Croda International Plc (CRDA) Earnings Call Transcript & Summary

Enjoyed last night and now ready for what we hope will be an interesting and engaging day. We'll first spend the first couple of hours here at the hotel before moving on to the Iberchem site. Before we look at the agenda, though, just a few points about safety. There are no planned fire drills either here at the hotel today or indeed later at the site. If the alarm goes off here, please exit through the door behind you and either the door to the right-hand side, we can go up the stairs and exit there, okay? The safety procedures to the visit to Iberchem we'll cover later at the end of the presentation this morning immediately before we headed off. And I would ask you please listen carefully to these because this is a manufacturing site, okay? For those of you I haven't met yet, my name is Richard Butler. I'm the SVP of the F&F business within the Croda F&F division. And you may remember that consists of 2 brands. We have Iberchem and we have Parfex. I actually have over 30 years' experience in Croda, and maybe hard to believe, looking at me, but it's true. And over that time, I've worked in many of Croda's business areas. Immediately prior to this, I spent 7 years as a Global Head of Sales for the Personal Care business and also for the Beauty Care division as well. So it's a good question. So what am I doing here in the F&F business today? Well, actually, I was part of the team who some 6 years ago, when reviewing the Croda Personal Care strategy, identified fragrances as a gap in the Croda portfolio. I was then part of the team who first engaged with Iberchem back in 2016, and then part of the due diligence team for the eventual acquisition. And over this time, of course, I've not only developed a knowledge of the business, but also had the opportunity to meet many of the people. So as a Croda person in the F&F business, I'm the face of Croda in Iberchem and I'm the face of Iberchem in Croda. My focus really is how we generate value and how we achieve the synergies, how we leverage the resources in both companies and you know that is actually usually a case of just making sure the right person in Iberchem is talking to the right person in Croda. So the purpose of this morning is for this team to explain how we intend to unlock the potential of the Fragrance and Flavors business. And I'd just like to introduce the presenters and explain the agenda. First, we have Jose Balibrea. Jose is the Managing Director of Iberchem and he has spent 17 years as part of the leadership team creating this business. He, along with Maria Angeles, the Fragrance Development Manager, will explain in more detail how the Iberchem growth model works. The sales synergy section will be covered an initially by me, and then I'll pass over to Magali Bonnier. Magali is an R&T Director within the Personal Care business of Croda, but focused on formulation science. And Magali actually worked in the fragrance industry immediately before joining Croda. And the section 3, Alexandre Levet, the Sales Director of Parfex, will give you more insight into this brand, along with Guillaume Audy, the Iberchem Sustainability Director, expanding more on how our activities benefit customers, consumers, communities and also contribute towards Croda Group commitments. Okay. So let's get going. In March, you may recall, if you joined us that David Shannon gave an update on the Consumer Care sector strategy. We looked at each of the SBUs in turn, Beauty Actives, Beauty Care, Home Care and F&F, to try and give you a little more insight into the specific businesses. Today, though, is all about F&F, but with a focus on the fragrance business. That's not to say that flavors isn't important to us. It's just that the fragrance business has the most potential to unlock through its links into Croda Consumer Care and also through its access to Croda R&T resources. For those of you who were at London event, you will remember that I spoke then about how competitive environment is changing and how that is benefiting us. Traditionally, companies supplying at the F&F market have been separated into 3 segments. We have the Tier 1 companies you'll be familiar with, the Big Four, IFF, Symrise, Givaudan and Firmenich, collectively having around 75% market share, global presence and resources typically turning over more than GBP 1 billion per annum. The focus of these companies is really on their presence in the large global brands, the big brands owned by the global multinational consumer companies. The MNCs, if you like. Let me have the Tier 2 companies with some examples here on the slide. These are the midsized companies, generating sales between GBP 50 million and GBP 500 million per annum, making up perhaps 15% of the market. The upper end of these are multiregional exactly like Iberchem, to smaller ones just operating locally. The focus here is different. It's not on the MNCs, it's on the small, medium-sized local customers, the SME, as we would call it, and the Indie customers as well. They offer a balance of service, attentiveness, creativity, but they're still big enough to be secure business partners. It's worth mentioning that we have the same attitude in Croda. The majority of the consumer care customer base is in the same customer segment. It's in the SME indie segment of the market. Then we have the Tier 3 companies, and this is hundreds of smaller companies supplying local or niche markets around the world. This Tier 2 white space is growing, and it's growing because of the ongoing M&A activity of the Tier 1 players. But when Tier 2 companies become acquired, they take on the attitude and the processes of the new owner. Their typical SME customer no longer feels important, no longer has the personalized approach they've handed before, and this is the opportunity for us. Our geographic coverage, local teams focus on responsiveness and creativity makes us a natural destination for these newly dissatisfied customers. So we can see the Tier 2 white space is growing, which benefits us. So combining the Iberchem business model, customer intimacy, agility, quality, responsiveness, with the resources now accessible through Croda, the value proposition to all types of customers becomes compelling. This is why I personally like to say that we're in effect becoming a Tier 1.5 company. We still have the attitude, which values the fast-growing ambitious SME-type customer, but is now combined with the scale and access to technology of Croda. Croda also has existing long-term relationships with the MNCs, of course, and the major regional customers, which Iberchem and Parfex can now benefit from. So collectively, we can offer global reach. We can offer global scale. We can offer access to new technology and processes. And we also now have the possibility to develop in-house raw materials. But with all of this, we have an ongoing constant focus on the small, medium-sized local or regional customers and meeting their needs. So historically, a typical Iberchem customer will be a family-owned company, supplying into their local market. The example here is a fine fragrance customer in UAE. We all know a typical Tier 1 customer best described as anything you'd see as you walk through duty free of an international airport. But as we said before, Croda's Beauty Actives and Beauty Care businesses have a strong existing position in these very brands. So now we have the opportunity to leverage their presence and relationships to build fragrance sales. So in the future, we want to be able to say that both actually are typical customers of Croda's F&F businesses. I don't see us competing head-to-head with Tier 1 companies or from the core list of its core position, but we are developing significant business at MNCs. So what exactly is the value that we bring to our customers? Well, the proposition, of course, is different for different customer groups. The key, though, is that now we are really set up to offer something to everybody. We are not a Tier 1, and we would not want to be seen to have the attitude of some of the Tier 1 companies. But with the access to the Croda resources, we now have the power and the strength of a Tier 1. This means that the MNCs, some of the traditional Croda customers and larger regional majors, they regard us differently now, especially because the Croda brand is already very strong in these customers. The fact that we retain the energy, agility and customer intimacy of a Tier 2 means that we appeal to the SME customer base who want to feel valued, listen to and important. To these though, through access to credit ingredients and support, we can offer more value than as possible before. This is an offer which is unmatchable by the other Tier 2 companies. As well as this, though, we also now have the total solution provider capability for those who want it. We can provide the complete fragrance formulation to meet the fragrance trend, the formulation format, whether it's cream, a bar, a powder and formulation claim to skin protection, anti-aging, hair strengthening, for example. So as a supplier, we have a compelling value proposition for customers of all types and sizes. And this is unique. So one of the reasons for our excitement is that we see great potential for our model and the way the external environment is evolving. The market as a whole is forecast to deliver between 5% and 6% CAGR, but as you can see, this differs significantly from region to region. Today, our F&F business has a strong presence in the fast-growing markets, as Jose will explain that just in a few minutes. In our growth plan though, we have the opportunity to benefit from Croda's strong presence in the slower growing but very large Western European and North American markets. Using Croda leverage to gain share in these markets is a core part of the plan. The trends that we see developing, whether they're macroeconomic, consumer or customer, all suit an agile, responsive customer-intimate business model, which looks to localize production and localized support wherever possible. This is core to Croda and it's core to the Iberchem culture. We thought that the market, in general, is evolving in our direction. The business plan is underpinned by 3 growth drivers. And what we're going to do is expand on all of these over the next series of slides. First, we have the stand-alone organic growth of the business, and Jose will expand on the business model behind this in just a minute. Second, we have the sales synergies, the added value that we get by combining the customer bases and sales networks of the 2 companies, and I will speak about that a little later on. Then we have the Parfex growth plan, capitalizing on the power of a French grass-based brand, capitalizing on the developing expertise in natural fragrances something of real value in the premium segments of the North American and Western European markets. This exactly is where Croda's brand presence, of course, is so strong. Finally, of course, we also remain open to targeted acquisitions, where they can enhance our business position. So core to our plan is the Iberchem business model and the organic growth this will deliver. I'll now pass on to Jose, who will give you more insight into how and why this has been so successful.

