Earnings Call: H1 2021

Feb 15, 2021

Welcome to Ansell Limited's Financial Year 2021 Results Presentation for the 6 Months Ending 31 December 2020. Joining us on the webcast today from Brussels, we have Magnus Mikkelen, our Managing Director and Chief Executive Officer as well as Xavier Javer, our Chief Financial Officer. The materials we will be discussing today have been lodged with the Australian Stock Exchange and can also be found on our website. Before we start, I would like to draw your attention to our disclaimer. If you could please take some time to read through this. I will now hand over to Magnus Niccolan, and at the end of the presentation, we will be opening the lines Thank you, Anita, And welcome. It's a pleasure to be addressing you. So good morning, good evening or good afternoon. We'll take you through our usual updates, but I would like, as usual, to start with Thanking all of our employees around the world. This has been a quite a ride and quite an unusual year, and They deserve a lot of credit for what we have been able to deliver as a company in the first half. So thank you to All of you are on the call today and who may listen to this a little bit later on. Let me go right in Next page. And as you well know by now, this is a company that's very focused on safety. And rarely have we seen a time where safety is more important. And of course, safety Spans a lot of different dimensions and not least in the last year, the dimension of viral safety or people from infections. And that's what we've been doing, and that goes along with all of the other work that we do To keep people safe from cuts and infections and abrasions and all sorts of challenges. Next page. When we look at the world we live in right now, this is our Latest sum up of the situation with COVID. And as we know, it's far from over. On the left, you see the number of daily cases and number of daily death. And of course, it's still unbearingly high. And on top of that, we've highlighted a couple of other stats In terms of cumulative cases, but also very important one and that is the population vaccinated so far. And that's about 2% of the world population. And we've all heard about references to 70% being needed to finally being able to combat this virus. So we're some ways off. Top right, we talked a little bit about our production environment. And of course, our big two countries, Malaysia and Sri Lanka, are going through some significant challenges at this point in time. With hot zones, we have an MCO, a movement restriction order in place in Malaysia. And we have More limited, but nevertheless important hot zones popping up in Sri Lanka. In the other three very important production countries for us, It's calm, meaning very few cases and does not currently impact on our production. When it comes to impact on the PP industry, in the short term, clearly some increased demand. And in the long term, as we will show you in a moment or 2, we expect pretty significant demand, but we also expect A bit of a shakeout in the PPE industry, and we'll give you a little bit of a perspective on how that's likely to play out. And we also see a number of new behaviors at distribution level and user level Where people are more concerned about getting the right kind of protection and from governments who are constantly lobbying for Potential local production or local assembly and so forth. So there are a lot of differing moves impacting on our world at this point in time. Next page, please. So clearly, a very strong performance. We are delighted with the numbers And even more so, the volumes that we are delivering to market to protect people. And when you look at our numbers, amazingly strong top line 23%, EBIT 64% up, Profit attributable, 61 percent up. EPS, 65% up. And Based on this and based on the decision that we'll talk about a little bit later on dividend policy, we're also taking our dividends up 53%, and we'll come back to that. As part of a strong EBIT, we're seeing that translate through To a very strong return on capital employed at 16.3%. The one area that is red, as you can see, It's operating cash flow, but for a reason, and that is that we're obviously building a lot of working capital to sustain this growth In the form of inventory and obviously more accounts receivable simply because we are selling more. We have also stepped up capital expenditure. Why? We'll talk quite a bit about it. But bottom line here is we see Tremendous opportunity to respond to even higher demands and to move forward On our market positions in multiple geographies and you're going to see that as we discussed this business unit by business unit. And finally, not very surprising, our balance sheet remains very strong. So we're in good shape here Heading into the second half of the year. So let's move to the next one. And the next one really summarizes In a slightly longer time perspective over 5 years, what the CAGR development on sales, EBIT and EPS has been And with nice leverage through the P and L, obviously, a big kicker in the last 12 months to 6 months periods, but even before that, a steady increase in most of these numbers over time. So I think it allowed us to go into this crisis in very good shape, meaning being very strong and having a lot of The momentum that allowed us to respond to what the world needed very quickly and very effectively. Next page. So when we look at the business, we elected this time to share with you what it looks like Business unit by business unit at the SBU level and the SBU in this case being exam versus surgical versus mechanical and so forth. And we're starting with the exam. Why? Well, because it's where we see most of the very Substantial dynamics. We have also put in a little bit of a code in the lower left and where we try to Sure. In an easy to grasp way, what the impact is on XAMLOV sales short term, But also long term. And sometimes, as you will see, it's quite different. So some of the key observations on ExamGloves is strong volume growth And strong value growth as well because we're seeing a significant imbalance Between supply and demand, and that has driven a significant price increase into the marketplace in multiple waves. We have responded to that to essentially protect our bottom line, not necessarily to protect our EBIT margin, Because we don't want to be viewed as a price gouger, and we're not. So we're quite careful and very deliberate about how we take price. So when you look at some of the other noteworthy points here is very strong development in emerging markets. So if globally the number is up 47%, then it's way more. The increase is way higher than that in the emerging markets, which is what you would want to see as we continue to put a lot of emphasis and build Our infrastructure in emerging markets. We're also confident that we're gaining share. And we're gaining share because we have Enabled a lot of capacity and brought forth to the frontline a lot of volume that many of our competitors We're unable to do. And part of the reason or answer to why and or how we were able to do that is in the middle column, operations update, Well, we have significantly increased output in our own plants and where we have secured significant volume from outsourced suppliers as well. And on top of that, we acquired about a year ago, actually very close to a year ago, And the 50% stake in CarePlus and that actually gave us significant incremental exam and surgical blood capacity Exactly when it was needed. So sometimes you have to be lucky in making moves that just fall in place That's exactly the right time and that was the case here. We have also worried a lot about making sure that we get enough raw material because the world is sold out on Nitrile. Many of our