Croda International Plc (CRDA) Earnings Call Transcript & Summary

Well, good morning, everybody. Welcome to another Croda webcast 2019 results. I'm here with Jez Maiden. And let me start, give you just a overview of the results, and then Jez with more details on the finances, and then back to me on a bit more about strategy, in particular, sustainability and where we're taking the sustainability agenda. So let's get started then. A tough year for the group, a tough year for the industry as well. These subdued market conditions, behind that, I would say, probably the most difficult trading environment we've seen in the industry for 10 years, over 10 years. And I've been in it for a long enough, 30 years now. What we've had is a trade war, which is an expected daigou effect, which is more specific to Croda's Personal Care business in China; and an automotive industry that's trying to figure itself out, a weak automotive trading. And on top of all of that, it's an industry that's not great at managing stock, as we all know. And this unpredictable and erratic destocking is -- has been evident throughout the course of the year, in particular, in quarter 3 and towards the end of the year as well. But taking that to one side, pretty decent return from Croda, and it's a testament to the resilience of the organization's business model. So the 4 key highlights in the pack that I'll just take you through. They're on the slide. Sales and operating profit slightly behind last year. Robust profit performance in consumer market. This consumer market -- the consumer markets for Croda have traded very well, in particular, Life Sciences, big margin improvement story there and also a good sales growth in line with where we expected that. And Personal Care has had a significant improvement in the second half of the year as well, particularly in margin improvement as well. So the consumer business is in good shape, weaker outlook and trading in industrial markets for the obvious reasons that you see with other companies as well. But underneath all of this, it's the continued innovation, this robust margin and the increasing margin environment in consumer -- the consumer markets, which is driving our performance and also strong cash generation through the period, as you'd expect from a good business. Just a little more detail on the numbers. You can see for yourself, it's sales, slightly behind. The margin of 24.7% is unchanged, but that masks, as I said, a big improvement in the consumer margins and the move backwards in the Performance Technologies margin really as a consequence of volume shortfalls in that business. And if you look at the profits, just profit slightly behind, too, but strong cash. So all of our metrics broadly flat, but great cash flow. So great margins, great cash flow, a sign of a really strong business. And in the model -- and the model still works very well. Volumes down through most of the year, which tends to mean raw material prices are down most of the year. And we can capture that margin improvement in our strongest businesses, which is Personal Care and Life Sciences, in particular. So you see that margin improvement coming. It's partly with raw material softening, but also with great innovation coming through, and also you'll get that double benefit. But as I said, great cash flow. And dividend's up 3.4% this year. And if you look at each of the businesses, and Personal Care. So when we talked to you last in the middle of the year, Personal Care had 2 headwinds. It was the trade war, North America- and China-related, and it had this Chinese government were modernizing the daigou -- modernizing the distribution channel, which -- in China, which is the daigou effect that we've talked to you all about. If you take them in turn, if you just look at actually the Chinese improvement and North Asia improvement, I mean we're back to where we would expect to trade prior to those headwinds. So China up high single digits in quarter 4. And Japan and Korea, up mid- to high single digits as well. So North Asia, back to the growth we would expect. And we're really pleased with that. A lot of good work from the team to get there. North America getting there. North America now trading in quarter 4, just 1% ahead. So the first quarter in the year where they are trading ahead, which is good, still subdued market conditions up there, but trading better than we were. So Personal Care at the end of the year, importantly, in the 3 big trading regions of North Asia, Europe and North America trading positively. And the margin improvement story to continue because we still see raw materials pretty much subdued. So good improvement there, particularly in profit in the second half. And as I said, pleasing that those 2 headwinds, we feel like are broadly behind us now. And we look forward with more confidence. So that business in Personal Care at the end of the year is in a stronger position than it was in the middle of the year, for sure. If you look at Life Sciences, this specialty excipient opportunity is really increasing. We're struggling to keep up with demand, which is great, but it's a frustration as well. So we're up 9% in the first half, and we're up 14% in the second half in specialty excipients. This is this move into biologics. Really important, probably the fastest-growing business in Croda. Well, it is the fastest-growing business. And our job is to