Thank you, Richard, and good morning to everyone. For those who don't know me, my name is Jose Balibrea. I'm Iberchem Managing Director, and it's a genuine pleasure for me to have this opportunity today to share with all of you our passion for this great business that I continue to enjoy after more than 17 years. Let's have a look at the Iberchem reference path for a better understanding of the company today. Compared to our peers in the F&F industry, Iberchem is a young but consolidated organization. In the upper side of this slide, we can see one of the most representative cases of a small group of managers who invested in this company alongside with private equities for more than 20 years. Our partnership with private equities provide us an increasing level of professionalization over the years from medium-sized financial players in the early years to Eurazeo in 2017, one of the largest private equity in Europe, a public-listed company in Paris. Full accountability and ownership of P&L, same as cost control remains in our leadership team as a result of our history. Iberchem is a unique company with an outstanding expansion over the last 37 years. In the following slide, I will try to describe you how our impressive growth history basically based on organic growth for both Fragrances and Flavors. It was supported by a global and accelerated geographic decentralization of R&D and production centers from Spain to most of our key markets, increasing intimacy and increasing the service to our customers. In 2009, we split our business in 2 divisions, Fragrances and Flavors. The smaller business unit, rebranded Scentium in 2012 was part of a specific M&A strategy to have access to new markets and new categories. Then in 2018 and 2019, we acquired Versachem in South Africa, Flavor Inn Corporation in Malaysia and Duomei Nanchang in China. So once again, basically, we are experts in organic growth. But in order to balance the flavors strategy, we acquired 3 companies. And then for more than 7 years, we were having a look at the perfect complement for the Fragrance division in the market through an acquisition in France. It was a very clear focus that we need something special in France to cover part of the portfolio that I will describe later. So we had a look at the heart of the fine fragrance industry in the world capital, France and Grasse. So we achieved this ambition with the acquisition of Parfex last year. Last but not least, in July 2020, the fourth private equity suggested that disinvestment in Iberchem, at the end of the year, 3 largest competitors mentioned by Richard late before acting as a serious bidders for the acquisition. We, the management team, supported only one being part of the Croda family. I'm not sure actually if all the acquisitions are welcomed by the acquired party in the M&A field. I can assure you that our transaction was very well received with tooling to sales by our teams. Yes, we are a global fragrance-led company with a distinctive position in emerging markets. In the following slides, we will dig deeper into these topics. But it's important for you to understand very few areas here. First, 15% CAGR growth over the last decade. Last year, we recorded EUR 206 million of revenues despite the huge impact of COVID-19 in the Fine Fragrances categories. We generated EUR 43 million EBITDA, representing 21% EBITDA margin over sales aligned with the benchmark of the Tier 1 players in the F&F space. 77% fragrances, while 22% flavors in 2021, a bit lower than 50% of fragrances are in home care while more than that in Personal Care and perfumes. On the right-hand side of this slide, we can see the geographical distribution. We can see that Africa and Middle East represent 41% of the revenues; Asia, 31%; and LatAm 8%. In total, emerging markets represent 80% of the geographical footprint and Europe is only 20%. With a very quick view on the bottom of this slide, I would like to highlight that we attend from -- we attend 120 markets from the headquarters in Spain. Basically, our head office here, manufacturing center is focused on EMEA, Europe, Middle East, Africa. Then we have 10 creative centers and R&D centers and 15 manufacturing warehousing capacities all around the world. Our platform today is ready for much more. We have 40,000 fragrances references, excluding Parfex had 19,000 flavors. We will talk about it later. But last but not least, I would like to mention that it's all about people and people making the difference. We have a fantastic team running this company with great ambition to reach much more in the coming years. Gender equality has been something natural since day one. 47% of our teams are female, 53% male. If we don't consider the production sites, the percentage of female is much more, up to 70% of the total population. I'm sure you will understand this much better in the course of the day, with the site visit. Average age of the employees is 36 years and the talent retention is super high, considering so many new people joining the board. Most of the head of department that you will have the opportunity to meet today with more than 50%, 20 years' experience on board. Okay. So let's have a look at the figures, okay? So on the left-hand side, we have -- sorry. So we have a look at the 3 main indicators here: revenues, EBITDA and cost generation. So on the left-hand side, 15% CAGR growth over the last 10 years, despite important headwinds and macroeconomical impacts like the Arab Spring, the oil crisis and how to forget the huge raw material crisis in 2018, fueled by the petrol crisis and extended to the rest of the raw materials. And obviously, the coronavirus pandemic in 2020 and '21, travel restrictions and social distance impact Fine Fragrances categories, but Iberchem model presented a high level of resilience once again. Our growth is basically driven by emerging market positioning, focus on fragrances for consumer care applications and portfolio breadth and agile business model. On the right-hand side of this slide, we can see 21% CAGR growth in EBITDA generation, up to EUR 43 million in 2021. I would like to highlight these 2 last years of pandemic with a super attractive resilience of our company in these 2 elements, EBITDA cash generation up to 80% in 2021 following the definition of EBITDA and CapEx. We have a plan to double the size of the company in 2025, and this plan is consistent with the historical growth of the company, and it's part of our commitment with broader Croda family and in particular, our commitment with the [indiscernible] sure we will deliver. This plan is supported by the key success factors for the business model plus the necessary sources. It's very interesting to see that we have a 5-year CapEx plan with EUR 70 million, representing twice the typical CapEx deployment in Iberchem. This form part of the overall Croda CapEx plan of GBP 16 million per year, which partly reflects the redeployment of proceeds from the forthcoming disinvestment. Our EUR 70 million 5-year CapEx plan include basically 3 major projects: the F&F and Beauty Actives new share facilities in China, we call it project, with an estimated budget of EUR 20 million only for the Fragrance and Flavor side. A new creation and production center in Parfex in Grasse with about EUR 10 million budget and expansion capabilities in Spain with an addition of EUR 5 million. Okay. Let me go through the basic elements of our success. We already described what we did over the last few years. Key to understanding our growth plan moving forward. But let's talk about the how. Let me tell you with this summary slide, the 4 key fundamental pillars of our model, why we win. We have a wide product portfolio with a collection of 40,000 fragrances references. Let me be precise. These are the homologated fragrances by our customers. We have more than doubled in terms of activity, in terms of registered activity in fragrances. Second, we have a global platform, present in 120 countries, 3/3 of sales in emerging markets we mentioned before, while more than 20% in China; third, faster customers. We are truly fast in providing fragrances to our customers. This -- our organization is designed to be agile as part of the value chain from the raw material procurement to the fragrance creation, production and shipping. I hope that you will be able to understand this today in the site visit. The whole company is designed to be very, very agile as a key success factor. Ready for something in a few days, ready to produce with a lead time of 5 days plus transit time, if needed. 4,000 customers today, 1,400 customers over the last 5 years joining. And our top 10 customers representing only 21% of the sales, which means very low concentration. Last but not least, the fourth pillar that we will describe deep -- in more detail, customer-driven R&D company. So we are super-fast. And our R&D is really focused in new development. So we have 280 new fragrances created per month and 75 new codes in flavors per month as well. Okay. So let's go to the first pillar. We have a wide product portfolio present in all categories and segments of the fragrance industry. If you allow me to use the provocative terminology of my mentor, the former CEO of the company, we are focused on the diversification. 77% of the sales last year in Fragrances, while 23% is in Flavors. In Fragrances, 52% in Personal Care and Perfume and 48% in Functional Fragrances. On the left-hand side, we can see some of the descriptions in terms of families, 16% in Beauty and Personal Care, while 36% in Perfumes. Then if we go at the bottom of the slide, we see that in the Flavors family, basically, we have 3 major categories: beverage with a very impressive growth over the last few years in Africa with instant drink and energy drinks, sweet our great expertise since the very beginning and savory with great contribution over the last 11 years from our team in Italy with excellent introduction in natural flavors for some of them for the most famous fill pasta producer. Okay. So then we also mentioned we have a global platform. In the first slide, we call your attention to the accelerated global expansion of Iberchem to most of the emerging markets. Since the very beginning, we decided to decentralize our production facilities to increase intimacy and responsiveness to our customers. In blue color, we can see markets where Iberchem has local facilities, either production or R&D. There are some interesting facts to give you a flavor of this strategy. For example, we were one of the very first European companies of our space with full local production in China, early 2000. Today, from our R&D and production center in Guangzhou, we attend more than 800 local customers with approximately EUR 40 million sales in China. In Southeast Asia, Iberchem was one of the very few F&F players with local production capabilities in Jakarta in Indonesia. And another example in Tunisia. Since late '90s, we have our production capability as well. We are the only F&F player of our profile with local production capabilities there. And last but not least, we -- for example, in Johannesburg, we have so many good customers bringing attention because we have local production capabilities in Johannesburg. Another key success factor of the traditional resilience in the F&F industry to the centralized facilities. Okay, third, fast to customers. Please allow me to dig deeper in this concept, I think, is really, really important. On the left-hand side, we have some ideas that I would like to remember. Strong customer intimacy, 11 years average relation with top 50 customers, 8 of them with more than 20 years of relationship. Let me recall the attention with a number of new customers joining Iberchem that we will describe in a few minutes, focus on customers' niche, not so well treated actually by the Tier 1 players, with huge cost structures and more in favor of larger customers. We always like to say that we treat our customers always as A customers, no matter the size. And this is a key differential factor with our largest competitors. We have a very low concentration. As a matter of fact, 112 customers above EUR 0.5 million sales, only 34 customers last year above EUR 1 million sales. This fast to customers model well suited with midsized customers. Of course, in our space, we always talk about tailor-made products. And our growth strategy is basically supported by own brands and larger and regional independent brands. Top 10 customers representing 21% of the sales last year. Almost 4,000 customers in total, and we grab over the last 5 years, 1,400 new customers, excluding Parfex, to have a very proper comparative. On the right-hand side of this slide, we can see that 9.2% CAGR growth in number of customers in dark blue, fragrances; in light blue, flavors, excluding Parfex as well. So basically, that's a key message. We are growing in a number of customers and growing within our existing customers as well. In this final slide, I would like to introduce the fourth pillar of our strategy, customer-driven R&D. Basically, our comprehensive process, including first, identification and data capture from the market; second, knowledge management with huge experience, and it's important you will see today there is school of perfumery that we have in-house; third, study trends and tastes; and fourth, product development. Now it's time to pass the floor to Maria Angeles Lopez, our Fragrance Development Manager, another great example of a new graduate who joined the company 15 years ago with increasing level of responsibility and promising career on board. Thank you for your attention.