competitors cannot, even if they build lines, cannot get nitrile to produce gloves. We were very long term focused in our view to make sure that we secured availability of Nitrile. On the commercial update side, a lot of interesting developments. We have been able to use the fact that we have Product available to also secure significant new business in other product categories by essentially bundling and providing A more comprehensive solution of protective equipment to our key customers. We also focus very clearly on Serving our top customers, our long standing customers first, and that's allowed us to continue to grow and take share with them And take share from many of our competitors. So at the bottom there, you see the development In the total industry. And what we see is the CAGR or growth rate pre COVID and what we expect post COVID Whenever we get there, which is unclear, we're going to see growth faster post COVID. And we'll come back and explain why we think that, that is the case. And that's also if you go back to the first thing I said on this page, The long term arrow up is strong. So this is not a one time thing. We expect that this will lead to A sustainable higher demand for exam type products. So that's the exam story, quite Impact fall and a situation where Ansel is gaining strength with significant new internal manufacturing capacity, Not least in our big new plant in Bangkok or outside Bangkok in Thailand. Let's go to the next one. So SBU 2 It's surgical. Very different story. Start again, lower left. What you see there is a yellow sideways arrow, which Essentially means that there are some elements of increased demand, but there are more elements of decreased demand, Meaning elective surgeries have been postponed all over the world. And that obviously has drained away a lot of demand for In spite of that, Ansell has done really well, as you can see, with 19.6% growth in the half. So why is that? How can we do so well? What part of the reason is, again, we had capacity. We have capacity of the right products, typically synthetic products, which is what the world is going to, moving from And natural rubber latex to synthetics, PEI and polytropine. Secondly, we have been able to deploy our sales forces very effectively and they have converted a lot of new business. So let me jump to the far right first bullet point Well, we talk about significant market share gains that we have seen in all of these key countries By signing up new distributors and by winning GPO contracts, by winning hospital group contracts and so forth. So that is tending to drive significant demand of surgical gloves. To keep Supporting that, we have invested aggressively also in this area with a couple of new lines going live as we speak in synthetics And several new lines for natural rubber latex primarily to serve emerging markets where we see tremendous growth In China and India and places like that. So coming back to another point I wanted to make on the commercial update, And that is that we expect demand for our surgical gloves to continue for many years to come. Why? Well, because people are standing in line to have elective surgeries performed. Just look at the U. K, 4 point 5,000,000 people waiting in line for routine surgical procedures at this point. This is the longest line they've had In a long, long time, if not ever. And it's not that the National Health Service hasn't had lines before, But they are way longer now because they had to shut down hospitals or rededicate their health caregivers to COVID fighting. So that's why we have these big lines and it's going to take years to eat into these lines and that's why demand for surgical gloves can remain strong For many years to come, and that's where I'll end on this one as well. The green arrow pointing up long term, we're going to see strong demand for surgical into the future. Next one is Life Science. And as you know, we invested in a Relatively small company in the U. K, Nitrotex, 3 or so years ago, and that turned out to be really timely move. We have since then grown rapidly in the life science area with long cuff gloves, With a range of clothing, goggles and so forth, all clean, packed, so designed for laboratories, Testing facilities, pharmaceutical research facilities and so forth. And of course, that turned out To be an area of significant demand at this point in time, no surprise. And you've seen some really good numbers here. Short term, strong growth In the U. S, particularly proud of the team and what they've been able to do there with almost 48% growth Year on year. And here, too, we have added capacity and capacity in the form of clean room Manufacturing capability, specially built rooms with clean packaging capability. And that's going to help us continue and sustain this growth. We also made a small acquisition in India. Why? Well, because India is one of the fastest growing pharmaceutical manufacturing countries in the world. So we felt that that was the place To invest in the Primus brand is actually quite well known in India and gives us a bit of a running start. We had a little bit of business in India before, but this really turbocharges our business in India. So we continue to invest in this space. We're adding additional salespeople. We're developing additional products for the portfolio. And we have established amazing relationships both with the top distributors in this space and with the end users. And we, in fact, serve all of the Current leading producers of the COVID-nineteen vaccine, just to give you a flavor for where we're active at this point in time. So next page then sums up the 3 SBUs that make up our healthcare GBU. And since we talked about the sales number, let me focus on the EBIT number. We see a very strong, more than 400 basis points Growth in the EBIT percentage from 14 or so to 18 or so. And that, of course, accompanies a very strong sales growth as well. And clearly, we see amazing leverage Through the P and L with SG and A not growing as fast and it just translates to the bottom line very efficiently. We've also done some really good work and the team has really worked hard on making sure that we take the prices that need to be taken, But also manage to mix where there is an opportunity, sometimes to simplify the range so that we can produce more because we have fewer changeovers on the machines. And that needed then the sales force to be very nimble and shift customers from product A to product B. And that's worked really well, and they've done that really effectively. So that's the Healthcare business unit, A pretty strong performance. Now let's move over to the industrial area, starting on the next page with mechanical. And mechanical, as you can see, lower left, short term, red downward pointing arrow. Why? Well, because automotive, aerospace, Transportation sectors all falling off dramatically. So we saw a significant negative effect On this business, what was interesting though is that compared to prior crisis situations, we had a broader range And we were able to pivot to instead focus on areas where there was opportunity in multipurpose and electrical protection gloves as two key examples. Here too, we have expanded manufacturing capacity, especially of The Ansell proprietary FortiX range, which is a unique grip and very high abrasion resistance. And this grip is so unique that our customers who will absolutely swear by it will accept nothing else but Ansell, Hiflex, Fortix Technology. So we're growing very nicely in this area, and that's offsetting the invariable decline in some cut Aeros in automotive and obviously in aerospace. So we are expanding FortiX. We have a new line going line in Portugal shortly. And we have also converted some other lines in Asia to do