Ansell Limited

Thank you for standing by and welcome to the ANSEL Limited FY23 full year results briefing. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question you will need to press the star key followed by the number one on your telephone keypad. We do ask that participants limit themselves to asking two questions at a time. To ask further questions please rejoin the queue. I would now like to hand the conference over to Mr Neil Salmon, CEO. Please go ahead.

Thank you and good morning or good evening according to where in the world you are. Thank you for your interest and for joining this conference call today. If I start with an overview of the matters that we'll cover, I'll give you a shorter than usual business update as much of the headlines are already in the public domain. Then hand over to Zubair who will cover the financial results. And then I'll have a slightly longer than usual conclusion section in which I'll aim to put Ansell today in the context of the last few years and look ahead with the productivity investment programme that we recently announced. So let me now start with that business update. And always, of course, we begin with safety and sustainability. Another very successful year. showing significant year-on-year progress in both our leading indicators and also our injury statistics. The leading indicators largely measure how engaged employees are in making observations of unsafe conditions at work and thus preventing future injuries. And you can see generally an increase in the various tracking mechanisms we use of, for example, unsafe acts reported. In injury statistics, we see a slight increase in lost time injuries. but against an already very low level and a substantial reduction in medical treatment injuries against the prior year that was the prior year was already a record low. And so we set a new record and overall about a 30% reduction in total injuries. Moving forward to sustainability on the left hand side of this slide summarizes the progress we're making against our people agenda. Within our own operations, we continue to ensure that there is no legacy of recruitment fees through our current population. That was completed several years ago. But more recently, we've reached out to former workers of Ansell that we were not able to contact originally through social media and other channels. And where we have been able to identify former employees, we have also completed remediation of fees they paid. With regards to our audit protocols, we now have included enhanced audits covering forced labour indicators that are more comprehensive and intensive audit process. And we're seeing some good results from those in our internal facilities. And then very important is the establishment of independent grievance mechanisms now in place at six of our sites and to be progressively rolled out across our entire population. Commenting on our third party supply chain. So as I announced earlier in the year a very important milestone in that all our malaysian finished goods suppliers confirmed and we have verified that they've completed their own recruitment fee reimbursement a substantial sum of money to the benefit of tens of thousands of workers we have also asked our key wave 1 suppliers to incorporate forced labor indicators to their audits as well And we've extended our supply management framework now beyond the first wave of finished goods suppliers and strategic raw materials suppliers out to other suppliers, for example, packaging, services, and so forth. And as we do so, we realize that there continue to be issues that need to be addressed across the broader supply chains which we benefit from. But I'm pleased with the progress that we are making. And that can be summarized overall and generally a much improved closeout of audit issues, both internally and with our third party suppliers. The right of this page summarizes our key environmental goals. And I'm pleased to say that against all three of these, we are on track at this point in time. Although admittedly, some of the reduction in emissions and water consumption this year was also a function of lower production volumes. But more importantly, we're on track against the underlying investments that will take us to that 2030 and 2040 goal. So electricity, for example, was 2% just a couple of years ago, sourced from renewables now up to 29%. And overall, including the use of biomass, over 50% of our energy is from renewables. Important progress in water withdrawals. We're investing in sophisticated reverse osmosis technology. We have a ways to go before we have fully optimized that, and that will be a key focus for the next 12 months. And then zero waste to landfill. All the Ansell facilities in the original scope of this project are now zero waste to landfill, which is a huge accomplishment across thousands of different items. Two have not yet been certified, but the certification process is well underway and we're confident they will be. And now we're adding in our two more recent facilities being Care Plus, now known as Ansel Serenban, and our under construction facility in India. So turning to financial progress and outcomes. So the external environment I've commented on already. We see strength in key industrial verticals. It is a bit of a mixed picture in industrial, both geographically and market by market. But overall, we continue to find ways to grow. And I expect that to continue for the next 12 months. And we do not yet see the onset of recessionary conditions that have been long predicted. The key factor affecting top line growth in healthcare is customary stocking. And I'll comment on that further in a moment. And then foreign exchange rates were also a headwind in fiscal 23, and we expect that to worsen in fiscal 24. So overall, I think it was satisfactory that we delivered EPS at the low end of our original guidance range in what turned out to be more challenging market conditions than we had forecast at the beginning of the year. I'm pleased with the overall organic revenue growth for industrial of 4.3% and above five, as you'll see in a moment for mechanical. And yes, we did see lower sales from the stocking in healthcare, but if you look through those to the end user demand as reported by our distributors, you see a more positive picture. Overall EBIT margins improved, and in particular, industrial margins improved in the second half, which takes me to the bottom left. Part of this page, these are the key goals I set and announced to you six months ago. We achieved all of these. We continued organic revenue growth in industrial. We improved industrial margins as the price increases we had communicated came through fully. And so our selling prices and input prices came back into sync. And we also saw encouragingly a strong sequential improvement in exam single use volumes in the second half versus the first half. The one piece of this, although we predicted, but of bigger magnitude than expected, was the stocking in surgical end-user demand. And that's what took us to the low end of the guidance range, offset by incentive reversals. And then middle right, or middle bottom of the page, I should say, we continue our program of investments behind long-term growth and value creation opportunity. And I'll comment more on that in a moment. So let me now go through our SBU highlights in a little more detail before I hand over to Zubair. So exam single use, yes, down almost 30% year on year. But note that over the four year time period that we're highlighting here, revenue up 2%. Now volumes were down in that comparative period. Revenue therefore is up on mixed improvements in the business and also on some remaining favorable pricing. But in particular, if I look at that strong sequential improvement in volumes in exam single use, we see signs that this business is emerging from its desocking phase and overall a stronger mix and portfolio than we had prior to the pandemic. This coupled with our investment program in Thailand and now through the acquisition of our CarePlus joint venture, means we're approaching 40% of volume produced in-house and we'll get that close to 50% volume in the next 12 months. Revenue higher than that because generally the pricing is higher on our more differentiated in-house produced styles. Four years ago, we only made one of our top 10 styles in-house. Now we make the majority, seven to eight of our top 10 styles in-house. So that's a significant change in the makeup of this business. Surgical, a disappointing last six months. We had strong revenue growth in the first half and a decline in the second half, resulting in an overall moderate net decline in the 12-month period. But note the 8% growth over this four-year period, indicating a business that has performed well despite being currently dampened by destocking effects. Encouragingly, our position with this business globally, which sets us apart versus all other players in this space, continues to give us opportunities to grow. So we saw good double digit growth in Asia Pacific, particularly 20% growth in India. And also we continue to see the general trend shift towards more differentiated synthetic styles and away from natural rubber latex. Life science here, a similar picture to exam single use in the year-over-year effect, again, largely of this stocking, but also some end-user demand impacts as vaccine production, for example, was not so apparent in the year versus the prior year. But against the four-year time period, also a good compound annual growth rate for life science. This is a business we continue to invest in, we continue to believe has long-term higher growth rate potential. Turning now to industrial, And here's the mechanical 5% growth rate in the year that I commented on. I'm very satisfied with this result, especially as mechanical also had some destocking effects with specific customers and specific verticals that it had to overcome in the year. That 3% compound annual growth rate is within the within the range of the long-term growth rates that we said we anticipate for mechanical but at the lower end of that range and i think our more recent performance suggests indeed we can do better than that rate going forward Very encouraging to see the success of new products, to see the success of our ringers integration, which gives us a strong position in the energy vertical. And we also see double-digit growth in products designed for electrical protection, electrical vehicle production, for example, and also other markets where electrical protection is required. And we're innovating in this space too. Chemical, more consistent story here. The chemical body protection, if you remember, was another product range that saw elevated demand during the pandemic. That corrected the most quickly of all our SVUs. And so this business was out of that phase in this period. And so you see a fairly steady growth rate in the 12th month and over the four years. While mechanical margins have improved over this time period as a result of investments that we've made, chemical margins have not improved and so this is an area of focus for us going forward and linked to our productivity investment programme. So now let me hand over to Zubair to run through the financial summary and then I'll take it back with some strategic comments at the end.

