Croda International Plc

Morning, everybody. Welcome to another Croda webcast.

As usual, Steve and Jez and then some Q&A. We will try to canter through the slides, if you don't mind, we've got them in front of you and the announcement as well.

And of course, Q&A, very important these days. So we'll take your questions as and when they come.

So it's been a strong year of progress for the group, we're really happy with the shape of the business, topline momentum continues, margin improvement driven by innovation, again and profits going faster than sales. Nice shape to the business, vintage quarter in many ways.

Not least to strong cash generation and most of our EBITDA converts to cash, and we're using that cash wisely in technology acquisitions, primarily, and we have acquired by a sector which expands our high-value portfolio in health care, really exciting acquisition which I'll come on to later on. And on top of that, there's a shareholder return, a special dividend 150 million, 1.15 per share.

In numbers, core business in constant currency sales up 3.8%, margin improvement 50 basis points and EPS growth just south of 9%. And if you look at the shape of the growth underneath, and broad-based growth we would say what we look for, and it's driven commercially by strong consumer sales growth, Personal Care up 6.8%, Life Sciences 2.8% when you include the API contract, but of course, that's now we've had 4 quarters of that as a negative in the numbers in '18 that comes out and the underlying growth in Life Sciences is as we would expect it's similar to the Personal Care, up 6.7%.

So the Life Sciences business is very good business for Croda. More -- modest sales growth with Performance Technologies and across the regions, they're all growing, which is good.

And it's standout performance again is Asia for the company, 7%, but we've been very pleased with the recovery in Latin America too, up 9% as well. And NPP growth, again, continues to grow, a lot of hard work involved in that, but 28.2% now more intellectual property in the business, more secure businesses, reducing cyclicality.

We're in a better place at the end of the year than we are at the start of the year. Just taking you through the numbers in the sectors.

Personal Care we'd be really pleased, again, with the subsectors, there's 3 subsectors there. They're all growing mid-to high single digits, being really pleased with that performance.

Yes, all of them earned healthy growth, all regions in Personal Care are growing too behind that. So no weakness around the world.

The interesting stat is the MNCs are coming back, but they're coming back with a lot of rich technology, growth, we're just being coded into 1 or 2 big product launches with the multinationals and some of the biggest brands in the world, reformulated by Croda, for them with our ingredients. So we're really pleased that you continue, the growth profile into 2000 and well across this year as they roll 1 or 2 of them roll this out through their global franchise into 2020.

And also on Beauty Formulations because of that growth coming -- it's been mid-single-digit sales growth, it has a minor impact on mix, but the gross margin levels in this formulation business is improving all the time. So there is a modest mix impact.

As a reminder to you all, we just want stable margins here but we want healthy sales growth, that's what we're getting. This business screams for 33% to 34% margins.

So we would expect margins to be in that period, with sales growth 3% to 5%, going forward into 2019. And if you look at the -- as we stretch the growth, we've got this NPP sales growth, which is really strong in this business, probably the standout number in the pack, up 13% this year in Personal Care, outstanding performance in NPP, and it's marching towards maybe 50% -- it's 43% now.

But in a couple of years, we won't be far away from 50 -- half this business, 50% of this business in protected technologies. It's a great franchise.

We're investing heavily in technologies. We like technologies, but in a Croda way, where we're watching the cost base as well, and we are making sure that profit growth could still come through.

Active we doubled our capabilities in France, Sederma, IRB on stream now, not just production but R&D. And in terms of R&D, we're expanding Brazil and South Africa, getting close to local consumers, local customers.

We've opened a new biotechnology laboratory in the U.K., more recently, and we've got multiple digital projects, looking to target our [Indy] -- the next generation customers, Indy customers. So Personal Care in very good shape.

If you look at Life Sciences in very good shape too, there's a few -- a couple of one offs there. Sales have grown despite the power effect 2.8%, which is pleasing.

Behind that is good sales growth in Health Care, driven by these high-purity excipients, and good broad-based growth across our crop business as well through the year, and that's driving healthy sales growth. In terms of the profits, profits are up 3.1% and that includes the carrying cost of about 5 million from Plant Impact in there as you've seen in the release.

So despite that 5 million, we're still growing our profits, and we expect that to moderate through 2019. Jez will talk to you in more detail about that.

The impact on margin on Plant Impact is 1.5% and that -- so it just shows you the pace of the margin improvement in the rest of the business, and that's something to call out. I would be really pleased with the acquisition as we say I'll come on to buy a sector separately and see the enhancement.

Incotec doubled its profit, more than doubled its profit over the first three years of Croda ownership, and we've just started with that business. We're in good shape with that business.

We expect that profit growth to continue. So well over 10 million worth of profit in that business now.

And, yes, Plant Impact as I said, we're working on streamlining Plant Impact and it's all about sales growth in that business, it's biostimulants, it's the future of Crop Care and exciting opportunities there. So Life Sciences is in good shape.

And then Performance Technologies, a Hat-Trick, Sergio Guerra type performance. Three successive years of double-digit sales growth, we're really -- of growth, really pleased with that.

