have any clever hedging systems. They just take it like we did with raw material costs every quarter. So, they've had that. They've carried that through the year.
I think that will moderate through the year. So, that's obviously helped the margin improvement as well. So, I think the worst of it is behind them. Whereas with some of the other players, I think, because of – whether it's hedging or other things, they have to carry that into the year ahead. So, the margin headwinds for some of the bigger players are more significant than the smaller ones. Well, certainly for Iberchem. So, for us, we – I'll let Jez comment on the numbers, but, we've had a drag on margins this year of 2021, so we expect some of that to come back next year.
Yeah. Agreed, Steve. Hi, Isha. The other thing to remember in the Iberchem margin in the short-term, is we've put additional cost in like Avanti but not in the same scale. We've put an additional resource so that we can really take advantage of these sale synergies. And therefore, I think while you've got a little bit of short-term dilution in line with our acquisition plan, the mid-term prospects looked good.
I mean, we think that with those sales synergies, every reason to believe we can get the margin on Iberchem to be sort of consistent with the best-in-class of the Tier 1 players, even though Tier 2 players have traditionally operated probably 2 or 3 percentage points below that. But because of the synergies we can release by leveraging the Croda sales force and leveraging our strength in developed markets, while then getting more sales, particularly in the Consumer Care business from their emerging market exposure, the Iberchem performance itself margins should certainly get up into, I guess, the – around the low 20 EBITDA margins that you see at the top end of this industry.
So, I think, yeah, a little bit of short-term investment to make sure that we deliver midterm margins that are best in class.
That's very helpful. Thank you. Just maybe a conclusion. Is it – does it make sense to assume the reversal of the share-based compensation negative impact of 2% next year and take the underlying margin as what we have seen in the second half for the group? Is that rough calculation makes sense for next year?
You have a lot of Croda people on this call as well, by the way. And we will be delighted to pay a full bonus next year – this year. Very much delighted for the bonus and the PSP. But, yeah, we quite like it. We like good bonuses as well. But, yeah, it will be what it will be but it's a significant – it's been a significant impact this year relative to a couple of other years. That's for sure.
Yeah. For Croda, we got – we're very proud of the fact that over 80% of the UK workforce members have share schemes. Over 60% of the global workforce are members of the – they – that use of share-based payments is very strong across the organization and there's two functions really. One is performance but the other is share price. And, of course, the share price was very strong at the end of the year. So that – as Steve said, it'll be what it'll be. I wouldn't like to make any assumptions.
And finance directors know better than the chief execs, by the way. No. And I think the other thing we would say as well is that we've just agreed a free share plan for the company. So when the senior team of 600 got a bonus then, we expect free shares to be delivered down the organization. So, everybody in Croda, the junior levels gets a share of that as well and we think that's very much good for distribution of the reward. Everybody's been involved in a great year, great resilience from the team in what's been a very challenging and we've delivered knockout results. So, they should benefit from that as well.
No further questions.
I will go check the careers page on Croda.
Well, thanks to everybody who's attended, both in person and on the call. So, it's great, great to see you all. And, we'll see you when we see you in the summer. All right. Take care. Thank you.