Earnings Call: H2 2021

Aug 23, 2021

Welcome to Ansell's results webcast for the financial year ended 30th June 2021. I'm Anita Chow, Head of Investor Relations at Ansell. Joining us on the webcast today, we have Magnus Micklellan, our Managing Director and CEO and Zabir Javid, our CFO. We also have Neil Saman with us, who a number of you may know when he was previously CFO and is currently the President of the Industrial Global Business Unit. And as you may know, he will be taking over from Magnus in a week's time from the 1st September. The materials we'll be discussing today have been lodged with the strength of exchange and can also be found on our website. Before we start, I would like to draw your attention to the disclaimer on Slide 2. If you could please take some time to read through this. I will now hand over to Magnus. And at the end of our session, we will be opening up the lines for those on the conference call for Q and A. Thank you, Anita. It's a pleasure to I'll be addressing you actually for the last time for me. And it's been a very dynamic year and very successful year. So today, we're going to give you a perspective of what we've accomplished and What we think we can accomplish going forward. I must say I'm very proud of the team across And so all 14,000 of them who've worked tirelessly through the year in a very difficult year with COVID cases coming and going, hot zones coming and going and yet we had a mission to play in Delivering solutions to our customers around the world to protect them from COVID precisely. So it's been a Challenging year, but a successful year and an exciting year in many regards. We've also done a lot of good work On making sure we have a well orchestrated transition. This goes back several years in the development, the preparation of successor candidates and with the announcement in June of my successor in Neil Salmon. I'm personally delighted with The selection of Neil, and you'll get to hear from him a little bit later. And appropriately, he will talk to some of the go forward Thoughts for Ansell and specifically to guidance. Before that, I will cover results, But also capabilities because capabilities have a lot to do with the results that we have delivered. Shabir will cover our financials and also, of course, the strength that we have, whether it's balance sheet strength or Margin strength, and then we'll get to the guidance. So let's go to the next Page and one more. So it's always delightful to be presenting a slide with a lot of green arrows. And this time around, they really are green. You're seeing here, of course, some very significant growth Factors, sales up 22% in constant currency, EBIT, profit attributable and EPS all Up around 50% in constant currency, and we're seeing our dividend being taken up by more than 50% And very much in line with the guidance we provided as we shifted to a new dividend pay policy. I'm particularly pleased with the high return on capital employed. After many years All significant investment, we're now delivering strong returns on our capital. The only red On this chart is, of course, the cash flow. But part of it was planned, Meaning, we built up inventory and we prioritized customer service ahead of Managing inventory. And that was necessary during this extremely dynamic year and I think makes sense. We also stepped up our spending on capital, as you can see to the right there, 36% up. And that's designed To build capability further, some of it went live during the year and allowed us to deliver growth Some of our SBUs, as we will comment on, and some of it will help us in F 'twenty two, and we will comment on that later. With all that, we still have a very healthy balance sheet. And I think we are ready for significant further moves Should that be the right thing to do, and we'll get back to you on that later. So this year Was, of course, impacted by COVID, both positive and negative, more positive than negative in the sense that we got Some help in additional sales, but we could not have delivered such a strong year Or even the strong year we had in F 2020 if we had not transformed Ansell. So I wanted to take a moment to talk about some of the longer term results and how we have transformed Ansell. Let's go to the next one. So this page on the right lays out our shareholder returns, 15% per year over 11 years It's pretty solid. And that is anchored in the 7 strategies that we adopted 11 years ago and that we've been Consistently implementing and working since then. So focus on areas where we can be the leader in the world And get out of everything else and we have done that. We have sold 3 or 4 businesses and we have acquired 9 or 10 businesses. Obviously, behaving globally, acting globally, Ansell used to be a very regional company And we needed to become a global company anchored closely to our customers. We needed to simplify and standardize branding, and I will Come back on that topic. Drive innovation, significant investments in innovation, expand focus on emerging markets, invest in manufacturing And in sourcing of everything innovative, control our destiny, and we've been doing that very diligently and deliberately. And then finally, M and A. Selectively, carefully, but still made quite a number of them 2, build strength in a number of different areas. And that is what is translating into the results that we're having, not just this year, but over several years. Next page, please. To illustrate this further, go back one. I wanted to talk about a couple of key KPIs, if you will, comparing fiscal year 2010 to fiscal year 2021. And as you can see, we've doubled sales. And that's come about by focusing on our core brands. We've quadrupled sales through our core brands, essentially gone from 250 different small brands to 13 key mega brands. In most cases, our brands are the biggest in their respective segments. Emerging Markets has been a very deliberate focus as well, where we quadrupled or quintupled the number of salespeople we have in key growth markets Like India and China, Brazil, Mexico and so forth. And that's given these results, And that's helping drive long term success. New product sales innovation, 3x, And we've taken it from 9% to 14% of sales. SG and A has come down, of course, in the last year, but it's come down Step by step over the period of 10 years. And it's really scale because we don't need To build up overhead as we are growing sales and increasing penetration. EBIT, obviously, up. What is interesting, quality has improved rather dramatically. We measure it in quality issues Relative to sales or CPM. And as you can see, it's a pretty significant reduction in quality issues. Number of new products launched, percent of sales on a modern ERP is a really important metric of efficiency To be able to track and trace what we do and we now have 85% of sales on a modern ERP. Manufacturing CapEx increased sixfold To accomplish a couple of things. Number 1, increase capacity. Number 2, In source, the innovative products and make sure that we had capacity for all the new stuff that we invented. And we have also reduced machine age. So we have a much more modern machine park across the Ansev world at this point. ROCE, we have now taken it back to where we were before during a period when we didn't invest. And that's quite important. And of course, EPS driving share price has gone up quite nicely. So These are the contributing factor or factors to the results that we have delivered, and it's something we worked on consistently for quite a while. Next page. Now, we have also and I'm not going to talk more specifically about The last year, but also on this page, you will see many aspects of things that are core to Ansell. It starts with safety. We're a safety company after all. We sell safety. So we better practice what we preach and that's what we're doing. We have world class LTI levels, Meaning injury per 100 employees. We are maintaining and Reinforcing our COVID safety, it's something that we have done from day 1. The first news coming out of Wuhan, We essentially created a team to focus on this in the early days