Thank you, Jose. It's my pleasure to be here today to explain our vision and perspectives in a business that combines art and science. My name is Maria Angeles Lopez, and I'm Fragrance -- Global Fragrance Development Manager in Iberchem, a role that can be described as a bridge between technical department and sales apartment. To explain what makes Iberchem unique and why we are different to Tier 1 and Tier 2 competitors, I would say we have achieved to create our own business model in the Fragrance sector. We have a very fast response to market demands. And as a global company, we have an extensive insight on latest market trends worldwide. We translate every day that knowledge into new fragrance compositions, creating more than 50 new references per week to fulfill customer needs. As a result of this creative force, we currently have in our library, more than 40,000 fragrances already validated by our customers and more than double of that in our formulation pool. Our dynamic approach to Fragrance business permits us to develop a whole project in a very, very short time. In just 15 days, our customers can have in their hands a tailor-made creation according to their requirements. The reason for that speed is because Fragrance business is 100% market trend driven. So our fragrance guidance and support guarantees our customers to be totally updated in their market segment. We can also say we have 2 different levels of R&D. The big picture R&D is related to our new technologies department. In there, we are continuously developing new ways of supplying out-of-the-box fragrances services to improve customers' products like malodor neutralization or fragrance microencapsulation. Another R&D area is about perfumers and their daily creations and market analysis to have an updated and dynamic fragrance collection in order to provide our customers with the latest trends. The reason why we have developed such a special character in Fragrance business is related to our historical evolution. Our growth has come from emerging markets like Nigeria, Ivory Coast, Senegal, China or Indonesia. These countries had an interesting industrial sector, but they also had a severe lack of technical knowledge and not many suppliers were willing to visit this kind of countries. So we found an important business gap in there. Working with these countries naturally led us to specialize in providing a 360-degree service to our customers, including local and specialized sales support, marketing support with trend identification, market positioning for the brand and packaging design for the products, fragrance creation together with application and technical advice like product formulation chassis, a service that has been reinforced since we are part of Group and Magali will explain I'll do more later, and operational support and stock availability through our 15 production sites. This means that the same fragrance can be produced in any of our different centers and managed through our SAP system. We work side by side with our customers, and we are proudly part of their growth, growing with them and growing within them by increasing the number of sold references. As our customers trusted us to expand their businesses, our natural motion has always led us to be on the vanguard of trends and technologies to better serve them. For that reason, we are always immersed in a continuous market trend research where we analyze global and local markets as well as new olfactive molecules, and we transform that knowledge into freshly developed fragrances for specific customer needs. We can say that around 60% of our workload is related to proactive market research like trade fairs, conferences, everyday contact from local subsidiaries, suppliers, new launches and closed market monitoring. The remaining 40% for workload is related to working direct requests from our customers. Our R&D comprises molecules analysis, raw materials database update, product development and study of olfactory trends and tastes from a sensorial and a chemical point of view. We offer versatility by creating an adapting fragrances for any possible application. As a result of this, every month, as Jose said previously, we develop 280 new fragrances and 75 new flavors. In this next slide, I would like to comment some figures that give support to our customer-centric strategy. We have 10 R&D centers and 280 technicians. In 2019, we invested in our new R&D building in our headquarters here in Murcia from where we coordinate all the subsidiaries and from where we manage the most important projects. In this building, we have 6 differentiated areas and the sum of all of them leads us to the module creativity through science. In a while, you will have a chance of having the site visit and seen all of this in person. Firstly, we have the new development laboratory, where the new fragrances are mixed and blended. We also have the instrumental analysis area to be fully updated on the new molecules and olfactive trends in the market and to keep a strict control of our production. We also have the fragrance application laboratory, where the fragrance meets the final product to guarantee stability and performance. This is the most Croda-related area. As together, we can provide chassis formulations to our customers. We have the perfumers room where all our creative people have common areas to share their expertise and new developments. We currently have 22 perfumers globally and 9 flavorists. But our unique internal training method, Jose commented before, continuously instructs new trainees every year, leading us to the new generation of perfumers. We also have testing cabins, which is a very important part for evaluation department because fragrance evaluators check performance and profiles of the new developments and coordinate with perfumers to improve our formulations. The new technology department, which is a dedicated area for creation and delivery of fragrance and flavor solutions like microencapsulated fragrances and malodor control technology. As an example of this, we have just finished our VernovaCaps, the first patent from Iberchem and the second one in the market related to formaldehyde-free and biodegradable microcapsules for fabric softeners. All this structure allows rapid commercialization of value for money fragrances and flavors and supports also customer intimacy. As key takeaways of this first part of the meeting today, I'd like to highlight the following points. We have a wide and continuously expanding product portfolio. We operate in a global platform. We are fast, really fast to customers, and that is one of our main signatures. We have 100% customer-driven R&D with unparalleled commercial support to regional customers. We capture the most recent trends in market, and we have a formulation-driven approach. And now I'll hand over Richard Butler to speak about the synergies between Croda and Iberchem. Thank you so much for your attention.

Well, thank you, Maria Angeles Lopez, and I hope now you all have a much better understanding of the Iberchem business model and why we are so confident of continued delivery of double-digit organic growth. I along with Magali, are now going to try and give you some more insight into sales and what we're going to realize by looking in turn at each of the 3 sources, okay? So we expect to realize EUR 48 million of growth synergies by 2025. We've broken these down into 3 categories. We have -- number one, we have geographic expansion. The Croda Consumer Care business, as you can see from the slide is split 75-25 between the markets of Europe and the Americas versus Asia, Middle East and Africa. You can see that for Iberchem, the reverse is true. So what we're doing is we're leveraging the Iberchem presence in these emerging and fast-growing markets to increase the Croda ingredient presence, and we're leveraging the Croda presence in the large mature markets of Western Europe and North America, Korea, Japan as well to accelerate Iberchem sales. Number two, customer cross-selling. From the pie chart, you can see actually that we only have 400 common customers between Iberchem and Croda. So we're now using the customer relationships of Iberchem to sell Croda ingredients, and we're using the customer relationships with Croda to sell fragrance. All of these 6,000 customers -- consumer care customers buy fragrance. And then number three, we're creating opportunities through the full formulation offer at all customers in all regions, offering customers support on the product claim, the sensory effect and the fragrance. Magali will talk more about this in just a couple of minutes. All of this, of course, underpinned by targeted investment to enable the growth, whether in CapEx to establish local production or laboratories or indeed in people. And that's the talent which ultimately is what makes a business work. So over the next few slides, I'll try to bring all of this to life just a little bit for you. What I'm sharing with you here are fairly standard activity metrics that we use within Croda. These we know from experience are lead indicators for future business delivery. It's fairly simple, sales calls lead to new business -- lead to samples, samples lead to projects, projects lead to new customers or new business existing customers. So in 2021, which is, of course, still year heavily affected by COVID-travel restrictions, you can see the progress made. 700 sales calls, 1,300 samples, 240 projects created and 50 new customers. What is also important, though, in the context of cross-selling is the complementary levels of activity in both the Croda and the Iberchem sales team. From a regional perspective, the good news is that this activity was well spread across Asia, Latin America and Western Europe. If you look at geographic expansion, as we said, one of the attractive features of the Iberchem business was the opportunity for geographic expansion for both Croda ingredients and Iberchem fragrances. Brazil and China were immediately identified as priority markets. Brazil is the second largest fragrance market globally. Yet Iberchem have to date had no presence there. Croda, on the other hand, has a well-established business supplying to personal care and home care customers, including the MNCs, major regional brands and local indies. The Brazilian market, though, is ideally suited the Iberchem model. Prestige brands, of course, exist and they're successful, but the market is really dominated by mass and masstige segments in hair care, body wash and home care. Here, we've already recruited an experienced business team. And they're currently developing business today, which is being supplied here in Spain. We will, however, establish local production in Brazil by the end of this year. China, you may recall from March actually is core to the Croda Consumer Care sector strategy, making in China for sale in China. It's also core to the F&F growth plan. Here though, as Jose said earlier, Iberchem have a well-established business and a growing customer base, but demand is seen to exceed current facilities capacity. We, therefore, took the decision to invest in expanded production facilities at a new location in and at the same time, established local production of botanical extracts for our Beauty Actives business. So we talked a little bit earlier about how we track activity and how it is distributed around teams and around the regions. Here we have actually just a few examples of customer cross-selling successes. I'm not going to go into details of each customer. This is just to illustrate this model is working everywhere. So as I've said, Magali will explain more about the value to customers of having a full formulation expertise in their supplier. By way of illustration, though, this was a real case scenario, it's a meeting that is initiated between an Iberchem salesperson and a large customer in Turkey, consumer goods manufacturer. The boxes at the top attempt to explain the typical process with the customer. It's in box one, we uncover what the problem is, what is their challenge, what they're trying to do. In this case, the customer team had been asked to develop a new skin care range. So we then took that internally. We researched the key market trends relevant to the target market and those consumers. And in this case, identified wellness, hygiene, nature, sustainability. Our formulation teams then select formulation for the formulation bank or they create a new formulation concept in line with these trends. These are then fragranced with selections aligned with those market trends and the full formulation samples sent to the customer for review. So the customer has the benefit of shortcutting their in-house development process. We have the benefit of entering into their brand discussions and developing sales across the whole ingredient portfolio. The slide images at the bottom there are simply from the presentation to the customer team and accompanied formulation samples with details of what they are and why we selected them. So continuing on the theme of value to customers of offering the full formulation, I will now hand over to Magali to explain you in more depth exactly what we mean by that.