satisfy that demand and have unconstrained assets to make sure we can do that. So we're racing forward to put the expansion in there, which comes onstream later in the year, important that. And well balanced in crop again. Crops are a great business for Croda, up mid-single digits for the year, always has volatile quarters, but tends to be up. And the disappointment, I think, and you can see in the second half numbers, has all been in 2 areas really. It's been in seed treatment, which is a quarter 4 effect anyway, 70% of seed treatment is traded in the quarter, quarter 4. And we had some softness in North America and in China. Both of those are short-term issues. I've looked at them, and they're fine. We expect that to come back, mainly destocking in both areas. And some destocking as well in consumer markets as well. Consumer health, we call it, and veterinary. So that's things like topical treatments for medical shampoos, conditioners and the like and also in the veterinary area. And again, just a bit soft. Nothing else than that, and then nothing more to say on that. Fundamentally, if you're investing in Life Sciences, you're investing in the high-purity specialty excipient area, and that's growing very strongly. Really important, and that's driving the outperformance in margins as well. So 110 basis points ahead and moving very quickly towards the Personal Care margins, which we expect over the next few years, it will get to Personal Care margins and probably exceed them as well. So Life Sciences, in good shape, but a slight knock in the second half, which we don't believe is material going forward. It's just one of those things. But it's taken the shine a little bit off the great Life Sciences performance and through the year. Performance Technologies. What can I say? Tough trading conditions in industrial markets. You follow most of the industrial companies out there. Volumes are down significantly. And there's a bit of operational leverage there that drives profit deterioration as well. But I would say, don't forget this. In the last 3 years, this has had double-digit profit growth for 3 successive years. So it's a very good business. It's had a jolt from weak industrial markets. 25% of that business is exposed to the auto industry, particularly, and we felt that particularly in Germany and North America. So let me stop there, and let me pass on to Jez for more detail. Thank you.

Thank you, Steve. Morning, everybody. So starting with the adjusted results. Sales were down slightly in reported currency and 2.6% lower in constant currency terms. Adjusted operating profit was just under GBP 3 million behind prior year at GBP 339.7 million. The interest cost was GBP 7 million higher year-on-year. We had 2 effects in there. Firstly, in 2019, we had higher debt due to the special dividend and also the acquisition of Biosector at the end of 2018. And also, the prior year benefited from the capitalization of GBP 3 million of interest associated with the biosurfactant plant construction, which we capitalized in 2018, but we stopped in 2019 as the plant was fundamentally finished at that point. The adjusted PBT was, therefore, GBP 9 million lower than the prior year at GBP 322.1 million. Pleasingly, as Steve said, the return on sales for the group at 24.7% demonstrates the resilience of the Croda model despite the impact of lower sales volume. Basic earnings per share were 185p. And as Steve said, the full year proposed dividend has been raised by 3.4% to 90p payout of 49% of EPS. This slide looks at things on an IFRS statutory basis. So taking that GBP 322.1 million down to the IFRS profit. Key on here is the exceptional charge. We took charge of GBP 10.7 million. That's associated with the cost-saving actions that we've taken. We've reduced headcount in more mature regions to reflect the sluggish trading conditions. We expect to see costs about GBP 16 million lower in 2020 as a result. We're going to reinvest that saving, and I'll talk a bit more about that later on. After a higher charge for amortization of intangibles, which reflects the fact that we've done some recent acquisitions, the IFRS PBT was GBP 302.3 million. Looking at the sales bridge. Price/mix improved by 3% in the core business. Once again, we saw very little overall change for the group in terms of raw material prices. So this is very much driven by mix. It's about the improvement in the quality of the product portfolio we have, particularly driven by product innovation, notably in the Beauty Actives and the Beauty Effects businesses in Personal Care and also in the speciality excipients in Life Science. By contrast, Life -- volume was down by 6% in the core business, the main reductions in Personal Care, impacted by U.S. and North Asia markets, and in Performance Technologies, reflecting the industrial market slowdown. M&A added 1% growth, primarily from Biosector. And so overall, constant currency sales were down 3% in the core business. Currency added 2% on the sterling [indiscernible] dollar -- on the weakness of sterling, although the second half saw a markedly stronger sterling. This time at the half year, we were talking about a GBP 6 million benefit from currency translation. We came out nearer GBP 3 million because of sterling's improvement. And so reported currency sales were down 1% overall. If we look at things by sector now for constant currency sales, adjusted operating