every day and then every week and then every month To make sure that we could keep our employees safe. And I think we've done that extremely well. The also establishing the fact that safety is owned by everyone. It's not just owned by the CEO or the plant manager or the ELT. It's owned by everyone. And I think we've Successfully been able to establish that perspective. And then the safety assessments, Since we're so good, we think at safety, it's actually also an opportunity to sell our expertise in safety, and that's what we're doing with Guardian. Labor rights are coming more and more important. We are leading our industry in this area, we believe. We map out, track and trace how we take care of our own labor, whether it's local labor Or foreign labor coming into our various operating countries. We have also launched a supplier management framework that essentially allows us In an organized way to track and manage how our suppliers manage their labor relations And how they manage their employees so that they too follow the high bar that we have set. Serial recruitment fee is obvious, and we are there and have made sure that To the extent that we had agents who charged a recruitment fee, sometimes without us knowing it, we have reimbursed those foreign workers For those fees paid. And then accommodation, we've set up our accommodation for our foreign labor With 2 persons to a room, whereas most industry players have 8 or 16, and we think that that is only right. Environment increasing focus on there. We've made a lot of progress on our TCFD alignment in preparing the company for that. We have done tremendous amount of work on Sierra waste to landfill and we have a couple of plants who are now certified Sierra waste And we've made tremendous progress at all the others. Most of them waste is down 50% to 80% compared to a year ago. So it demos very clearly that it can be done. And we have a little bit more work to do to get all our plants To be certified, Sierra Waste. Environmental Investments, very significant investments underway, all the way from sonal panels to Heat recovery, biomass boilers and water recycling and so forth. And you're going to see some examples of that On some of our planned pictures. And then net zero, we're doing the work. It would have been so easy to just go out and commit to 2,050. The fact is none of us is going to be around by 2,050, so it doesn't mean all that much. We'd rather do our homework and be able to commit To a date hopefully sooner and that we know exactly how we're going to get there and Making good progress in that analysis and more on that later. Next page. So in terms of Key business initiatives during the year. I talked a little bit about the operating environment in COVID-nineteen and the work that we have done to make sure that we take care of our Employees keep them safe and also how we set up our offices and sales forces around the world so that they effectively can do their job While working from home, this is not different from most other companies, but it's worked rather well and we're very pleased with it And have changed our policies to reflect this going forward. New product development has been a key area of focus And we are now getting ready to launch a lot of new products that we could not launch last year Krish, we were so busy just making sure we got the maximum quantum out from our plans. But now that we're sort of Getting some level of stabilization, for example, in the mechanical portfolio, good inventory positions and so forth, we are starting to Launch significant new innovation, and we'll talk about that. And digital, every company in the world is Getting digitized and that is also the case with Enso. And we have done some really good work in Establishing and building capability to serve existing distribution partners and their digital channels as well as new distribution partners. And we've seen digital marketplaces grow 56% as one example of how that is developed. Thanks. Now one of the key opportunities and challenge during the year was All of the investments. We have built and started more new manufacturing lines this year Than in the prior 4 years combined. So it's a rather significant commitment to Capacity expansion and in sourcing. Capacity expansion of chemical, Of chemical body protection, of electrical protection, of surgical, mechanical and so forth. And same thing on single use expansion, but also in sourcing because we decided on single use 2 years ago, well before COVID, That we were going to take a step forward in managing our own destiny on single use and primarily differentiated single use By doing it ourselves. And that has paid off nicely because we had a lot of significant new lines going live During the past year, based on decisions that were taken 2 years ago. So and this allows us both to And in source at the same time and control our destiny better going forward. Next. So when it comes to geography, all geographies are growing nicely, but emerging markets also this year grew faster Than more established markets, and that's exactly the way it should be because more and more working hands are in emerging markets and more and more surgical We started to present This, I think, on the half year or maybe it was a year ago, to give you a flavor for the SBUs. And The reason why we think it's important is because we have a very nicely balanced portfolio. And of course, some of the SBUs have benefited from the growth during COVID or increased demand during COVID. Some of them were actually hurt by that fact like mechanical, for example. And yet what you see here is All of them performing at a pretty good clip, whether helped by COVID or not. We're very Pleased with the performance of all 5 SBUs. And I'm especially happy with Surgical, where in spite of a lot of postponed surgical procedures and lines getting longer and longer, we're seeing good growth in Surgical and life science of course. And as you recall, we made a couple of acquisitions in the life ScienceBase going back 2 years 1 year and this is a contributor to this, but most of it is actually organic growth of this period. So we think we have a really strong portfolio here and a portfolio that can Keep us successful no matter what happens in the world, so to speak. Let's go to the next page. So I wanted to spend a little bit of time on single use. Some of our analysts have I made comments or post open ended questions on what's happening in the single use space. And of course, it's The SBU with the significant with the biggest net benefit from COVID. So what's going to happen now? There are two questions that I want to answer. The first one is, while raw material has gone up, hasn't it? And isn't that going to create some problems? So we identified, as you can see here top left, a number of observations relative to raw material impact And a shortage of raw material. So what have we done? On the top right, you see our response. We have entered long term supply agreements With the top producers of nitrile to make sure that we secure our supply and that's Been done rather well and we've also set it up with very flexible pricing agreements, so that if pricing Starts to come down, then our cost will come down as well. We have also started to shift to other formulations and other materials To make ourselves a little bit less dependent on nitrile and a few other things. So bottom line is, we think we can manage The raw material exposure and make sure that Ansell is able to continue to grow. The second one that many of you would ask or have asked is, well, what about all of this new capacity? It's being built all around the world, Whether it's in Malaysia or new capacity in China or even new plants being built in the United States, isn't that going to challenge you? And the answer is yes, of course, it's going to challenge us, but we think we have a way to respond to it. And first of all, We don't focus on the low end where most of this capacity has been added, the 3.2 to 3.5 gram We focus on differentiated products, either they are coated inside or outside, they have grip characteristics, They