Thanks, Richard. Since we are talking about formulation, let me explain briefly where the magic start. Depending if a customer request is for on product or in soft, formulators will be selecting a surfactant emulsifier or detergent, then adding on emollient and water, of course, plus a thickener to adjust the viscosity of the formula. The first category of ingredient is known as the functional ingredient and constitute the main part in terms of percentage rate. Active ingredient are the most valuable one as their low formulator to fulfill claim effect, such as SPF for sun care product or active for anti-aging claim or hair scalp treatment. Last but not least, we have fragrance and aesthetic ingredients. Those ingredients have the capability to elevate your formulation to the next dimension of sensor that will delight consumers. On the right corner, I wanted to show a recent advisement made by a premium brand that highlighted the art and science needed to make a good formulation. The ad is referring to Les Orfevers De La Formule. That means goldsmith of the formulation, which highlight unique importance of the formulation in the product. It was also the first time I started to see some marketing focus on formulation capability as a point of differentiation. Anyone can now easily understand the complexity of selecting the correct ingredient to achieve a brief. And Croda having a large ingredient portfolio in each category, it is sometimes tricky to know where to start. Of course, we are regularly sharing this knowledge with our customers by organizing formulation academy, which supports our positioning on technical excellence and premium specialty ingredient manufacturer. So selecting the right ingredient and mixing all them together is only one side of the picture formulator. There are 4 follow-up key stages: Stage 1. We need to check if the is robust enough and giving a correct colloidal structure as it relates to texture feed and ease of getting product outside packaging. This formulation technology is mainly driven by functional ingredient, as I mentioned previously. Stage 2. We need to prove that active ingredients are performing according to the claim they promised to deliver. For example, we generate advanced air data for a conditioning effect or a full in vivo technical dossier if it's an anti-aging active from Sederma. Now comes the part that is more relating to consumer experience in stage 3. We have to make sure that the formulation can live up to the consumer expectation. So via sensory data or hair salon consumer testing, we evaluate that the final picture fit the brief. Last part, but not the least, it is to make sure that the addition of fragrance will not destabilize the first part of the formulation technology. Perfumers are highly trained to create lovely scent, but also to design fragrance that have a minimum impact on the formulation, while delivering the fragrance performance for each stage of the product use. This full process is allowing us to offer the full benefit of a formulation to our customers because we understand the synergy of each ingredient fragrance on the consumer experience. We carry this expertise via a global network of innovation centers capable of developing prototype for each regional customers, and we monitor the trends to suggest best combination of ingredient to achieve the best formulation within local regulation constraints or sustainability credential. Simply said, I remind you Chemist joining the technical team that our role is to make sure that we are selling the dream while optimizing the ingredient complexity to avoid any nightmare. I wanted here to share with you an example on how we synergize the formulation and fragrance. We choose an example of recent customer work that Richard mentioned previously. The inspiration of the formulation is from where you applied a cream overnight to remove fatigue sign and refresh your face ready for the day ahead. As the customer is located in Turkey, we first had to modify the ingredient selection to comply with the local regulation and texture preference. Following previous process, we have highlighted in purple the functional ingredient that from the central part of the formulation. Then add on the Actives but that are supporting and delivering the claim of anti-fatigue with Sederma and Crodarom ingredient highlighted in green here. Finally, come the fragrance to affectively reinforce consumer experience and support a claim. Iberchem and Maria and this team have selected 3 type of fragrance with different composition. The 2 fragrances on the side, the night therapy and the night repair are designed for oily or dry skin, so that a smell that convey efficiency will enhance the consumer journey. Otherwise, with normal skin, we expect just a reinforcement of the main purpose for buying these products such as comfort. By combining the talent of our formulators and perfumers, we bring the best out of each player and reinforce the sensory journey that we are proposing to the consumer. By the way, those 3 products that are composed of the same formulation with different fragrance will be displayed during Iberchem 2. So you will all be able to test it, smell it, and I value your feedback. Finally, I could not finish that formulation description without giving you a little sneak peek of what could be the innovation in the field of sensory and consumer. Thanks to recent neuroscience progress, we are capable now of measuring the impact of various texture applied on skin at the emotional level. When this is associated with the emotion that perfume brings to cosmetic, it will unlock around emotional, cosmetic and well-being claims. So neuroscience applied to cosmetology will allow new type of claim for different texture and fragrance, and that will open exciting opportunity for Croda in the future. We have explained how we are leveraging functional and active ingredient with fragrance. Now we will explain how the creation of the formulation academy and our formulation capability will support the growth of ingredient across the personal care portfolio that, as we mentioned, represent today around 70% of the business in value. Croda has accumulated a depth of formulation expertise across all application. In the past, we focus on creating stable formulation that supported primary claim such as skin moisturization or air conditioning. Lately, we have worked hard to understand the sensory aspect of cosmetic and formulation and how that affects the consumer journey. With this knowledge, we supported customers to solve formulation challenge we use formulation data to work on claims supplementation and to start conversation with our customers about ingredients. What has changed after the acquisition of the F&F business, is that we have a complete formulation capability and have a unique positioning by being able to provide a range of about plus 1,500 market-ready formulation across skin, solar and hair application area. This full-service model is very interesting to small indie brands, but also to more consolidated medium-sized brands but for different reasons. The indie example from the left are some small and very agile company, marketing and value-driven often with limited formulation capabilities. Product can have them in ready fragrance formulation with the right sensory effect that reflect the company values with appropriate claims and regulatory guidance. We will not sell the ready-made formulation, but can provide advice on contract manufacturers. Croda will sell the ingredient to this company, in fact. For better established brands on the right, example, we can -- example, on the right, we can support them in a different way to diversify the brand offering by expanding their product range and adding new claim for existing ingredients. These brands are starting making face mask with strong marketing story. Now they are moving into skin care with formulation full of Croda Actives that we will sell directly to them. Two different type of customers that we will serve in a different way, but both will be taking advantage of our formulation capability. To conclude Richard and my section about sales synergy and formulation capability, we continue to see exciting opportunity for continued geographic expansion, taking fragrances into new market and Croda into emerging markets. These are exciting cross-selling opportunities between Croda and Iberchem, leveraging the different customer base. And finally, our full formulation capability is a strong differentiator for Croda to deliver performance, capture the power of sensory and emotion to add value to customers. I will hand over the floor to Alexandre to talk about Parfex.

