Welcome to Ansell's Financial Year 2022 results webcast for the full year ended June 30th, 2022. I am Anita Chow, Head of Investor Relations at Ansell. Joining us on the webcast today, we have Neil Salmon, our Managing Director and CEO, and Zubair Javeed, our CFO. The materials we'll be discussing today have been lodged with the Australian Stock Exchange and can also be found in the investor relations section of our website. Before we start, I have two additional housekeeping points. Firstly, if you could take a minute to read the disclaimer on slide two, and secondly, there'll be the opportunity to ask questions. You can either type them on the webcast in the Q&A box under the video window, or for those on the telephone line, please press star one, one. We will be addressing questions towards the end of the webcast. Thank you.
With that, I will hand over to Neil Salmon.
Thank you, Anita, and thank you to you all for your attending today and for your interest in Ansell. Let me begin with a brief summary of the highlights that sum up the year just finished and a couple of points relevant to the year about to start. Five key points here with regards to results. Firstly, after having downgraded our expectations for the year in January, I'm pleased to say that subsequently we delivered on every aspect of our revised guidance over the second half of the year with a significantly improved second half performance on the first half. One notable accomplishment was improved cash conversion. We achieved 90% overall for the year, which is a significant improvement on the first half figure and also on the prior year, 61%.
A key feature for the improved second half was improved margins in the Healthcare Global Business Unit. We saw continued very strong results from Surgical and Life Science, and the Exam single-use business showed signs of stabilizing. Two lower points that are relevant to our FY 2023 as much as the prior year. We have made a decision to exit our Russian commercial and manufacturing operations. I'll cover that in a little more detail in a moment. Accordingly, we have incurred a one-time charge in our prior year results, and we will also lose the sales and profitability from that business going forward. I also wanted to draw your attention to the FX headwind. You'll have noted that, from significant movements that we've seen in rates and generally a strengthening of the U.S. dollar against our other revenue currencies.
That's a big headwind into FY 2023, but if you strip out FX and Russia effects, we do expect underlying earnings to show good growth in FY 2023. Three points in relation to our ESG objectives, which I'll cover in more detail coming up. Good safety results. You will have read, we're now committed to a Net Zero ambition, which we think is fundamental to our future and our position in our industry. We do see that the industry is making good progress on social compliance, and I'll talk to that in a moment. Before I get to those points, let me cover Russia in a little more detail. This is why we're showing both statutory earnings and adjusted earnings.
We recorded a charge in the half related to asset impairment and business restructuring associated with a complete exit of our commercial and manufacturing operations. There's a number of reasons that have gone into this decision. It's one that we take with great regret, having had a successful business in Russia for 30 years or more. Very strong employee team there, very strong customer relationships. After careful consideration, we've concluded that it's just not viable to continue in operation for Ansell in Russia, and therefore we are pursuing now an exit of this business. The business earned an AUD 9 million EBIT in fiscal 2022, and we don't expect any earnings from the business in fiscal 2023. Now let me cover those ESG objectives before I then spend a little bit longer on our financial results in the last year.
Very good outcome on safety. Everything about Ansell begins with safety. Our mission is to keep the wearers of our products safe, also, of course, the workers who produce and all Ansell employees safe in the production of those products. We see here a good reduction in both lost time injuries and medical treatment injuries. In fact, our MTA rate is the lowest in many years, perhaps the lowest ever, and as you know, that's from a base that is already one of the best in the manufacturing sector. But perhaps the statistic I'm most pleased about here is the improvement in leading indicators. We've seen very strong employee response to our efforts around training and awareness to get observations and reporting of unsafe conditions.
In total, over 10,000 observations were made in the last 12 months by our employees on aspects of safety that needed attention, and that's up 50% on the prior year and a great sign of a safety culture taking root, and I would hope leading to further improvements in safety outcomes in future years. Turning now to labor rights. A key priority for us, and we have stepped up our area of actions and focus on this within the last 12 months. I'll summarize a few points on the left of this slide here.
We further enhanced Ansell's governance processes around labor rights, establishing a formal labor rights committee that is the decision-making body on these. We've continued to advance our audit program, but also look at ways to strengthen the issues that audits can uncover and ensure we're getting broader coverage of the industry. Labor rights has been a key focus of all top-to-top engagement, including meetings I've held with suppliers, and I'm encouraged with the focus and commitment that I see in my meetings with key suppliers. We announced a year ago that we were launching a formal supplier management framework, and that's achieved a number of steps forward, including, as we note here, significant training to our suppliers on our code of conduct and our expectations of them.
Finally, as you're aware, the Responsible Glove Alliance was launched a few months ago, and this we think is essential because no one company can solve this issue by themselves. It requires industry collaboration, industry standards, common benchmarks, and that's what the Responsible Glove Alliance brings. What are we seeing in terms of outcomes? Well, our continued intensive audit program has generally showed good progress in closing out non-conformances from previous audits. But certainly there are still improvements that need to be made, and we're very focused on achieving those with our suppliers. We also acknowledge that audits are only a snapshot. They're only a point-in-time measure, and so having other mechanisms in place to get a more holistic picture of activities at suppliers is key, and that's one of the areas of focus for the Responsible Glove Alliance.
In my view is we are seeing improvements in labor standards, particularly over the last 12 months. The issue of recruitment fees is largely addressed now. We see compliance to overtime and rest day regulations, and we see significant improvement in the living conditions of workers, particularly in Malaysia and the hostel conditions they live in. Progress, but this is an area of continued vigilance and certainly no reason for complacency and will remain as committed to this area over the next 12 months as we have been in the last 12 months. Turning now to the environmental aspect of ESG, and hopefully you saw our announcement on the next slide with regards to our Net Zero ambition. Can we advance the slide, please, Anita?
We've committed to net zero with regards to the carbon emissions of our own operations, otherwise known as Scope 1 and Scope 2 emissions. We're doing this the right way, the hard way, which means actually reducing our emissions and only depending on offsets for a very small residual up to 10% of our emissions. Our goal is to reduce emissions 42% by 2030, 90% by 2040, with that small piece of offsets getting us to net zero. We would like to make a Scope 3 commitment too, but we don't believe in making one until we're clearer that we've got an aligned supply chain. That means customers and suppliers on the journey with us and that we understand the plan with regards to the full end-to-end impact necessary for a commitment to Scope 3.
We've announced new commitments around reducing our use of water. We signed up to the green electricity tariff in Malaysia. Our plants have made significant progress against their zero waste to landfill objective, and we're ahead of target on that one. Overall, it was great to see EcoVadis award us the silver medal. That was some months ago, so before this most recent news was in the public domain, as recognition of our standing in the industry and our leadership position. Finally, I'm pleased to say that we're now fully in compliance with the recommendations of the Task Force on Climate-related Financial Disclosures, as you will see in the annual report that we've released today. Now let me go on to our financial results and business results.