have a different formulation or they have multi layering with 2 different formulations, one layer after the other. So lots of innovation have been put into these and that's giving us a level of protection against emerging competition Because it's not that easy for a TopGlove or a Herta Lega to do because their machines are mostly designed for High volume and very little post processing, which requires a lot of labor. So we think that that is one element. We continue to innovate and are and have launched a number of new platforms in this area. And we are also linking our solutions in single use to what we're selling in mechanical or chemical or in suits and so forth. So we deliver an integrated solution to many of our customers or distribution partners as the case may be. That too provides a level of protection, if you will, on the single use side. Next page, a few more deliberations on this one. This is a little bit of tongue in cheek of course. Some of the new market engines have used very inexpensive nitrile And you get what you pay for and very often that nitrile formulation is not all that stable and something like this can happen, it tears very easily. But it's also quite narrowly focused on the thin stuff. And again, the point that I made, We are focusing primarily on differentiated single use, thicker, multilayer grip coatings and In how we service our customer and deliver expertise. So again, not all single use gloves are the same. And that's really an important observations. And of course, price points are 10 to 1 or something of that nature And depending on whether it's a capable single use product with chemical protection capabilities or just Another run of the mill 3.2 gram product. So we think we're in a good place, but it doesn't mean that we're not going to feel increased competition. We will and but we think we have a way to respond and an effective way to respond. Next page. So when it comes to our healthcare GBU, obviously, a fantastic performance By that team and our sales forces around the world, and you see it here reflected in the 38% growth on top line and 75% on bottom line, a very high EBIT to sales ratio. And we're getting this because of increasing scale, because of our Highly efficient new manufacturing that's gone live with mega machines that are way more efficient than anything that we've used before. And of course, the impact from our investment in CarePlus has I contributed as well where we're getting significant additional capacity and also some joint venture revenue that flows Through to the bottom line. So key drivers of profitability in this business unit, of course, are Surgical, where we have high margin and high profit contribution and life science, both of them are growing very Significantly, whether helped by COVID or not. Next. When it comes to industrial GPU, a really strong performance as well. Initially, in the early part of the year, clearly mechanical It was tough. Many of our automotive customers or metal fabrication customers were spinning their wheels and We didn't see a lot of momentum there. But fact is, our team has done a really good job in taking share And in building our positions, leveraging the multiple ranges that we can offer. And of course, we have seen really strong results On the chemical side of house, where our unique offering of both suits and gloves is giving us a bit of an inside track versus our leading competitors. And we have seen some good results also from manufacturing here and increasing efficiency And so forth, a number of new products are launching. So all in all, it was a really strong year From the industrial team, and you can see it reflected in the EBIT development In a year that initially wasn't easy at all. In fact, it was quite difficult to start with, but we overcame that and delivered some strong results. So with that, I'm going to be handing over to Sverd, who will take you through some of the Specific on financials, balance sheet and why we're ready for more. Seberg? Thank you, Magnus. So as always, I'll begin the financial update by outlining a few key items in our P and L. Now as always, again, Magnus has been very comprehensive in his coverage and especially on the revenue growth drivers. So I'll try not to repeat that commentary, but I'll provide just a little more specific detail around some of the other financial outcomes. But before I begin, you'll notice we've restated here our comparative fiscal 'twenty results. This is considering the recent accounting change related to intangibles and cloud computing arrangements. I'll explain more about that in a moment. But beginning with the reported sales growth of just under 26 That includes over $40,000,000 of favorable foreign exchange, and that's namely the euro, the sterling, Aussie and Canadian dollars all depreciating against the U. S. Dollar. Now if we normalize for that FX movement, It's how we arrive at the 22.5 percent constant currency and organic growth. I told you in our first half earnings call, We should expect the second half growth would be somewhat dominated by our ability to pass through the exam and single huge cost increases. And clearly, I think we've managed very well to execute on that front. I'm also pleased that the continued run rates and volume contribution From the mechanical, the surgical, chemical and life science business units, and Magnus highlighted this very well earlier. I think in the last few weeks, however, there has been some caution because we've been dealing with some operational disruption, And that's due to recent lockdowns in places like Malaysia, Thailand, Vietnam, and then this COVID clusters breaking out all over Southeast Asia, Which is well documented. At the same time, we're seeing ocean freight capacity quite constrained. And when you combine all these factors, There's inevitably impact on volumes. Gross profit after distribution expense, that's grew 120 basis points versus the prior year, And it reflects a tremendous amount of effort and tenacity right across the company. Now although our manufacturing sites were able to operate, as Magnus said, with efficiencies and our pricing processes remained, I'd say, nimble and well versed from the first half. We did also have to manage quite an uptick in labor and logistics costs, as you can imagine. Now at the same time, we've taken Quite a prudent and I'd say risk averse approach in terms of providing for things like potential inventory write downs and so forth. And despite all of these headwinds, I think we're still very pleased with our overall margin performance and especially given the potential Challenges we saw against this line coming into the fiscal year. Now that said, I do expect inflationary pressures To continue across the supply chain, we're not the only company dealing with that. And coupled with some normalization, as Magnus said of the exam, Single use pricing, perhaps we'll see some gross margin compression or at least in percentage terms in fiscal 'twenty 2. Moving to the SG and A expense line. In terms of that line, I'd say the most notable movement here has been related to the short term variable expense As it relates to incentive payments, this was about $20,000,000 of year over year expense, and we'd expect that to normalize in the new fiscal year. Now at the same time, that said, we will be investing in several key growth initiatives. And after all, we do need to meet with our customers and teams again. So I'm anticipating some reflation of travel costs, etcetera. Overall, though, I would Say, as a percentage of sales, SG and A will perhaps remain lower than the 21% or so range we've been comfortable trading at in the recent past. Now as again, Magnus has highlighted this, but it's very pleasing we were able to recognize $8,000,000 of income from our CarePlus joint venture. Now you may recall when we committed to that partnership, we expected only marginal accretion in the 1st couple of years. So of course, we're delighted with the economic outcome In fiscal 2021, and as well as the fact that Venture was able to prioritize volumes when our customers needed that the