Croda International Plc (CRDA.L), a global specialty chemicals company, reported its full-year results, revealing a challenging 2023 with a 19% decline in sales but maintaining confidence in future growth prospects.
Despite the downturn, the company achieved a profit before tax of £309 million, within its guidance range, and increased its dividend for the 32nd consecutive year. Croda's focus on sustainable ingredients, biologics, and a new operating model aims to improve efficiency and customer service.
With a robust pipeline of innovative products, Croda anticipates growth in its Consumer Care and Life Sciences segments while navigating a weak macro environment and destocking in other sectors.
Key Takeaways
- Croda's sales declined by 19% in 2023, with an overall drop in group sales by 11% to £1.7 billion.
- Profit before tax reached £309 million, and the company proposed a full-year dividend of 109 pence per share.
- The company saw growth in Consumer Care, specifically in Fragrances & Flavors (F&F) and Beauty Actives, and in the Life Sciences segment's pharma and seed enhancement businesses.
- A new, simpler operating model has been implemented to improve accountability and efficiency.
- Croda is investing in sustainable ingredients, biologics, and emerging technologies like AI and data analytics to drive future growth.
Company Outlook
- Croda expects mid- to high-single-digit sales growth in 2024, with a focus on driving profit growth.
- The company plans to win back business in the US and transition manufacturing to biotech and low carbon technologies.
- Projections for group adjusted profit before tax range between £260 million and £300 million for 2024.
Bearish Highlights
- The absence of high-margin COVID-19 lipid sales is expected to create a £30 million headwind to profit in 2024.
- Destocking in the Crop sector and weak demand in industrial specialties are ongoing concerns.
- The group operating margin is anticipated to be two to three percentage points lower in 2024.
Bullish Highlights
- Strong order books and geographic growth in North America for the Beauty Care business.
- A 60% increase in qualified commercial opportunities in the Pharma sector in 2023.
- Raw material prices are expected to decline in Q3, potentially aiding margin maintenance.
Misses
- Adjusted operating profit and profit before tax both decreased by 33% pro forma.
- Pro forma volumes declined by 16% due to extended customer destocking.
- Operating margin declined from 24.7% to 18.9%.
Q&A Highlights
- The company clarified that bonus schemes are based on underlying profit growth, excluding significant contracts like COVID lipid sales.
- Croda identified 20% of its consumer portfolio as less differentiated and plans to manage it with a focus on volume and pricing.
- Investments and cost savings initiatives are in place to support future improvements and maintain profitability.
Croda International remains committed to its strategic priorities, including capitalizing on demand recovery, driving innovation, and investing in sustainable solutions. With a strong focus on the Consumer Care and Life Sciences segments, the company is well-positioned to navigate the macro recovery and execute its long-term growth strategy.
Full transcript - Croda International (CRDA) Q4 2023:
Steve Foots: Good morning, everyone, and a warm welcome to the London Stock Exchange for our full year results presentation. It's great to see so many of you in the room, with lots of others online. And Louisa and I look forward to taking your questions at the end. So on to the agenda this morning then, I'm going to start with an overview of our performance, followed by a more detailed analysis of the numbers from Louisa. And then, I'll come back and delve into some of the key drivers, and future performance for the near and the long-term. So, okay then, starting with the performance then. 2023 has been a challenging 12 months for Croda in the wider industry to say the least. Having delivered two years of record results, due to a surge in demand after the pandemic, we've experienced a prolonged period of de-stocking compounded by a weak macro environment. Demand was therefore much weaker across most of our markets. The consequence has been a significant fall in both principally in Beauty Care, Crop Protection, and Industrial Specialties. The 19% decline in sales also reflects our divestment of PTC (NASDAQ:PTC) our industrial business last year, and a 50% reduction in lipid sales as the world has normalized post-COVID. Unusually for Croda, volume declines have caused low levels of capacity utilization with negative operating leverage impacting profit margins and margins were also affected by lower sales of high-margin lipids for mRNA COVID vaccines too. So, whilst these headwinds impacted our financial performance, there were bright spots across the portfolio too. Within Consumer Care, F&F had another outstanding year. And whilst, Beauty Actives in Home Care were broadly flat and Life Sciences stripping out lipid sales both our pharma and seed enhancement businesses grew. So a large portion of our sub-businesses are growing. Furthermore, the technology trends driving our future growth are unchanged. And we're continuing to see the transition to sustainable ingredients, and of course, biologics. Demand for innovation also remains strong with NPP sales broadly flat versus last year and up in Consumer Care. Cash generation has also been excellent supporting ongoing investment. We've invested through the downturn to drive our future growth like we always do. And finally, we've implemented a simpler operating model to enhance our efficiency and customer service something that, I'll come back to later. So a challenging year, but plenty of progress and our confidence in the future is demonstrated by the Board's decision to increase the dividend for the 32nd year in a row. So it's important to look at the year in the context of what we've done over the last five years, and also take on board this point that 2021 and 2022 were breakout years. So 2023, has been the reset period. And as you can see, we've seen steady progress in each of the businesses within Consumer Care. Beauty Care has been the exception and where the post pandemic surge was most pronounced. So with customer inventory levels now below 2022, we expect to see a return to more normalized conditions going forward. The five year data shows a similar story in Life Sciences, excluding the significant impact that lipid sales has had over the last four years pharma CAGRs has been an impressive 16% since 2018. And whilst growth has moderated in 2023, the pipeline is growing and we are very well positioned to see the benefits of that in the coming years. In crop, you can clearly see the surge in demand in 2022, where Russia's invasion of Ukraine compounded the restocking trends seen in other markets and that will take its time still to work through this year. And finally, turning to Industrial Specialties. Whilst it's a much smaller business now, it's an important not to overlook the role it plays contributing to the efficiency of our production sites. So 2023 was clearly a reset year, but reported sales were also impacted by the inclusion of the divested business for part of that prior year. So turning to unpack our 2023 performance in a little more detail and starting with Consumer Care. As you can see from the top left box, the performance has been mixed. F&F was excellent and we saw growth in actives including the first sales of Ceramide from the Solus acquisition. But the table highlights the material fall in volumes that we saw in Beauty Care due to customer inventory corrections and weaker consumer spending, rebuilding volumes here is a key priority for us in '24. In terms of the margin decline as you can see on the bottom left, 4.5 percentage points of this is due to the operating gearing effect of wheat volumes. Two percentage points of the margin decline was due to the weaker mix, primarily reflecting strong growth of lower margin F&F sales in the portfolio. So encouragingly, NPP sales were up slightly, reflecting continued innovation in the business and the migration to more sustainable ingredients too. A great example of that is the 20% plus sales increase that we've seen in our recall range. And we've continued to deliver double-digit percentage sales