So good morning, everyone. Introducing myself, Alexandre Levet, so Sales Director at Parfex for the last 10 years. 20 years into the industry and now 1 year in the Croda Group. As a small introduction to Parfex and to who we are, we are showing you a small video. [Presentation]

Okay. So to go a bit deeper into the explanation. So as shown in the video, the company has been created in 1985, so exactly like Iberchem, but we have a different goal, more focus on premium skin care and fine fragrance. Operating with a similar share between Europe and Middle East and smaller operation in Asia, as you can see on the graph. We are using the great platform or grass to formulate and promote natural and sustainable formulations to our customers across the world, especially into premium skin care working for famous houses, where we are having a strong and dynamic growth in those years. Operating nowadays into 50 countries, providing tailor-made solutions for our customers into the fine fragrance industry, which is representing half of our portfolio, creating fragrances adapted to the region and culture where we operate. The company is now counting 100 employees and looking forward to increase its resources in Grasse, the capital of perfumery. Thanks to the new ownership, Parfex combining French, Grasse made, traditional values with a modern approach. We were one of the first company to implement robotization into our production and as well one of the first to reach 90% of automatization, great step forward for the flexibility and speed to market, as we are able to produce into 5 working days exactly like Iberchem and capable of delivering, for example, Asian customers faster than some local facilities. So here is focus on Parfex's growth plan, how to deliver? So as you can see on the graph, the former management of Parfex was having a conservative approach. We have achieved an average of 6% growth between 2015 and 2021. So now being part of Iberchem, we will be able to apply the ambitious way of developing the business, developing the structure, which already started some months ago. And we can already feel the difference having strong Q1 2022 compared to previous years. This is just the beginning. Our ambitious plan is to deliver EUR 50 million turnover in 2025 with a stronger activity in natural formulation and keep increasing our presence into the fine fragrance market, which will help us to increase our EBITDA margin. To support this ambitious growth plan, we are tripling the size of our facilities in Grasse to be able to deliver more many inference fragrances to our partners worldwide. This next slide will talk more in detail about how we will accelerate our growth rates. So now how to deliver the plan? As explained, we will use the Iberchem methodology. We have already increased our resources with some small CapEx to expand our capacity as well as increase our team by 15% in Q1 2022. These first steps help us to be on plan for 2022 so far. Now to reach EUR 40 million, to deliver the growth, we will proceed with 5 steps. So number one, we are starting to capitalize on combined selling network to drive growth in new geographies from 50 countries where we are today to 100 countries where Iberchem is. Number two, utilize Iberchem manufacturing network as well to produce Parfex fragrances across the world, which was a major issue for us in the past to stay in the core list of our premium customers. This is another limit that has been unlocked, thanks to this acquisition. At the same time, we have an ambitious CapEx plan for our grass structure, which will multiply by free the capacity of our installation while increasing our robotization rate to keep our speed to market and the high-level service to our existing and future customers. Number three, we will be leveraging Croda reputation and relationship to access more premium-end customers to increase fine fragrance and premium skin care offering through creative codevelopment into Europe and North America. Number four, we will push our development into natural certified formulations as well as biodegradable and 100% sustainable formulation called Parfex Nat2Nat, which is a great alternative for our customers who are looking for sustainable solutions for their product and showing their concern for the young generation. Number five, we will facilitate the R&D harmonization of the raw material across the operation, as explained by Magali, and we'll leverage the raw material purchasing between the production sites. In addition to that, we are implementing common subsystem, which is a super structuring tool for Parfex, and it will facilitate the synergies within the F&F division. I will now hand over to Guillaume, and he will explain how our natural origin formulation fits into the broader sustainability strategy for Flavors and Fragrances.

Good morning, everyone. I am pleased to say that Iberchem has made significant progress in sustainability since we officially launched our program 2 years ago. Given the nature of its products and its presence in emerging markets, the Fragrance division has great potential to contribute to Croda's climate, land and people positive strategy. So let's start by exploring how fragrances can advance Croda's ambition to become climate positive. First on the list are Parfex bespoke Nat2Nat renewable fragrances, which perfectly complement and enhance Iberchem's green future portfolio of sustainable products. Very quickly, we have created the green future portfolio to help our customers choose which sustainable fragrance suits best their needs. We have, for instance, vegan and biodegradable fragrances and fragrances made with upcycled ingredients. We also have Cosmos Ecocert fragrances, which are in a nutshell, certified natural organic fragrances. Finally, we have our high-intensity fragrances, which are based on the principle of fragrance compaction. As they are more concentrated, they use less energy during production and reduce packaging and even carbon emission during transportation. Those are perfect alternative for companies looking to address their scope 3 emissions. We're also about to start working with [ Deloitte ] to quantify the benefits of these fragrances. At the beginning of the month, Iberchem launched for VernovaCaps, its own biodegradable fragrance encapsulation technology. Iberchem is only the second company in the industry to offer such capsules. Our Fragrance Technology Director, Michael White and his team, are also about to launch VernovaPure, a biodegradable version of our malodor-neutralizing technology. In terms of operations, Iberchem recently achieved for the second year in a row, the zerowaste certification at its head office. We're also on our way to renewing our EcoVadis certification. Finally, we are currently working on a coding system on our SAP platform to offer our perfumers some guidance at the time of formulating fragrance. I won't lie to you, it's a laborious work as our perfumers work with over 3,000 ingredients. Still, for them to know with a simple click if an ingredient is, for instance, renewable or biodegradable, it will be extremely helpful to be more agile when creating sustainable sense. So let's move on to the second part, how Iberchem has the intention of becoming the most sustainable fragrance company in emerging countries and contributing to Croda's ambition to become people positive. One of the most important things that I recall from my study is that Cambridge Institute of Sustainability Leadership is that when it comes to sustainability-related issues is that, yes, we're all in the same storm, but no, we're not all in the same boat. So I think it perfectly illustrates why we believe education is crucial for Iberchem, given its presence on emerging markets. And why I can expect a faster response from the segments addressed by Parfex. And finally, why Parfex plays an important role in accelerating our progress and sustainability. So before selling tons and tons of biodegradable fragrances, Iberchem first needs to go on an education journey with many of its customers. As you can imagine, biodegradable fragrances are not a top priority in countries such as Nigeria or Ethiopia. So therefore, we are currently working on an internal education program to make sure that all our employees and especially our sales team become sustainability ambassadors. For them, just like I'm doing today to transmit why we must switch to sustainable fragrance alternatives. Then as you can see on the screen, what's left for us to do is define commercial opportunities, create tailor-made solutions and also define some KPIs to measure our success. Obviously, a company cannot aspire to become a sustainability leader only by selling sustainable products. We also need to be involved in the communities where we operate. So thanks to Croda, we have definitely accelerated this part of our program by integrating, for example, Iberchem into Croda's STEM educational activities. Also, thanks to grant from the Croda Foundation, we're now working on a project in South Africa that aims to benefit unemployed, blind and partially sighted people. This beautiful project will still young blind people. Training will be provided for about 40 individuals to set up and incubate at least 10 micro entrepreneurs and also will place at least 20 participants in development programs. In parallel, Iberchem continues its calibration with the NGO SOS Children Villages. For instance, in 2019, we provided drinking water to Kelafo in Ethiopia after the village was flooded. More recently, we also helped reduce the digital gap in education during the pandemic, also with SOS Children villages. So those are just some examples of the many initiatives we currently have. And our intention is to increase such actions in the near future so that we can become the most sustainable fragrance company in emerging markets and become people positive. So back to you, Richard.

Okay. So Guillaume, Alex, thanks very much for giving us a deeper introduction to Parfex, first of all, and also, of course, the evolving importance of sustainability to customers and climate and communities. All projects very in line with Croda's own climate and people positive commitments. So now it just leaves me to summarize just a few key messages. Just to return to the business plan. We have the ambition to grow to EUR 400 million worth of revenue by 2025. We are on track to achieve this. Jose and Maria Angeles have given you insight into the stand-alone Iberchem business model and why it has been so successful. This is the foundation of the plan. Then Magali and I, we spoke about the synergies that we're seeing from cross-selling, geographic expansion, and our unique ability to work with customers on every part of the formulation. Then Alex and Guillaume have explained why the acquisition of Parfex is an invaluable addition to the Iberchem brand and how it will help us to further our sustainability positioning. So finally, just some key takeaways from this morning's presentation. We have a very strong market differentiation. We are unique in what we can offer. We have an agile business model with an extensive portfolio of fragrances and ingredients. We have a global R&D capability, driving innovation in both ingredients and fragrances. Our customer proximity underpins our speed to market. So we have a robust business plan, and it's based on exciting organic growth trajectory, further upside from sales synergies and leveraging Croda's full formulation capability. And we're now very happy to answer any questions you might have. So thank you for your attention.

I'm Charlie Webb here from Morgan Stanley. Just a couple for me to start then. First, just on pricing. A lot of discussion within the F&F space around pricing in the current environment. Just interested to see here what you're seeing there, what you're doing to tackle some of that inflation and how we should think about that when we think about the margins, looking forward and your ambitions there?

So I'll just make a quick comment, and I'll hand over to Jose to perhaps to go to a bit more detail. So yes, you're absolutely right. When the F&F industry, along with pretty much every industry at the moment is being impacted by raw material inflation, energy, freight and everything else. So we're not immune from that. We have gone to the market with price increases in quarter 1, and we're achieving traction with those as well. But Jose, I don't know if you'd like to quite a bit further.

Thank you, Richard. So that's a good question, actually. So we are not far from the level of inflection that we are suffering in some of the industries are suffering. So last year, 18% increase in cost in general in raw materials. But typically, our strategy in Iberchem has been slightly different because we are not that much focused on recovering gross margin so quickly. So our capability to move cost through selling prices is more in the grabbing new customers actually because typically, we have been a challenger. So this provides us an opportunity to penetrate and to have more customers. Those who are more resilient -- I mean, sorry, resistant and being focused in the Tier 1 players, now they want to open the door to Iberchem because we remove complexity and we provide more competitive solutions, if you allow me to say. So actually, this is a very important point. The other point is that we mentioned before in the slide that we have a very fast and agile R&D process. And we launched basically 280 new codes per month. So we are not used to increase sale prices on a quarterly basis as the rest of the Croda family does. We did it earlier this year. But every month, we have a natural hedge because every new products the cost price is already updated and the markups as well. So I would say that there is a very important portion of our products that have a natural hedging in terms of cost margins.