One and two years is good, three years is outstanding. Really pleased.

And, yes, it's starting to impress upon Jez and myself the need to invest in this business wisely over the next two or three years. It's a good business.

And it stands foursquare with anything out there in terms of those returns in industrial markets, really good. 220 basis points increase in return on sales, up to 18.7%, moving towards that 20% target.

As much as we'd love 220 basis points increase this year, I don't think we'll get that but we will get margin improvement, but we should get margin improvement moderating, but we should see sales growth increasing as well to partly offset that. Investing in a lot of good technologies, but in particular Energy Technologies looks the exciting business in there, for the next year or two.

Driven by reduction in carbon emissions, big sustainability, legislation coming, and it's going to create more opportunities for the group. So in good place performance technology.

So all around, we're pleased with the performance from 2018. And we turn into the -- in good shape.

So let me stop there and hand over to Jez

Morning, everybody. Okay.

Let's start with the income statement. Sales up to just short of £1.4 billion, it's an increase of 2.9% overall for the group, in constant currency.

Operating profit, about twice that effect, up 5.8% on the adjusted basis, at constant currency. A small reduction in net interest and the overall profit before tax, up 6.2% in constant currency to a reported £331.5 million.

Looking at the IFRS profit, the difference between those two is the amortization of intangibles. And also, we've got an exceptional item of just under £5 million in 2018.

That's for the guaranteed minimum pension, adjustment following the Lloyds Bank case. I'm sure you're seeing that in quite a lot of other companies as well.

So relatively small adjustment for us for that GMP effect. Adjusted EPS by 8.8%.

That reflects a lower tax rate, primarily driven by the reduced tax rate in the U.S. that we reported on a year ago, and we see that rate going forward just under 25% effective tax rate as a sustainable rate going forward for the group.

So we'll keep that benefit. And as Steve said, we've increased the proposed dividend for the full year by 7.4% to 87p, and that in addition, we have the special dividend of 115p, £150 million.

So looking at the sales bridge. So just decomposing that 2.9% increase in constant currency sales, beginning with Industrial Chemicals.

Industrial Chemicals, we continue to demarket, where we can the byproducts streams that are within the Industrial Chemicals business so clearly we're always quite comfortable for that number to go down because that's the low value product that we make as a biproducts of our main business. Steve said really encouraging solid growth in the core business adding around £38 million of sales.

And then we have our first small contribution from the technology led acquisitions that we made. Those sales are 8.8 million driven by IonPhasE primarily acquisition we did in December '17.

And then a small impact from the early stage sales from Plant Impact. The rest of the acquisitions are technology only at this point, no sales involved in those.

So overall, that gives us 2.9% constant currency. Then, we have the impact of currency translation now in 2018 and reversing the trend to the previous couple of years.

We saw Sterling stronger, particularly in the first half although slightly stronger second half as well. And that reduced the reported sales by 1.9% to give us 1% growth in reported currency.

If we then look at that on a profit bridge basis. The underlying growth there, much faster than the sales growth.

So 7.5% profit growth driven really out of the core business. But you see a reverse here in terms of the impact of the technology investments.

So that's a loss of just under £6 million, as Steve said, very much driven by Plant Impact the rest being fairly close to neutral. And if we combine those two effects, you can see the 5.8% growth.

So that's the shape we want to get, 2.9% constant currency sales growth, 5.8% profit growth. That's a good shape for us.

Then we apply the foreign-exchange effect of minus 2.7%, and overall, adjusted operating profit in reported currency up 3.1%. We look at the sectors in constant currency now.

First of all, Personal Care, really steady growth, the engine of the group, in terms of -- driving us forward, really good to see that profit growth come through almost 5% in constant currency. As Steve said, Life Sciences good performance given that we have the two headwinds of the Plant Impact losses and the API exit, of course.

We had 12 million roughly of sales in APIs in 2017, completely replaced in 2018. So that profit performance really good, demonstrates the strength of Life Sciences going forward.

And as Steve said, our third year of double-digit growth in both percentage and billions of pounds for Performance Tech. So really good to see that.

On Industrial Chemicals, a small reduction in profit there primarily driven by some difficult conditions in China, which impacted Sipo. Because of issues around the grape -- seed harvest over there.

We think that will reverse progressively through 2019. So small negative there.

And then finally, the currency translation effect from the FX headwind. So turning to EPS, really strong EPS growth, reflecting both sales and margin growth here.

So overall, you can see the 6.2% constant currency PBT growth. That was roughly equally split between the 2.9% sales growth so the volume effect there.

And then price mix, good improvement in operating margin from improved mix across the business, particularly in Performance Technologies, driving that growth so giving us 6.2% overall. And then the tax rate benefit 2.6% to give us 8.8% constant currency growth in the EPS overall before we take account of the FX effect.

So very strong EPS performance. Looking at a few of the other key financials.

First of all, top left, we have the capital investment as usual, I have split that between the North America biosurfactant plant, which we completed in 2018. So you can see that spend slowed down significantly.