growth in China and India, high-growth markets where we're seeing the benefits of sustained investment from Croda. Finally, bottom right, F&F has been the standout performer due to its distinctive positioning in fast-growth markets and its cost competitive model. F&F sales were up across all regions and especially strong in the Middle East, excellent sales growth that aligns with our acquisition plan. And there is plenty more to come there. So turning to look at Life Sciences in a similar way. You can see from the top left chart that the drop in Crop Protection sales was volume driven, with the other businesses growing excluding covered lipids. So overall sector sales were down by 5% on that basis. The margin declined primarily due to price mix with much lower sales of high-margin liquids and four percentage points can be attributed to operating leverage, driven by the volume decline in crop. So again in terms of highlights, the underlying picture is more encouraging in Life Sciences than the report numbers suggest. Pharma is growing and seed enhancement has continued to win market share as a result of our leading position in microplastic-free seed coatings. We are seeing high demand following the EU's decision to ban the use of microplastics in the next five years and that demand is global across the world. And finally in pharma, whilst we were not immune from the impact of customers reducing inventory levels, carbon normalization and the funding constraints for early-stage biotech companies, the breadth and diversity of our portfolio underpinned a resilient performance. So destocking primarily affected the Heritage Consumer Health business with lower COVID-19 demand adversely impacting adjuvant system sales, as well as lipids for COVID-19 mRNA vaccines. So by contrast, drug delivery technologies for small molecules, protein and nucleic acid applications continue to grow. And as you know as a purpose-driven business, we placed a lot of importance on our nonfinancial metrics as well. We've seen a strong improvement in our Net Promoter Scores with 92% of our customers rating our products very highly. We've invested in training to ensure that safety is a value is embedded throughout the organization and through the senior leadership team. We've continued to promote more and more women into leadership roles, establishing a leading position in our industry. And we're making great strides in becoming a more sustainable business that can be seen both in the impact we're having on people's lives with nearly 23 million people benefiting from the work that we're doing through the Croda Foundation. And also in the impact that we're having on the planet with the CDP recently awarding us across all three climate forest and water metrics, complementing our long-standing AAA range from MSCI. So despite the headline numbers this year, there is lots to get really excited about the structural growth drivers are unchanged and those trends are taking us in the right direction. Croda is well positioned for the macro recovery when it comes there's no knee-jerk reactions in Croda, we're focused on executing our strategy, innovating and investing for the future growth. In addition to that our near-term priorities are to capitalize on the steadily improving demand environment in beauty care, drive further innovation in Crop and expand our farmer pipeline and we will do that whilst continuing to enhance and improve the way we operate, making us even more efficient. I'll go into more detail on each of these areas shortly, but first over to Louisa to run through the numbers. Thank you.
Louisa Burdett: Hi, good morning everyone and thank you Steve. So, firstly, as Steve has said, this has been a difficult year with destocking materially affecting the results that we expected to deliver when we stood on this platform last year. But we are pleased to deliver full year profit before tax of £309 million within our final guidance range of £300 to £320 million. So as usual I'm going to talk to the adjusted pro forma numbers, which strip out the effect of the PTIC divestment in the prior period. We divested that on the 30th of June 2022 as you know, and this will be the last time that we have to make this adjustment. So on this pro forma basis, the group sales of £1.7 billion were down 11% against the prior year obviously due to deep destocking in consumer care and Crop Protection as well as lower COVID-19 lipids, and these items were partially offset by a strong performance in fragrances and flavors, which continues to grow really strongly. So adjusted operating profit of £320 million and adjusted profit before tax of £309 million were both down 33% pro forma and that reflects the impact of negative volume leverage and the business unit mix as well as lower COVID-19 lipids in 2023. Our effective tax rate on adjusted profit rose slightly in the year to 24% and that was driven mainly by the geographic mix of profit. Our adjusted EPS was 167.6 pence and we have proposed a full year dividend of 109 pence per share. Pleasingly, free cash flow improved year-on-year to £165 million versus £157 million in the same period last year. And finally, on this slide, if we look at the bridge from the adjusted to IFRS profit before tax at the bottom left of the page intangible amortization was broadly flat at £37 million and exceptional items worth £36 million. These exceptional items consist of the impairment of goodwill in our Chinese joint venture, SIPO, which we took in the first half, acquisition costs for Solus Biotech, plus some costs that are associated with our internal reorganization, which Steve has already mentioned. Therefore, on an IFRS basis, our profit before tax was £236 million, down from £780 million last year and the 2022 profit on divestment of PTIC accounted for the majority of that difference between those two numbers alongside weaker trading. So turning to the group sales bridge and moving from left to right on this chart, the estimate of not owning PTIC in the first half of the year drives a £191 million adjustment to the sales for 2022. And against, this pro forma baseline, price mix added 5% in the period after a very strong increase in the prior year. Pro forma volumes declined by 16%, largely due to extended customer destocking and the combined effect of acquisition of FX on sales was neutral with total sales down 11% pro forma and down 19% on a reported basis. So, moving on to next slide, which shows the operating profit walk on the left-hand side and the operating margin walk on the right-hand side. I'm only going to talk to the right-hand chart, which shows the group operating margin declining from 24.7% to 18.9%, a decline of around six percentage points. Weaker volumes accounted for approximately five percentage points of that decline with reduced coverage of fixed overheads due to lower capacity utilization. Business price mix drove a further three percentage points of decline where Fragrances and Flavors had a very strong year, relative to Beauty Actives and Beauty Care and the profit from COVID-19 lipids was lower than in 2022. Cost savings did help to offset these headwinds by about two percentage points and I'll talk to those cost savings on the next slide. So, in previous presentations, we've highlighted that on the assumption that demand for our products recovers after destocking a large restructuring program to remove material fixed costs out of our footprint is not the right choice for our business. Our preferred approach is to drive continuous improvement across the business including under the banner of our Doing the Basics Brilliantly program. But as Steve will explain later, we did change our operating model from the beginning of 2024, which will deliver some modest annualized cost savings of around £8 million from 2025, but this change would have been done anyway and was designed to address accountability and simplification. However, given how progressively difficult 2023 was, our focus was to control variable costs and to maximize cash from the second quarter onwards, whilst continuing the appropriate investment for the future. And this chart is summarizing the story of that cost base during the year. So, the two bookends are the structural adjustments for the cost of running PTIC that's on the left-hand side and the cost of adding Solus Biotech on the