That's really interesting. And maybe just one for the Iberchem team. How has things changed since Croda has come in? What are some of the tangible things you've seen from that kind of change in ownership? And any kind of -- when we talk about those sales synergies, can you give any kind of examples of where that is opening doors or where you are seeing that customer cross-selling?

Obviously, the ownership has changed a lot. I mean it's not the same to be in hand on private equities. That was amazing. It was a very successful story we mentioned before. For the managers, for the ones that are part of the equity and things like that, that's great. Sometimes when you -- every 5 or 6 years, you go for disinvestment process, there's an increasing level of sensibility across the company because you are going to be part of another private equity another owner. Now that we -- I mean, after reaching some kind of maturity, we are part of a much larger platform for an indefinite period of time. So I think people are really, really happy. Actually, we mentioned that in this last -- disinvestment process, we, the managers, were the one supporting to be part of Croda. And the second part of your question is, yes, of course, there are some differences between Croda and Iberchem. But at the end of the day, the attitude to customers and the customer-driven orientation of Croda is very similar to Iberchem. And I would say that the most part of the differences are in the geographic exposure or geographic opportunities because we are 80% in emerging markets and it's completely different to be working in Nigeria, Ivory Coast than have been working in France and Germany, obviously. So this is the level of flexibility that we are getting and to be true, the honeymoon is over, and we are super happy to be part of Croda, because it's a very light-touch integration. So -- and this is a very smart move. It's not an integration. It's a coordination. It's a cooperation to get the best of the 2 worlds. And you also mentioned an opportunity to -- I mean, an example of synergies. Yes. For example, we have a nice customer in Jordan, who is doing kind of home care products, for example. And in an exhibition in Dubai, Richard and myself, we were there and we introduced this customer, and now this customer is buying from Croda. This is one of the blocks that Richard mentioned before that is those markets where either present is stronger than Croda is very important, actually. This is a very good example.

Mubasher Chaudhry from Citi. Just a couple of questions, please. The first one, a bit focused on numbers. So you talked about the EUR 400 million of ambition by 2025. If I back out the EUR 40 million from Parfex and EUR 48 million of synergies, kind of get left with a low double-digit growth rate on organic side of things to get to the EUR 400 million. Anything that's making you a bit more cautious versus a long-run track record of 15% CAGR? I think that was on one of the slides that you put. Just some comments around that as I just conservatism and trying to see where market heads? That's the first question. I'll come back to second.

So if I understand properly, you said that how comfortable we are with these expectations, right?

The conservatism around going from mid-teens growth rate for the last, I think, decade to forecasting a 10% to 11% growth going forward. So kind of the drop in the growth.

I mean if you look at the slide, the average CAGR growth of Iberchem has been around 15%. So basically, in this business plan that we have to reach more than EUR 400 million in 2025 is very consistent. The organic growth is very consistent with historical track record. It is slightly different in Parfex. It's true, slightly different because the attitude, the level of investment was completely different. I mean the previous owner was very conservative in terms of CapEx and new recruitments. So I don't see any change in Iberchem. I see, yes, from single digit to double-digit growth in Parfex, but we did it in Iberchem. And the great of Iberchem is when I joined, Iberchem was exactly the same size than Parfex. And we did it because we increased the level of investment in CapEx and in resources. And the third piece of this business plan, of course, is synergies, cross synergies with opportunities, geographic synergies in both sense, I mean selling Iberchem products through is by Croda network or the vice versa selling Croda products through Iberchem. So I think it's very consistent to -- and today, after the report in the first quarter, we are very confident and we are on track despite the macroeconomical conditions. So we are on track with budget.

Sure. So the EUR 200 to EUR 300 million is the organic. And I think that's consistent. So within that 15%, we've typically seen something around 10% growth organically per year. And then you've got the acquisition and the synergies on top. So I think overall, yes, we see it as consistent with the historic growth.

And the second question around, I think on Slide 30, you talked about the 6,000 customers, which are available for the cross-sell. Is it fair to assume that all 6,000 are available to be kind of penetrated through -- for the cross-selling? Or is that assuming there's -- I guess I'm trying to get a segmentation between what are the easy wins and how many of those customers are naturally never going to be penetrated and just getting a truer market opportunity for the 6,000 customers?

Correct. So when we're looking at the model we put together growth model and the synergy assumptions actually during the acquisition process. So we took those 6,000 customers, and we assumed a certain rate of penetration over the time period. So do you expect to gain 100% of those 6,000 customers? No, of course, we don't. But there's some are more available than others. I think what encourages most though is, as I said before, in some of the slides, if you look at the markets where we're really trying to accelerate in like Western Europe, North America in the future, we have a very strong brand presence there already. We have great contacts in those customers. So our ability to just pull fragrance into the discussions that we're already having with customers is very strong. And as Jose said a minute ago, we're already seeing great examples of that happening where doors are being opened. We're being involved in the full formulation discussion now, so not just the ingredients, the beauty active or beauty care products, but also the fragrances as well in that discussion. The work is handled in different parts of the company. And the works is handled under Iberchem or Parfex or maybe one of the development labs in Croda. But the synergy model that we assumed would be delivering is playing out as we thought.

So if I just squeeze one last one. I think you mentioned that Iberchem not being in Brazil and you're expanding into that market, and you talked about how attractive that market was. Any particular reason why historically, you've not gone into Brazil?

You said why we are not present in those markets?

Historically, yes. And...

When you have limited resources, you need to have some priorities where are you allocating resources. So at the very early years, we found that going to those markets in Africa, Middle East was more successful than the fighting in Spain and France against some big multinationals. So historically, we saw that the level of penetration in those markets was easier or more effective, I would say. That was the historical reason actually.

Just 2 questions for me on the sales breakdown of the double-digit growth you expect across flavors, across Home Care fragrance across Personal Care fragrance. Is there a big difference in the growth you expect across the 3 subsections of the business? And then my second question is in terms of employee retention, obviously, a management team, very clear successfully. Do you -- is that true all the way through the business and sort of think about your lab technicians, your perfumers, is that the same? Or is there a risk you lose to the Tier 1? Can you compete on salaries, et cetera, et cetera.

Thank you. So the first question is very interesting. I mean, I think that 2020 and 2021 is the perfect example of how the company has such a level of resilience because, to be honest, I never saw such negative environment against fine fragrance categories. So one of the slides we mentioned this morning, we described that we have a wide product portfolio in the company. So for example, in this particular period of time, flavors grew more than fragrances, in general, for obvious reasons. Fine fragrances were -- perfumes were affected because social distance and troubling restrictions is obviously against that. But functional fragrances and hygiene products booming. So I think that -- I mean, we have a very clear view that we can cross -- we can grow across categories, all of them. And then historically has been like that. Of course, in terms of R&D, it's important to mention, and you will see today in the site visit that we invest -- in terms of percentage, we invest more resources in fine fragrances than in the rest of the categories because there is a trickle-down effect from these new launches to the rest of the products. So for example, new trends that we are capturing in Fine Fragrances are coming down to some of the categories of home care hygiene products. And then the second question is also very interesting. So after 20 years, every 5, 6 years going through disinvestment processes, it was great for the management team. But if you become part of any of the 4 Tier 1 players that Richard mentioned at the very beginning of the presentation, you lose your identity. You are no longer with the same level of accountability and the same level of freedom in terms of creation, in terms of -- if we talk about perfumers or flavorists, you are no longer the same. So for example, in our case, we could have been the both to Africa or Europe or all in Spain, for example, it will be a part of this kind of platform. The smart move of Croda with Iberchem has been a very light touch integration with only integrating the basic parts of the organization, but see them to run the business in terms of commercial and creation. That's why you will talk to our perfumers today, and you will see that they are really, really happy. So after 18 months, we didn't lose any single person in the company. Actually, it's exactly the opposite. There is an attraction effect because we are now part of Croda.

Matthew from Bank of America. I have a question around the combination of the 2 companies. And in particular, how you are allocating extra capital to the business. So I guess, Jose, from your perspective, it's hard to view a business that's grown so successfully has been underinvested per se, but still, if you had access to more capital, was there a pipeline of projects you would like to have done, which you're now being allowed to do within the Croda organization? And Richard, sorry, technically, when you think about the synergies, the sales synergies and how you create value for people, customer cross-selling is obviously one, but actually putting the balance sheet to work and deploying this capital to open new sites, hire more people, do we capture that just within the organic growth -- this double-digit organic growth? Or how do we distinguish between what's organic and what's a sales synergy when you're investing in a business?

So if I just answer the last question just so any organic growth model that we've got, that is based on what -- pretty much on the resources that we had at the time of the acquisition of projecting those forwards -- so the -- yes, there will be more capital deployed for geographic expansion. Brazil, China with the examples that we've given as priorities, will be others in the future, yes, to accelerate that organic growth, absolutely right. Jose, anything to comment on this?