profit and return on sales. In Personal Care, constant currency sales were 3% lower, but return on sales increased by 50 basis points, with the result that we actually had a small increase in operating profit overall, which reflects the very resilient profit model that we have in the Personal Care business. In Life Science, we saw strong growth in both sales, up 6%, and return on sales, up 110 basis points to now over 30%. And that resulted in profit up GBP 11 million. In Performance Technologies, we see the reverse. Significant headwinds saw sales 7% lower in constant currency, with lower volume reducing the return on sales to 16.1%. And as a result, the profit declined by GBP 16 million. So looking at a little bit more detail in terms of each sector, beginning with Personal Care. As expected at the first -- at the half year results, the second and third quarter sales were significantly impacted by destocking, especially in the U.S. and North Asia markets. And as the bottom chart shows, U.S. consumer sales in Personal Care have remained pretty flat right the way through 2019. In addition, North Asia markets were impacted by legislation to restrict daigou imports from Japan and Korea and new Internet selling rules and tariff changes in China. This resulted in our customers' destocking ingredients through the summer months. Encouragingly, fourth quarter sales were back in line with consumer market performance, and we lapped the daigou effect, resulting in a return to modest growth across Personal Care for the fourth quarter. Beauty Actives continued to grow, and new R&D expansions and biotech capability is exciting us for the future. Beauty Effects is growing well, and we're broadening the product range of that business. Beauty Formulation was the weakest area, with sales declining. But with the Eco plant now operational in North America, that should help support for our future recovery in Beauty Formulation. By contrast, Life Science had another excellent year with record sales and profit. The sales mix was richer, helped by the higher-value speciality excipient growth, which saw Health Care sales up double-digit percentage. New capacity is coming onstream, as Steve mentioned, in Health Care in 2020, and we remain very excited by the prospects for this business. Alongside this, Biosector, our vaccine adjuvant acquisition from Brenntag at the end of 2018, looks a great opportunity, and we have already replaced the third-party distributors that we -- that came with the business with our own direct-selling model. Crop Protection grew sales mid-single digit, again, ahead of market, despite huge variations geographically as North America crop markets suffered from the trade disputes and Lat Am was able to pick up the growth. Our globally balanced footprint makes this Crop Protection business a very good business for us. Plant impacts. Our 2018 biostimulant acquisition has developed a wider range of crop treatments. We have field trials in 2020, with significant sales now not expected until 2021. Finally, Seed Enhancement has had a disappointing year, with particularly weak fourth quarter sales in North America and China. As Steve said, after 3 years of double-digit profit growth, it was a difficult year for Performance Technologies, with profit reduced to GBP 69 million. With 25% of sector demand in automotive, half 1 saw the Smart Materials business, in particular, suffer lower sales into its polymer and coatings applications, particularly in that industry. But there was an improvement in that trend, at least a softening in that trend, as we went later into the year. By contrast, the broader Energy Technology business held up very well in the first half year, but saw a general slowing in demand across its broad range of industrial markets for lubricant additives in the second half, really reflecting manufacturing recession biting in both Europe and North America. In the other parts of the business, oil and gas additive markets were weak. There were some signs of a flattening out of the sales trend in fourth quarter. But as Steve said, we remain quite cautious around the industrial market outlook in 2020. We are optimistic, though, for the sector going forward. In Smart Materials, we're expanding capacity for higher-tech polymer applications, particularly for the circular plastics economy. And in Energy Technologies, our Rewitec acquisition into additives for renewable energy looks promising. And Steve will talk a little bit more about our fabric care opportunities in the Home Care business here. So I've included a slide just to show you what I expect to happen on the cost side in 2020. At Croda, we're very much known for our relentless innovation machine and for our customer-intimacy model, but we're also very careful managers of costs. And in 2019, we reduced OpEx to offset the impact of lower volumes and, therefore, protect profitability. At the end of 2019, we added to that some structural changes to reduce resource in more mature markets, which will save GBP 16 million in 2020. We're going to reinvest this. Firstly, we're investing GBP 7 million in OpEx to deliver future growth opportunities, particularly focused around Asia and globally in Personal Care and Life Science, where we'll be expanding our sales, marketing and technical resource. Secondly, we're expanding our organic manufacturing capacity with quite a lot of assets coming online during 