Most of that was in the first half year, £33 million. And then in -- we've just shown you everything else that we do in the group.

So all the other spend on replacement of kits, but also the growth projects, that we're running. We have growth projects running at the moment in Health Care, in high-purity excipients, in Smart Materials within Performance Technologies.

That's all funded within that 70 million. And as the guide going forward, we're expecting 2019 CapEx to be around about 80 million.

As a result of the lower CapEx and also reduced tax, particularly, in the U.S. associated with building the plant, we saw a steady improvement in the second half year in free cash flow.

That's got further to go in 2019 because we've only got the half of the benefit there, but good improvement in free cash flow. Leverage, broadly flat around 1.1x at the end of the year, ahead of the special dividend.

And on the pension side, very minimal deficit there in the context of something over a £1 billion of assets and liabilities. The important thing on pension is we have no cash deficit funding payments for the case scheme, which is the key scheme in pensions.

Finally, just a touch on some of the other components that are going on that have some impact on 2019. The ECO plant, that's our biosurfactant plant in North America that we've been building for several years.

That's completed from the build point of view. So no more CapEx to go through on that.

However, about 6 weeks into production, at the end of last year, we had a small leak of ethylene oxide, which caused us to shut the plant down. We traced that to a faulty gasket, that have been fitted.

But what we are doing is checking every other part of the installation to make sure that that problem hasn't been replicated anywhere. So we know the plant works well, however, we need to do this in a safe manner.

The -- our best view on start-up is that we'll do that around mid-year in 2019. And that will have two impacts against what we've guided you to previously.

First of all, we indicated that we expect to make about £3 million profit in 2019 on this plant. That's basically picking up the margin that our current petrochemical suppliers make on the product that we buy and from them -- that we're now we're going to make ourselves.

So That £3 million profit I expect to be halved, basically. We'll just have that in the second half of the year, if we hit the midyear startup.

So about £1.5 million impact on the profit side. And then of course, we have operating costs that we're carrying while the plant isn't running and those are about £2 million per quarter.

So if we start at the midyear, there will be about a £4 million headwind on operating costs. So overall, compared with where we were when we talked last time, about a £5.5 million overly precise, but about a £5.5 million impact on 2019 profit from the delayed start up.

After that, it should just be timing. We should then catch up and get the products, the new green products, which is the exciting part of this launch.

On technology investments, we expect the loss that we had in the -- in 2018 primarily around Plant Impact, to roughly half. So we've had about £6 million loss as I showed you on the previous slide, we expect that to be about £3 million loss in 2019 as we steadily build sales, and then we expect to be in breakeven certainly by 2020.

No presentation will be complete without an accounting standard. So 2019, we adopted IFRS 16 on leases.

No material impact on the P&L from our adoption of leases, but we do bring about £45 million of leased assets onto the balance sheet, mostly profit is warehouses and so forth. So that will increase the debt by £45 million.

That's 0.1 of return of leverage. So fairly small and obviously non-cash from there.

Then finally just to give you some guidance there, those are the average rates that we have on dollar and euro, we probably have about 60% dollar, 40% euro exposure. So right now, Sterling running a little weaker on dollar, a litter stronger or euro.

So as of today, our currency effect would be 0. But of course, there's a lot of water to flow under that particular bridge before we get to the end of 2019.

So it will be what it'll be. Okay.

I'll pass back to Steve for strategy

Thanks, Jez. And let's take you into the future.

As usual, we're investing in the future, and we're stretching the growth. It's growing the core stretching the growth as a reminder.

I keep saying to the board, it's not a pilates class, part of Croda strategy. But we are investing, and investing in innovation is something that's really important to Croda, but investing in innovation is Croda style.

Let me try and shine the light on that. You've seen these six growth buckets before.

I just want to spend time on the four highlighted there. And just bring to life that this growth in innovation, which is driving this margin improvement, it doesn't happen overnight, there's a lot of hard work behind the scenes.

Just first step, this is just looking at the internal R&D model in Croda, we call it the organic R&D model. And we've doubled our capabilities in the last four years, 34 laboratories over 17 countries.

We're trying to move the R&D brain around the world, connecting to local customers. So we've more than doubled our capability in Asia, tripled in North America and quadrupled in Latin America.

And that's driving greater local discussions with our customers, their products, their formulations with their team in our laboratories with our ingredients. A perfect model to innovate with them.

So we're getting a lot of local traction and a lot of good growth. And no surprise, that we're starting to see good international growth across our emerging markets as well.

And you've seen this as well, but it's just to highlight the point that there's three legs of R&D growth now. The organic R&D in the top right is the traditional way that Croda has always looked at our innovation, its internal innovation, it's 100% through the Croda R&D teams, working with our sales and marketing teams.

But we now add, over the years we've added open innovation and technology, investment, and we are developing a big ecosystem around that. So we're working with many partners now around the world and in open innovation it's universities establishments, far and wide, it's industry specialists, startup companies.