So when you are growing at an average of 15% every year, part of your expenses and your HR -- I would say, HR expenses and even CapEx is moving forward 5 years ahead. So at the time of being acquired by Croda, we designed organic growth with existing resources, 20 -- I would say 20% of them not generating value because going forward for the future. So our average CapEx investment was basically 2.5% sales. So -- and it was very successful. But obviously, there was a conscious of, how to say, immediate results. Now that we are part of Croda, we double the level of capital deployed around 5% because we want to accelerate some of the key areas. And we mentioned 3 basic projects: fast growth in China, because we want to double the size in China. We have significant revenues in China right now. So we mentioned 20% of the revenues in Iberchem are coming from China. We want to grow much more than that. And we have a beautiful project jointly with Beauty Actives in Guangzhou, very near the factory that we have today. Second project is in Parfex accelerating the R&D and the sustainability -- the creation of sustainable products. And the third one is expanding capabilities here. So all in all, it's double the typical capital deployment in Iberchem. And we are sure that with this, we will be very consistent with the growth.

Sebastian Bray of Berenberg Bank. I have 2 questions, please. The first is on the similarities or differences between the Croda and Iberchem business models. Does Croda spend a similar -- or does Iberchem, I should say, spend a similar percentage of sales on R&D? And is new and protected products, a relevant metric for Iberchem given that the average product lifetime seems to be quite low and it's not clear to me how some of the IP protection works? My second question is on China, building on Matt's earlier comments. How has performance been year-to-date in that geography?

If I answer the first question, I understood it correctly. So is Croda historically as a rate as an innovation metric basically and a sign of differentiation in the marketplace. Is that relevant to Iberchem? Yes, we believe it is. There is constant for 2 reasons actually. This constant feed of new creations into the market. We talked about the importance of identifying trends and offering customers both formulations and fragrances that are aligned with those emerging consumer trends. That is innovation. It might be a different type of innovation to Croda, where often we talk about new molecules. This is taking existing materials and presenting them in a different way to meet a new trend because the innovation is slightly different. But if that innovation is not there, the business model falls apart. So it's key. So yes, we believe it is. And if we have that metric in place, it continues to drive the focus on that innovation. Does that answer your question?

Yes, it does. I was wondering, is it really a protected product? Or is it just one which comes along quite quickly and is replaced because the innovation is in place? How would you define protected in the case of be Iberchem?

I think I'll pass it to perhaps Alexandre might be a better person to answer. But No, I was going to say that the protection is also in the context of the application, okay? So I think you have to look at -- if you have a fragrance going into a skin care formulation, as Magali explained a few minutes ago, changing the fragrance within that formulation is not a simple thing to do because when you change that, you run the risk actually of upsetting of destabilizing the whole formulation. So is that protected? Actually, yes, it is. And especially if we have the relationship with the customer to understand why they would look to change, okay? So it's different in different parts of the market. And we still believe it's a very relevant metric to focus on.

I fully agree with Richard. The level of protection is slightly different in Croda and in Iberchem, but it goes to the same direction. So yes, some of the players can do the same fragrances that we do. But the level of service and the intimacy with the customers given the reaction. So our customers need a very fast reaction, particularly in those emerging markets we mentioned before. So every week, every month, they came here to say -- and they -- you will see today that our production centers are real customer experience centers. And they came to our centers and said, "Look, I want this twist. I want this as smelling profile. I was something different." And our reaction is the base of this protection, which is completely different from the multinationals. Maybe Maria Angeles Lopez want to add something.

I'll add something. Consider, as I said before, that our market is marketing trends driven. So in the past, maybe you found your perfume and you could keep it for 20 years. But right now, everyone is buying 5 perfumes per year and changing it very fast. So now it's -- the importance is not in the level of protection, it's more important how fast you are given the service to the customer and to give new trends and new fragrances, more than protecting something you have because in the end, the customer what they really want is to be on the trend and to have a good service and a good fragrance according to the market, according to the fashion. We are -- this is a chemical sector, but also a fashion sector. And fashion is so fast nowadays that it's more about being faster than about being protected. That's it.

So if I can add to your question about ingredient because we are, at the end, an ingredient business. We -- the NPP from Croda of new molecule also cross in Iberchem. When you come up with a new capsule like Maria, that is patented in the same way, and that discounted. Similarly, you have heard me saying about emotional claim. Now it's another game. It's when you have a combination of ingredients that deliver a claim and an effect, that is patentable. Slightly different, but it is patentable and that can be counted. So that would be the KPI.

Before moving to the second question that you mentioned, additional note, most of the Tier 1 players, they work with captives ingredients. So now that we are part of Croda, we are working in some bio-based captive ingredients that will be a unique opportunity for a player like Iberchem to have to increase the level of protection of our fragrances. And then if there's any on the comment, I mean your second question is about China. I mean we need to be very clear. China has never been easy. We have a very successful business, but since the very beginning, we were fighting against holding the macro aspect and internal aspects of China. We were very small. We were fighting with all the players over there. There was compliance complexity 25 years ago, and we're fighting in all of this. So everything, I mean, has been professionalized over the last 20 years. But the macroeconomical conditions now in China are very challenging. That's absolutely true. The zero COVID policy is very challenging as well, but we are super happy because we have a slightly different approach to customers in China in some of the most important customers, we could say we have bigger volume, lower margin but it's getting very successful. And in terms of restrictions and lockdowns, that is very -- it's a typical question right now. We are not in Shanghai. We are in Guangzhou. So we have been fully operative, not any single day of disruption over the last 2 years in Guangzhou, which is really, really good. And the other site that we have in China is in Nanchang and in Nanchang, we are working, I mean, perfectly. So it's all good.

It's Marcus Lun from RBC. Could you just elaborate on some of those near-term and longer-term end market demand trends in frequencies? What happens in -- when there's a consumer squeeze due to higher inflation? Is there a trading down effect? How is your portfolio positioned to deal with that with those end market changes? What are your customers saying to you at this point?

Typically, our reaction has been always been very conscious about the customers' needs and not to increase so much costs through selling prices. We have been always very rational on that. But typically, our customers, what they see from Tier 1 companies is the typical reaction sending letters across the board saying, "Look, we are increasing prices 10% tomorrow." And then what they feel with us is that we are much more closer to them and rational to them. And yes, some of them, they come to us, and this we need some kind of reformulation. We need to fine-tune some of the formulas to be more competitive, to be more rational with the context of the business today. And this is something we do on a weekly, daily basis, I would say.

Charlie Bentley from Jefferies. So I just had 2 questions. So again, when you're talking around sales synergies and the split between kind of Croda into Iberchem and Iberchem into Croda, how do you think that kind of shakes out? And then if I think about specifically, I think the clear area of opportunity there is Iberchem has a customer selling fragrances and that's 1% of the product. And Croda might be able to supply another 15% of the product across Actives and formulations. Is that kind of -- is that basically where you're focusing on? And then on the Home Care side, it's much less of a priority? How do you think about that?

No. [indiscernible], okay? So there's applications in both areas, but they're different. In terms of how the synergies shake out, the majority of the cross-selling synergies we assume to be fragrances into Croda customers. There are opportunities to sell ingredients back into the Iberchem customers. And Jose mentioned one earlier, meeting with a customer in Jordan. We expanded the meeting about what they were trying to achieve, they were looking to mimic MNC brands when we understood -- when they understood actually supply some of those MNCs with key ingredients, that opened up a discussion with that customer, which was very fruitful actually. So there are opportunities. But in the model we put together the inception was that there's much -- it's much easier for us to introduce fragrances into the existing customer base. But it would be wrong to say there's a prioritization of Personal Care over Home Care, both sectors are being focused on actually by different people and different teams, and it's a different type of selling model, but it's very attractive opportunities in both sectors actually. It's a different business. Does that answer your question?

Yes. Yes, it does. And just another one is going on to Marcus' question just on cost loading increasing inflation on and so forth. I mean if I think about Iberchem customer set and particularly focus. I mean we see the level of inflation in soft commodity is incredibly high. Like do you see any -- is there any kind of concern around -- I mean you talked around Arab Spring and the ability -- I mean, the growth in the business through what was quite a challenging time. So can you just talk around kind of how the business navigated that? And how you think kind of that will impact the business today?

So last year, the average cost of raw materials in our Fragrance division increased by 18%. And in the first quarter of 2022, an additional 10% increase. If you look at the reported figures of Iberchem in 2021, basically, there was an erosion of gross margin less than 1 basis point. So that give you the sense that the first the cost pass-through selling prices is affected in the dynamics that we mentioned before of 280 new products per month. So it works because last year, we didn't increase prices, I would say, officially but this dynamic, yes. This first quarter, we increased prices. But in addition, we have this -- these new products per month. And actually, we are not seeing any erosion of margin. So I would say that we will be able to navigate very well this year. And I remember that 2018 was really, really very tough for us because it was the same situation we have today across the industries, we suffered in the fragrance industry, and it was basically the same. And typically, the reaction from our customers or those prospective customers that were resisting not to open the door to Iberchem, they are more inclined to talk about new launches with Iberchem than before because sensitivity with the cost. I don't know if you have to answer your question.