2020, which will add GBP 6 million to depreciation. That's excluding the Eco plant, which is sort of looked at separately. The Eco plant will add probably of the order of GBP 5 million as we capture margin from existing business during 2020. So with a higher pension charge, which reflects our lower corporate bond yield environment, we expect to be able to fully offset our investments in 2020 with the savings that we've made at the end of 2019 and thereby protect the overall profit margin, even though we're investing for the future. From a cash point of view, it was a strong year in 2019. Working capital was the key improvement over 2018 around careful management of inventory and receivables, given the lower growth conditions. CapEx included GBP 16 million, 1-6 million pounds, to complete the Eco plant. And therefore, I would expect CapEx probably to be more of the order of GBP 90 million in 2020. We expect to see continued growth in free cash flow as we go through 2020. We also refinanced our debt facilities in 2019, which has seen lower interest charges and greater flexibility with facilities out to 2029 now. Got a few bankers in the room. So we give them one callout, which is that reflecting our new purpose, we've adopted a sustainability element to our interest -- to our interest margin, which will mean that if we achieve our aggressive targets around the [indiscernible] organization, then we will see a lower interest bill, which we will then reinvest in our sustainability program. So great to see Croda's one of the very first adopters of a green RCF. Finally for me, some additional information to guide you for 2020. The -- first of all, foreign exchange. 2019 results were translated at roughly $1.28 on the dollar and EUR 1.14 on the euro. And I've given you on the slide the impact of a 1-cent change in each of those currencies, which represent about 2/3 of our exposure to currency movements. And if -- I said today's rates -- last week, end of last week's rates remained unchanged for the rest of the year, which of course, they won't, sales would be about 4% lower than 2019 and profit 3% lower, simply because of the translation effect of those currency changes. So to give you -- basically, it's a mechanistic calculation. So just to give you the data there to plug those in. Secondly, in line with our purpose, we are voluntarily exiting some crop products, which we don't believe are consistent with our sustainability objectives. And just to highlight, this will take about 2 percentage points off the Life Science growth rate during 2020. And finally, we've clearly been monitoring the impacts of the COVID-19 virus. These have a relatively limited direct impact on us. China represents 6% of our sales, core business sales, and 2% of the group production. And we have relatively few raw materials, which is sourced by us in China. So the main area of risk as we see it will relate to what happens to our customers' product demand and to their supply chains. But from a Croda point of view, the direct impact is fairly limited. So I now pass back to Steve, who's going to talk about how our new purpose is impacting our strategy.

Thanks, Jez, and you all know, it's a different tie today than the picture, which is unusual for me, but I do have more than one occasionally. Before we get there, I mean, purpose, we've talked to you about purpose before, and we're rolling the purpose out through the organization. We're getting very excited with the discussions we're having about that in the organization, many conversations at different levels across the world. And what that's guiding us to is the belief that actually, there's new markets that are out there that are really going to drive the growth for Croda. And if there's one word that's going to describe Coda's strategy for the next decade, it's sustainability. But what we mean by that is the application of sustainability. It's creating new markets and capturing new growth through the innovation machines that we've got. And just before we get into some of the case studies that I pulled out, which I think are very important, we're seeing some emerging growth opportunities in a number of them. But before we do that, I'd just like to talk to you about our targets for sustainability. Again, we've had many conversations in the organization. Croda's renowned, a number of you will know us from 1925. Some of you might have been in the room in 1925, but I'm not looking anybody in particular, Martin Evans? No, he's there. But the -- we have an ambitious commitment, but it's much more than in the old days, it was about taking renewable raw materials and converting them to innovative products and then creating value in front of our customers. And of course, we'll continue to do that. But it has to be a lot more than that going forward, absolutely more than that. These commitments have been developed over months rather than weeks. And they are very well thought through. So by 2030, our job is to be Climate, Land and People Positive. What we mean by that in climate terms is to reduce carbon in everything we do. Across every site, we'll have a decarbonization road map, which is being rolled out everywhere. We expect everybody to deliver against that. Even if volumes are rising and even if financial performance is at record levels, we expect that to be -- decouple that from the decarbonization agenda. And we're really excited about the