And we've got some great traction, very modest investment needed but you get a lot of brainpower. So we're renting a lot of brainpower in.

So they're working on and often some projects that we -- bilateral or trilateral projects with our customers and actually some suppliers as well. Lots of funding available, and we're internationalizing that as we roll this out.

And at the pace of technology investment is increasing to and all of that is adding to this -- Croda's got high margins, big intellectual property. It's all about defensive business, but growing.

Growing in the manner that you'd expect us to do. The output of that leads to all of that.

Increased IP, high margins and strong cash generation. It's a model that's delivered year-on-year, and we expect that to continue.

And if you just look at the stats, some quite interesting stats now. The technology investment, we've done 10 over the last few years, four last year.

If you look at the new technologies that we've acquired, it's growing at pace 250%, but perhaps the most important one is and the bottom left, if you look at the partners we've got now, we're up 463 partners now, in a six fold increase in the last five years. And these are really intellectual academic partners as well as entrepreneurial partners as well.

And that's really driving this program underneath. We're very pleased with the -- we call it leading indicators, if you put that in a funnel, call it the sale -- the R&D pipeline we risked way just that, and we can see that in the pipeline for the next three to five years is about 20% of sales growth going forward, and for a specialty chemical company that's where it should be.

And it's significantly, more than 20%. But the interesting thing is well with that not just the number is, historically, it used to just all be in one blob called R&D.

Now we've got open innovation and technology investment really starting play through the numbers. And you'll start to see that in a minute, so we're really pleased that actually if there is a take home message from this slide is, not all of the innovation has to come from Croda.

We need our partners to help us boost our innovation. And we're starting to get that.

So through the sectors, lots of new products which I won't bore you it, great doubling of NPP sales in the last six years. Personal Care's benefit more from our R&D rollout around the world than any other business.

As we start to connect in those emerging countries, we getting a lot of powerful engagement with customers. And a great, great example is the case study in Japan.

Japan for Croda has been a good growth market. It's always been a big Personal Care, but it's been growing about GDP for many years.

We turbocharged the laboratory investment there over the last two or three years, put more people in, modest in Croda terms, but significant in local terms. And you can see some of the engagement numbers, 80% increase in customer contact, 120% increase in projects, and we shouldn't be surprised we're getting big double-digit sales growth.

We've had that for the last two years in Japan. And that model is something that we're replicating whether it's Brazil, South Africa and so on.

Personal Care in a very good shape. More and more of the growth in Personal Care will go local.

That's for sure, small, medium-sized customers, growing at pace with lots of niche products on the market for country specific, and users. And in Life Sciences, it's about acquisitions.

We're really interested in looking to turbocharge we call it the breadth and the depth of our technologies. This is probably the most exciting business for the next 3 to 5 years in terms of the growth profile.

Top left is what we've done with Incotec. I mean, you've heard our story about Incotec.

Phase I was to reposition that business, which we've done and it's pretty simple stuff is pointing the R&D at the customers rather than at the factory and globalizing it through our selling network, and pricing the products in a manner that we would expect from these type of technologies. We doubled the profit -- more than doubled the profitability and we're at Phase I, and we expect that to continue.

So this is a good solid strong growth driver in markets, which are growing higher than GDP, and which is what we want. And then the other point I'd draw out is bio sector.

These vaccine adjuvants are a great business that we bought. And very similar along the same lines as Incotec, undervalued technology in very sensitive applications.

These products go into about 75% of all vaccines around the world. And if I'm a betting man, we think probably it's going to be more vaccines around the world in the next 5 to 10 years than there is today.

They will be incorporated in them. Particularly, the human vaccine, they're world leaders in human vaccine, adjuvants, and we like the growth rates.

And the compound growth rate is for the next 7 -- 6, 7 years. And we expect good growth from that business as we go forward, usual stuff, make sure the R&D is pointed to the customer rather than the factory and also, make sure we globalize it through the selling network.

So we like businesses like this, and we're on the lookout for more and more. Life Sciences we want -- as I've reminded you a few times, we want this sector to be in absolute terms as profitable as Personal Care is as quickly as we can.

And we see no reason why it can't. And then you get to Performance Technologies.

If there's a line for Performance Technologies, it's all about specialization, it's bringing experts into the business, and bringing sophisticated equipment into the business as well to help us drive that NPP growth. And I think, a good example there is the new lubricant testing laboratory in Singapore, it's called the tribology lab.

I have to look that up with Jez and myself but tribology. So it's all about lubricant testing.

But we're bringing experts into the field and quite rightly trying to position this business as a high-tech business as well. So very important.

And lots of good growth in other areas, too. And finally, digital.

I mean, digital, you've got digital in all of your businesses like we have. What does digital really mean?

It means lots of different things to everybody. For Croda, it means one thing, simply, it's connecting better to our customers, it's making life easier for our customers.

We've got a great customer intimacy model with them, and -- but we believe we -- that can be even more sophisticated as we use digital technologies. Looking at different channels to connect with them.