most. And then finally, no surprises in terms of interest and tax. So that brings us to just over €0.092 of EPS. And again, that's net of the cloud computing accounting change, which we said earlier was a $0.02 or so dilution to reported EPS. Now you can read more about the specifics of this accounting change in our appendix to the investor pack. But very briefly, we're now expensing direct So the P and L, certain costs related to configuration and customization of cloud computing arrangements. We would have previously capitalized and then amortized those. So for fiscal 'twenty and for fiscal 'twenty one, This diluted EPS by nearly 0 point 0 $2 In fiscal 'twenty two, given the program that we're expecting to deploy in terms of Software and cloud computing arrangements, we expect to see a further $0.05 to $0.06 of impact. Now of course, when you look at the current consensus view of our earnings per share, I'd expect that would need to be adjusted downwards by this 0 point 0 $0.06 so we can compare on a like for like basis. Turning to the next slide. And a quick look at our raw materials mix. I think the overall composition that we talk about here is remaining in roughly the same proportions as always. But that said, I think the salient point here is We've navigated through and we're navigating through an unprecedented period of upward pricing and cost management As it relates to the outsource examined single use costs and the products there. Now at the same time, And we've just indicated this. We were managing NRL and NBR costs, which were also very dynamic. And especially in the second half, we saw a very aggressive upward trajectory in those costs. Over the last couple of months, though, I We've seen supply and demand of exam product is finding perhaps some equilibrium. And again, this in turn is bringing back some competitiveness in terms of how costs are passed through to customers. Turning to CapEx. Our CapEx spend here, We've just highlighted the key investments. The record number of lines installed in the fiscal year, we're very proud of. It's a great testament to our operations team. But despite this Herculean effort, we did underspend against the guidance by $15,000,000 to $20,000,000 And of course, that's because Lockdowns and travel restrictions do not make it easy to deploy these investments. However, we do continue So we have good aspirations and good momentum with CapEx investments into fiscal 'twenty 2. Now if we can get the engineers and the project teams Again, you should expect another year of perhaps $80,000,000 to $200,000,000 of CapEx investment, and this will be a broad program, as you heard Earlier, focused on differentiated product offerings as well as building out our digital capabilities and infrastructure. Moving to the usual cash bridge on the next slide. In summary here, we see a lower cash conversion Just under 61%. This was already trending this way in the first half. And of course, that drives lower operating cash flow than you would normally associate with Ansell. Net receipts from operations here, just under $240,000,000 from nearly $400,000,000 of EBITDA. As you can see, it's been diluted by the significant working capital investment, and that's mainly customer receivables and inventory. And I explained again the reasons for that in the half. Included in the $90,000,000 set there in the chart are noncash items, such as inventory and incentive provisions, which I just spoke about. And as we move across fiscal 'twenty two, I'd expect to see a cash conversion much closer to our historical high levels of 90% plus. So as always, closing out with a quick look at that very strong balance sheet, as Magnus alluded to. The overall capital employed in our business, as you can see, has increased nearly $300,000,000 in fiscal 'twenty one. Now that said, our return on capital employed On a pretax basis and return on equity are up nearly 600 basis points year over year, and that's clearly driven by That's EBIT or earnings before interest and tax growth. Now what we're doing is doubling down and focusing on making sure Our investments yield the high returns that we expect in the future. And then finally, as I always highlight on this slide, We remain conservatively leveraged. That's at less than one turn of EBITDA. And so we continue to have ample room in terms of liquidity And what that means we can actually continue to have great flexibility when it comes to capital deployment options. So I think that wraps up the financial section, and it's my absolute pleasure now to hand over to Neil Simon for more about the F 'twenty two outlook and then Q and A. Thanks, Hubert, and great to be with you again as I prepare to take on my new responsibilities. And I wanted to start by saying thank you to Magnus and thank you to the Board of Directors of Ansell for the opportunity to lead this company. It's a great company With great people and I think great potential to build on the impressive results that we are outlining for you today. So if we can go to my first slide. So my first priority as CEO will be to stay focused on those strategies That Magnus has articulated and which continue to drive our success. And in particular, our plans see us stepping up Our investment in differentiation with a focus on innovation, on production capacity, but also very importantly, production technology, Which can be a source of enduring advantage. Further, building out our emerging market presence, both in terms of our sales presence, But also our manufacturing presence where that makes sense. And then building the modern digital architecture that Ansel needs to be successful In the 2020s, both leveraging capabilities that we haven't yet untapped in our supply chain and also bringing new benefit to our customers. It's also important to stay focused on those verticals and product positions where we have that leading position that Magnus described And where there is still significant additional growth opportunity. That's not to rule out moving into adjacent segments as well If we see the right opportunities perhaps through acquisition, but we shouldn't do that at the expense of underperforming in the areas where we're already strong And there is opportunity right in front of us. As you study our performance in F 'twenty one, I want to reiterate something that Magnus said, Which I think is key. Yes, the headlines might go to the COVID-nineteen response of ANSIL and the impact to our revenue and our growth in F 'twenty one. But perhaps the more important story is the performance of business units that were only tangentially impacted by COVID-nineteen demand functions or even unfavorably impacted. In F 'twenty one, we saw the best results we've seen in a long time For Surgical and Life Science, and we saw a very strong end to the year for Mechanical. And these businesses and their ongoing success It's more important to our future than the COVID-nineteen response in F21. Going ahead in these businesses, We see favorable economic conditions now in place for all of them, and that wasn't the case through F 'twenty one. And we're excited by the returns that we're seeing In the investments we're making in differentiation in these businesses that are driving our customer success. So we expect And we are targeting continued outperformance. Exam Single Use and Chemical have to deal with, in the first place, What we are now seeing is lower pricing and lower demand on the less differentiated styles, which are also the styles most relevant to COVID-nineteen protection. So some headwinds there. But on the other hand, there is still the opportunity for growth, mainly coming from in house capacity of differentiated styles, Whether it remains strong customer demand and we are bringing new capacity to market. It's no great revelation to say That we expect COVID-nineteen impacts to continue throughout F 'twenty two, and I'll talk a little bit further about the impact in particular on our supply chain in the next But I think it's also important to note that COVID-nineteen has shown the world just how important PPE is, And we do expect enduring higher demand