opportunities that will bring. In land, we take from the land with our renewable ingredients, of course, as you all know. But what we want to do is give more back by innovating with great products, particularly in the crop area. Soil quality, soil diversity, a big issue in sustainability. We think our balance can be positive because of great innovation in that space. And just exciting the organization, exciting the people in the organization to do more, to think differently, and we're looking at a behavior change from them. We're looking at innovation, accelerating the innovation there. And our minds are on customers all the time, it's innovation, technology and customer. And it's about winning with customers because they want it as much as we do. So we're talking to customers on a regular basis. And most of our opportunities that are in our pipeline are because of sustainability, absolutely because of sustainability changes to us. We have reference to the key SDGs that we refer to around our business. They're really important to Croda. What they're really doing is driving legislation change. The chemical industries will be targeted, quite rightly, and it has to respond in all aspects of what we do. And what that means is great opportunities. And you've got to make sure you're on the right side of legislation change rather than the wrong side of legislation change. And we are very clued into that. That's probably the biggest differentiator in our industry in the next 3 to 5 years. Some products you think are going to grow, could -- you could be timed out on them because legislations change so quickly, country legislation but also industry legislation, too. And it's a great barrier, and it's a great innovation tool as well for Croda as well. So we're tuned into that. And we're tuned into that through our 3 -- our strategy in all 3 areas. To deliver that strategy, it will be all about the capturing these growth opportunities in sustainability. And I say to the team, it's the -- when sustainability -- is when the sustainability trend comes towards you at the intersection with your great differentiation, if you've got something brilliant and you've got a great sustainability need, you get fast growth. And what I want to show you now is 4 or 5 case studies that actually describe the early stages of growth coming into the Croda model and the opportunities for the future. So the first one, we'll start with Life Sciences because it's the biggest one by a significant way. The big trend in the industry, you know this from the Capital Markets Day, is the move to biologics. Why the macromolecules, they work much better than the petrochemical molecules? That's the first thing. But you can't take them in a tablet. They're labile and they disintegrate quickly in your body, and they have -- within the gastric environment. So the important thing is you have to inject them into your body. And the injectables is where Croda comes in because they are liquid drug-delivery systems. 9 out of 10 of the top drugs are biologics now. And something like 70% of those biological drugs are injectables, liquid systems. If you look at the R&D in the world of pharmaceuticals, the biggest investment area, guess what, injectables, because of this. This is a big area. We're launching 7 products this year, specialty excipients 2019, and we're targeting China. We're not in China yet with these. And we will be very soon, and that opens up a big market for us in China. So we expect faster growth. The products we call them -- the technology is specialty excipients, and that's all you're getting from us. We're not going to tell you any more than that. We're deliberately vague. But what it really does is it gives the trust to our partners, big and small customers, that they are the highest-purity products around. They give maximum potency. And more importantly, they stabilize these active ingredients. These are a very tricky molecules to stabilize. And Croda's got a suite of ingredients that can do that. And we're probably launching about 7 to 10 ingredients per year for the next 3 to 5 years. And as I mentioned earlier, our job is to get capacity onstream as quickly as we can because the demand is very strong in this area. And we expect that to continue certainly for the next 3 to 5 years. Great driver, big margin driver for Life Sciences, big growth driver for the company. If you look at vaccines, I got interested in Biosector because, in fact, I like vaccines. I really do. And the demand for new vaccines is going up. There's no doubt about it. I think in 10 years' time, there's going to be more vaccines in the world than there is today. And it's a real worthy development for Croda as well. We're solving some of the world health problems. So we're in partnership with the World Health Organization and many of the big drug companies as well to deliver new vaccines. The interesting stat for you, which is why we bought the business, is if you look at the number of vaccines they had produced and the importance of adjuvants increasing in the vaccine. So now 2020, 80% of vaccines that are produced have adjuvants in them. But you go way back, hardly any of them have them. So the adjuvant is becoming a very critical ingredient in these formulations. And that's really important. And that's driving a sort of compound growth of these adjuvants are about 10% a year. So very high-margin products, great