This slide summarizes the five things that we said in January and February when setting out our revised guidance and that we said would be key to delivering the required improved second half necessary to hit that new guidance range. I'm pleased to say that we delivered on every one of these. Sales were stronger in the second half, and encouragingly, it was particularly the more differentiated product lines that saw the strongest sales growth improvement. We did expect Exam Single-Use prices to continue declining, and they did pretty much in line with our expectations. In the third point here, we said that we would still see an improvement in the total gross profit dollars earned in that SBU as the first half impact of selling through higher cost inventory would be much more muted in the second half.
That's how it panned out, and even on lower pricing, total profit dollars improved for Exam Single Use. At the time of our half-year results, we were experiencing another round of COVID-enforced manufacturing shutdowns. Fortunately, that was in fact the end of it, and we saw no further required shutdowns in manufacturing. The cost impact to those was much reduced in the second half. However, the issue of constrained labor and that impacting our ability to produce at full rates did continue throughout the second six months of the fiscal year. Then finally, as I noted already, very significant improvement in cash performance, and that's come through intense focus on working capital, improvement in inventory, and improvement in accounts receivable as well.
All of that delivering the adjusted EPS, if I exclude the Russian impact of AUD 138.6, which is just above the midpoint of our revised guidance range. The next slide gives you the full P&L, and I won't present it in detail. It's more for your reference. All these points we will cover on other slides. I did pull out the first half and second half performance here so that you can see, adjusted EPS going from AUD 0.61 to AUD 0.78 in the second half. There also you can see the improved cash conversion in the second half. Now let me walk through the P&L in a bit more detail in subsequent slides.
If I begin with the performance of our strategic business units on this page, and here I'm showing both the year-over-year performance, but also the three-year performance. With the significant increased demand related to COVID-19 protection in fiscal 2021, the normalization of demand and pricing in FY 2022, I think it's particularly important to look through those two years to see a longer-term trend, and that's why we're showing it here. Let me begin with Exam Single Use. Yes, that business was down year-over-year, primarily as a result of lower volumes. Our prices were higher in the first half and then lower in the second half .
Encouragingly, through that period of turbulence, particularly in the mid and less differentiated products within the range, we saw our most differentiated products, those that we manufacture in-house, continuing to increase in volume. A 15% growth in in-house products is, I think, a great result in challenging market conditions. It was on the more commoditized styles that we saw the greatest declines, as you would expect, given results reported by those producers who specialize in that product range. For Ansell, as you know, it's a very small part of what we do. If you look at Exam Single Use over three years and you see a 15% CAGR.
Yes, that still includes some pricing benefit, which we expect to normalize, but also a significantly improved mix profile for the business, and then those in-source products now representing 25% of the business, up from just below 20% three years ago. Great result for Surgical. 17% growth overall for the year, and a substantial improvement in the second half on the first half. We said at the time of the first half result that it was only supply that constrained our growth. As we got healthier with regards to supply, then the business result improved, but we were still constrained by supply. Surgical still is a question of bringing as much new capacity to the market as quickly as we can to tap into the growth potential that remains in that business.
The three-year growth rate also great for Surgical at 11%. That's also a business that's seeing improved mix as there's a continued trend away from powdered NRL and then NRL more generally to the more premium synthetic styles, particularly in mature markets, but also starting to be the case in developing markets too. The Life Science business is another business that was constrained by supply, a more significant constraint for that business than Surgical, and that's the only reason that it didn't grow well into the double digits. 8% growth, still creditable, would have been much more if we had been able to bring more supply on, and there is additional capacity coming on in the next 12 months. A 16% growth rate over three years, again, a great result for that business. Turning to mechanical now.
Overall, I think 3.7% is a creditable result for mechanical. We have to remember that the vertical that drove growth during the pandemic period, particularly logistics and warehousing in support of e-commerce, that went into a negative cycle as there was some inventory destocking there and generally demand normalized, from warehousing linked to e-commerce. But offsetting that was growth in other product categories. Cut protection did very well. We saw improved results by our impact range supporting energy and overall mechanical, a good result in the year. Overall, a 2% growth rate over three years, and that's through quite a challenging end market demand environment for mechanical for major verticals like automotive and the like. Chemical down 12%.
Chemical like Exam Single Use is suffering from the comparison to prior period demand for COVID protection. Chemical also supply constrained, perhaps the most supply constrained relative to the other SBUs, and so it was not able to grow as much as the market potential, the high-end chemical lines and other particularly hand protection to offset that chemical growth. Note, chemical also achieved a creditable 2.5% growth rate over three years, even considering this last supply chain constrained year. Overall, a pretty satisfactory set of results and some very good results by SBU. Let me comment now on our progress more generally on our strategic priorities. I think it's certainly tempting for a business experiencing a number of external challenges during the year to lose focus on those, the essence of strategy.
I'm pleased to say we have not done that. We've remained very, very focused on the long-term drivers of our success and continue to advance all these strategies. If I start on the right side of this page, a continued focus on our capacity expansion program. Our Indian surgical greenfield facility started its packaging operations in the last few weeks. Our next step will be to bring forward the sterilization capability, and then we expect full dipping activity by fiscal 2024. So that project on track. Our Thailand investment in those differentiated in-source styles that continue to grow, progressing well also. We've continued to invest in capacity in our Careplus Joint Venture as well, and that's been key as we have navigated through the supply chain shocks caused by Omicron activity and other items.
On the left, we continued to invest in R&D. Overall, it was a cautious year with regards to SG&A, and there were a number of things that we opted to do more slowly or not as full as we otherwise would have liked in response to external conditions. R&D, we continued to invest in. What I think is particularly exciting in the R&D world right now is the number of products that we're bringing forward that have a meaningful sustainability benefit. We're seeing great interest from our customers in these ranges. The two here are the two first to be launched, but we have a very interesting pipeline coming of products that are markedly different from their carbon impact, as well as other areas of differentiation. Then in the middle is perhaps the most important work, improving our core business processes.
Frankly, these have not been at the standard required to fully deliver on our strategic potential in the past, and I'm determined to get them to the point where they are a net add to growth, rather than a barrier to growth. Our commercial digital transformation journey is progressing very well. We've made significant steps forward in our e-commerce capability and our ability to interface with customers' digital commerce strategies. We've overhauled our supply chain planning processes to ensure greater focus, better data, clearer decision-making, and so forth. We've also continued our journey of upgrading what in some cases is very outdated ERP technology to the very latest cloud-based ERP. Four systems went live and all perfectly without a single day's interruption to normal operations. Substantial work completed on improving business processes that's very important to the future.
Turning now to emerging markets. This continues to be an area of focus for us, and another year of great results across many emerging markets. You can see the map of green and many impressive double digits results, particularly in Latin America, also encouraging growth in India. The two not green are Russia, where already during the half we started to stop. We exited some product lines earlier, and we did not take new orders on other product lines, and that's the reason that Russia sales declined. China down, but that's primarily because China had the biggest COVID-19 related demand in the prior year. If you strip out that factor, even with the zero COVID policy impacting China, nevertheless, we saw growth across many of our SKUs in China.