the same thing, and we're expanding our electrical shock protection business at the same time. So doing well on that. Commercially, the team has been quite capable of Shifting to the areas with strong demand. As you can imagine, food has been quite strong, and we have been able to Go after those opportunities and provide the solutions that they needed to maximize output of certain food items and so forth. And we have many of our products that are food approved or food rated. We have also launched a number of new products. I talked about Fortix. Another interesting one is the antimicrobial protection with HyFlex 11,100. It's got a silver coating that essentially knocks out Viruses, including COVID-nineteen. And it's been quite effective As a tool to engage customers on, how do you now protect your workers? It's one thing, you can wash your hands all day, But if you get reinfected, it doesn't help much. But if you have a glove that continues to kill the virus As soon as it hits the surface of the glove, now you've got some serious protection. So that's what we've been doing. And so the combination of pivoting sales Adding capacity and delivering the solutions that were needed at this point in time is what explains why the mechanical part of the business That's been the weakest of all of our 5 SBUs, still has delivered quite a strong result, Not least on the bottom line. So let's go to the final of our SBUs, Which is the chemical one where you have both gloves and suits. Again, we've seen very strong growth here, Primarily driven by the chemical suit side, where, of course, our line of suits all the way from Less than $1 pursuit all the way up to really advanced protection that 1,000 of dollars pursuit. So we have the full range. Where most of the demand has been is the low end and you see it on TV every day. It's the soup that they were in hospitals and labs and Vaccination centers and all of these places, they need to wear these suits. So we've been able to double output From our Xiamen, China plant and also from our relatively new plant in Sri Lanka. So that's been key To deliver the right solutions at the right time, we have also added capacity on chemical gloves. And all of this Has contributed to a very strong performance of the chemical SBU. And when it comes to the short term impact, it's positive. The long term is also positive. So we think that this is going to play an increasing role in our portfolio. Here, too, we have been able to pivot to food as a key growth area. And you see the example of a food Specific product here, the 310, the light blue on the right, that is being produced on that Machine called CR7, you see a picture there. My team calls that the most beautiful monster, and it really is a beautiful monster. And it's working beautifully in producing an amazing quantity of lower end, Very comfortable, relatively thin, but multi use products. So they're not single use, they're multi use. And we're also seeing some customers worrying a little bit about the sustainability dimension of single use, migrating to more multi use solutions. And we expect that, that will continue for quite a while. In fact, it will probably accelerate. So next page then summarizes the industrial GBU, the combination of those last 2. And what we see here again is a very strong development of the EBIT And profitability level, 300 basis points in constant currency, on a 7% top line growth. And again, leverage through the P and L and highly efficient manufacturing and high levels of throughput, All are contributing factors to the high level of profitability here. So all in all, a very strong result under quite difficult circumstances For the industrial GBU. Next page, while all this is going on, we have also not been sitting on our hands when it comes to Sustainability. So we talk about protecting people and protecting the planet. So when it comes To people, we continue to push very aggressively in, 1st of all, making sure that we took care of our people In the best possible way so that they can be safe coming to the plant and working to produce these products to save other people's lives. And we started doing random and rolling PCR tests to a point where we are actually So popping up anyway, but the look the government does because we are so early in testing our employees to I find out what's going on. And then as soon as we find a case, and if we find a case, then we send them home, we We do contact tracing and so forth. We have a very elaborate protocol to make sure that our people are as safe as they can be. We continue to do a lot of work also on the area of Traditional safety, so that people don't fall and hurt themselves and those kinds of things. So we have very strong focus on that. And of course, we also pay a lot of attention to how we take care of all of our workers, including foreign workers. As some of you know, there's been quite a bit of debate about recruitment fees and so forth. We stopped doing that several years ago, and we actually Completed a reimbursement program to foreign workers who had paid a recruitment fee. So we've taken our responsibility and we're demanding that same responsibility from all of our suppliers as well And continue to work very closely with our employees to make sure that they're fully engaged and feel well taken care of by Ed. When it comes to the environment, a lot of work here. All companies are very focused on this at this point in time. Clearly, TCFD is setting Out at pathway, we're following that pathway and doing This and qualitative assessment of climate related risks and so forth. We've also made a lot of progress against our key environmental goals that we have Going back a couple of years, and related to emissions and water and waste to landfill and so forth. And we'll continue to update you on that as we get to the full year and in our next The ability to report that will come out in September. We continue to make significant investments in solar panels, biomass boilers And water recycling and reverse osmosis cleaning systems and so forth. So it's a big Part of our investments now to make sure that we do our part to take care of our environment In a fairly difficult industry, with a lot of energy use, a lot of water use and so forth. So we have some more work to do here, but it's very high on our agenda. So with that, I will wrap up for now and hand over to Sverre, who will take you through A few more specifics on the financials and how that is playing out and what we can expect a little bit later. So, Sibir, all yours. Thank you, Magnus. So I'll begin with the profit and loss summary as usual And beginning with the revenue line. The actual sales growth of 24.5 percent when we removed the impact of foreign exchange, This led to constant currency growth you heard from Magnus earlier of just under 23%. Now Acquisitions, constant currency and organic growth are, of course, both the same this half. And within this number, the volume growth was over 12% in the half and price mix, the difference at just under 11%. Now you've already heard from Magnus the key sales drivers, So I'll not repeat those. But of course, we're very pleased with the volume growth rates and being able to get product to the frontline. And at the same time, we do know we're comparing against the pre pandemic period. And so from a volume perspective, at least The second half is going to be a much tougher comparison. But you may recall from our last earnings update in the second half of fiscal 'twenty, We were well on the way to rebuilding inventory levels. Instead, we ended up selling through most of those safety stocks in the Q4 of the fiscal year. And that was basically to service the high demand for PPE as COVID-nineteen became recognized as a worldwide