And we think there's a new customer base our that's on tap from Croda, and we're using digital and digital strategies to hunt those out and bring new growth to the company. That's really important.

And also actually, a new product development. It's starting to speed up new product development.

So a good example is high throughput screening in our Liverpool formulation lab. And now we can stability test formulations, which used to take 3 months, will take 2 hours now.

So you start to look replicate that into your Personal Care business. You start to think, actually, we can move forward with product launches in a much swifter time than we could have done in the past.

So starting to really have a positive effect on our new product pipeline too as well so very important. We're deliberately vague with this, because we don't want to tell you too much about it, but when it becomes exciting, really exciting then we will talk to you about it.

And we created a digital excellence -- center of excellence in the group with some modest investment, big impact potentially so. That will roll out through the course of this year, too.

So digital's becoming an important enabler for Croda. We see it as an enabler.

But it's trying to connect better with customers and so the message from digital for the group. And trying to pull it all together this -- the take-home message from innovation is we've got this broad R&D base internationalized now, connecting with local customers.

And we've now got three legs to R&D. We've got internal innovation and we add to that open innovation and technology acquisitions.

And that's driving accelerated innovation, you can see that in the numbers and nothing better to show you this than that last stat. 2,000 new customers in the last two years.

That model of R&D in the local countries is picking up new customers all the time. And we're increasing intellectual property all the time as well.

And we're starting to see that open innovation projects are playing their part in the numbers as our technology acquisitions as well. So in good shape and the leading indicator as we'd say that -- there's no reason why that can't continue through the next three to five years.

We just want to keep propelling this forward. The center of our value is innovation.

Let's not forget that. And then just turning to outlook.

We're in pretty good shape, delivering strong performance. All the sectors are in good shape, we can say that, and all the regions are in good shape as well in Croda, too.

We're investing and stretching the growth in our modest way. And the excess capital, you'll see, as we're disciplined on making sure we -- the capital allocation policy has delivered, excess capital returned.

And then outlook for the year is we're pretty confident with the year that it's uncertain out there, but in terms of the shape of our growth, we should expect a similar year to 2018. So let me stop there and take your questions.

Gunther? You're always first, aren't you?

Gunther Zechmann from Bernstein. Can I kick off with two?

First -- can you update us how the year has started for you? And how we should think about the growth guidance that you've given for the full year, bearing in mind current trading and comps from last year?

How we should think about facing throughout 2019? And then the second on the M&A strategy.

You said mainly focused on Life Sciences. You've done relatively sizable special dividend as well.

So is that a continuation of small technology add-on? So is there anything more lumpy that we should think about?

I mean the trading, how to look at trading for 2019 is very similar shape to what we've seen in 2018. In our minds.

So if you look at it, it's 3% to 5% sales growth with a bit of margin improvement that should deliver a little bit more profit improvement. That's the sort of model for Croda.

More second half weighted than first half because of the tough comparators we would say. In the first half, you could look at the numbers and the reverse of 2018, actually.

There is no slowdown in Personal Care for example in the second half of the year. It's just the comps, it was the comps issue and second half to the year before.

So that's how you should look at it. And I think, in terms of the sectors behind that, we expect Personal Care 3% to 5% within that average.

We expect Life Sciences to be probably 5% to 7% this year, and we expect Performance Technologies probably 1% to 2% along the -- towards the bottom end, but with margin improvement. And we still think margin improvement, definitely, in Performance Technologies and probably a little bit of margin improvement in Life Sciences as well.

So shape of that in good -- and we started as we would expect, and we're bringing into the new year big margin improvement -- significant margin improvement story from quarter four as well. So while sales were slightly light in quarter four, margins were very strong in Croda.

So we're very pleased about that. And a lot of that is just the hard work that's going on with this innovation -- this innovation model.

That was the first point. M&A strategy.

Look, we -- nothing big and lumpy. Don't expect that.

We like Incotec type acquisitions. So more of that type bio sector, we're targeting a niche area that is perhaps not -- we're not in at the moment.

And it's allowing us to globalize this through the network. So it's of that magnitude and of that size.

It's whether or not we can pick them up at the speed the -- so the M&A strategies around Life Sciences and the top of Personal Care as well. If we look at the cash generation in the business over the next three, five years, it's very strong and we're through the -- as a reminder to everybody we're through the capital ramp from ECO plant.

So that cash generation, we're just thinking about how do we put that best to use over the period. And, with Incotec, if we can double the profit in about three years.

Then why can't we do that with others as well? Of course, we can.

So we're interested to do that but in our own way.

Just a quick follow-up on Incotec. You will drive that business now that it has 20% EBIT margin more for volume growth.

Is that...

[Indiscernible] growth. I mean for growth now.

So we should see sales growth, consistent sales growth and more margin improvement as well, coming through. But we're there without it being firing on all cylinders, I would say.

So classically now we're investing in Incotec's, R&D, labs investment in North America and China. So we're expecting continued growth in that business.

Adam?

A couple of questions, maybe related to Jez's area. One on cash flow and the other on Brexit risk.