The picture in China more positive than this slide would suggest. Finally, I wanted to give you an update on Sri Lanka before I hand over to Zubair to take you more in-depth through our financial results. The first thing to say is clearly a very challenging time over the last six months in Sri Lanka as the country has battled a political and economic crisis, but our teams have done an absolutely outstanding job. They have not missed a beat with regards to achieving their operational goals. In fact, they've been setting new records with regards to output and with higher than usual yields as a result of investments we're making in advanced manufacturing methodologies and technologies. Of course, we have a responsibility to help our teams there.
We've taken a number of steps during the year providing additional financial support and non-financial support to ensure that people can afford the basic essentials in a period of extreme inflation. That's been very well received by our employees. I am encouraged that today things seem to be improving somewhat. Availability of fuel, consistent availability of power, those basic essentials of life are becoming a little easier. I myself am looking forward to visiting Sri Lanka in the next couple of weeks and catching up with our team there. Overall, very limited disruption to our operations and that's how we expect things to continue and a great credit to our teams for achieving that in very difficult circumstances. Now let me hand over to Zubair, and he'll give you further details on financial results.
Thanks, Neil, and hello to everybody on the call, and thanks for taking the time to listen in. Now, Neil's already gone through the housekeeping as it relates to that statutory to adjusted earnings, and so I'll just begin straight with the profit and loss summary on an adjusted basis, excluding those Russia related costs. Beginning with the sales line, on a reported basis, we're down nearly 4%, but normalizing for the unfavorable foreign exchange and that small Primus asset purchase, organic growth was down 2.2%. The largest decline in terms of currency, as Neil mentioned earlier, was the euro softening against the U.S. dollar, and that accounts for a significant part of the nearly $35 million year-over-year unfavorable currency impact to that revenue line.
Now, you can read more about all of this overall currency in the appendix to the investor slides, or to the investor materials. Neil's, again, already shared some of the key drivers of the sales line. I'll move straight to gross profit after distribution expenses. I think by now it's well understood margins were significantly hurt by the sell-through of that high-priced exam, single-use inventory, that we purchased through the peak of the pandemic. We also told you in our H1 call, the Omicron wave had caused manufacturing shutdowns in our Asian facilities, and as a result of that, we were bearing higher than usual operating expenses, all adding to increased cost of sales. Lastly, like many companies around the world, we've absorbed higher distribution costs, up 20% on a constant currency basis versus fiscal 2021.
Now of course, this 29% GP margin here we closed the year with is clearly a lot lower than our historical run rates and what we would target to get back to. Offsetting that decline in GP margins was lower SG&A expense, and consistent with my commentary in the H1 earnings call and what Neil just mentioned earlier in terms of controlling discretionary expense in our usual disciplined manner. Let's be clear that most of that reduction was simply driven by lower variable employee incentivization costs, and a downgrade in earnings didn't help that, of course. Although we do have this lens on near-term performance, it doesn't mean we're gonna just pull back on investments where we see medium or long-term value creation opportunities.
You just heard we've maintained a good rate of spend in R&D in the year. Closing out this P&L summary, I'll also note that the joint venture, it continued to be challenged with those Exam Single Use market conditions as well as labor shortages in Malaysia, which are easing, but still it printed a full year loss where our share amounted to just over $8 million. We're targeting a much better financial performance with that entity in the new fiscal year. All in all, EBIT of $245 million, EPS are just under $1.39. Clearly disappointing when compared to the record-breaking fiscal 2021 performance, still much higher than the midpoint of our guidance or where consensus was.
On a like-for-like basis, it's also our second highest financials in the last 10 years, and I think it's built on a very solid differentiated platform to work on for the future. That brings me to the review of the GBU financials. If you can just advance the slide please, Anita. Let's start with the healthcare business unit. Again here, the dominant headline is that Exam Single Use pricing and muted volumes. We do remain very pleased with the Surgical and Life Science momentum. In fact, Surgical sales grew nearly 30% in the second half. As Neil said, we did indicate that in the H1 call as capacity came online and as workers came back from the shutdowns. Demand is still outpacing supply there.
Overall, the HGBU closed the year down nearly 40% in margins, again, driven by that sell through of the high-cost inventory, but in part offset by the SG&A reduction. Now, as conditions continue to normalize in Exam Single Use, I can't see why EBIT margin percentages in this particular global business unit wouldn't get back north of the 14% or 15%, or even higher as we've seen previously. Turning to the industrial business unit, again, here we see the impact of comparisons that were influenced by the COVID propelled demand. Even though we had nearly 4% growth in mechanical, again, as Neil said, it wasn't enough to offset the chemical sales reduction in that protective clothing segment, and that led to an overall decline of just under 2%.
Now, you couple that with the COVID driven manufacturing shutdowns in H1, those increased break costs and the continued inflationary impacts to the raw material purchases, and we've seen a year-over-year decline in EBIT. Moving to the next slide, I'll drill down here on a couple of key points as it relates to our cost environment. Firstly, you can see here we're impacted by sometimes double-digit inflationary cost headwinds, and that's especially in the areas such as packaging or chemicals and yarns. We are offsetting these where we can through pricing, but you can imagine managing that across a very broad supply chain with very long lead times. It does mean sometimes there's that little bit of imprecision. As you saw in the year, we can be left with some residual unfavorable earnings impact.
The other notable point on this slide is that the industry norms are returning. I think it's less of a capricious environment when it comes to NBR pricing and those supplier surcharges with that raw material have now come away. Overall though, both natural rubber latex and those nitrile input costs, they do remain stubbornly higher than pre-pandemic times. The next slide, this is showing our continued CapEx investments. We closed the year at just under AUD 70 million of spend, which was, clearly at the lower end of our guidance range. I've mentioned in our last call deploying that sort of capital, it was made difficult because of COVID related travel disruptions.
There's a lot of credit to our teams, engineering teams, manufacturing teams for getting up and running those new manufacturing lines, for instance in Thailand and our other Asia facilities. We're also very, very pleased with the speed our Greenfield surgical site in India is coming along. Kudos to our COVID team. Well done for that, and packaging is now operational there. We're very proud of that team and for what they're doing there. As we firm up our ESG ambitions, you'll notice in this slide we're also directing investment dollars behind things like solar panels, reverse osmosis facilities, and again, that should help with our water usage.
Our board of directors, they're firmly encouraging this type of investment, and so I would expect you're gonna be hearing more about these types of initiatives going forward. Moving on to the cash performance, probably my favorite slide of the pack here. Given the dilution we had in our working capital, clearly because of those elevated Exam Single Use prices, it wasn't too surprising to see our cash conversion ratio down in the 60% range in H1. But at the time, I did remind you in our last call that the cash fundamentals of this business remain absolutely solid, and I expected we'd be back above the 90% mark in H2. Now, thanks to the focus from our teams and the diligence we had around things like receivables and inventory, we even exceeded our own ambition in this regard.
In fact, not only ended H2 with that north of 9%, we ended the full year back to a 90% cash conversion. That's a remarkable achievement, I think, and gives me comfort for the movement going forward. Now, working capital investment is also back to more normal levels and a healthy net receipts clearly enables us to reinvest back into the business, but also leave plenty of room for other capital deployment options. Then lastly, I'll wrap up with a few comments in respect to the balance sheet. If you can advance the slide, please, Anita. I think in these uncertain times, one thing that pleases me very much is the constancy of the strength of this balance sheet and the optionality it continues to provide us with.