pandemic. This leads to some of those tougher comparisons I've just mentioned. So moving to the gross profit after distribution expense, The 180 basis points improvement there you see in the slide in GPay from 34.1% To 35.9 percent is driven in the large part by manufacturing efficiencies and overhead leverage, And that's alongside the pricing Magnus spoke to. There's some small unfavorable offset there with foreign exchange and, of course, COVID related costs. Now as we move across the second half, we will look to continue protecting these margins. But I think there will be some dilution in terms of percentage because The pricing from our outsourced suppliers has really stepped up and really accelerated versus the first half. Moving to SG and A expense. Now, of course, we continue to manage these costs prudently and very well, and that's made easier, Of course, as travel expenses and other in person sales related costs are almost non existent. In the very short term, I think The run rate here, at least in terms of percent of sales, I think that remains where it is, if not even more leveraged in the second half. But as I've said in previous calls, we'd expect to rebuild SG and A and normalize back to a range of around about 21% to 22% sales in the midterm. Now note the year on year increase here you see in SG and A from a quantum perspective for the large part is driven by employee costs And specifically those related to variable compensation plans, and that's, of course, driven by higher company performance levels. Now just under the SG and A line, you see here for the first time, we're reporting our share of the JV profits or the joint venture profits From CarePlus, we account for this entity on an equity basis and the $2,700,000 there represents 50% of the net profits in the half. Now clearly, this JV was very well timed, as Magnus alluded to there. And although we told you it was going to be a marginally accretive deal to EPS in F 'twenty one, It's clearly turning out to be exceeding our original expectations. So we're very happy with what we get from our partnership there. In summary, therefore, the strong EBIT growth of 64% in the first half is reflective of all the factors I've just gone through. And of course, in turn, this leads to a commensurate growth in earnings per share. Now the question is what happens in the remainder of the year? Magnus is going to cover much more about this in the guidance in a moment. But very briefly, we don't see any drastic reduction in the demand environment. The pricing from outsourced suppliers, as I've said, it continues on this very aggressive upward trend. And it doesn't look like we're getting back to travel or the world is getting back to travel anytime soon. At the same time, and you've probably heard From all you've seen in the debt already, we have ocean freight that remains fairly constrained. We're seeing small clusters of COVID outbreaks periodically impacting manufacturing and supply chains. Now that's both within our facilities as well as At outsource suppliers. And it's because of this type of uncertainty and as well as the fact we will be lapping A much tougher prior period comparison, we have signaled we don't expect a significant step up In the second half growth rates. And that's at least in terms of earnings like you would have seen historically. Turning to Slide 19, And I'll quickly review here the raw materials composition. I think the key point here Is the unprecedented demand for PPE. This led to the supply side imbalance. That's well noted at this stage. And basically, that's dislocated all the usual industry dynamics right across the value chain and, of course, when it comes to raw material pricing. So although headline components of nitrile raw material pricing may have trended down in the half, that usual pass through Of savings by outsourced suppliers was not seen at the finished goods level. As long as supply remains unable to find an equilibrium With the current demand, I'd expect nitrile cost and in fact natural rubber pricing to remain very elevated and that's what we see Our spot price is trending much higher than where they've been. You also see there in the pie chart below, the outsourced costs As a percentage of our overall cost of goods is higher than historical norms, but as we execute against In house manufacturing expansion plans, I'm sure this balance is going to be reset. Now with that said and turning to Slide 20 For a view of cash flows. So overall, it's been a half a significant reinvestment into the business. I think the current backdrop, I think, is very clear why we don't think this is a time for parsimony as it at least relates to expansion plans and Working capital investment. And as Magnus said, we built up key customer partnerships over many years. And that sort of long term view It's always front and center with our regional teams, our teams facing customers. And so we don't go around asking for things like payments In advance or shorten payment terms like others have done in the industry to increase supply of much needed PPE product. So that Alongside the higher cost of inventory, it is behind this $74,000,000 or so of working capital outflow you see here in the chart. Now I do see this investment continuing across H2, but perhaps at a slower pace as we move forward. The other point of note on this slide is the $45,000,000 of net CapEx spend in the half. Magnus has covered some of the investments we're making. This is no different to the plans we've already shared with you just at our recent Capital Markets Day. So that leaves me to wrap up the financial section of the call. And as always, I'll take a final look at the balance sheet here in Slide 21. First couple of lines, you see the working capital and fixed the fixed asset investments here I just spoke about. And you can see in the relevant lines of the balance sheet, where we're measuring our return on capital employed and return on equity, You see the higher EBIT levels on a trailing 12 month basis. Clearly, we're enjoying a very healthy return on capital employed, Over 16% on a pretax basis and return on equity equally strong at just under 14%. Now the Board, the executive will continue to manage the company in the usual disciplined manner you're accustomed to. And we're very happy, of course, How we built up the strategic optionality this balance sheet is providing us with as we move through the pandemic and the world resets, So hopefully, growth mode. So that wraps up the financial section. I'll hand back to Magnus here more about and you can hear more about the F 'twenty one outlook and Q and A. Great. Thank you, Subhaer. So we've picked our words carefully here, as always. And as you can see, we talked first about macro. And our expectation for the future is that COVID will continue to impact the world for quite some time. It can be debated exactly how long. No one knows at this point, but it may be for many years. However, assuming that the pandemic Or the peak, if you will, and the overloaded hospitals and that situation is brought under control with the help of vaccines, Targeting healthcare givers and older people. Then we think that the economy will get a little bit of a boost And that will jump start a couple of sectors that have taken a bit of a beating through COVID, such as automotive, Oil and Gas, and we've seen it a little bit over the last couple of weeks. And we also expect that hospitals will Return to more normal, meaning doing their normal elective surgeries and so forth. And that will start to eat into The lineup of people waiting. So what does that mean for the PPE industry? Well, first of all, for the next 12 months, we expect to see strong demand Across the board, and we gave you for the each of the 