right-hand side in July. And between these two bookends, the most significant items of the cost tailwinds were; firstly, variable remuneration which was negligible in 2023 compared to the charge in 2022. The second item is lower factory and freight costs because we manufactured and shipped less. The third item is other discretionary items like lower travel. Under the fourth item, we offset the normal inflationary pay rises that we granted in quarter one with headcount curtailment throughout the rest of the year once we understood the magnitude and duration of the destocking and that has all become clearer. And finally, under item five, we had some late-breaking events in Argentina, which added FX and valuation headwinds at the end of the year. So, we're showing you this partly to confirm where our actions were taken to mitigate trading last year, but also to help guide the building blocks, apologies, of our 2024 performance. And given that as you can see on the previous slide, the majority of our savings were largely variable in nature. Elements of that lower 2023 cost base will need to bounce back in 2024 to appropriately service the increased volumes as our markets start to recover. So on this slide, I will address the building blocks of our 2024 performance. The gray blocks on this slide are directional. They are not an attempt to provide a spot forecast for each item. So firstly, and as we've talked about, we're not expecting any sales of high-margin COVID-19 lipids in 2024 and that will be a headwind to profit of about £30 million. As the business recovers in the second gray block, we expect some of those variable costs to bounce back including production and freight as well as that remuneration charge which will return back about £25 million following a negligible amount in 2023. And thirdly, we continue to invest in people and assets to support our long-term strategy. So for example, we'll see some incremental depreciation in 2024, as well as normal salary rises without that offsetting benefit of the headcount curtailment that we saw in 2023. So as shown on the final right-hand bar on this slide, sales growth will offset these profit headwinds to a degree. And Steve will discuss the sales guidance range and bring all of the elements of this together in the 2024 outlook at the end of the presentation. So moving on to cash flow. EBITDA at the top of the table fell significantly in the year by £192 million from £602 million last year to £410 million this year. But despite this our free cash flow increased £165 million versus £157 million in 2022 and this was primarily the result of two items. Firstly, a working capital inflow of £29 million in 2023 versus an outflow of £134 million in 2022. As expected in an uncertain and declining sales environment, the team acted swiftly to preserve cash and managed an unwind of inventory down to a year-end stock value of £341 million, significantly below the highs at the end of 2022. I'd just remind you that the working capital inflow of £29 million includes an adverse $60 million debtor, driven by the December shipments of COVID-19 lipids. And then the second item is a combined £60 million impact from lower interest and tax charges. The impact of higher interest rates through the year was softened by our focus on cash generation from working capital and obviously from holding the PTIC investment to cash during the first half. Our capital investment was £170 million, up from £139 million and within our guidance were at £170 million to £180 million. On the next slide, on the left-hand side our underlying CapEx remains in a range of 6% to 8% of sales with incremental CapEx being invested between 2021 and 2024 as we've guided and that's to boost pharma lipid production capacity in the USA and the UK alongside government investment. We expect total CapEx including the remaining piece of that pharma investment to reduce to about £150 million per annum as some of our larger projects near completion. And looking at net debt on the right-hand side of the chart, leverage at the end of the year after the completion of the Solus acquisition was 1.3 times EBITDA towards the bottom end of our target range of one times to two times. And as I said at the start of my presentation, we're declaring an increase in the full year dividend to 1.9 pence [ph] per share continuing an unbroken track record of 32 years of dividend progression. The Board periodically assesses other forms of capital return, particularly when leverage is towards the lower end of our target range. But we're mindful of continued market uncertainties so this will be kept under review. Our immediate capital allocation priority is to reinvest for organic growth. And finally to finish up for me in my section there are some technical factors on this slide, which I'm happy to take questions on later. But for now we just highlight a modest increase in the depreciation charge following investment in recent years as well as the increase in the finance charge with a higher net debt position entering 2023. These are perhaps some things you can consider when you're updating your models. Steve back to you.
Steve Foots: Thanks Louisa. As I said earlier that the technology trends that will drive our future growth haven't changed and we're seeing an ongoing transition to sustainable ingredients and biologics that's playing out in the way we expect. Croda is well-placed to benefit from these trends having repositioned our portfolio to be closely aligned with them. We've also continued to invest in the business through the weaker demand environment, something we always do. We're doing this by adding more depth to our portfolio and by enhancing our proximity to customers to support fast growth particularly in Asia where we see lots of opportunities. And in pharma, new laboratories in India and Singapore are opening up fresh opportunities for us. And whilst new capacity for nucleic acid delivery in the US and the UK will be transforming in the years to come for us. So, it’s not just about making progress in the core business, it's also ensuring that Croda is match fit through operational excellence as well and by investing in fast evolving areas such as AI and data analytics. As I mentioned earlier, our immediate priorities are highlighted here on the right, which I'll go through now. So when we talked to you in July, we illustrated how inflated customer inventory levels were versus pre-COVID levels in Consumer Care. We've seen these continue to normalize through the second half of the year, leading to a steady improvement in volumes. The year has started well and we're cautiously optimistic that this trend will continue through 2024 right across Consumer Care. Our priority is to capitalize on the continuing recovery in demand particularly in Beauty Care, our largest and most volume-sensitive consumer care business. And because Beauty Care is so key to our recovery, I wanted to lift a little bit more to explain what underpins our confidence in this business. With broad-based exposure to the beauty markets, predominantly weighted to skin and we're well-positioned in high-growth niches. We've also got balanced geographical reach and we've been growing ahead of the market in four out of the five biggest Beauty Care markets globally. In France, Brazil, China and India, we're ahead of the market, and the USA being the exception. So that's evidence of our strategy delivering. It's all about increasing R&D intensity in these countries, getting close to customers. And most regions have held up pretty well actually this year and the step change in the US will undoubtedly help drive the recovery. So two other important points. 