You'll see from this slide, overall return on capital employed on a pre-tax basis, it's back to probably historical run rates, with just over 13% ROCE there. On a post-tax basis, 11.3% return on equity for the year. Still way above our cost of capital. Cash remains well-positioned, with that increased facility we mentioned in the first half. We have over $630 million of liquidity. That's U.S. dollars of liquidity available to us. With that net debt to EBITDA ratio still staying below one, I think we're gonna be well positioned to ride out any macroeconomic or recessionary concerns. At the same time, I think we can still be very proactive with investment opportunities as and when they present themselves.
I will finish by thanking all my Ansell colleagues across the globe for their agility and commitment through what was an especially challenging year. I'm gonna hand back to Neil here now for fiscal 2023 outlook and final comments.
Great. Thanks, Zubair. As I think about our priorities in the near term, which really means the next 12 months- 18 months, I organize them under three headings as the next slide shows. The first is we'll continue that long-term focus. FY 2023 as we start has also its own uncertainties, but we will not use that as an excuse to divert from our long-term priorities. Continued focus on capacity expansion on those differentiated styles, continued investments behind our digital commerce strategy. This opens up significant new areas of growth in parts of the market that Ansell hasn't been strong in before. We're seeing early and very encouraging signs, but still from a small base. Also opportunities to drive productivity as well in this area. ESG, our leadership position. It's both the right thing to do.
It's essential that all companies do this. It's also clear to me that there's a big differentiation potential here too. Now we're doing things the right way. We're not into greenwashing or dubious marketing claims, and that means it's taking us a while to get really to the fundamentals here and be able to position to customers. You know, we can tell you how your carbon footprint will change with different PPE solutions. But that's where we're getting to now, and we see very strong interest from customers across the globe to the offerings that we're bringing forward. Finally, we continue to work on our connected PPE. We see some good results in pilot phase where we have a demonstrable impact on hard to address injuries.
Now we are focused on commercializing that technology and going from pilot to repeat customer success. In the middle here, we continue to remain focused on improving that operational effectiveness that I talked to earlier. Of course, once we've installed capacity, we have to get it running at optimal rates, and we're investing behind new manufacturing approaches that I think will bring us to new heights of efficiency, productivity, and yield on our installed base. We're investing significantly behind systems and processes for enhanced supply chain reliability. We're putting in a new end-to-end supply chain planning tool using the latest cloud-based and digital technology that I think will transform the visibility and effectiveness of our supply chain planning.
Continued vigilance, as I've mentioned already, on labor rights, for as far ahead as I can see, and ensuring that the industry continues to make the progress that I was noting in my remarks earlier. Then finally, like all companies, we've got work to do to ensure that our culture thrives in this new hybrid world, and making sure that as we advance our broader diversity, equity, and inclusion objectives, that that gains traction and has real meaning to our employees. We've had good progress on gender diversity, and we're ahead of our goals there, and now I want to see progress on broader measures of diversity. We have to pay attention to shorter market trends as well of course.
It's our goal to fully offset the impact of inflation in the next 12 months through a combination of price increases and also some cost reduction initiatives. At this point in time, that objective seems eminently achievable. We will be cautious on SG&A expense, which I think is only wise, where there is a risk of recessionary conditions taking hold. That will not stop us selectively investing behind those longer term strategies, and particularly investing in continued innovation. We have plans to accelerate delivery within operations of our automation objectives. Those initiatives were a little behind their timeline last year, again, because of the difficulties of accomplishing those projects in a COVID disrupted world. We see increased momentum and a lot of great ideas from our global engineering team that are now showing results in practice.
Of course, following the announcement I made earlier, we now need to exit our Russian operations in a way that considers the interests of our employees, our customers, and also preserves some value for shareholders, and that will be a key priority over the next few months. What does this translate to in terms of EPS guidance? We're setting a range here of AUD 1.15-AUD 1.35. Clearly that's below the EPS, adjusted EPS that we've just reported for the last year. The reason for that is those two factors I've already mentioned.
If you go to the third and fourth from the bottom bullets, you can see the foreign currency effect at AUD 0.25 year-on-year, and you can see the exit from Russia effect of just under AUD 0.06 year-on-year. I take those off the prior year figure. That gets me to AUD 1.07 in the chart on the right. Our EPS range requires good organic growth on an adjusted basis against that normalized AUD 1.07 base. How will we achieve that? Well, today we see the external environment is supportive for continued good demand conditions across all our SBUs. We expect continued strong results from Surgical and Life Science.
As I mentioned, Mechanical was seeing improved performance in the second half of last year, and we expect that to continue, and we plan a turnaround in our Chemical and Exam Single Use performance with regards to volume. We do anticipate a continued normalization of Exam Single Use pricing, but that will not have the EBIT impact you might expect because of course we will also no longer have the margin compression that occurred in the first half of last year through selling through that high cost inventory. Lower selling price, but less of that high cost effect, and those two should net out. Overall, those two factors be EBIT neutral for the Exam Single Use business. That means GPADE margin should improve, as that GPADE profit will stay more constant on a lower revenue base with lower pricing. SG&A costs will increase.
We do see higher inflation, including wage inflation, but we are remaining cautious on managing overall employee numbers, as I mentioned earlier. A couple comments on interest and tax. Overall, I think this is an achievable EPS outcome for the business, and I think it will represent good growth on an underlying basis again, compared to the prior year. Now I'd like to hand it back to Anita, who will give you an update on what's next in terms of stakeholder communication, and then we'll go to Q&A.
Yes. Thanks, Neil. There's been increased focus from the investor community in relation to sustainability. As a result, in conjunction with our release of our sustainability report on the the September 13th, 2022, we will be hosting a webcast for the community. It will be held on the September 28th, 2022 at 4:00 P.M. Australian Eastern Daylight Time. Please mark your calendar. We will cover aspects in relation to social compliance at our own plants, our engagement with suppliers in relation to labor rights, which is an increasingly important area. We will also cover how we will be dealing with environmental considerations in our supply chain.
We'll also have a look at our product innovation as well as diversity, equity and inclusion. Now we will turn over to Q&A. Just a reminder, for those on the conference call, please press star one one. Those who are on the webcast and would like to ask a question, please type it in the chat box. First up, we have Lyanne Harrison from Bank of America. Lyanne, please go ahead.
Thank you, Anita. Good morning, Neil and Zubair. Can I start with the higher cost inventory? If I'm looking at your balance sheet, you know, obviously inventory levels is lower than what we saw in December, but still elevated. Has all of that higher cost single-use exam inventory cycled through? And if so, can you explain, you know, reasons for higher inventory levels? Is that likely driven by costs or volume?