for PPE and a higher awareness of the importance of PPE, both in the workplace And in other environments. So now a few words looking further ahead. I think there's significant opportunity for accelerated growth and in a way that creates value for all our stakeholders. I'd like to refine our mission under the heading Ansell Protects, and I want to say a few words about how we protect, Who we protect and what we protect. How we protect. I think we're on the cusp of some transformative technology That will really step change our value creation in the workplaces in which we already protect people and products. This is through R and D spend on more sustainable materials that can bring the same protection or enhanced protection benefit at lower environmental impact And also materials that combine protection against multiple risks into a single product, replacing what today would be a multiproduct solution. Perhaps even more transformative is the opportunity to incorporate sensors and other digital technology Into the hand protection and body protection that we provide today. And this technology allows workers to be warned before injury events happen That they are at risk. We're close to commercializing the first of these products with some very significant customers worldwide, And I look forward to being able to update you on that because it's important to realize that the problem of injury avoidance in the workplace is far from solved. And there are still today high occurrence of injuries that are very expensive to the employers of workers and the big impact to the workers themselves That there aren't good solutions to today, but that we think we can address. And then we also want to extend our Ansell Guardian approach. It's already the leading method for assessing workplace hazards and matching PPE to those hazards, and we also see a way of extending its value much further For our customers. Who we protect. So we're pleased today, and we roughly estimate there's about 10,000,000 workers every day Who wear an ANSOL product, but that's also quite a small number because we know there are millions more people who would benefit from ANSOL protection But don't have access to it today. So how can we extend our reach? Well, 2 primary means. Firstly, Continued investment in our emerging market growth strategy where we know even today the great majority of workers either have no protection or are inadequately protected against the hazardous day experience. But we also see significant opportunities through leveraging e commerce and digital marketplaces to reach end users in the past did not have access to Ansell products. We know that there are many people out there whose jobs will be made much easier and safer By wearing Ansell PPE and we want to reach them and we think e commerce enables us to do that. And then thirdly, what we protect. Our ultimate goal at Ansell is to provide ideal protection in the workplace at no cost to the environment. That's a massive objective, a big statement. It will take us many years to get there, but that's our goal. At no cost means, firstly, no cost in the workplace, no injury risk to our workers and making sure both Ansell's workers And the workers of our suppliers are treated as they should be. But it's also about setting new ambitious sustainability goals Consistent with our obligations under the Paris Agreement, and we will put significant attention to that over the next 12 months. So more on these themes to follow. And I hope that later on in this fiscal year, I'll be able to I and my leadership team will be able to update you As we develop our vision against these objectives. So now let me turn more specifically to F 'twenty two. So a dynamic demand environment. I think we said that at the beginning of most of the years at which I've been associated with Ansell, But generally positive. And as I said before, we see continued positive demand for mechanical, surgical and life science, Whereas within single use in chemical, a mixed picture, lower demand on the products that were most in demand last year for COVID-nineteen purposes, But higher demand on other and more differentiated styles. Pricing also will be a dynamic situation. We do today see lower pricing on the products that experienced peak pricing last year. But in other areas, We expect to be able to raise prices to offset those inflationary pressures that Zubair covered. On supply, our teams have done a fantastic job bringing that additional capacity to market even with all the challenges of doing so In the current environment, and that will benefit our growth going forward. From a production point of view, we should be aware that South and Southeast Asia Are suffering the most challenging conditions they've yet experienced with regard to the SARS CoV-two virus impact on populations. And a number of our factories and the factories of our outsourced finished goods and raw material suppliers have had short term closures or are operating under reduced headcount restrictions. This is and will disrupt supply And may impact our sales during the first half of F 'twenty two. Now we went into this period with higher levels of inventory in anticipation of these impacts, And those will be important in covering this. But overall, I think there will be an impact on sales during the first half. But in full for the full year, I expect us to have largely recovered that by the end of the full year. The way out of this is vaccinations. We are making rapid progress in vaccinating our workforces, and I anticipate that once we have achieved full vaccination rates, Countries will be able to will let us get back to operating normally. The final point is, of course, those increased freight costs And shipping delays that are a function of the world today and which we expect to persist throughout F 'twenty two But also pass on the cost impact to customers. There's a few other points on assumptions here regarding interest and tax. I do want to say a little bit further on that EPS impact of the cloud computing software change. So these are very important investments. We had long planned them for this time period. They were previously in our CapEx guidance. But now with this accounting change, you will see them expensed immediately through EPS. And they're integral to our strategy around building a supply chain architecture that will carry Ansell forward over the next 10 years or so. So taking all these factors together and our best view at this point for earnings per share for the year is that we will fall in a range of 1.75 to 195 at the upper end. So I'd now like to hand back to Anita, and she will moderate the Q and A session. Thank you, Neil. Our first question comes from David Lowe from JPMorgan. Thanks very much. Neil, if I could start with the guidance, it's obviously an extraordinary period, and we've seen profit Extraordinary growth in profit. So I'm quite impressed that you're prepared to guide to profits being maintained at these levels. I just would like to say, one, sort of half to your Level of confidence perhaps in this environment versus the past. And then just to touch on what you just commented on, Should we or are you expecting that the first half will be weaker because of supply issues and we'll see some of that recover in the second half? Is that what's expected by Yes. So yes to your second question. On the first question, Indeed, there are a lot of factors to consider in setting a guidance range, and that's why we have a somewhat wider guidance range than we would typically see. It's important to note that continuing good performance from Surgical, Life Science, Mechanical, there is Less risk to that and also more opportunity. Many, many products in those SBUs we are sold out on. We are customers are coming to us saying you are our best and most reliable supplier. As soon as you bring capacity on, Please offer it to us. And so we're working as fast as we can to do that, and that gives us great confidence. Life Science Demand is benefiting from vaccine rollout, and I think we have a very, very high share of meeting the protection needs of vaccine