barriers to entry. Our next-generation technology's saponin adjuvants bio-based systems for the next-generation vaccine, which is great. So a lot of good R&D and innovation and intellectual property around that. And the reason they come to Croda, the absolute differentiation, this x marks the spot of fast growth where sustainability trends meet Croda's differentiation. They have the world-class, #1 site in the world for aseptic manufacture of vaccines, gold-standard vaccines. So the barrier to entry here is you've got to have really high-quality standards for your site if you're going to get into this game, and they have. So we bought into that. And we've had 1 year with Biosector, and we expect Biosector to really push on and develop now over the next 2 or 3 years with this innovation. So playing in the right growth markets. And then in Life Sciences, again, in crop, there's a big trend to feeding the growing population. We know that. In Malaysia -- so this is a case study of Malaysia, the amazing government wants to be more self-sufficient. So we're working with the Malaysian government and with the farmers to make more of the locally produced rice. They're importing too much. So what they want to do is be more self-sufficient. So reducing imports, making more. Our technology is PaddyRise seed treatment. There's no truth in the rumor that we named that after our outgoing Head of IR, Conleth Campbell, five foot one, from Ireland. PaddyRise. But he's probably listening to that as well. It's a really -- I mean, a really important development for the group and big trend to move to more rice manufacturer. Why is it interesting for Croda? And why are the farmer's interested? 24% yield improvement in the rice. I mean that's big. And what it's really doing is we are -- we're reducing the infestation of the rice through specialized coating. So you're getting fast growth with that. So there's an opportunity. We've put a facility in place in quarter 3 in Malaysia, which is starting this growth and starting to capture the growth. The picture at the bottom right is 200 farmers coming to our Open Day in quarter 3, which is great. And it's a great cause. We're doing the right thing. It's great innovation. There'll be a revenue stream, the profit stream for the group, but also we're helping the Malaysian population, definitely are, with our technology. Bio-based surfactants, you've heard this a lot from us. It's onstream. Plant's definitely onstream, started at the year, at the beginning. We're interested because the trend is in clean -- you'll have heard the expression clean beauty or sustainable trends. Clean beauty means products free from pollutants, free from toxic -- toxins and other things as well. So they want renewable materials as pure as they can. The big star, I'm big on stars. We've got a growth where sustainability launches are increasing at a phenomenal rate. But actually, behind that, if you ask, I was say to you in every Personal Care product, about 30% to 40% of them contain these materials. So it's a big portion of the personal care industry uses these surfactants. So what we're moving is we're accelerating the transition of our customers from petrochemical surfactants to natural-based surfactants. Absolutely the right thing to do. So we call them bio-based surfactants, and we've definitely got a first-mover advantage. Nobody else has followed us from what we can see and no plans to. So we've got 3 years. We've got a 3-year advantage to everybody. And of course, our marketing machine is now rolling it out, and our innovation machine is rolling out new products as well. So we're in a good position to capture new growth with bio-based surfactants, so a new revenue stream for us over the next 2 or 3 years, for sure, which is important. And then another one in Personal Care. It's back on this clean beauty trend, sustainable skin actives is one of the big areas of growth for the group. So we bought this business, plant stem cell business, IRB, many years ago. It's got great growth, and the growth is increasing. Why? Well, people want plant stem cells. So these are materials, benign materials, they're leaf cuttings or pieces of natural substrates around. And we can redirect the biological pathways of these to get great claims and new claims. So this is a new example of -- this is Majestem, which is a new stem cell from Sederma, reduces sagging. We've all got it under our chins, men and women. So first skin active to reduce sagging out on the market now. You've heard it here first. And it tightens the skin. So we demonstrate that over the 3 weeks -- 3-week period and from an Edelweiss extract this one, but great performance. But what your company has, this X factor again, sustainability trends moving towards us in clean beauty, but absolute brilliant claims that are being made from Croda, which are 100% sustainable. That's where you get the growth. You have to have them both, and we have that. So there's another growth stream. And that's driving the margin improvement story in Personal Care, partly. So these are very high-margin products. And then finally, Performance Technologies. This move away from throwaway fashion. One of the biggest-polluting industries in the world, slightly surprising to me, is retail. You're throwing clothes. 