62% of this business -- in ingredients are bio-based significantly ahead of our peers with their biodegradability and more importantly these days lower carbon footprint, additional adding to the sustainability claims. So with demand from our customers, strongest for sustainable ingredients we are very well-positioned in this market. And 80% of the portfolio is differentiated. And that means superior prices and profit margins and far lower churn. We've done a lot of analytics around that. 20% is undifferentiated in our book, so a large portion of potential good growth there. And our strategy is to strengthen our position in each of these four areas, accelerating our differentiation through innovation you would expect us to say that. And our strategy will support growth in all regions, but especially in those parts of the world where the opportunity is the greatest. That includes Asia, where we've continued to invest in our portfolio with the acquisition of Solus Biotech, and innovation with the new R&D facility in Shanghai and in manufacturing with the new surfactants plant in Dahej, India due to open in 2025 all supporting future growth. And with the USA key to our recovery, our refreshed leadership team is working hard to win back business that we lost with an increased focus on innovation local innovation. And we will extend our sustainability leadership by transitioning our manufacturing processes to biotech and other low carbon technologies. And by providing customers with product carbon footprint data, so they can see the emission savings that they're making by using our ingredients. And if you can see on here three quarters of the Beauty Care portfolio has got product carbon footprint data. We've embedded R&D resource in Consumer Care to drive innovation faster and expand the differentiated part of the portfolio too. And at the less differentiated end, we've applied a volume KPI metric to ensure that we manage volumes in a more focused way going forward. So coming on to Crop then. On the left, you can see how inventory levels at all of our major customers is still well above covered levels in yellow. 2022 in red or pink depends how you look at that was an especially strong year for Crop as inventory levels grew. And as you can see from the green line ,they remain high. So we expect destocking to continue for a while yet. This is something that we'll just have to be patient about and it has no bearing on the huge opportunities that we continue to see in this area. Our technology is helping customers to make their existing formulations more sustainable to transition to biopesticides and to improve yields, through crop nutrition and to adopt innovative approaches such as precision agriculture as well. Again, Croda is leading the way here. We recently launched our first delivery system, especially designed for biopesticides, which has secured sales in all regions and a new product that meets the growing demand for drone delivery particularly in Asia. Pharma continues to be the most exciting aspect of our future growth story the rapid growth that we're seeing in biopharma and bioprocessing supports that. Protein and small molecule delivery provides delivery systems for both the more mature small molecule drugs and the higher growth protein and monocolonal antibody applications. We're also moving into bioprocessing, which is integral to production of therapeutic proteins and vaccines. So the number of qualified commercial opportunities grew by more than 60% in 2023. We originally presented the graphic at the bottom left at our Capital Markets Day in October 2022. A lot of you will remember that. We're making great progress bringing our new pharma innovation to market lots of technologies that will make an important contribution to our sales and profit performance from this year. So top right, our pipeline includes a best in class solution for self-health manufactured using a new process based on Croda's unique refining technology that we're bringing on stream in 2024. The disruptive solution will be launched in the coming months and will contribute incremental sales from 2025. We've also expanded into bioprocessing aids a target adjacency launching Virodex as an aid for biopharma manufacturing. The first sales were secured within three months of launch and we expect them to ramp up considerably. Turning to adjuvant systems then. The development of novel therapeutic vaccines that cure diseases previously only treatable for their symptoms is creating a huge need for new adjuvant systems. And as a result, the number of projects in our commercial pipeline has grown by 24% in 2023. And Croda's innovation is helping to unlock therapeutic vaccines as well. Examples of which are here on the right. PHAD really important product novel lipid-based adjuvant was pre-launched in 2023. It's been really well received with samples into more than 20 candidate vaccines and about £10 million of sales revenue anticipated this year growing to well over £20 million thereafter. Turning to the bottom right. Many current generation vaccines use Squalene adjuvant from shark-- these are adjuvants derived from shark liver. Our Squalene adjuvant is a sustainable technology that's currently being tested by three of the major vaccine companies, with initial sales coming through this year too. And finally, nucleic acid our growth here will be driven by the commercialization of new nucleic acid drugs with a number in development continuing to grow. We've seen an increase of 28% in the number of projects in the last year. This strong medium-term growth trajectory for our nucleic acid delivery platforms is likely to realize in three phases. Firstly, mRNA vaccines for infectious diseases, which are expected to come to market from 2025. Secondly, oncology which requires more targeted delivery systems. And thirdly, gene editing therapies such as CRISPR treatment for sickle cell anemia which we're supporting the first gene editing therapy to be approved by the US FDA. So alongside all of this great innovation, we're making significant improvements to the way that we work. There are many examples across Croda of how we're using data analytics and AI to drive operational improvements. One of these is a refreshed operational dashboard illustrated on the bottom left, providing all the key metrics to leaders in one app real-time data. The graphic on the right hand shows how our new organization has been in place since the 1st of January. All regional teams, including sales, R&D marketing, customer service and manufacture now directly report into the sectors full P&L ownership. This structure will ensure we deliver faster and more effectively for our customers and it also passes accountability down the organization. So turning now to the outlook for the year ahead. The ongoing uncertainty makes it hard to predict what will happen in each of our businesses. Overall, we expect to deliver mid- to high single-digit percentage sales growth in 2024 excluding the $60 million of COVID-19 lipid sales in 2023 with higher sales volumes more than offsetting lower price/mix. Consumer Care has started the year well and we're cautiously optimistic given the improving demand trends we've seen so far. In Life Sciences, we expect the non-COVID Pharma business to continue growing but destocking to continue in crop and demand to remain weak in Industrial Specialties. Moving to the right-hand side of the slide. We expect 2024 group operating margin to be two to three percentage points lower than 2023 four reasons for that. Business mix with no contribution from COVID-19 lipids this year fully rebated and a continued strong growth in F&F, lower overhead recovery. Second point, at our manufacturing sites due to the continued lower volumes in Crop and Industrial not fully coming back yet both of which have high production volumes alongside Beauty Care and a reset further reset in our cost base back to a more normalized level that Louisa talked about from a low point in 2023. And finally, of course, ongoing investment in our strategy particularly in Pharma which is going to be -- give us breakout growth of the future. So based on these assumptions and at current exchange rates we expect group adjusted profit before tax to be between £260 million and £300 million in 2024. We plan to report sales performance quarterly this year, with a quarter one update on the 24th of April. And finishing on the key takeaways, 2023, a challenging year for 12 months a quarter and the wider industry, but the technology trends that we drive our future haven't changed. It's important. And we continue to invest in the downturn. We will see the benefits of that in the years to come. And we're focused on executing our strategy, innovative and investing for the future with a clear set of priorities that will drive our near-term performance. Croda is very well positioned for the macro recovery when it comes. Now, Louisa and I are very happy now to take your questions. Thank you. Come on Gunther, you're always first.