producers globally. And of course, that we expect to continue for many years into the future. It's not just a 12 month impact. It's harder to call single use and chemical. And you've got those two factors. You've got the fade out of the Specific COVID-nineteen demand and pricing, pricing more as supply and demand normalizes. Demand is coming down temporarily because inventories have rebuilt globally. Even there is some overshoot in inventory with Some steps in the channel, but fundamentally, end use demand will stay high through the next 12 months as we are a long way from solving the COVID-nineteen issue. And then chemical, we saw chemical demand drop off more quickly than single use, but we are also seeing Good growth in gaining share in industrial applications that we expect to continue. So there's a balance, David, of businesses that we think We have a greater confidence about predicting and businesses where there certainly is uncertainty, and that's what we've taken account of in the range. It is important. An important assumption is that the duration of these manufacturing outages will be limited. That is vaccination rates catch up, we'll be back To normal operating rates, I think that's a reliable assumption, but that's something that we'll need to stay close to over the coming weeks. Okay. Just one sort of follow-up on that for final question. So just on the average Price across your products. I mean the guidance commentary is some up, some down, seems to summarize it. Are you assuming that the pricing On the single use and chemical will come down fairly meaningfully given the peaks we saw last year? Yes. We are indeed assuming that Single use pricing will come down, especially on some of the low and mid range type of products, but also impacting on higher end products that We've seen some price increases. On the chemical side, we have already absorbed the price That we expected to see. So I don't expect any significant further price declines on chemical. And then as Neil said, we will see price increases on many other products. Surgical is one example, life science and so forth. And part of the reason for that is Transportation cost is through the roof. Labor cost inflation is very high. So you're going to see 2 Balancing factors here, but of course, the single use element is quite big. So we will have a disproportionate effect on pricing in total for the company. Great. One last question. The Industrial division, it seems to me that earnings or EBIT went backwards in the second half and the Which was certainly not what I was expecting. Could I just get there wasn't a lot of commentary in the presentation around the Industrial division. If I could just get a little bit of a sort of explanation The trend there and what we should expect going into this year, please. I mean, the only factor really, And it's more normalization is that the drop in chemical pricing that Magnus mentioned. And that's in comparison to a prior year period in which There was a higher than normal volume at list price. So but other than separating out that factor, If anything, I think mix trends improved during the year in that business, and we saw increased demand for our cut protection portfolio within mechanical, Which is key. We continue to see strong throughput in our manufacturing facilities. And then Chemical going forward, we should also see growth on the higher style. So overall, I'm very satisfied by the margin development within the IGBU business, and I think there's further opportunity going forward. So we do expect that, that will bounce back and return to growth in this year? I think if you take the 12 months EBIT, that's a good basis. And then yes, we can make progress from there, yes. Thanks, David. Next up, we have Daniel Huron from MST Marquis. Good morning, James. Thank you very much for taking the call. Look, I'm interested to understand the changes in the channel over the last 12 months. Could you give us some indication in the roughest terms How much volume has gone through your traditional channel and customers versus new buyers, customers, distributors, etcetera? Maybe if I start. Yes, there is an ongoing evolution as opposed to revolution. Traditional channels continue to play a dominant role, but remember that many of them actually have an e com Engine attached to the side. So if you take someone like a Granger or a Rubix in Europe, they will have an e com Capability that either runs as an integral part of the company or is run as a separate division. So we've been able To leverage our strong relationships to piggyback or serve the ecom side of the house, so to speak, while continuing to serve the traditional side of house. And then, of course, a lot of new players or Players expanding into the space and it's the usual suspects, right? Amazon and Alibaba and so forth and where we have seen Very strong growth and we reported on some numbers there. But in the scheme of things, they are still relatively small Because this is an industry where advice or guidance still matters for many of the products We need to do a training program with the users or you need to do a safety audit before you can even decide what product is right. And that's hard to do entirely or completely online. So I think you're going to see a combination of Traditional channels and traditional ways of working, sometimes augmented by digital tools to allow For a more efficient way of running a safety audit, but that traditional challenge is still going to be doing the shipping and the fulfillment. And yes, you're going to see strong growth of some of the new players as well. I don't know, Subhaer or Neil, if you want to add to that a little bit more. Yes. I think perhaps to add color that there's relatively little channel shift, meaning customers buying through 1 channel today And switching to an alternative channel. And so and for sure, our leading distributor partnerships will remain central to our growth going forward. We don't That's changed in any way. The e commerce opportunity is not so much channel shift as opening up new end users Who are not buying through major distributors and yet who would who still benefit from natural protection. So I think that's the more important trend to focus on. And a somewhat related question. The fairly strange numbers we've gotten received from customers and net receipts. Could you just talk a little bit more about that? And has that been a reflection of Any change of who's paying the bills? So Barry, do you want to So I'll take that one. Yes. So the net receipts, we signal this in the first half that we had a choice ahead of us in the industry as the pandemic broke. Of course, there was this supply and demand imbalance, and participants in the industry could, of course, take advantage of that. Some players in the industry took advantage of that. They raised prices exponentially as well as taking cash in advance from their customers. Our values are very core to us and we live them. And we wanted to partner with our customers and we said this in the first So we have the choice ahead of us. We could raise prices exponentially. And at the same time, we could also ask our large customers to paying in advance. Clearly, the industry could do that. We chose not to do that. We chose to partner with our customers and give them increased credit limits. Prices did go up as we had to pass through these exponential costs from outsourced players, but of course, that came at the expense of working capital investment. Going forward, clearly, as prices retreat, the industry normalizes, we'd expect some reset in those receivables and the net receipts coming in But overall, we have no risk in our receivables, and you'll see that in our annual report. We still have most of our debt 1 to 30 days, and so no risk from that perspective. Great. Thanks very much. Okay. Thanks, Ann. Next up, we have Sean Laymon from Morgan Stanley. Go ahead, Sean. Thank you, Anita, and good morning, Magnus and Zubair, and welcome back to the public facing side deal, and congratulations on the new role. I have a couple of questions on the exam single use