5 SBUs our estimate for the long term Next year or 2 or 3. And what we're saying also is that even when 70% of the world population is vaccinated. We do expect elevated demand to continue. Why is that? Well, first of all, Enhanced safety practices. Everybody has gotten used to using PPE in a different way. And that's going to stay with a lot of companies, hospitals and people in general. You want to feel safe and especially if you have further mutations of the virus And new strands emerging, then clearly, this is going to continue for a while and we're going to continue to wear masks And distance and so forth, right? So that's 1. Number 2 is protection awareness and increased glove use per capita. So we're seeing A evening out of usage around the world. Before the crisis, the average American used 8 times As many gloves as the average person in Asia, and we're seeing that gap closing. And of course, there are many more people living in Asia than in North America. So that's going to drive some increased demand. We see research and testing activities worldwide. And if we're going to continue to vaccinate People and then test, and then we have a further mutation. Testing is part of life in a way that it wasn't. For me, myself, I've been tested 7 times just to be able to move between a couple of countries. And that story is shared by many of us. You constantly have to test to be able to be moving about seeing customers and doing your job. So that's part of our future. And of course, laboratories and so forth are going to work over time to come up with new treatments and so forth. Potential need for annual COVID vaccinations, we don't know that yet. But there are some scientists who are expecting That's just like influenza vaccine. We're probably going to have to take COVID-nineteen vaccines in some form or other Every year for a great many years. And then finally, improving industrial activity. So there are a number of reasons To believe that demand is going to be high for quite a while. Specifically, exam single use is going to continue to be very, very dynamic Up and down, price increases, cost increases, and we're just going to have to be super agile in responding to that and Managing mix and so forth and keeping customers happy, and we are. But we're also going to see elevated demand for the other 4 SBUs. But having said that, we do expect a lot of challenges with supply. We're going to have hot zones popping up in Asia, Especially in Asia, because most Asian countries not the quantities of vaccine doses As we have in Australia or in Europe or in the U. S. So it's going to take a much, much longer Before the bulk of the population in Asia is vaccinated. And so therefore, we need to be prepared for hot zones and spikes for the next 1.5 years probably. And then we're going to continue to deal with shipping issues They have been really difficult, and I'm sure many of you know that because you follow a lot of companies who are exporting information and poor container availability. So those are going to be issues. All of those factors combined with our statements here on interest and tax is what then lead us to say that Our guidance for this year is now going to be $160,000,000 to $170,000,000 and that implies a further upgrade to what we have said prior. And if we focus on the chart, it essentially translates into the 4th year in a row where in constant currency terms, we deliver double digit EPS growth. And I think that's a strong testament to the strength of this organization And the capabilities that we have to deliver value not only to the people we're here to protect, But also to our shareholders in a sustained way. So with that, we're going to go into Q and A. And Anita will take the lead on that and make sure that you all get a chance to ask questions. So back to you, Anita. Okay. First up, we have David Lo from JPMorgan. David, Can you hear me? Yes. Yes. Yes. Hello. Hi. Yes, we can hear you, David. Just Just with the disruptions, you talked about disruptions in the due to COVID. I was just wondering How much that impacted Ansel's production in the first half, if at all? And what we should be expecting more of the same going into the rest of the year? Yes, it did impact the first half a little bit. We do expect Slightly more of an impact in the second half, primarily because we have seen the situation in Malaysia deteriorate. We have some of the big volume manufacturers in Malaysia now down with some of their Biggest plans not running and with thousands of workers sent home or sent back to their hostels. So it is significant for the industry. It is not impacting on us very dramatically at this point in time. We have more of an impact in Lanka because we had a spike that we discovered. And it was one of those examples that I mentioned in my presentation, where we found a spike before the government did and essentially, we're able to deal with it and send people home and make sure that it didn't spread and it actually didn't. So we were able to Recover relatively fast and lost maybe 2 weeks of packaging capability in one of the areas of the plant. So it was somewhat costly, but not catastrophic by any means. And I think we'll recover Much of it by working double overtime. But these are the difficulties we're going to have to deal with and It's not over. It's going to continue, and I'm afraid it's going to get worse, especially in Malaysia after everybody comes back from Chinese New Year celebrations and so forth. So it's not going to be easy for quite a while. Okay. And if we could just move on to the guidance Well, some of the assumptions that you've made. So in each of the SBUs, you've given some commentary about short term and long term. Two questions. I mean, what time period do you consider short term? I see that you're talking about a recovery in FY 'twenty two. And then the 2nd part of that, just organic growth rates. I mean historically, I think we've had 3% to 5% organic sales growth targets. Just wondering What you're thinking now in this New Year environment, please? Well, first, If I start with the second part of your question. In the 1 to 2 year perspective, It is likely that we'll do better than the 3% to 5%. And part of it is Elevated demand in many different areas and this high level of awareness. It's going to be very much a function of what happens To the virus and how many new strands pop up and are they going to be as bad as the South African version or are they It's going to be a little bit milder like the Danish version. So as you know, there are hundreds of strands already that have Evolved away from the original main strand of COVID-nineteen. So much is not known here, and that's going to have a big impact on this. But I think for the next 1 to 2 years, 3 to 5 It's something that will exceed. And Subhaer, anything else you wanted to add to that part of The No, I think you said it well, Magnus. I think it's still early days. It depends when our volume comes online. These capacity expansions, as you've highlighted, should drive some meaningful volume growth. Now we haven't quite clearly Hung down on how much over the 3% to 5% range, David, we're going to be. But as Magnus It should be higher given all the capacity and pricing that's going on in the market at the moment. Great. Thanks very much. Okay. Thanks, David. Next up, we have Andrew Goodsall from MST Marquis. Andrew, please go ahead. Thanks very much for taking my question. Just thinking about the second half, I know you called out Price versus volume. But some of the hospitals we're talking to are saying that the PP is sort of coming off the peak costs. So I was just wondering if you could talk to whether that's A reflection of where your pricing was at versus, say, those that gouged them? And