Let me take that, Neil. Yeah. First, hi, Lyanne. In terms of the overall inventory, as I would have said in the H1 earnings call, we were carrying a little bit more inventory than you would have seen us in the past because there was increased lead times. The overall supply chain, as you know, there was a lot of turbulence around the world in just logistics. Getting product from the Far East to places like the U.S. and Europe was difficult.
Increased lead times meant higher in transit times meant higher inventory. Alongside that, we also the conscious decision to build additional inventory because of the shutdowns that were taking place because of that Omicron wave. Finally, of course, there was some higher inventory levels on the Exam Single-Use business. I would say we've cycled through a vast proportion of that, as well as revaluing down the cost of that inventory to the pricing we were seeing in the market. There's a little bit of residual left in terms of that revaluation down. We told you about that in the first half. We could see anywhere between AUD 10 million-AUD 20 million going into the next fiscal year. At this point, closing the year, we'll probably beat that or come right in the middle of the fairway in terms of that further revaluation down.
At this point, we're looking at about AUD 50 million more of a revalued. That's based. It's clearly in our guidance range as well. Hopefully that answers your question on inventory.
Yes, that does. Thank you very much. If I could ask on prices, so we know we saw an interesting graph there about exam and single-use ASP. Obviously, that's come down from the highs that we saw earlier in the pandemic. What's your views on that? Is there more price declines expected in 2023? And are we likely to get to that AUD 20 pre-COVID level?
Yes. We need to separate the business into Exam Single Use on the one side and then all the rest on the other.
Mm-hmm.
So this is-
Yeah.
For the Exam Single-Use prices, as we exited the half, we're still quite a bit above the pre-COVID levels. You might contrast that to some of the specialist commodity players who are already talking about pricing at pre-COVID levels. That really talks to our differentiation and the different nature of our customer relationships, which are much less dominated by tendering and price as the only criteria in decision making. To some degree, the improvement is a mix phenomenon and also supporting what we've long said of the differentiation of our product portfolio. Indeed, as I said in my guidance comments, we do expect a further step down in Exam Single-Use pricing. Now, it's hard to be confident whether it will land exactly at the pre-COVID level.
I suspect not, because overall costs in the industry are increasing at this point. That will provide a floor under pricing. Clearly, there's quite significant competition in that commodity end, which is not where Ansell plays between the new capacity that's come on in China and then the existing Malaysian producers. That's at the bottom end of the market, at the sort of clearing price that's putting pressure on pricing. We see it much less for our product categories. Now, for the rest of the business, we are increasing prices. We've seen good receptivity to those price increases, and that's why I remain confident that we should be able to fully pass through the inflation effects we see on the rest of our business.
Great. Thank you very much.
Mm-hmm.
Okay. Thanks. Thanks, Lyanne. Next up, we have Dan Hurren from MST Marquee.
Hi, Dan.
Thanks very much.
Dan, please go ahead.
Sorry, do you have me?
We can hear you, Dan. Go ahead.
Great. Thanks very much. Look, I know you're not giving any specifics, but I was just wondering if we took out the adverse impact, rather, of that high cost inventory in healthcare from both halves. In broad terms, did we see underlying improvement second half on first half in that part of the business? Just trying to understand, you know, your operating conditions and the exit rate, I guess.
That was the gross profit dollar improvement that I talked about was mainly because we didn't cycle the, we didn't have that impact of high cost inventory. You know, if you step back from this, we said some time ago that Exam Single-Use profitability would normalize over a two-year period. That's always been part of our strategic projections for the business. What caught us by surprise was only the speed at which it happened, and more the speed of the demand correction than the pricing correction. That's what created the accelerated decline in margin in the first half. It's a timing function. Overall, where we're getting to is where we expected to into FY 2023.
The correction happened more quickly, rather than over the two-year period that we had assumed previously. I hope that gives you some directional comments at least in response to your question, Dan.
I think so. Thank you. Thank you very much.
Thanks, Dan. Next up, we have David Low from JP Morgan. David, please go ahead.
Can we just stick with exam gloves? Can you hear me?
Yes.
Yeah.
Can we start with exam gloves and just the proportion that's now outsourced versus in-house, and where you expect that to go? While we're on the topic, I mean, am I right to assume that there will be a drag from that pricing differential from your buying price to the selling price, just given prices are still trending down?
Let me take the first one. Yeah, we're AUD 75-AUD 25 now, AUD 25 being the outsourced piece. Increasingly, we see advantage to being the Ansell manufacturer. Ansell-made carries weight with our customers. As we talk about options to insource further along the range. We've always had the TouchNTuff chemical protective range that's unique in the industry. We would only ever make that ourselves because it's so differentiated. Then in the middle, we have the MICROFLEX range that still has differentiation to emergency response and other markets like that, fentanyl protection and so forth. Those products, we are now looking at options to bring in-house. We're increasingly relying on our Careplus joint venture as the source for those products. I think this is a strategy that will continue, David.
I would like to see us get to 50/50 over a period of time. I'm not able to be confident at this stage how quickly we can get there. If we can do so in a value-accretive way, I know that that would be of great interest to our customers. Yeah, managing the spread between purchase price and selling price is something that we've done pretty well throughout. You haven't seen that in the financials because the costs that we were reporting were not at the current purchase price but the purchase price at the time we bought that inventory. We've actually done a pretty good job of managing that spread and keeping it constant during this whole time period.
There may be some compression in that spread into next year, and that's included in our guidance range, but we don't expect it to be significant. For our in-sourced products, and the prices of those went up by much less and have less to come down, but there, our cost base is more fixed, linked to the underlying raw materials rather than to finished goods. There will be some margin compression in the in-sourced products into next year, but also something that we've taken account of. We expect those products to continue to earn premium, because of their differentiated capability. I hope that gives you a bit more context to the Exam Single Use performance.
It does. Thanks, Neil. When you say you've managed it well, I thought that was the big issue in the first half, that the spread that you end up with inventory that was older and higher priced. To say that you've managed it well, am I missing something?
No. Well, what we managed, we managed well, that the current price we were paying on new purchases versus the current selling price in the market, we managed that spread well. Yes, what we didn't manage well was the timing of those purchases, and so we bought too much at earlier high costs.
My question.
Yeah.
I mean, I know it's difficult, and I don't mean to have a go at you. I'm just the question I have is, if looking into this financial year, do you think because prices are falling, that that's a headwind, which I presume you would have allowed for in your guidance?
I think we've done much less. Yes, a moderate headwind, which is to the AUD 10 million-AUD 20 million that Zubair Javeed talked about, but much less because we have a much better lineup of purchase orders, order pricing versus demand requirements, and managing inventory more effectively. Yes.
Okay, great. Thank you. I did have one other perhaps for Zubair Javeed. I mean, FX is obviously a huge headwind into the year. How much of that's locked in with hedging or how much uncertainty is there around that FX headwind item in the guidance, please?
Yeah. David, of course, I don't have a crystal ball on the rates.
No.