strategy. So I know that you made some investments in the in source side of the equation and I think the mantra was that you double existing capacity over the next couple of years and the first line In that strategy, I think came online in December, if I'm not mistaken, just passed. My guess is that those gloves Sell at quite a higher price point than the less differentiated outsourced products. So going forward, what's the strategy with Respect to growing the presence in the in source side of the examined single use equation, is it converting low end users Over to your in source products. Is it taking market share of potentially other existing suppliers? Just to get a bit of a feel for What the outlook is there? And then just to square off, I assume also those are in sourced products would be A decent margin better than the outsourced products. That's the first one. Yes. So starting on that one. Yes. There is opportunity here to, first of all, charge A premium for a product that delivers more value and that's really what we focus on With these products, the picture you have up on the Q and A page is actually a picture of 1 of the 4 new lines in Bangkok, And these are dramatically bigger and more efficient than any other lines that we have. So it's giving us an ability to produce High end products, very cost efficiently, and that's obviously part of the strategy. When it comes to this Sub segment within single use, it is growing very rapidly. And we've seen our TNT brand Grow 7%, 8%, 9% every year for the last 10 years. And it's now starting to become a really big Product range that continues to grow at a rapid clip. And if anything, COVID has increased People's awareness for high level protection, and we're seeing the result in continued strong demand on So we think it's a really exciting space. Innovation is providing a lot of new product platforms. We launched A multilayer product 3 or 4 years ago, and that's become a really big product as well, especially when it comes Chemical protection. So lots of more room here. There are many applications where today Users must put 2 pairs of gloves on to be protected. And of course, our solution replaces that. And we also see a little bit of, if you will, internal cannibalization, meaning an advanced single use platform With chemical permeation can even replace some of the heavy thick chemical gloves At a meaningfully lower price point. So there's a lot going on here. And Neil talked to some of the excitement we have about next gen, which will include sensors that you can put on The fingertips and that will warn you about what you're touching and or can even tell you that your glove is about to be permeated, change now, Those kinds of things. So that's where we see a lot of opportunity and expect to see strong growth In the mid- to high end single use category for years to come. Just as a follow-up, just on the neoprene as a material. What's some of the, I guess, sort of adoption of gloves that use neoprene versus Nitrile and how broadly big are the sub segments? And if you give some description on the relative price moves of those Well, neoprene used to be priced like 4x or 5x Of Nitrile and then Nitrile went up in price or pricing provided by outsourced vendors and so forth went up so much But all of a sudden, neoprene became quite affordable. So it does offer some significant In protection against certain chemicals and so forth. It also offers comfort advantages. So we do expect neoprene to be an integral part of our Strategy either standalone or mixed with other formulations in multiple layers. And we're about to get ready for launch a number of new platforms that will provide protection against chemicals That have been notoriously difficult to protect against in the past. So we do see Neoprene being a key part of the strategy, but it's in conjunction with nitrile and natural rubber latex and poly Supreme and various subsets of all of those. Great. Thank you. And just one very quick one, if I may. Just looking at the 6.9% growth in the second half in Surgical, sort of a little bit backwards on what we observed in the first half, just given your commentary around Wait times, etcetera. If you're able to give any sort of granularity on what you're observing so far on Surgical in the current period, if you can, that would be useful. We do expect strong growth in surgical for the year. But as we pointed out, We have seen some significant production disturbances in Malaysia to a degree in Lanka, But essentially our 2 plants in Malaysia with forced shutdowns or operating at 60% of capacity and so forth. So that's impacting on the growth in the short term, in the very short term. We remain supremely confident in the medium and long term about our ability to win in surgical. And in fact, we know we have Demand, we have converted a number of very large customers in various places around the world. So we do expect really strong development in the surgical business going forward. And It's part of the reason why we continue to invest in it. We had 2 synthetic lines go live in the last 6 months, And we have a bunch of NRL lines going live right now. So it's an exciting space And we have strong positions in the space. And we've taken a lot of market share in North America, in Europe, In Japan, in India, just to name a few places. Great. Thanks for answering my questions. Appreciate it. Okay. Thanks. Next up, we have Gretel Genoe from Credit Suisse. Thanks, Anita. Good morning, everyone. Just going back to pricing, would you be able to quantify the price benefit within the 22.5% constant currency sales growth that you achieved in FY 'twenty one? This is Hubert's favorite question. He's been practicing all week. And Gretel, we knew you were going to ask it Well, so it's a good question. And you will know we did indeed break out price and volume in the first half. Now what we found, Gretel, is if we did that in the second half, because of the extreme pricing we saw in the exam single use business, You would very easily lose the significance and importance of all the volume growth we just talked In the 3 or 4 of the SBUs, which in fact had high single digits, double digit volume growth. Now We did anticipate that the exam single use business would see significant pass through pricing in H2. Clearly, that's what's happened. And it was also an exceptional prior period in terms of volumes. So overall, in that business unit, pretty much the growth was Price driven. Again, we indicated that in the first half. Now rather than be very specific and give you that price number, which will be misleading, What's perhaps more important and perhaps more important going forward is that our EPS guidance, clearly, for F 'twenty two, It's assuming we can grow organically from the F 'twenty one sales base. The growth is going to be more in line with our midterm Organic growth expectations, and we shared that at Capital Markets Day. So if we do see a retreat in pricing from the exam business, Clearly, to grow off that base, we're expecting to offset the volume growth and especially in the lines that we've invested In our differentiated product line. So hate not to be very specific for you, Gretel, but hopefully, you can take away from that answer for your models going forward. Understood. And then so just on that, the comment may bear about your medium term targets. So there were 3% to 5% organic sales growth and EPS growth of 6% to 12%. So how should we think about those targets now looking at the very, very strong results from FY 'twenty one? Is that now the new base? Or Do we still have to see some more normalization in earnings before we can then think about those targets on a go forward basis? Well, a quick Well, I think to start off, we've given you a guidance page that lays out Our EPS development over the last number of years, and it also spells out our guidance range for the New Year. And it implies that we're going to keep the new current level of EPS or profit Generation, plus minus something. And the plus minus is obviously a function of what's happening in the world, How much disturbance are we going to