6 out of 10 clothes end up in landfill very quickly, actually. A lot of people only wear their clothes 2 or 3 times, and then they throw them away. So it's a big environmental polluter. So we've been targeting this. And the -- if you can extend the active life of the garments through the wash cycle, you get a huge saving in sustainability, carbon, water and waste. So it's a worthy cause. Absolutely the right thing to do for the group. You're getting a big environmental trend moving that way. And we've got biopolymers. So these are active ingredients that go into the fabric conditioner, very small inclusion levels, transform the product. And under clever microscopes, you can start to see that they extend the fiber life. So they are very similar to how you'd apply them on shampoos and conditioning treatments. So what you do, it sits on the surface and it reduces -- so it allows you to improve efficiency through the wash cycle, allows you to reduce temperatures, and it allows you to wear your clothes more regularly. Some of you wear them more regularly than others. I won't talk about my wife, but there you go. But it's absolutely great technology and sustainability trends meeting Croda's technology, fast growth. So they are just some examples, and these are starting to emerge through the group as potential good growth streams for the organization. A lot of them are nascent and they're there and there will be pretty more. And I think what we want to encourage through the organization is thinking about the end trend first and then innovating more and more with the Croda ingredients. And we can get to a very exciting place. But absolutely, most of Croda's growth will be because of the trends first. There's a trend in the industry that's moving towards us. We've got to make sure that we can innovate towards them. And when we do that, we'll get -- we'll capture fast growth. So just finally for me, just in summary, strategy firmly in place. It has been a tough year. No overreaction from us. We'll manage that in a disciplined way like we do, plenty of innovation going on. But the business model is intact, very much intact as well. So we're really pleased with that. And we're really excited with the purpose work that we're doing right around the organization. In outlook, you'd expect further progress -- we'll expect further progress in the consumer markets. Performance Technologies will be a bit weaker. We're not expecting any help from the external environment, but we had another year of great innovation in Croda, which will help us in the year ahead, for sure. So let me stop there and take your questions. Gunther?

Gunther Zechmann from Bernstein. Can you just walk us through the assumptions behind -- by division for organic growth for the 3 core divisions? And secondly, can you say if you're comfortable with pretax profit consensus for the year of GBP 362 million?

Yes. I mean let me start by -- I mean generally, I think it's in the release as well if you look. I mean the way to look at the growth profile would be we're not expecting any improvement in market conditions. But we expect Personal Care to grow sort of 2-ish percent this next year, just on the strength of some recovery through the end of the year. Life Sciences, probably -- we say 5% to 7%, probably nearer 5% because we've got this 2% voluntary reduction in crop, which will knock that down to probably about 5%. And then the swing factor really for us is Performance Technologies for the year. And we'll be pleased if we can get to sort of 0% to minus 2% sales growth in Performance Technologies through the year. I mean we are beholden to market conditions more in that business than in the other 2. But -- so we screen for that in constant currency, with a bit of margin improvement still in Life Sciences and maybe a little bit in Personal Care, but we don't normally guide for that, but mainly Life Sciences. I mean, Jez, on the rest of it?

Yes. I'm not sure I recognize that consensus number that you mentioned, Gunther. But basically taking Steve's sort of direction there, we should see some modest sales growth. We don't see any reason for margin attrition as we demonstrated in tough conditions in 2019, and we should see 2 areas of margin pickup. One in Life Science as we continue this journey towards the Personal Care levels. And secondly, from the Eco plant coming onstream. Because for 2020, that's effectively a margin capture. We're capturing the margin currently made by our -- or previously made by our raw material suppliers in petro EO. So we'll pick up margin. Maybe we'll get to some new sales in Eco by the end of the year, but we're primarily thinking of 2020 as a margin capture as we convert everybody over to the bio feedstock and then allowing customers a few months obviously to get their new products or their relaunched products using bio-based materials to market probably means that we'll see more of a sales benefit in 2021 from Eco. So this year, more of a margin benefit. So those should be the 2 things that should help margin. Clearly, I've given you the -- well, I've given you the mechanics for FX. The rates will be what the rates will be. And we're primarily earning our money overseas. So therefore, that will come through, depending how sterling trades through the year.

I meant GBP 340 million, I meant for the tax profit, yes. I was looking at the wrong year. And if I can just have a quick follow-up on the raw material cost side. What's the outlook you mentioned, benign in 2019? What do you see for 2020?