If you assume current spot rates hold, and especially if you see in the appendix to our slides, you'll see I'm assuming the euro being at parity with the U.S. dollar. Clearly, that's gonna act as a large drag on the revenue line. At the same time, it's gonna, as you're anticipating, it's gonna drive a significant hedge book gain. All in all, I'm assuming that we'll see north of $30 million earnings impact when you compare to fiscal 2022 because of that sharp appreciation of the dollar. Then coming onto your question, in terms of guidance, just under 80% of our euro exposure is hedged at this point in the year.
Everything else remaining equal, I think it's really that unhedged piece of 20% on the euro exposure that will largely determine where in our EPS guidance we will land in terms of the FX upside and downside. I hope that answers your question.
Yep, that's perfect. Thanks very much.
Thanks, David. Next up, we have Sean Laaman from Morgan Stanley . Sean, please go ahead.
Morning, Neil. Good morning, Zubair. Hope you're both well.
Hi.
Maybe, I don't know, Neil, just to triple-check, the Exam Single-Use price normalization is anticipated to result in overall sales decline in FY 2023. That just relates to that product category, right?
Yes. Yeah.
Yeah, got it. Thank you. Neil, if that, I mean, you're able to sort of characterize the organic growth that you see in the business across fiscal 2023. You know, granted that, you know, that is a huge headwind from FX as David pointed out.
Let me go through each SBU. Surgical and Life Science remain at a very strong position relative to market demand. Those markets, as you're aware, are not sensitive to an industrial recession. It continues to be more a function of supply versus demand and our ability to bring that supply on. It's true in the surgical market that some competitors are also bringing new supply to market, but we still see, but not at a rate that we think threatens our own ability to achieve our above target growth rates in Surgical and Life Science. Those businesses are well set. Within the industrial business, mechanical, we'll probably see some recession effects, although as we start the year, we're not seeing those currently.
A couple of spots of weakness. German demand has been affected by the water levels in the Rhine and a slowdown in the chemical industry there. Overall, if we look at mechanical as we begin the year, that business looks in good shape, and is also being boosted by continued successful new product innovation. Other verticals, the energy vertical, for example, is a growth vertical, and that should mitigate against any negative effect from industrial production on mechanical. Chemical has a rebound opportunity because of that supply constraint last year, and as that normalizes, the business recovers from the backorders that were created as a result. I expect improved organic growth from chemical. That leaves Exam Single Use. There also we need and want to get back to volume growth.
There is still some congestion in the supply chain ahead of us linked to excess inventory. We believe it's much less now on Ansell products and but still, some customers bought stuff that they don't really want. It wasn't really the right policy, but they still have it and they're working it away. Overall, I see that picture improving and we are returning to more normal demand conditions in key parts of the market. That needs to continue and we need to continue against our differentiation strategy, and then we'll see Exam Single Use volume growth also into through F-23. Yeah, hopefully that gives you a bit more color to my confidence on organic growth profile for our business units.
Thank you, Neil. Appreciate it. Zubair, could you just remind us sort of the balance sheet targets and if anything has changed there?
Yeah, no, as I said, we continue to make sure we maintain that resilient balance sheet. Leverage levels, I'm happy with, the board's happy with. That net debt to EBITDA ratio, I think we're comfortable with one turn. We've got increased liquidity. Again, it's good dry powder to invest in opportunities as and when they present themselves. Again, we're prioritizing internal investments. We've got to finish out the India facility. We've got to look at increased lines in our other facilities. We've got automation ahead of us. All in all, that balance sheet will help us towards those objectives.
Thank you, gentlemen. Appreciate your time. That's all I have.
Thanks.
Anita, back to you.
Next up, we have Vanessa Thomson from Jefferies. Vanessa, please go ahead.
Anita, good morning, Neil and Zubair. I wanted to just cover off on that, inventory levels more from the customer perspective. You said that some of them have inventory that they're still working through. Is that generally true across your customers? Are any of them at the point where they are rebuilding stockpiles, or is that, I think, just a temporary thing for COVID? Thank you.
It's no longer generally true, and that's why I said that certainly some customers have returned to more normal ordering patterns. In other spots, in the healthcare space, we still see some congestion. It's improving. I expect it to still be a feature that there'll be some customers who've not returned to normal ordering patterns over the next six months. Beyond that, I think we'll be back to more normal demand conditions. Yes, it's not generally true, but still true in parts in the industry.
Do you see customers, especially, of course, in the healthcare space, thinking about stockpiles, or is that something that was just a pandemic kind of thing that was discussed and has moved on from that?
Yeah. I think it's unclear where that's going to land. The whole reimagining of supply chain has not progressed as ambitiously as some would have. I think once the dust settles out and once people get back to more normal conditions, it will come back as a strategy. The decision by hospitals in some cases to hold that extra inventory themselves caused some of these problems because, of course, they don't rotate that inventory, and they end up worried about shelf life and so forth. We've consistently advocated different solutions where ourselves or with the distribution channel can adopt a policy that provides greater stock reliability and avoids those write-off risks.
I think we'll see greater interest in that once people have worked through the more current issues. Yeah, I'd say some of the predicted outcomes post-pandemic have not yet taken place. I think there's still time for people to think that through once they've worked through the more immediate issues. Come back to you on that in future results and discussions.
Thank you. Just one last question. I just wondered if you could give us some insight into the freight situation at the moment, and if that's as it was or if there's still some disruption. Thank you.
We still see long lead times, as Zubair Javeed mentioned, and that's a big piece of the reason why we have higher inventory levels than historically. The predictability of freight has improved quite a bit. Our ability to get container bookings on the dates and times that we planned has improved. Our backlog overall has reduced somewhat with regards to container availability. It's moving more reliably, more consistently, but still with those long lead times and still at elevated costs. Now, there are certainly some in the industry that are predicting that from here, freight costs move down. I'm not sure that we'll see that in the next six months, but I would hope that we do see it towards the end of our fiscal year.
It does seem as if we're past the worst on those lengthened and expensive supply chains. It's still too early to predict a meaningful return back to pre-COVID conditions in the supply chain.
Thank you. That was all I had. Thanks.
Thanks, Vanessa. Next up we have Gretel Janu from Credit Suisse. Gretel, please go ahead.
Thanks. Good morning all. Firstly, just to go back to advanced single-use. Just that $15 million cost headwind to FY 2023. Is that expected to be completely washed through in the first half, or should we consider it to last the whole full year? I'm just trying to think about that guidance and how we should think about phasing between first half and second half.
Yeah. In terms of we expect the first half will be a wash of that inventory indeed, Gretel, because of the way we'll cycle that through. As Neil said, the purchases that we're doing now from outsourced suppliers, we know that margin spread is back to more normal, quote-unquote, spreads that we've seen historically. Yes, the first half is where we will notice or wash through all the inventory.
In terms of your other guidance, comments that you've made, that's the only one that will impact first half. Everything else should be felt progressively throughout the full year. Is that how we should think about it?
Yes.
That's the main.
Yeah. We do always see a stronger second half than first half. I would expect that seasonal weighting to be as usual in the next 12 months as well. Yeah.
Great. Understood. Just to go to the U.S. Withhold Release Order, and the issues that you had this year with YTY. I guess, has that been resolved now? Do you have any other comments relating to those issues? Have we seen any other further move from the U.S. Customs and Border Protection looking at any of your other customers here?