Yes. I mean I thought it is kind of also just thinking around volumes. So if I think about 2011 and you look at the growth that you had during a period of high self-commodity inflation and talking around -- are there any concerns on a volume basis rather than on a pricing basis, if that makes sense?

When we talk about volume and price, there's always a combination of product mix and it's very different when we talk about functional fragrances and fine fragrances, of course, on personal care. In 2021, when we were impacted in Fine Fragrances, we grew more in volume, obviously, because of Home Care products than Fine Fragrances. And this is the situation today as well.

It's Nicola Tang from BNP Power Exane. I wanted to first ask a little bit about -- you talked about how -- one of your differentiating factors was the agility and the speed to market and sort of the 15-day potentially for the tailor-made approach. Could you talk a little bit about how that compares to some of your peers in the Tier 2 side, but also on the Tier 1 side? And I guess linked to that, one of the beauties or challenges of having a local and regional customer base is the product churn, and I guess, the risk of disruption from some of these new players. Could you talk a little bit about the churn in your own portfolio and I guess, the average lifetime of a product?

Okay. When we talk about the speed, it's a question of policy, it's internal policy. It doesn't mean that for example, Tier 1, they can't work that way. Of course, they can, but sometimes they don't want to because they are more focused in some kind of companies and sometimes they are not so focused in other companies that for us, they are huge, but maybe for them because of the size, they are not so huge. So that style we've acquired has led us to big successes because we've understood that the way of differentiated our company was through this short time to create and to deliver fragrances. About Tier 2, considering the size of Iberchem, there's something Richard normally says we are Tier 1.5, and it's quite real because we are really big compared to the current Tier 2 competitors, but we are not as big as Tier 1. So about resources, we have much more resources than Tier 2 competitors, we can deliver this kind of fragrances and make those creations because -- just because we have more tools to make it. So that's the way we differentiate from 1 -- from Tier 1 from Tier 2. And about your second question about how long does the fragrance is alive. We have 40,000 references, all of them are alive. Also because we work, as I said before, we work in a fashion world. Fashions come and go. And when you have something, for example, Chanel No. 5, well, it's still live. But other fragrances, maybe right now, they are not alive. But in 5 years, they will come back again. So you must think about our collection like a library. It's great to have all the possible books you can and then you will pick them according to the situation. And also, they are an inspiration to create new fragrances and also for the trickle down and the cross category strategy. You can use some fragrance, for example, which was created 10 years ago for Thailand and modify this and make -- this fragrance was for fabric softener, for example, and you can create a wonderful candle today for the U.K. getting the inspiration from that old fragrance. So it's something alive. It's something we're using every day, evaluators. We know all of the references. We are likely librarians, and it's something really useful to play with all the global markets we have because every market has a different rhythm, so it's great to be able to work that way.

And if I could ask a second one. You've talked clearly about not wanting to become a Tier 1, but you have reference there being Tier 1.5. And in part of your growth strategy, you also talked about acquisitions. So I wonder whether you could talk about, what are your priority areas there? Is it more about targets on geography? Is it more about specific ingredients or the sustainability sort of angle as with Parfex?

I can comment on that. And you're right, it's all of the above, really. So in the acquisition strategy, we're open to both. So we have clear geographies, which may have become clear to you during the presentation today, where if there's an opportunity that comes up, we would welcome that opportunity and look very carefully at it. If the opportunity doesn't come up, we'd like to spend some CapEx to invest and localize production there. The other thing that we shouldn't focus on now is the technology. So fragrance delivery technologies, encapsulation, that type of thing, equally applicable in other parts of Croda's Personal Care business like the Actives business as well. So there's other M&A stuff. It's not just around geographic presence, it's also about technology, new technologies, new processes, fermentation, biotech, that type of thing as well. Jose, anything to comment further?

I think you explained it perfectly. I mean, it's not only geographic opportunities, the categories and technologies. So for example, what we did in Brazil is, I think, is a great example. that's going through an acquisition that we were looking before being part of Croda. We started a very interesting project in Croda in Brazil with a collaboration, but in some of the markets, we really want to penetrate and we don't want to wait that long, probably we will look for some opportunities. So I think you explained it perfectly.

I think one more question.

First of all, I just have 3 quick questions. The one is -- the first one would be -- could you please explain a little bit the briefing process? Does it differ materially from Tier 1? And you are very exposed to emerging markets. So is it fair to assume that pricing is the main factor when they make the decision? Or is it different than how I understand it? Second one would be that in recent years, Tier 1 players have always talked about local and regional players, and they have made a quiet headway there. And now they talk more and more on indie customers and that they want to compete this. Do you see increased competition there? And how do you expect the market to develop? And then the last one is maybe a little bit more on Parfex. What is a realistic expectation when I think about fragrances? How much would always be synthetic? And how much can actually be naturally based raw materials or the technology where you do something which is -- yes, exactly how much can actually be raw material based because more natural based because it is just so much more difficult with all the crop fields that are required?

About the first question, I will answer -- about brief. Okay. Briefs are very similar for every -- for all the companies. It's more about what kind of brief you receive and how you focus that. Right now, we are competing in several briefs against Tier 1 when we talk about multinational companies and the way we work is quite similar with all, too. So it's something we have the regulatory. We have perfumers. We have evaluators, same tools. It's a question of the approach. Maybe you can be more or less competitive in price in some situations. And in other situations, even if the company is a multinational, maybe some of the briefs are for emerging markets where we are stronger because of our knowledge. So in those situations, we play with our competitive side of knowing better that kind of market. About finding the big ones in our traditional market is totally true. And sometimes we think we've inspired them as well as they inspire us, and we really think it's like that. I think every competition is good to learn. It makes you better. It makes you improve. But in the end, I really think there's market for all of us. And also, some of them or almost all of them from a Tier 1, they're also suppliers. We've got a good relationship with them. They also sell raw materials for us, and it's not -- yes, there's competition, but it's a healthy competition that helps us improve. And it's not -- and there's enough gap for all of us. We still can grow. And they can still keep on growing and keep our personality without a problem, for sure.

So answering your second question, of course, I mean, we cannot say that Tier 1 players are not coming to our field. Of course, they do. They're coming to our field. And then if we look 10 years back and we see why some of them -- some of the Tier 1 players have been so active acquiring Tier 2 companies. It's obvious. I mean the structure, the service is not appropriated to the level of response that our customers are typically looking for. And that's why we have so many examples of companies acquiring different industries -- different companies in Tier 2. But the problem of this consolidation process for them is that at the end of the day, when one of these Tier 1 companies acquired a smaller one and say the same customers, "Look today, you will be attended by our division or the other." Sometimes the customer said, "No, you know what? You are now part of the same company. I don't want to be attended by you. You are not the one deciding it. I will go with [indiscernible]. No, you are not the one. I want to make my own choice." And in some of these cases, the last that I mentioned, this strategy of acquiring smaller companies of a Tier 2 was a complete disaster from the branding positioning, as you know. So in terms of financials, it's great. But in terms of retention of people and retention of talent was a complete disaster. So in all these aspects, the consolidation process of the Tier 2 has been really, really good for us because creating wider spaces for us. And you also mentioned indies -- if I'm not wrong, you mentioned indies, right? So indies is the typical customer that fits very well with our strategy because as a different with the global accounts and the big firms, you will see today in the site visit that we want to help our customers showing the trends in finished products as well. So you will see an area that Maria Angeles Lopez will explain called supermarket. In this supermarket, you will see in different categories finished products from our competitors and from us. And this is helping the indies for their launches as well. I think I will pass the floor to...

If I can just make one follow-up comment to what Jose said as well. it's really very easy to say we're focusing on indies. But it's a very complex task to do that. In Croda, we've been focusing on indies for some time, actually, as you'll be aware from previous presentations for the Consumer Care business. So we know very well the workload that needs to go into developing indie relationships and satisfying their needs. So it's very easy for a big Tier 1 to say we're focusing on indies. It's hard to do it actually. And the other great benefit we keep coming back to the full formulation offer. We've got a complete package to offer the indies, and we've got projects and people do that. So it's quite different. Just to the final part, and I'll hand over to Alex. I think it's a Parfex question about naturals, wasn't it?

[indiscernible]

If tomorrow, we start doing all fragrances we have a natural update, that would be a natural catastrophe. Second of all, you have to understand -- this is why also we were with the Eco certification. So we make sure natural we use are certify organic. Second of all, synthetic is not always that as many people think. First of all, you have natural synthesis. And second of all, biochemistry also is in synthesis, and that's probably the future of sustainability for raw materials. And also, you have to think that many synthetic materials, actually, for example, before musk used to come from animal and we -- people used to kill these animal to get the molecules. Nowadays, we use synthesis to have these molecules. So we are protecting the former, for example.

Just to for Parfex today, the natural ingredients, it's about 40% of portfolio. So -- but as Guillaume explained, obviously, this is not the sole solution for the future. That is why we are working as well as sustainable fragrances from natural origin, but we are capable of controlling it.

Okay. And I think that was the last question. Okay. So first of all, from all of us, thank you very much for your attention this morning. I know it's an early start, and I hope you found it useful engaging. The best part of the day is actually yet to come.