Q - Gunther Zechmann: Good morning. Gunther Zechmann from Bernstein. Steve, can I just ask about the volume assumptions you make for 2024 please. You’re guiding for mid to high single digit sales growth. Is that organic? And then, are you seeing negative price mix. I assume mix positive, but looking for you to confirm that surprise incrementally more negative, but Q1 raw material costs being down only 2% and then stabilizing. So, should we interpret that as price givebacks or concessions, especially in Beauty Care to recover market share? And how long do you think that will take i.e. what's the volume price elasticity you expect in that business? And what are the other drivers for volume please?
Steve Foots: Yes. Well, we'll do this together. I mean just the way to look at the revenue for next year first and then we'll get into the volume prices, cautiously optimistic on consumer care across the board. You've seen others out with cautious optimism. I think our optimism is around across-the-board growth in the early part of the year, the order intake looking healthy towards the end of February. And importantly, Beauty Care coming back and importantly within Beauty Care, North America coming back, within Beauty Care. So, we're seeing that. And that's value led inevitably this year. So, I think the cautionary optimism, the cautionary part of that message is. We can't be sure yet, whether this is a mini bounce back because of aggressive destocking at the end of last year. We'll know more the golden rule in Croda with me is April. We'll know more once we get into April, we'll see quarter one figures. And then we can see the start of quarter two and a bit like this time last year where we saw the reverse of that. I think we'll have a better understanding whether this is a really strong trend for the year ahead or whether this is more just a mini bounce back. So we're cautious on that side. But confidence building in the camp in consumer globally. In the Life Science business, I think you can see underlying pharma continuing to grow. We've got momentum there. Underlying the seed business is growing as well. So the issue that we’ve got there is crop and we expect some modest volume recovery in crop, but we’re quite cautious on crop until we see -- until we actually see it coming back. So model is very much not breakout growth in crop yet and we’ll see that when it comes and given that in the quarterly update we can guide. We can guide everybody through that. And Industrial still weak as well. But I think I'll pass to Louisa just to give you a bit more color on the volume and the price as well.
Louisa Burdett: The only thing I would add is Steve talked about the Consumer Care, Beauty Care part of the growth rate. We are expecting fragrances and flavors to continue to deliver a strong growth in Consumer Care in the mid-teens. And whilst it's small, Home Care will be in a similar growth rate. And Steve has already addressed the Beauty Care piece around sales growth of high single digits with higher volume growth offsetting price mix negative. Just on that point, the data points for Beauty Care were quite -- we're more cautiously optimistic about, we'll come to Crop in a minute. As Steve said we've got -- our January performance was above the average of our quarter four performance. We're seeing a relatively strong order book and as Steve said, we've got broad geographic growth pleasingly in North America. So they are the shapes within Beauty Care. And as Steve has already said, Crop is the one where we're slightly more cautious. But just to take the price piece, look, coming out of the -- the tail of those three big businesses; Beauty Care, Crop and IS are subject to a bit of price pressure at the edge. But as you picked up our raw material prices are declining at a similar rate in the first quarter of this year to what we saw through last year. So we think with some moderation in Q3, which is what we're predicting that the margins should handle this. But clearly the Crop piece is where we're most cautious, because we did have some very, very strong price up in 2022. So that's where the outlook is.
Steve Foots: Yeah. And I think just the point on the raw material position as well, because we're down about 2% or 3% in quarter one, but we're coming off a year of 12% raw material reduction. So there's quite a lot of flexibility in there to obviously go after some -- with flexibility of pricing with margin stability to go and obviously go after some business. So when I look at the gross margin for Croda and I do get our gross margin is different to ours. It's the raw material and the pack from -- as a percentage of the sales price. Our gross margins are holding up very well generally across the board with the exception of a bit of weakness in Beauty Care, which is two-fold, which is mix effect and also a little bit of price at the bottom regaining business. So when we look at the gross margin that we see, we're actually -- we're quite pleased with where we are given this big inflationary and potentially deflationary environment. And we always look at that very closely. So I think it's a volume-led revenue growth this year for the industry, not just for Croda. We're confident certainly from a consumer care point of view. I think the thing that we want to watch like you is to get us fleet charged and back to where we normally are it's the industrial portfolio coming back and the Crop volumes coming back. And once they start to come back, we will be where we want to be.
Louisa Burdett: And just to finish that up in previous outings, we have been clear that particularly in the US where we disappointed customers through the back end of 2022, because of just being oversubscribed on our plants that we are having to give away some tactical price to get some of that volume back. So again you'll see a little bit about the age. But I don't think that's any surprise compared to what we've said before.
Gunther Zechmann: That tactical pricing, is that a 2024 effect, or do you expect to -- for that to extend into 2025 to reach an acceptable level of capacity utilization in your plan?
Steve Foots: I mean, in respect to Consumer Care, I mean fully it's in the 2024 numbers, but it’s only a small part. The most important thing in North America is that the markets come back. We've had the shrink inflation for about 18 months. It feels like the market started to come back, and when it comes back for Croda, two of our most profitable plants in the world are in North America. So if the core business ramps up then we'll be in a good place, so the tactical opportunities around the edges rather than the main part of that. But certainly there's quite -- there's some of that in the numbers for next year baked into that, yeah.
Unidentified Analyst: Thank you for taking my question. I have three, please. Why did pharma growth moderate in 2023 excluding COVID? And would you expect this to continue in 2024? Perhaps another way of putting this question is, what would you expect to be growing more quickly the pharma or the consumer business in 2024? My second question is on Crop Protection in January. And Steve you shared some comments around how Consumer Care has been developing in the month, how has Crop Protection been holding up relative to expectations? And the third one is more philosophical. Assuming that volumes come back, what do you view as an achievable long-term operating margin for the business? Thank you.
Steve Foots: Yes. All right. Well we'll both chip in. I mean on the pharma growth I mean what you've seen in 2023 is Consumer Care and Consumer Care it’s a new sub business for Croda – you better write that down. Consumer health is a bit like the Beauty Care. You've seen this destocking period as well. So yes, so we would expect that to come back probably well, and that's something we'll monitor it as we go along. But underlying pharma growth this year is probably around – we've got budgeted around high single-digits in our model and we'll see how that develops. That's ex covered. Now a lot depends on – we don't – we're not forecasting some of this potential new revenue that might come on top of that with the clinical programs. But – and we shouldn't do that because it's still difficult to predict. But as every month goes by in pharma, the pipeline opportunities are getting really interesting. We're probably coded in now with lipids with the six major pharma players we have commercial relationships with all of them now. And that's great work from the team. Now how that manifests itself in commercialization we'll see. But we are in the majority. anybody that's stabilizing mRNA we're in the majority of them. So that's great. So I think pharma is fine difficult to predict but underlying difficult as well to know whether consumer health is going to grow quicker than pharma. I don't think we're budgeting for one much bigger than the other. We'll say that. But I mean I'm going to stop there anything on pharma Louisa and we'll go into.