Yes. I mean benign but reducing, I would say, generally. I mean certainly in the second half of the year, we've seen some further softening, which we've captured in margin improvement in the consumer businesses. I think maybe a little bit more softening in the industrial markets. We have low erucic rape oil, which is a key raw material for the group in 2 or 3 of our factories. So that's coming down, but the rest of them broadly stable on these lower raw material prices that will come at the end of -- come out of at the end of the year.

It's Adam Collins from Liberum. I had 3 questions. On the voluntary 2% hit to Life Sciences from exiting some non-enviro sales in crop. Could you just talk about the product areas that, that relates to? On plant impacts, what was the negative impact on profits last year? And what will the delta be this year? And then if you could just talk us through the impacts on interest and depreciation this year. There's quite a few moving parts. Just a sense of how that will develop.

I'll do the first one. You, Jez, on the other 2. So these materials are alkylphenol ethoxylates, they're called. So these are clusters REACH as substances of very high concern, SVHC. So they're banned in Europe. You can't consume them in Europe, but we have a small amount of sales, GBP 5 million sales or so in our Indian and North American plant, and it's all for primarily Crop Care. And we shouldn't be making them. We should absolutely not be making them. So part of our purpose is to do the right thing. So we're surfacing this around the organization. I don't want to be connected with anything that we believe has a hazardous nature to them and unnecessarily so. So in a difficult year where everybody wants turnover growth, we're still doing the right things, which is the most important thing from that. So and I think that's a tribute to our philosophy and our ethics more than anything else, but it's crop alkylphenol ethoxylates.

In terms of plant impacts. Usually, when we acquire a technology business, we acquire it with just a small number of people, and therefore, the sort of on cost for the, say, the first 5 years while we're developing that technology to something of a commercialized scale is pretty small. So lost in the roundings. Plant impact was different because it came with around 60 or 70 people. It was losing about GBP 6 million when we acquired it for -- early in 2018. For 2019, that cost base has come down to about GBP 3 million by consolidating particularly the sales resource into the existing Croda sales force and also being able to clearly supply back-office functions from the existing Croda base. I think that will stay about the same for 2020. Because we're in field-trial mode primarily to have -- originally, when we bought it, it was 1 treatment in 1 crop in 1 region. What we've done is to broaden that whole portfolio in terms of regions, crops and customers, but you need to do the field trials because this is a yield enhancer, and you need to demonstrate to the farmer that in scientific trials, you could show a 10%, 15%, 20% improvement in yield because that's hard for an individual farmer to actually observe unless you've got a big cooperative using the product. So I think 2020 will be consistent. And then in 2021, we would expect to see the new sales of those products, particularly coming through. And therefore, the acquisition sort of achieving breakeven and then growing from there. Technology still looks very exciting. It's taken us probably a couple of years longer than when we acquired it than we probably thought at the acquisition date. In terms of interest, I wouldn't expect a big change. We've got a very marginal -- a small decline in interest in 2020, because net debt will continue to come down because free cash flow is strong. But -- so that will be the main driver to slightly reducing interest charge. On depreciation, as I highlighted on the chart, we have about GBP 6 million of incremental depreciation expected to come from the non-Eco investments we've been making around the speciality excipient start-up, the investments we've made in the Sederma business to expand botanicals. We've expanded the Sipo facility in China. So a number of investments we've made, which will come onstream. Then in addition to that, depreciation-wise within the Eco project, you're probably looking at GBP 7 million to GBP 8 million of depreciation annually. I didn't include that in the chart because my guidance is that we would expect to see a delta of around about GBP 5 million in profitability. And obviously, that profit is a big margin number, less the cost of running the plant, less the depreciation. But when you look at the depreciation number, yes, you'd see it go up for the Eco effect. But as I exclude that because it's in my overall guidance on the profit benefits of Eco.

Isha from MainFirst. Just on the Life Sciences business, please. So we -- you talked about growth prospects and also margin improvement that we should think of it as the next Personal Care business. In the second half now, we've seen a little bit of weakness coming from Seed Enhancement. Should we consider this as a normal volatility coming from the crop business as a run rate? Or was it only something special this year? So how should we just look at it because margin-wise, maybe it's more stable just like Personal Care as you guide, but how should we look at the top line?