see on manufacturing and various other factors that Neil outlined for you. But I think So visually, the chart spells it out for you. Yes, we are going to keep operating at a higher level of performance going forward, and it's aided by our significant investments in capacity, In in sourcing, in differentiation, in innovation, in sales force coverage and so forth. So that stands. Yes. I think, Magnus, just to be very Sorry, just to be specific on that, the guidance clearly at the top end of the guidance, you would have growth in EPS. You can do the math at the bottom. You're not going to have the earnings growth. So there's a dislocation somewhat from the revenue line and the earnings line. But To Magnus' point, we are targeting to grow and consistently grow earnings as well. But you just got to bear that in mind, Gretel. There is that And then just one final question. On the short term closures and supply impacts that you've had, Are you able to quantify what impact that is? Like how much lower has supply been in first half 'twenty two year to date versus last year? It's tough to put an exact figure to it. We have an estimate or range, I'd say, of estimates within our guidance range. So Yes. It's an important number, but it's not hugely material to the year. And the reason for that is because The inventory position that we started the year with, which allows us to maintain supply to customers, assuming the disruptions are largely what we expect at this point. Yes, there will be an operating cost impact as we have plants where we're still paying people, but they're not producing product. But if we get back to Full rates and even higher rates of production for the rest of the year as we catch up, then that effect will be mitigated too. So it's not giving you an exact number, but we as best we can, we factored it into our guidance range, yes. But to elaborate, It's really a tough environment. If you take Vietnam right now, it's a full shutdown. Military police blocking off The production zone, no one can come or go, nothing happens whatsoever. And how long is that going to last is really a function of When will the COVID infection rates fall? What is the rate of vaccination in Vietnam, especially Out in the Ho Chi Minh City area. So I think it's really hard to predict, but we have done our best To guesstimate what it will be, but there clearly is a range at a midpoint and we're Taking that information and putting it into our guidance range, but we can't predict what's going to happen exactly with COVID case rates and so forth and what government action will be taken in Malaysia or Thailand or Vietnam or Sri Lanka. Thanks very much. I'll go ahead. Okay. Thanks, Mitchell. Next up, we have Vanessa Thompson from Jefferies. If Going forward, for those asking questions, if we could limit the question to 1 just so we have enough time for everyone to ask a question because there are some meetings after the meeting. Go ahead, Vanessa. Thank you, and thanks for taking my questions. And congratulations, Neil and Magnus. Best Wishes for your next steps. Okay. Just one question. I wondered if it was possible to quantify the cost of the ongoing Right disruption and shipping delays for FY 'twenty one as a potential read through for FY 'twenty two? Saver, do you want to take that one? I mean, obviously, we can quantify, but How much do you want to get into the details here? Yes. I think, Magnus, we've obviously quantified that. And I would say the range is a range because we don't know where this dynamic pricing is going. It could be anywhere up to 0.10 dollars $0.15 of EPS. However, clearly, when we set the guidance range, we had a whole number of actions To offset that where we could do things like pricing, our customers are living in a dynamic pricing world. They should expect to see Pricing such as these break costs being passed through, they themselves are doing that with their customers. There's also other offsets this is in our guidance range, but that's the type of range that you should be thinking about. Thank you. Thanks, Vanessa. Next up, we have John Deacon Bell from Citi. Thank you. My question is around M and A. You find the balance sheet again, I think, close 7 times debt to EBITDA, and It will look better, I imagine, when the working capital declines and the cash flow increases. Can you just give us an update perhaps, Neil, given that you'll be Overseeing this going forward on what the current M and A environment is like and how difficult is it to actually value businesses given that the COVID Is significantly disrupting normalized earnings? Yes. So I think it's perhaps not as difficult to value businesses As you might think, because I think we've got a pretty good read of where this will settle out. Calling the next 12 months is more difficult, but looking 3, 4 years ahead And you can we feel we can form a pretty good read on those businesses. I think what's challenging is that some of the sellers are clearly optimistic And trying to capitalize current earnings as permanent and that's we're not going to do that. So there's a few Businesses on the market at unrealistic expectations, but nothing that I would say is also a strategic imperative for us. On the other hand, there are some smaller opportunities that are attractive that we're looking at. So It's perhaps in the end not so different to M and A environment than we've seen in prior years. And to reiterate, No, I don't think we need to do M and A to be successful. I think we've got significant opportunity in the portfolio that we have today, But there are some opportunities that could really accelerate the realization of that portfolio, and we will stay fairly close To where we are and where we already have demonstrated capability. So a few things we're working on. There are still opportunities That are fairly valued, even if there are some others that aren't at this time. Right. Thanks, Neil. Okay. Thanks. And last up, we have Saul Hirdasan from Barrene Joey. Thanks, Annette. Good morning, guys. Maybe just one for Zubair. Zubair, just looking at the budgeted FX rates and as it relates to the guidance on FX movements and impact, just noting the recent U. S. Dollar strength, can you give any sense of what that FX Benefit would look like if you used spot rates at the moment, how does the $7,000,000 benefit change, if at all? Yes. So welcome to the call, Sol. It's good to hear your voice again. I think in terms of the FX rate where Spot sits today. Clearly, it's lower than what we have in the appendix to the IR deck. However, I would caution that these rates bounce around all year long. As you've seen, it's fairly benign at the moment, but they Do tend to go up and down. Now we've hedged at least 50% to 60% of our next 12 months exposure. So long story short, I would expect maximum $0.02 or $0.03 difference to the or $2,000,000 or $3,000,000 difference The 7 that we have in the appendix on the downside if rates continue where they are today. But again, we would have offsets to that, and we would look to engage those offsets as we move through the year. Thanks, Saul. I will now hand over to Magnus from the close of the event. So thank you, Anita. And I want to thank all of you investors and analysts. It's It's been an absolute delight for me over the years to interact with you. Not every year has been easy, but Overall, I think we've accomplished a lot as a company, and I'm, as I said, been very proud of my team. I think we have a very strong leadership team at Ansell. We've had a very proactive and bold Board, I must say. We've supported The significant step up in activities and in investment to make this company stronger and better equipped to handle Whatever comes our way. So it's been an extraordinary journey. I've enjoyed every minute of it. And I want to thank you for your support, and I want to wish Neil all the best. He's the right man for the job, and I think we have many years of success ahead of us. And I look forward to following the Further development of the company. So thank you all. And with that, we say have a good day Or good night, depending on where you are.