then also just if you could talk to whether seasonally, You'd expect the same sort of seasonal second half as a sort of stronger second half as a factor Just given the current environment, whether that's still sort of a prevailing factor? Or are we sort of working to a different timetable at the moment? Yes. There's been some examples. Some of the worst price gougers Having taken some of the peak pricing down, but some of which was actually quite egregious, and it's not Surprising that they were sort of forced to come back down to earth. So I'm not sure that you can Interpret that as a problem solved and balance returned. That's not yet the case. We still see a world where demand for single use gloves is significantly higher than maximum manufacturing Steel Wall Manufacturers combined. So there is this imbalance and that will prop up pricing for a while As much as we would like it to come down. So I think it's going to last well into our fiscal 'twenty two. But as we have said in our wording, if you will, in both the ASX announcement and in presentation, And we do expect some level of normalization to start in F 'twenty two, but we also expect to land At the price point in XENAM type gloves, that's going to be meaningfully above where it was before COVID. And there are a couple of reasons for that. Raw material is now more expensive for various reasons. And secondly, labor cost is higher Because much of the industry is now starting to do what we have done for a couple of years, and that is to Manage safety of the workforce with a higher purpose in mind, and I think that will tend to drive their cost up. So should we expect that it's going to stay higher than it was before COVID? And is seasonality a factor in the second half traditionally you've come home a lot stronger in that second half or Is that sort of mix now with the current operating environment? Yes. I mean, Shabir, you commented on it, but you want to clarify that again. Yes. So I would say in terms of the it's different on the revenue line. As Magnus said, the pricing hasn't abated. In fact, The first half, we saw just the beginning of the price increase. And the way it works is our suppliers will give us monthly Pricing, and we'll give an estimate of how much they keep increasing those prices. And they have actually elevated significantly in the second half. So you will see somewhat more pricing in the second half. Now that isn't seasonality. It's just the nature of the market and the industry at this point in time. Now equally, that translates into our cost base. So as you've heard us say before, we're not price gouging. We could take Far more price than we are doing in the market today. But because in partnership with our customers, we're servicing their volume and we will maintain That discipline in the second half. So the long answer was to a short question is basically the revenue line will See some uptick. And the earnings will probably will stay where in the same run rate you saw in the first half It's our likely scenario at the moment. And just final one for me, just the CapEx outlook into FY 2022, just any commentary around the range you expect? It's too early to say at the moment. We're still obviously trying to execute against our $100,000,000 target this year, but we did say, and Magnus said at Capital Markets Day, we'll continue to have very elevated CapEx. So That's going to be north of $50,000,000 $60,000,000 at least next year as we highlighted in Capital Markets Day as well. Thank you very much. Thank you. Thank you. Thanks, Andrew. Next up is Parasail Rodasen from UBS. Thanks for taking my questions. Just the first one, Magnus. I'm just wondering if you wanted to tell By the end of FY 'twenty one, what percentage of your exam single use will be internally produced versus externally sourced? Well, first of all, what we said is that we are doubling the internally produced Compared to where we were before this expansion program and in sourcing move started. And we expect that it will get closer to fifty-fifty, but I'm not going to be more precise than that. But that's a long way from where we used to be, which was more like 2,080. So it's a fairly significant set of moves To give us more control of all of the or many of the differentiated platforms And also give more control of how we manage processes and quality and Quality of labor practices and so forth. So there are many reasons why we're doing this besides it being A good thing to do financially speaking. Sure. And then just a couple of others there. Just the full year 'twenty one FX impact, there's like I've seen the slide pack, there hasn't been an update to the commentary at the August was out last year, but just what's your expectation of currency, particularly in the second half and contribution to earnings? Yes. So as you know, we have a 12 month rolling FX hedging program. Because of that, we are well hedged and especially over the next Probably 6 months to 12 months, where I would say 80 probably about 85% of our FX exposure is basically covered. Now we make good use of 0 plus dollars, as you know. And so this limits essentially any participation in any major upside As the USD continues its depreciation. So I've outlined assumptions around FX rates in the appendix To the earnings release. And I'd say, long story short, if current spot rates continue as they are for the next few months, it's quite feasible This could add another $0.01 or $0.02 to EPS. But clearly, that picture can change very quickly. And as you can imagine, I'm not going to be able to provide a precise That's in regards to FX. But because we are hedged, like I say, that's probably a good enough number for you. Great. And last one for me. Just you mentioned capital management and dividend payout. Just wondering what the thinking is regarding Share buybacks at this point in time? Yes. So Yes. Go ahead, Mikael. Yes. And link take that, Subhaer, and link it to our dividend policy. I think they Sort of go hand in hand to a degree. Yes, indeed. So we've been evaluating all capital deployment options, As you can imagine with the board. And we've this is why you see the dividend policy where we've clearly increased I will pay out this call. And that's as a result of the good performance and the way to deploy One way of deploying capital. At the same time, we do continue to take a look at our intrinsic revenue as we've always done. We evaluate this with the Board. And we'd say at the moment, given the outlook where we're at, We still feel there's probably room in our share price the way it's looking at the moment. We do think there's good Prospects for the company, no, that's not a forecast. But it's certainly given the industry dynamic, we think there's good value. Now How the Board then evaluates that in terms of a buyback, we will determine as we progress. But They are open to executing buybacks as we progress. Now we can't Signal to you, of course, when we will do that, if we will do that, but that buyback program is very much active. Magnus, I don't know if you wanted to comment in addition to that. No, I think that provides a good answer. Thank you. Okay. Thanks. Next up, we have Sean Laymon from Morgan Stanley. Thank you, Anita, and good morning, Magnus and Zubair. My first question relates to CapEx capacity, Market share gains and some of the supply agreements, Magnus. But I do understand that some of your competitors might have abandoned some segments In favor of production to service single use. I'm just wondering if that sort of provided opportunities during the period for market share gains for Ansel? And how sort of insulated do you think or how sticky do you think such market share gains were if indeed they did occur? Yes. I mean, you follow this industry closely. So yes, that's what we saw, Some abandonment of customers who weren't too happy about it. And Some of that is in certain segments within single use. For example, some Companies decided to not produce thicker gloves because they consume too much nitrile and they didn't have enough nitrile, so it was more profitable to do the thin stuff and make more Well, to do the same stuff and make more money per glove. So that opened the door in the segment that we have tended Focused on for many years. 