So on cash flow, am I right in thinking that in this statement you talked about a unexpected increase in inventory, which you are working to reduce in the coming year. I'm wondering if you could just sort of talk about the context behind that.

And then in the context of Brexit, what are the hard Brexit implications for the WTO cost that you might incur. And what would be the strategy to defray those?

And then perhaps on the working capital side, what would be the implications for working capital and perhaps some safety inventory?

Adam, yes. So on cash flow, we had a £69 million increase in working capital.

Part of that is explained by the end of the Eco-project because clearly when you're doing a big construction you're always carrying quite a chunk of capital creditors. So clearly at the end of the project those clear through.

So about third of that increase was capital creditors, about third was receivables, which is a function of the normal growth in the business and receivables, days looks fine. So really there's about a 25 million increase in inventory, and that's higher than we would expect it to be.

So that's really the area I would target for 2019, where we're just making sure that inventory comes back to the right level. Our model is one, where we primarily, make to stock so we have a lot of inventory close to customers around the world which is to make sure we can deliver, yes, service in 8,000 different products.

But nevertheless, just felt that it just crept higher than it needed to be. And of course, in the short term coming to your second question, we are actually increasing inventories somewhat anyway.

So I think that by the end of March, we'll probably be caring about 20 million to 25 million of extra inventory and the combination of raw materials and finished goods. Raw materials in the UK because, obviously, it's the UK production site so we're concerned about with the hard Brexit, having enough raw materials, particularly, for the items that come in from overseas, EU, particularly.

And then, of course, having finished goods, but they tend to be out in continental European warehouses. So we're just running some additional safety stocks a couple of weeks on top of the normal level of cover that we have.

But clearly, one would hope that they have cleared through. Certainly, by the time we reported the year-end and by the half year.

So there just a little bit of contingency planning around the hard Brexit. In terms of the impacts overall, yes, our -- the key flows for us are we have -- we make about 225 million of sales value in our U.K.

plants. Some of that stays in the U.K., not very much, because the U.K.

is only 4% of our total group sales. So about 90 million of those sales go from the U.K.

to the EU. And then we have about 30 million coming from the EU site's plants to the U.K.

So those are the flows that we're focused on. So about 120 million in flows.

And we estimate the WTO effect will be between 3% and 5%. So maybe something of the order of £5 million, £6 million if we ended up in a tariff situation and a hard Brexit.

So -- yes, some of that will be defrayed quite clearly, we would need to discuss those with customers in terms of those additional costs associated with that, but a relatively small number in the context of the group, I think, is the key thing. And our contingency planning is all around, we don't see Brexit as a big issue for us, but clearly a hard Brexit and issues at borders, ports is really what we're -- our contingency planning is trying to protect just to make sure we can keep service levels high to customers in both the U.K.

and the EU. So hopefully -- well, hopefully, we won't go there and -- but we've put the plans in place to try and make sure that we can manage through in a year any disruption.

Yes, thanks. Andrew Stott, UBS.

Just a couple things both on Life Sciences, Steve. I noted in Ashland's release that they've put in a lot of new capacity in excipients, and they had a huge growth rate in Q4.

I'm just wondering whether any short-term and medium-term vocations are that? Or we talk about different categories?

So that was the first question. And the second question was I'm not, too clear on how the Brenntag Biosector acquisitions fits in to Life Sciences.

Is it a standalone business unit going forward? Or are there some soft synergies there?

Okay. Yes, I mean Ashland, it's -- the Health Care business is in different areas, related to Croda, dental fixatives, and the like.

There are some excipients in there. Where it is consistent with Croda is the end market.

Some of the customer that they are working with. So most of it is independent of ours, but it probably tells you that there's quite a lot of growth in the health care arena, generally, I would say.

If you can find it, the growth there. So no real overlap with Croda, I would say, by and large.

Separately, Brenntag question. I mean Brenntag would be a standalone business.

Look at it like a high-purity excipient business that we've got already. It's got all the hallmarks of that undervalued intellectual property, a dedicated team, there will be some back office synergies as you'd expect from that business so there is a bit of cost probably coming up and not much, it's all about growth.

We really like it. And it's been a lovely -- and Brenntag would be the first to tell you that Brenntag bought this business not for this part, it was for the distribution arm many years ago if you read back through the back story.

And this business has been really just plodding along. And it needs a bit of investment, but it just needs internationalized and globalized and pointed in the right direction.

And crucial -- mission-critical ingredients and lots of the biggest vaccines in the world, big customers and small customers. We like the customers base.

We like the fact it's going into really expensive finished products. So excited about the possibility there, run separately, but we didn't see it as another leg of Health Care really.

Charlie?

Charlie Webb, Morgan Stanley. Just a question, perhaps, building on that the last question there around the contribution from some of these small bolt-ons the last £10 million acquisition.

Perhaps you can help with the first bio sector one. What do you expect in 2019?

Where do you see can take that business over the next few years? But also perhaps Plant Impact as well, we were talking about perhaps being breakeven this year.