Louisa Burdett: Yes. 2023, agree with the consumer piece. We had a bit of ancillary adjuvant business that was weak with the COVID piece, declining as well. So those were the two drivers and agree with Steve on Pharma for 2024. I mean the real pleasing thing about Pharma for 2024 is that we've swallowed this lumpy bolus of COVID-19 business which has been fantastic for us. But the two engines of growth are – as Steve showed in his slide and he just said that a lot of that sort of lipid piece is now sort of built into the sort of the core underlying DNA of the Avanti business that's now owned by Croda. So that's an engine of growth, but also the other bit which is probably we haven't drawn out well enough is the Solus Biotech acquisition. We've talked about phospholipids, which actually have been quite a nice read across into lipid delivery systems in pharma. So that's another area where we're hoping to see some growth.
Steve Foots: Okay with that to Crop. Yes I mean Crop I mean trying to detail that slide on the left is – I know you'll all be thinking about that as well for everything else in Crop. But it's a – I think it's each of the regions will probably come back in slightly different points. We think Latin America for Croda will come back probably first. They're the nearest to what nearest point to replenishing than America than Asia than Europe. And whether that period is two or three months for all of it to come back, we simply don't know yet. But Europe is the one that we're watching at the other end because they look like they're sitting on a bit more stock than most of the other players. So, it is what it is. I mean we'll innovate in the normal way like we normally do, We're number one player in Crop as well in our space. So, we're in a lot of registered products. So, I think we have to just monitor this and see -- the important thing for Croda right now and the thing that's probably on my mind more than anything else is capacity utilization in a proactive way -- is making sure that when this comes up, when the volumes come back. It doesn't need a huge amount of volume to come back in Crop and Industrial through this period. Once it comes back, we'll feel it in a good way and we have to be ready for that. So, -- because Beauty Care is coming back. So, we've got to make sure that our 11 multipurpose sites are focused on capturing that demand and they will do. So, it's -- we can't give you any better information than that, but I think it will be a regional recovery that we should watch in Crop. And I think on the multinationals, the nearest ones you can probably work it out from the slide of Bayer (OTC:BAYRY) and Syngenta, are not far away from replenishing in our book. So, they'll probably come first. So, we'll watch those. And then your question on operating margin, yes, I mean what we've seen -- the two unusual things that we've seen we'll both do this is -- very unusual for Croda as we see, one, an operating volume leverage issue, which Croda never talked about for 30 years. I've never seen it in the boardroom on the exact -- where you've got Beauty Care, Industrial and Crop -- going to be down together. That's very unusual. So, the speed at which -- clearly the speed at which all of those come back will determine how quickly we get back to normal. And the other thing is if the unusual mix effect in both businesses. We had a COVID -- a massive COVID effect, which is as Louisa said, probably the proudest thing in Croda. We've served the biggest medical need of its generation is involved for ingredients from Croda to solve that need through our innovation. That's brilliant. But obviously we see the normalization effect of that and that's quite significant on the downside -- well great on the upside, on the downside to mix. So, we've had that. And we've obviously had an unusual mix effect in Beauty Care down and F&F well ahead. So, you've had a sort of a mix effect there. So, I think mix will settle down. Volumes are effectively rebased we think. And then the question is the speed of that coming back. But our -- targets of guidance around 25% in Consumer and 30% in Life Science plus still hold. The speed that we could get back will be something that we'll we have to manage with you and guide with you. But the portfolio has got great strength in it. It's got much more strength than it had three, four. five years ago. And if you remember, a few years ago, we were sitting around here the challenge was always consistent revenue growth from Croda. I don’t doubt we've got consistent revenue growth in the portfolio for the next few years. The job for Croda, as it always is, is we like revenue growth, but we much prefer profit growth. So, in the next few years, it will be to drive the profit growth from the portfolio and we'll do that very well. We're very well-conditioned with that. So, I can't give you an answer to that, but our guidance remains unchanged. The speed that we can get there will be something we have to think about with you all and we'll manage that with you. But that was the operating margin point.
Louisa Burdett: Not much to add. I mean anything -- maybe one caution and just one reinforcement. Clearly, we're delighted with the F&F sales growth in those mid-teens and it's been a really good performer for us. If it stays at those sorts of levels and Beauty Care is slightly below that then that might challenge some of that 25% aspiration for Consumer Care, but we'll watch that as we go. And then just to reemphasize on the positive point so much excitement on the pharma piece that 30% looks pretty exciting.
Charlie Bentley: Thanks, Charlie Bentley, Jefferies. So can I just follow up on that margin point? So I guess the basic guide of 2024 implies something like 16%, 17% operating margins. And that's getting you looks like somewhere halfway back to kind of volume recovery. So if I assume kind of another -- kind of the full recovery maybe you get to approaching 20% there's still quite a big gap between that kind of 20% and 25%. So the first question is just like what really are those levers? Second question is basically if I look at that bridge that you put up in terms of the headwind 2023 base it was the price mix it was the -- the incremental cost and than continued investment. Can you just elaborate the continued investment like the payoff on some of these investments where they're being focused just so we kind of have a bit more granularity? And the final question is the £8 million of cost savings for accountability that you're saying come in 2025 just explain basis behind that? What was going wrong? What’s being fixed? Where it's kind of centered and structured that would be helpful. Thank you.
Louisa Burdett: Why I don’t take first two.
Steve Foots: Yes.
Louisa Burdett: I'll give the facts on restructuring –
Steve Foots: And I talk about the organization.