2nd, in surgical, we've seen some players who do both exam and surgical Conclude that, hey, I can make more money doing exams, so I'm just going to drop my surgical customers. So that opened the door. And As you know, in the surgical part of the marketplace, it tends to be sticky. So as we have stepped in and provided the Service that they needed to take care of patients, we expect that they're going to stay with us. So Stickiness is high. And if anything is higher now, when the threat environment This high, you really want to have a high quality glove with no pinholes and high AQL readings and so forth, and you get that from Ansell. So we're going to see A high level of stickiness and that's part of the reason why we are very confident on what the surgical business can do for the coming years. Thanks, Magnus. And second and final question, so obviously, some very good leverage off the SG and A line, but You have pointed to, I guess, elevated growth post pandemic in some segments. I'm wondering if you're thinking that the margins post pandemic have structurally improved. It's hard to say. I don't think the margin per se Would have improved other than us taking the chance to improve the mix, Focusing on products that are higher margin product or more attractive Sort of feature functionality mix, if you will. We also saw before the pandemic, we had a couple of Customers who were not particularly profitable, and it made it easier for us to To then essentially take the price increases that we needed and if they didn't want to accept them, then they would have moved on to another supplier. So there's been a bit of a customer mix move as well. So that might help. And then, of course, we continue to innovate. To a degree during this crisis, we have postponed a lot of product launches because we simply didn't have time. The plans were too busy. We couldn't be Testing any new products and so forth, right? But now we're sort of getting into a period where we're launching a lot of new products Again, and many of these new products are launching with high margins. So I think there is reason to believe that we can Do quite well in the environment post the COVID peak. And I'm separating Post COVID from post COVID peak. I think post COVID peak will come in the next year or 1.5 years. Post COVID, we don't know when they will come, if ever. Right. Thank you, Magnus. That's all I have. Okay. Thank you. Thank you. Next up, we have Gretel Janu from Credit Suisse. Thanks. Good morning, everyone. Firstly, I just wanted to go back to your medium term EPS targets that you presented to us at the At the market day late last year. I'm just wanting to understand the growth potential of these very strong earnings levels that we're currently Then into the medium term. So is FY 'twenty one the base of those kind of performance metrics going forward? Do we expect to Growth 6% to 12% EPS growth into the medium term of the guidance that you provided today? I would say yes, but I would ask Hubert to comment a little bit more deeply on that. Yes. So we're not ready yet, Gretel, to give guidance for the following year. We obviously have to get through this next half. But you can imagine where we're growing EPS 65% plus now, growing only 5% off the top of that was It's probably really at the low end of expectations. But it really depends on how we see the next 6 months unfold, and then we'll be giving you guidance, Obviously, towards our next earnings release. Okay. But You don't expect it to kind of sit down from the current EPS levels in FY 'twenty one. There's still room for further EPS growth in coming years. Well, we've got what we said in our comment, obviously, in the deck where we see very elevated levels of pricing at the moment. And We're still in dialogue with customers and how we pass that pricing to them. And Magnus alluded to it earlier, we see pricing Maybe some product lines are 500%, 600% higher than what they were pre pandemic. So we have to navigate these next 6 months, Brett, will and have deeper dialogues with our customers, and then we'll be very ready to give that guidance. But again, if things Stay stable and the pricing dissipates somewhat. We would expect to see some further improvements in our profitability, Etcetera, as we build new capacity, and that comes online. Excellent. Makes sense. And then Just going back to a comment that was made early in the presentation about consolidation of supplies is expected to accelerate as So the stabilizers, can you just elaborate on this a little bit more and in terms of what this means for Ansel and whether it presents an opportunity? Yes. So consolidation is likely to happen both on the supplier side, There are a whole host of really small suppliers in Malaysia, for example, or in China. And that they have struggled a little bit through the crisis and they're getting an artificial lift because pricing went up and so forth. But when reality sets in, they're still going to be a small supplier, and they're going to have to step up When it comes to sustainability and worker care and the quality of their hostels and all that kind And it's driving up costs, and there's not going to be a lot of room for them because they're not going to have the scale to compete. So for that reason, we do expect a bit of a shakeout on the supplier side. And by the same token, we're going to see that happen on the And distribution side, there are a whole host of importers. All they do in life is come up with a nice Market name or brand name, and then they sign a supply agreement with a Chinese or Malaysian company, and then they deliver to a distributor to deliver to the customer. That's just one stop too many in the value added chain, and many of those are going to get squeezed out, and that's our conviction. So you will see a bit of a consolidation of the industry as the dust settles. Next up, we have John Deaconbao from Citi. Thanks. Good morning. Question was just around the geographical performance of the business. I note in your 4 d that APAC grew 36% in the U. S. And Europe, kind of in the lowtomid20s. Can you just give us a little color Perhaps between the Healthcare and Industrial Businesses about the growth rates? And then going forward, I was particularly interested in the And whether you've seen surgical demand particularly weak in Europe versus the U. S? Or has it been kind of relatively consistent consistently weak? Yes. Surgical demand has been relatively consistent for us. I think Many of our competitors have seen their sales slowdown or even decline in the U. S. And parts of Europe. So I think it varies quite a bit from company to company. When it comes to Asia, it's been a very Active marketplace, and I alluded to one reason, and that is increased per capita usage of gloves for protection. So it's sort of picking up and getting closer to Europe and or the U. S. In level of protection being deployed. So that's one reason. For us and the numbers why the numbers are so strong for us is because our team has done a Fantastic job in places like China, Japan, where we have signed distribution agreement The number of new very important distributors who are doing really well. India is doing Really well also. So I think the industry is not necessarily growing