Now not so much the case. How should we see that kind of into 2020?

And where we're going?

When we look at businesses of this shape or size, we're looking to effectively double the profitability in three years is our mantra. Incotec is a great example.

But nothing happened -- I mean a lot happens in year one, but financially not much happens. So year one is a positioning year because we got to get the samples to customers in a different way.

We've got to price the product in a slightly different way, and we have got to look at it so the marketing data in a different way. So that all takes a year to position.

Year two and three is when we start to really grow these businesses. And it was exactly same with Incotec.

So bio sector will be a positioning year 2019 with more significant growth beyond that 2021 margin improvement, sales growth as well. Plant Impact, I mean, much to say when we set out, Plant Impact is really we bought advance research.

So we're into biostimulants. The market is moving to biostimulants, we're in early with biostimulants.

The way to look at that for '19 is it just needs sales growth. We've got the cost base where we need it.

We got the samples out to the customers. Given it's into a crop end market, it does take -- sometimes it takes a little bit longer to get products through the approval stage.

So we think sales will start to come through the second half of the year rather than the first half, but the way to look at it from numbers, it's probably carrying a £5 million loss this year. What do we think Jez?

-- around £2 million, if we're a £2 million loss so it's going to be -- there's going to be a delta positive improvement, but it's not going to break even, but it'll probably start to break even in the second half of the year.

Just in [indiscernible]? Anything there?

Well, we can go through them all if you want, but we -- it will be. We expect that to be positive -- turning positive, small positive improvement.

But when you add them all together, they start to have -- play their role. And it's technology led, some of it's advanced research, some of it is businesses and just growing, growing current businesses.

But when add it together, they all have their role to play. The only real impact we're calling out is the plant impact because it's -- we knew that when we bought it, it's unusual, but it's absolutely the right thing for Crop Care for the next 5, 10 years.

Sebastian.

Just have a question on your innovation pipeline, more than 20% sales growth that you're indicating there over the next three to five years. How much of that is substituting existing products?

And how much of that is really incremental new products?

Good question. I mean most of it is on top, it's supplementary, it's not trying to destroy -- I mean, we're very good at destroying our own technology to replace it with our own.

But the vast majority of that is new, new on the market for new niches. So a lot of what we're working with, with this, what I'd call the Ecosystem Landscape that we've got now, is on new.

It's creating new markets rather than destroying existing ones. So I'd say, major proportion is new, new.

Could you benchmark on the mix of crop protection versus seed care in Life Sciences? And then could you talk a little bit about how the reception of the biosurfactants?

I mean, what the customer reception is? And how we should think about margin impact over three to five years?

Okay. I'll let Jez do the first one, but let me chip in first on the biosurfactant.

It's frustrating that we've got this delay but absolutely, the most important thing for the group is the safety of our people. And just making sure we bring this back online in a disciplined forensic way.

And so we're pleased with the progress there, even more pleased with the customer reception being outstanding. As we get towards the launch, we've been engaging with a lot of the biggest brands in the world, but also a lot of the smaller and medium-sized, but there is also broad-based mainly in consumer if we're honest.

There's no surprise there, not just in Personal Care, it's in the home care area as well, which you would see in Performance Technologies. And very engaging and we're already into some early stage and medium-staged discussions with brand managers about how they position the products.

So we're very, very confident, the team are very confident that we would hit the ground running with that. It's just going to be a second half effect, rather than a first half effect now, which is the sort of message from today.

Jez you want to talk about the maths on the bio sector, or we should look at margins and then back to them?

Could you just clarify the question for us?

As you think about your Ag exposure, the split between the seed protection and the crop chemical?

Yes. So, essentially, yes, the crop protection side of the business, above the ground sort of crop spraying really is probably now about twice the size of the Seed Enhancement business.

So the seed is up and coming as generally stronger growth. Although, we're seeing some mid-single digit growth in the crop protection area outside of the current issues in North America between -- and then of course I think by the North America, China uncertainties over trade, we are seeing very consistent growth.

And indeed over the last five years, crop protection has been pretty much our fastest growing organic sort of business. So crop continues to grow well, but the Seed Enhancement opportunity is stronger and then of course, we have the biostimulant as the third leg of crop.

And we think that could be meaningful in a few years' time.

Martin? Didn't recognize you there.

[indiscernible] Just back on Life Sciences and the sort of expansion into the farmer vaccine drug delivery area. We're familiar, obviously, with the emphasis you put on agrochemicals, but there now seems to be more mention of the world of drugs generally, and obviously, those are very different end markets but presumably, potentially much larger.

So is there an increased emphasis on building your position in the pharmaceutical industry now alongside Ag? Or is it just opportunistic as and when these the smaller deals become available?

No, I mean, it's deliberate. We spend a lot of time mapping this sustainability and development goals on to Croda's business, and we haven't really talked about it today, but we're spending a lot of time on what does that really mean for Croda in the next five or 10 years.