Louisa Burdett: …philosophical points. So on the leverage point, we've talked about 5% decline in operating margin this year due to leverage. And in the guidance for next year we're talking about high single-digit sales growth driving between 2% and 3% of upside leverage depending on where you interpret high to mid to high single-digit growth at the group level. The reason we are not sort of bouncing that right back to your push is because we've still got this strong growth in F&F, which doesn't really have a huge impact on the shared manufacturing plants that Steve has talked about. That's number one. And then the second one is that IS still weak which is an important base load for some of those plants. And Crop again I think you're picking up that we're still sort of cautious about the pace of which that volume comes back, and if we're not going to be leaping back to full capacity there. So we've deliberately tried to structure the guidance which gives you almost like the costs headwinds and then the assumptions around the market. So if you are more bullish about the market growth then we are then potentially there's that multiple, but we're hopefully giving you that optionality. On the three drivers the just bringing it back to guidance we're saying 2% to 3% leverage from sales growth and five points of headwind from those three items that Steve put in the guidance which gives you that 2% to 3% decline in operating margin year-to-year. The three elements are broadly COVID-19 and Fragrances and Flavors stronger mix. That's about two percentage points of that headwind. You can see the numbers for COVID-19 and the F&F mix is probably around 0.5 percentage point with COVID being 1.5 percentage points of that lump. The second piece is the bounce-back costs -- the most material item is that 25. So the £25 million on -- with some production costs coming back on a rebased 2023 sales line is another 2% headwind. And then to your point, the bits that we've put in the investment for growth are largely depreciation, and the main pieces there are the, I hope, well-rehearsed pharma investment to support the capacity for lipids. We've also got a new site in China, a new manufacturing facility in India, eco-based, and some beauty actives and F&F investment going into China. So you can see they're all macro driven. And then the last thing in there is, as I said, just continuing to make sure that our people are paid well, want to stay with us and, happy employees. And then the last one on our restructuring I'll just give you the facts and Steve can talk about the philosophy. We are talking about 8 million annualized savings from 2025. We baked in 5 million of savings this year, it's netted out in some of those gray boxes that I had on Slide 20. So modest, but this was never about cost savings.
Steve Foots: Yes. And just on the organization, I mean, the organization change is not the reason for doing it is not because of the trading issue, it's because of a portfolio change in the organization. We've got industrial that's moved largely out, and we've got a lot of fast growth quite dynamic portfolio companies in there now, from Iberchem to Avanti. What we found was, I would have done this before had we not had the Equus separation, which is the project Equus is our internal name for the industrial separation. That's, don't quote me on why it was called Equus, but we would have done it around the time, but that was quite a complex change and we didn't want a layer on top another change. The reason for doing it and well what we changed, we had regional the executive committee, we had regional delivery president and we had sector presidents. The sector presidents were largely really accountable for your year two to year five plus growth, mainly principally strategy innovation. And the delivery teams were mainly involved in budget in year budget. What we found with all of these moving parts coming in, it's much better if we can put them all under the sectors in P&L. And then we have a very regional P&L structure in consumer. In America to Asia to Europe, it's different in consumer in America to Asia to Europe it's different in consumer. So we have P&L owners in there that we pour up into the regional sector presidents. And also on one side of their organization chart, they have all the strategy as well. So they're involved that they're responsible for strategy delivery, the creation, the development of innovation and they're absolutely 100% committed to the delivery and performance in the P&L. Three reasons for doing it, really. One is to get close to customers in an absolute intense way and responsive way. Second thing is to drive accountability down the organization and making it easier for the organization to work within. So it's a much simpler organizational structure in that respect. Now, I know what you all say, organizational structure doesn't change performance, and you're right. Behavior does. Behavior changes performance. And so what we're driving through is this behavior change that we want just to get quicker decisions in the organization away from the exec committee, down the company, and getting us brilliant in front of customers even more brilliant than we are today and you can see with the NPS score, your customers want to buy from us. They're going in the right direction. But the big jump has been in America in the last six months. So I think that the philosophy is I don't make big organization change very regularly, but this one I just felt for the pace of growth in the portfolio in the organization now we need this to help us really drive that benefit through the company. So yes, we'll update you on that through the year. Charles?
Charles Eden: Hi. Thank you very much. Charles Eden from UBS. Can I just ask on the guidance? Did the learnings from 2023 and I guess sort of resetting market expectations as we went through 2023 play a role in your guidance for 2024? Because I guess at the midpoint you're assuming sort of no recovery ex lipids. And I guess I understand the cost points Louisa that you run us through kindly, but I guess with high-single-digit volume leverage to not increase profit year-over-year on an underlying basis on high-single-digit volume growth, probably isn't something that you wouldn't envisage. So, sort of a question in terms of, if there's degree of prudence because of 2023 in that guide? And then, Louisa just a specific one for you on working capital, you mentioned the debtor to do with COVID lipid. But that aside, is there still scope for further working capital release in 2024? Thank you.
Steve Foots: Yes. I mean I think just on the overall point. I think, we've come through a very difficult period for the industry as well, very unusual period, very volatile as well. And it's got -- it had us all scratching our heads on trying to predict what's happened to a reflect on it and better understand what the near-term forecast is. And when your customers don't really know as well what their forecast accuracy is, their forecast accuracy is probably as good as ours, it’s a bit worse actually, it's not great. They don't know from one month to next. We're quite rightful to be cautious I think, as we go into this year. I think we can all take a judgment. And I think you're all probably in slightly different places as to when we're going to see an inflection. Well, I think we've taken the view that if we can't see it. Well, let's not try and try and give you an answer, because one, we don't have the data for it. And I think we're quite scientific in Croda. Well, a lot of people are. I try to do a chemistry degree many years ago. But -- I'm joking, but the point we're trying to make is, if we can see three months of data then we would call that a trend. I think that's fair to say. And if we don't see it then we won't call it. So, I think we're rightfully cautious but we're cautiously optimistic on consumer. We're cautious on industry -- the Industrial business and the Crop business. And I think we're right to be given the data points that we've got just today.
Louisa Burdett: On working capital, the debtor unwinds in January Q1, so that gives us a nice boost in going into 2024 and our guidance on the technical slide was that, I mean obviously, it depends on recovery and whether we're needing to build stock. But at the moment, our working assumption is that we should be neutral to potentially a slight positive on working capital inflow.
Charles Eden: All right. Thanks.
Steve Foots: Nicola?
Nicola Tang: Hello. Thanks for taking the question. It's Nicola Tang at BNP Paribas (OTC:BNPQY) Exane. I just wanted to ask a little bit on the F&F side, you talked a lot about this continued strength in the business. Could you explain a little bit what's driving that? Is that your synergies coming through? Do you think you're taking share? And can you help me reconcile a bit with the weak performance in Beauty Care because ultimately I would have thought that the volume would be the same in terms of some of the end markets that you're trying to hit there? And then, I guess linked, can you help me reconcile the difference in performance between Beauty Actives and Beauty Care in terms of volumes? Thanks.