YTY themselves remain under WRO. They have submitted extensive documentation to the U.S. CBP that they believe demonstrates that they're fully in compliance with all the required labor standards. The CBP is now reviewing that information, as I understand it. We don't expect there to be a determination in the next few weeks. Not sometime into September, probably, before there's any news on that front. What we have done is sourced most of the products that we were previously buying from YTY, and we're now bringing those products into market. There was a gap of a couple of months or three months in some cases between when we were no longer able to supply YTY product into the U.S. market and when we brought additional new source into the market.
That affected our second half and was part of the guidance range that we provided back in January and February. Now some of that business has gone to other sellers, so we have to win it back, of course. That's what the team is very focused on right now. Credit to them for the speed at which they were able to find alternative sources for those products with our Careplus joint venture playing a very big part in our ability to respond so quickly. More broadly, no, we've not seen any further action by the CBP in the form of WROs. I think the CBP is pleased with the industry's actions and overall, the formation of the Responsible Glove Alliance.
That's not based on any direct information that I have, but on comments that I've seen. I'm sure the CBP is continuing, as they should be, to scrutinize the industry. I certainly wouldn't go so far as to say the CBP is no longer considering WROs as a measure that may be required in circumstances. Of course, it's our job at Ansell to ensure that we have a supply chain that's fully compliant, and that there's no risk of WRO action. Our insourced, outsourced strategy links to that, as I discussed in response to an earlier question as well.
Great. Thanks, Neil. Just lastly, in terms of the surgical, growth, very strong growth in second half. I guess, how confident are you that any market share gains you've made here are sustainable?
Yes. We've pursued some different approaches this time that I think have been really effective and I believe will be durable into the future. The U.S. market for many, many years was one that we were struggling to gain share in. We've adopted very strong co-branding relationships with the leading GPOs, and it's a highly synergistic relationship. It's not, you know, the value they see from the Ansell brand being on their co-brand is very significant. The value we see from the GPO access that we achieve, which we didn't have access to previously, is very significant to the growth. Even when competitors have a stronger availability position, I think our ability to grow using that strategy will continue.
I'm confident that we will be able to maintain the share gains. I would say more generally, surgical, there's still a very significant shift potential as we continue the journey from natural latex to synthetic. Even in the U.S., for example, I think it was the state of Illinois that just a few weeks ago announced a complete ban on all natural latex in the healthcare system in that state. If that becomes a trend, then we'll see a further acceleration in the U.S. away from natural latex containing products. In Europe, we've had to slow walk the conversion to synthetic because of a lack of availability. We know there is pent-up demand in Europe too to move in that direction.
As I said, it's also gonna become an increasing trend in emerging markets. As you're aware, while the lower end of natural latex surgical gloves is less differentiated, still, there's only a handful of producers who can make these synthetic products to the very demanding quality standards that are required by surgeons worldwide. We think the surgical business is set up for long-term success, and that's why we're pursuing our Indian investment as fast as we can to bring additional capacity to the market. I would also say that Indian manufacturing facility is going to be one of the cleanest glove manufacturing facilities in the world with regards to its environmental footprint. It'll be 100% renewable energy, and it will have minimal water demand on the surrounding area.
It will have a very strong sustainability differentiation as well, and we think that will be of interest to our customers.
Thank you very much. That's all I had.
Anita, back to you. I'm not sure. Anita, are you still on the line?
Our next question comes from the line of John Deakin-Bell with Citi.
My question is more about the margin. First of all, just in the current year, going through the annual report, the STI not achieved and obviously a big difference. You had this AUD 50 million decline in wages and salaries. Can you just confirm that that's mostly from these STIs and it's versus budget, I'm assuming. Given that the budget or the forecast, the guidance in FY 2023 is lowered, should we assume that wages and salaries line gets back closer towards where it was in 2021?
Yeah. Overall, John, the number you quote includes obviously other costs in there. It's not entirely the STI plus the LTI, but it's a large portion of that. Of course, in our FY 2023 guidance, we then have to rebuild some of those incentive costs, which is included in the guidance range we've given you. It's not that AUD 50 million quantum, but it's obviously a large majority of it.
Just to add one thing, the FY 2021 achievement, of course, was significantly above target, to then a swing to an FY 2022 achievement that was very low versus target.
Right. Understand. It'll be somewhere in the middle is a more normal year. Just getting back to your comments a bit earlier about EBIT margins, which is really what we're all trying to work out in two or three years' time when all this craziness disappears. Where is that going to land? If I look at FY 2019, your revenue is AUD 1.5 billion and the EBIT margin 13.5%. I mean, what are the limiting factors from, you know, obviously going forward, your revenue is going to be quite a bit higher than where it was in FY 2019, even when exam gloves get back to normal.
What are the limiting factors in getting that margin back to that, given that you're talking about you think you can pass on price increases from inflation in the, you know, exam gloves, et cetera. I mean, I'm trying to understand why you wouldn't get back to that margin.
Yeah. It's a good question, John. In terms of, I look at it this way, how do we get back to that margin? Yes, indeed, what limits us? How do we get back to that margin? We make use of the capacity we're building in especially areas like surgical, in life sciences, in the higher margin internalized, differentiated exam single-use products. All of those should help us as we ramp the volumes back up, help us with margin because the mix is just so much better, as you know, in those higher priced environments. Now, what limits that is, of course, we don't know where inflation's heading. At the moment, we're passing through most of that inflation, but we don't know where it's heading. We don't know where FX is heading in two, three years' time.
Of course, again, we're building that as much as we can into pricing assumptions. Then, we don't know where our leverage will land in terms of the volumes we pass through. This, at this point in time, and like I said in my remarks, I don't see why we wouldn't get back to the levels we've seen in the past. I don't see any reason why we wouldn't. Neil, I don't know if you wanna add some more color to that, but at this point. Again, two-three years is a long time. We're not gonna predict that far out on this call. Neil, would you wanna add any other color to that?
I think it's a good summary. John, as you say, we'll land with higher revenue than prior periods. A lot of that revenue growth has come, as I showed on that slide, from the more differentiated businesses. The mix trends are favorable to the margin story. The one challenge that I would add to the risk list that we have to get right is our operational productivity. There's a series of inflationary challenges to manufacturing in Asia right now from labor rates through to energy costs, and then the cost of the supply chain as well. I think some of those will start to reduce. Fundamentally, we have to get the productivity journey right, and we have to get our automation investments building momentum.
That's also what I'm confident in, given the success that we've seen recently. That would be the other piece that we need to get right in your formula, John. Then, yes, absolutely, we should be getting back to those margin levels in the future.
Yeah. 'Cause all of those things you talk about, they're industry-wide. If-
Yeah.
If everyone faces them, then the margins for the whole industry will just permanently be lower. As you say, assuming everyone can pass prices on, then it would make sense that you can get back to where you were.
Yeah. Over a long, long period of time, we've seen the industry has always been able to do that in both the Exam Single Use space, but, and also in the products that we are more focused on. Yeah.