You are going to hear a lot more about that. And one of the best businesses to be in, we think for Croda going forward, apart from where we are now, is accelerating into what I'd call the whole life science space.

And that's as broad as it sounds. But in the Health Care arena, there is quite a lot of nice opportunities in pharmaceuticals.

I look at vaccines for the next 10, 20 years, and if you're a betting man, is there going to be more vaccines in the world, in the next 10, 20 years? I think so.

The American government just legislated recently that shingles vaccines should be administered to everybody over 55. Great for some of the big companies.

And you start to look at some big legislation moves like that, you think well, that's great. It's going to be -- they need adjuvants -- and they're the only people that can supply some of them.

So well positioned for that. We probably need to bring to life our Life Science strategy in more detail with you all, which we will do.

But it's got an excitement about it that we, which is classic Croda which we quite like.

Steve, if I could just add a couple of points. I think, we got into the Health Care area in the sort of standard excipients and in the oral care area and so forth.

And I think over the last few years, we've seen this growth in the complexity of drug molecules and when we look at the development -- drug development pipeline in terms of what that needs from high-purity excipients has become incredibly exciting for us, which is why we're doubling the capacity in North America for production, and we're adding an additional purification technology. So we feel that this is a very exciting space.

And therefore, if we can do the same as we've done in crop, which is to grow -- find adjacencies and grow more legs. I think that's really exciting and one of the reasons that we do find the life science space very exciting.

And the idea that it could be generating as much profit as Personal Care in due course.

Yes. And it has got great franchising model as well It's not just selling prices.

It's about license agreements as well. So there is a potential for lucrative profit shares on top, a bit like what we had with Par, the API contract.

So that's what -- we're great with adding value, but we think there's another -- there may be another value stream that we can capture in pharmaceuticals as well.

Hello, Nicola Tang from Exane. Could I ask a question on Personal Care, which you haven't talked about yet, very much.

Would you be able to talk a bit about the split between volume and price that you've seen through the year because you talked about significant improvement formulations but was that mainly volume. But you also talked about the significant pickup in NPP so was it a good price?

And you also talked about some of the multinationals rolling out some products in '19 and '20. So how do you expect that to impact both volume but also margin because you mentioned it might be margin dilutive?

Let me do point two, and Jez can do the mix. So summing up just on the multinationals, of course, we're -- we have private relationships with them so we can't talk about it.

But there are 2 big global rollouts that are ongoing now. They are in numbers from 2018 but these global rollouts started in the early part of '18 and will likely roll out through 2020.

Shows you how big these are, as well as the big multinationals you can guess one of the 5 or 6, but we can't say any more than that. I mean margin is very similar.

The margins in there are similar to what we declare 33%, 34%. You'd expect -- since it's not dilutive in that respect and it should boost, as we said continues to boost sales growth, although it's not just a multinational story anymore and Personal Care also lot of good growth everywhere else, too.

So, yes, that will continue, well both of them will continue through 2019 into '20 in the rollout. So they tend to -- these big companies tend to look at region they globalize the rollout by individual regions.

So we've gone half way around the world, now need to go half way around the world with their 2019 program into '20. And, Jez, on the mix?

Yes, Nicola. So about 3% price mix, about 4% volume in the Personal Care growth.

The price mix, obviously, key thing to draw out there is it's not really raw material effect. We haven't seen particularly raw material inflation apart from an individual sort of pockets of materials.

So that's very much reflected this drive in NPP. So basically, enriching the quality of a portfolio.

On the volume 4%, strongest growth in the Beauty Actives as we generally expect, the top end of Personal Care, but the really encouraging thing over the last 18 months has been the beauty formulation business growing consistently. Because of course, that is 60% of our total sales in Personal Care.

And that's particularly where the multinationals play. So the encouraging part is that volume growth is very broad-based and so we got growth in Personal Care across all three customer groups and across all three businesses.

And that's a really strong position for us to be in.

Theodora Joseph, Goldman Sachs. And I have a question on your technology acquisitions.

You mentioned that you've actually identified quite a number of exciting opportunities within the space for 2019. So I'm just wondering if the magnitude of loss from Plant Impact -- is this consider an anomaly?

Or should we expect as you continue making these acquisitions that we should factor this into your bottom line as well?

Yes. I mean, it's unusual but we -- but we knew about it beforehand.

And yes, it was serendipity in many ways with that business came available, it just ran out of cash. But we knew that we're probably buying it a year or two earlier than the market wanted the product.

So we knew there was a soft cost overhang because of that so. They are more -- don't expect too much like that.

Most of our businesses that we're buying like that, we call them advanced research or Nautilus ends, the things that we're disruptive technologies for the future, the carrying costs are nothing really. You're buying a few chemists, and you're buying a biochemist, a dermatologist, but you're buying patents, really.

So they're pretty small scale. And then what we expect to do, pretty quickly, is turn them into products for and commercialize them so.

If there are one-offs, there may be one-offs going forward, but they will be few and far between. But if there are, we'll call them out, when they come.

Okay. Great.

All right. Thank you very much.