Steve Foots: All right. Okay. I mean on F&F, first, the M, I mean the growth has been M consistent with our plan. Don't get they're in emerging markets. So we expect the emerging market growth to be bigger than Europe and North America. But I think it's a great model and it's a very fast responsive model and they're gaining market share everywhere where they are. I think the Croda involvement has always been too open doors for the Iberchem team to walk in. We got 7,000 customers in Beauty Care. And most of those customers will buy a fragrance and most of those fragrances are not bought from Iberchem or Parfex. So the opportunity for Croda sales team to open the door and get the Iberchem team in to develop business is significant. And when you do you do the math on that. You don't need too many of those customers to convert and you get bigger growth. So I think there's that. I think also we can invest more with them as well. They were a private equity model back. So we've been investing with them in Brazil. We're now in China investing on new facilities. So we can get them to grow as quicker as well. And it's a good team. It's a very young team as well. Average aging that team is about 37. So it's a sign of a growth business as well as I say, 17 different nationalities in the senior team as well. So we're really pleased with the performance. I think your point about how you compare that to Beauty Care and the volume dynamics. I mean, the big difference is it's been agnostic. It's largely agnostic to stocking -- the stocking cycles. And the main reason is, they're in -- that they supply really family businesses, small that most of their customers are small customers. But you all of them, they don't have much exposure to the big multinationals. And actually, if you look in Beauty Care, the majority of the volume weakness is because of the multinationals. It's mainly around about 10 -- 8 to 10 customers. So if you're supplying in this environment to big multinationals, you find that multinationals are not as good at managing inventory as they're really small companies. So I think you've got that. And they're also -- they're so spread with their customer mix as well. Their top 10 customers is nowhere near the intensity of Croda certainly nowhere intensity of the F&F -- the F&F major players as well. So I think it's just different. It's in emerging markets as well which are faster growing. So I think you've got that broad distinction there. And the -- your final question Nicola was what breaking -- yeah, I mean, in revenue, I know, we see that actives was broadly flat for the year. And Beauty Care was down what did we say? 11% through 2023 and F&F up 18% and Home Care broadly flat. So coming out of the year in the year we've had with revenue just under 1%, 1.5% down. It's not a bad result. It's a resilient revenue line obviously all eyes on profit improvement which is the most important thing.
David Bishop: A couple of questions from the webcast. The first one I'm combining questions here from Chetan Udeshi at JPMorgan and Isha Sharma at Stifel. So Chetan says, with volumes up 9% in 2H 2023 in Consumer Care, can you help me understand why the second half EBIT was down so much and looking forward Isha has a similar point, can we expect the volume leverage to translate fully at Consumer Care only after we see an improvement in Crop Protection.
Louisa Burdett: David, sorry, can you repeat the second question?
A –David Bishop: Does the volume leverage in Consumer Care only come, after we see an improvement in Crop Protection?
Steve Foots: Want to kick off?
Louisa Burdett: So, volumes up 9% in Consumer Care in the second half. We did see -- we did see volumes up in Beauty Care in the second half, but not as high as 9% because clearly that volume metric is influenced by the strong performance in F&F, which has been a common theme throughout our commentary and would be the main reason why that drop through to EBIT is slightly weaker than if it was all driven by the higher profitability in the Beauty Care portfolio. I can only answer this question -- second question directionally. So within our guidance and back to the challenge that we've had about negative five on leverage on the way down and only two to three on the way up. We have factored in to the best of our ability, the visibility that we have on the relative recovery rates in Consumer Care, which we think will be earlier than Crop. So, I don't really know whether the answer to that is probably something in the middle, but it's not binary. We're just going to have to see how that -- how the plants fill up through the year.
A –David Bishop: Okay. The second question comes from Charlie Huggins and he says, why is variable comp going to be higher in 2024 when the group profit is likely to be lower?
Steve Foots: Yes, I mean it's an unusual -- it's the right question. I mean, we bonus -- so everybody is in the same bonus scheme in Croda. It's on profit growth in the organization. And it's an underlying profit growth, so what we've always done over the last three years is exclude the COVID lipid significant contract for that both on the upside and the downside, because what we don't want we've got 6,000 people in the organization. We don't want the majority to benefit on that, if it goes up and get turned off driving the right behavior in profit growth in the organization. And equally on the way down, we don't want them to be disincentivized from January 2, when they turn up because they know that's a big profit, a negative profit headwind. So we've always chosen to do that and you've seen that in disclosures in the last three years. So actually it looks like we're bonusing on moving backwards. We're bonusing on the underlying business going forward. We would never want to bonus on anything else. So the underlying profit growth has to be challenging to allow that to happen. So that's the broad background. It's not all -- it's mainly to do with that main contract being excluded.
Louisa Burdett: Yeah, just to this I mean you -- a simple math, but if you look at 3/10 [ph] delivery this year take the COVID off you're at the midpoint of the range, absolutely categorically as Steve said the Board and Remco do not approve a bonus if we are not showing at least -- hitting at least the last year's growth, so it's that sort of math. There are some other bits and pieces that adjusted as in normal bonus schemes, but I want to reassure everyone that we are not paying for going backwards.
Unidentified Analyst: Sebastian Satz [ph] from Citi. I was just intrigued by the 20% of your consumer portfolio, which is less differentiated was just wondering whether there's an opportunity to do what you've done in the past and to potentially deemphasize this? And to what extent does that feature in your midterm growth and margin targets?
Steve Foots: Yeah. I mean, it's a good point. I mean we've done a lot of work on that. So that's not just a number thrown up by a few people around the table. We've done a lot of predictive work on churn rates, margins, average selling prices, order patterns. So it's about £80 million, £90 million, but it’s still profitable. So, I wouldn't call it a tail in Beauty Care. The margins in there are still healthy margins and deserve a place on the plans. I think the point we try and make is we want to manage that more closely from a volume point of view aligned actually. There's one learning from the last year. It's the volume element of that. There's a similar -- well a smaller amount in Crop and there's some Industrial Specialties well there's a volume emphasis across all of them, which is relatively small in total, but we need to watch the volumes from the factory. So we don't want to grow the business but we want to try and maintain it while we fast grow everything else. So the innovation focus is in the 80% rather than that. And I think just a bit more -- a bit more flexible pricing in that when we needed, making sure we keep ourselves whole across the contractual discussions that we have. I think it's just good business practice. And we can monitor that as we go forward as well more closely maybe that. But, yeah, it is 20% and it's something that we want to monitor as well. That will help margin Beauty Care, and that will help margins as well diversely. Anything else? Okay. Well thanks very much. Nice to see you in person everybody and I'm sure you'll be going up to your next one. But thank you again for your questions. Thank you very much. Bye.
Louisa Burdett: Thanks, everyone.
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