as fast as we are in Asia. So it's one of the areas where we are gaining share at this point in time and in most of the business segments as well. So you'd expect that going forward, the growth in Asia would continue to be higher than that of Europe and the U. S? Probably. I mean, we certainly continue to deploy resources and making investments in sales force And so forth to sustain a higher level of growth. It doesn't mean that it's going to happen every half, but it certainly is likely to be the case of over 2 or 3 or 4 halves, if you add them up. Okay. Thanks very much, Magnus. Thank you. Okay. Next up, we have David Bailey from Macquarie. David, please go ahead. Yes. Thanks, Anita. Good morning, everyone. I just got a question on the healthcare GBU. It looks like revenue, obviously, about $155,000,000 Just wondering if you could split that out into the exam single use Surgical and Life Sciences, just trying to get a sense as to of that revenue uplift to what proportion came from exams, single use versus the other 2 SBUs? Yes, we are not breaking For obvious reasons and competitive reasons, we're not breaking out that level of detail. But I think given the pricing comments and you know that The exam single use business is clearly the front end of that. You could probably take the guess that the larger Share of the growth is coming from that segment. But we're particularly happy and you see in the comments with surgical, That growth is nearly all volume as we said and same with life sciences. So I think you can you could probably go back to our Capital Markets Today decks and kind of do the math yourself, but that's the best we really want to give you in terms of the breakout. Yes. No worries. I'll go and do that. And then just you mentioned the high level of demand coming True. Post COVID for PP and E. I'm just wondering if you can comment on the supply side. You mentioned some potential consolidation of the smaller operators, but just your thoughts on some of the capacity expansions coming from your larger competitors and what that might mean for The supply demand fundamentals supply demand situation for FY 'twenty two, FY 'twenty three and beyond? Yes. I mean, the expectation is that given the significant investments made by a lot of players in the marketplace, Personally, I'll exam our single use gloves. At some point, you're going to reach balance and you might even go beyond that where you have More supply than demand, and that will obviously put some pressure on pricing. So how do you deal with that When the day comes. And for us, it's really focusing on the right segments. It's focusing on launching differentiated products that provide better quality and better experience, better comfort, Lower bend force on the fingers and all of these things that we have always preached to our customers about, And we will continue. We are a different company and we're not just pushing out 3.5 gram product. The most basic product and the same product for everybody. Our conviction is that all verticals and many different applications Acquire very different gloves, and we make those gloves and therefore provide a better solution. So that's how we will Be successful even when there will be pressure on pricing, and there will be in a year or 2 or 3. Okay. So it's a shift away from the more commoditized type single use Product into higher margin differentiated products once that supply demand balance gets closer to equilibrium, I suppose? Yes. Every month, I suppose. Yes. And it's nothing new for us. That's what we've been doing for years. So And the expansion that we've done in our own plans is exactly for those types of products, unique formulations, better grip, better comfort, Better and lower band force, higher chemical permeation protection and so forth. And Many of our competitors have tried to copy our formalized and so forth for years and failed. So it will fail this time too because we Keep moving the goalpost. And we need to continue to do that by innovating and by launching new variants and new solutions. Thanks. And lastly, we have Vanessa Thompson from Jefferies. Thanks, Anita, and thank you for taking my question. I wonder if you could give some color on where Capacity utilization is now given the new lines that have come on stream? It varies from SBU to SBU. But generally, We're sitting at relatively high utilization percentages because we're still in the mode of catching up with Demand and getting new lines on stream. But we have launched in the first TAF and are launching even more new lines in the second half. So we do expect to catch up and get to a point Where we will have free capacity again, and that's essential to have top notch service levels And to be able to release the sales force to go on offense in certain sectors where we've had to rein them back. Certainly, prospecting for new customers. We essentially said to them, no, You can't because we have existing customers we need to take care of first. So But I do expect by sort of mid to late northern summer, we will start to get Into a situation where we have some free capacity in most of our product lines. Thank you. And then I guess, speaking of capacity, with nitrile producers Presumably trying to grow their own capacity. Could you comment on where the industry is in terms of Available capacity and the ongoing impact of that? Thank you. There isn't sufficient capacity available For Nitrile. And as I said in my comments before, there are manufacturers of gloves who simply can't get Nitrile to run their lines. So they have built 5 or 10 new lines, and they can't get raw material to run them. That's not our fate because our team was very early on the mission in making sure that we had Sufficient volumes. And whenever we decided to build a new line, we immediately or even before made sure that we had sufficient Nitrile to feed the new line when it would become ready to operate. So and to build a new nitrile production facility doesn't take 1 year, which is the time it takes for us to build a new dipline, right? It takes more like 2 years. So They started on this in earnest about a year ago, which means it's going to take another year before significant new nitrile capacity is added to the marketplace. So it is a slow process to get this done. And for that reason, it's Going to force pricing to stay quite elevated for quite a while. It doesn't mean that it's not going to come down eventually. I think it won't, but I think I responded to how we will handle that when that happens, so to speak. Thank you. That was all for me. Great. Okay. Thanks, Francois. That takes us to the end of the Q and A session. So I'll hand back to Magnus to conclude. That's great. So let me just thank you all for staying with us. Some very good questions. Hopefully, provided some clarity on Our thinking, we don't have all of the answers because this is a very dynamic situation that's going to continue to evolve very rapidly. And we don't even know whether we're coming out of this crisis or not. We don't know what's going to happen to the virus and how it's going to mutate or not. So we have to be very vigilant, very fast moving and very adaptive as an organization, and we will be. And hopefully, you will take away from our presentation and our Q and A that we think that we are well positioned To win regardless of what happens. And we have an unbelievably passionate Team and organization able and willing to step up and do whatever it takes to protect people And deliver results to boot. So with that, thank you so much for joining us, and We look forward to the next opportunity to meet face to face. I think it's getting old for all of us to We're sitting in our home offices and whatnot, but I'm sure the day will come. So thank you all.