Yeah. Okay. Thanks very much.
Thank you. Our next question comes from the line of Andrew Paine with CLSA.
Hi, Andrew.
Some of your comments. Hello, can you hear me?
Yes, we can.
Yeah. Hi. Yeah, just looking at some of your commentary on the surgical industry capacity expected to recover in FY 2023. Not sure if you covered this before, but can you just give a bit more color on who these competitors are and whether they're coming back online or is this adding new capacity to the system?
Yeah. The four big players particularly in the synthetic surgical space haven't changed. Cardinal is the market leader in the U.S. Mölnlycke has strong positions in a couple of markets, but much less of a global presence versus Ansell. And then Medline also has an important role to play. The four of us between us have around 80% of surgical market share.
With surgical demand being so strong, of course, it's no surprise that Cardinal Health and Mölnlycke are also adding capacity. As we project this out over several years, we see the continued demand for synthetics being met by the capacity that we're bringing on and others are bringing on. You know, as I mentioned also, there are other aspects of our differentiation with regards to go to market that we think also put us in a good place going forward. We were the only ones adding capacity for a while, and the consistency of our strategic focus on surgical has really borne dividends.
Remember that's been the key way we've played this pandemic all throughout is not lose sight of the long-term fundamentals, not chase after temporarily higher gains on non-strategic products, but instead stick to the strategies that we had already set out prior to COVID-19 coming along. That's been very successful and that's something that we will continue to do. Some more normal competitive supply situation reemerging, but still plenty of opportunity for our surgical business to continue growing.
Yeah. Just thinking about obviously the capacity coming on for Exam and Single Use, and I know it's quite different in the manufacturing process. But is there any risk that capacity comes online there, and you know, demand falls and they start to look to those lines like Surgical? I know a few of the Malaysian manufacturers do it in very small volumes and don't indicate that they wanna increase in that area. But do you see that as a risk going forward? Do you think you can kind of hold it to the current place in the market?
I believe so. I see no significant signs of a major step into the more differentiated surgical lines by new entrants. There's a whole set of constraints. Sterilization capacity and availability is highly limited. The product technology is not widely available. The quality standards are very high. Access to market and brand reputation are also key to success, particularly in mature markets. It's a very different beast to Exam Single Use. Remember, all the capacity in Exam Single Use has come in at the very bottom end. The products that are really sold on price and price alone, and that's just not the case for any of the surgical portfolio, certainly not for the differentiated synthetic range.
The final point is these volumes are small in comparison to the very large volumes available in commodity Exam Single Use. It's never gonna be sufficient offset to someone who is not happy about the performance of their Exam Single Use commodity business. Yeah, I mean, I've answered that question many times over the last few years and have been able to give the same answer pretty much every time, because we haven't seen that shift that some have long predicted. Still no signs of it happening currently.
That's great. That's all I had. Thanks.
Okay. Thanks, Andrew. That's all with the telephone Q&A. We switch over to the webcast questions. Next up, we have David Bailey from Macquarie. Can you talk to the composition of finished goods inventory balance? Why does this sit above historical levels? And is there a risk of inventory write down based on exam and single use dynamics?
Yeah. Anita, I think I gave that answer earlier, and it was in relation to the long lead times. It was in relation to our intentional decision to increase inventory as a result of COVID shutdowns and again, wanting to bounce back with good inventory levels in the segments we expect to have high service levels in. Then obviously there was that Exam Single Use pricing that we have to work through. As I said earlier, we've worked through mostly the expensive, highly costed inventory we purchased. There's a residual balance left. As I said to Gretel there, I think earlier, we will have in the first half I've worked through most of that is the expected cadence.
Yeah. Thanks, Zubair. Another question from David. Can you expand on the drivers of expectations for GPADE margin improvement as well as HGBU?
Right.
Go ahead, Neil. Go ahead.
I think we've covered the GPADE aspects through Exam Single Use, so I think David's asking for the rest. For industrial, the lower second half EBIT margin was because although we did put the price through successfully in January with the benefit of hindsight, it wasn't sufficient to cover the inflation that we in the end saw come through in the half. A timing lag, and we've long said to you that we will generally experience a timing lag in an inflation environment. With the price increases that are going through now, I expect that to catch up. That should. That's a reason for overall industrial margins improving. Then the chemical business suffered from a significant additional manufacturing cost linked to COVID-related constraints.
As that improves and works through and volumes normalize in chemical, then we should see improved margins in that business for that reason as well. On the HGBU side, it's for surgical and life science, so also ability to pass on price, but also generally those businesses being high mix. Higher margin. As those businesses grow at a higher rate than the average, then you have a mixed benefit. Those are the other factors that go into our view on GPADE margin going forward. Would you add anything, Zubair?
No, I think that was comprehensive, Neil. Have we lost Anita again? I think we've lost Anita again.
I see the web question. Let's go to Saul. A good question from Saul on splitting the Russia effect by GBU. I'm gonna have to swag this one. Just to clarify what we've reported, the FY 2022 adjusted that number between adjusted EPS and statutory is the one-time exit costs. It doesn't include the business trading in the last year. The AUD 9 million EBIT, AUD 0.58 EPS was in the prior year adjusted EBIT number, the AUD 138.6 million. We will not enjoy those earnings in FY 2023. You asked for the split by GBU. I don't have that, but I think it's gonna be approximately 2/3 industrial, 1/3 healthcare.
We'll try to get that more accurately and follow up if it's significantly different to that. That's about the sales mix. I would expect the EBIT mix to be similar. Zubair, did you have a more accurate number on that?
No, I think that's a good split.
I think last question, it seems, on. Well, David, actually, no, I think we've covered that on GPADE expectations. It looks like we've covered all the online questions as well. If we've still lost Anita, then perhaps I'll conclude with some remarks, and then we'll conclude the webcast. Overall, clearly, although I'm happy that we delivered on our revised earnings guidance, overall it was not a triumphant year with regards to financial results for the business with the decline year-over-year and the miss versus the guidance range that we set at the beginning of the year.
I think if you look underneath the financial results and you look at the accomplishments that we've made against our strategic priorities, building out our digital commerce strategy, continued focus on investment behind differentiated products, the innovation journey that we're on, and the potential that our sustainability commitment provides, I believe we'll look back on FY 2022 as laying very important foundations for our long-term success. That's what we're focused on as a team. A huge credit to my Ansell colleagues worldwide for the resilience they've shown. It's been a very, very challenging year in which a number of factors have come at us unexpectedly from various different corners of the world. In every case, the team has handled them adeptly, adroitly, keeping employees safe, keeping our customers supplied and informed.
I'm hugely grateful to the resilience that our team has shown. As we move forward into F-23, we'll stay focused on those long-term strategic drivers. I believe the business is in great shape to weather whatever uncertainties F-23 brings. Of course, that means for you as shareholders that you should see long-term value creation from here, and that's my commitment and objective for you as the CEO of Ansell. Thank you for your time and interest and questions today. Look forward to further opportunities to catch up over the next six months.