Thanks Neil and hello everybody and thanks for joining the call. So I'll begin as usual with highlighting a few key items here in the P&L summary on slide 11. So beginning with that sales decline year over year of nearly $300 million. Of course, that was largely driven by that pricing normalization in the exam single-use business. And at the same time, the cost of purchasing that product from our outsource partners obviously also proportionally declined. And so overall, there's a benefit to GPaid margins. And as you can see here at the group level, we've moved from just under 29% GPaid in fiscal 22 to nearly 31% in fiscal 23. Now, we're very focused on continued improvement in these margins, but pricing comparisons against the first half of fiscal 23 in that exam business is going to negatively affect our sales growth. And from the second half, however, I think we target to be back in positive territory. And that's given the volume trends highlighted just now. And Neil's already covered, of course, the other key points regarding revenue. So I'll move to this SG&A line. And in that regard, we always plan for some growth as our in-person customer-facing activities are reverted to more usual levels. But the increase in SG&A has been muted by incentive expenses being a lot lower than the targeted spend. Of course, we highlighted this in the earnings call in July. And as promised then, we've disclosed additional detail in slide 34 to help clarify the various parts of that incentive unwind. And because of that lower expense, SG&A has a percentage of sales at just over 18%. Although it's considerably higher than fiscal 22, as you can see here, It's still lower than we'd usually expect. And in past calls, I've mentioned target SG&A levels could be anywhere between 20 to 21% of cells. And although those sorts of percentages are still reasonable, we'll challenge these ratios through our accelerated productivity program and digital initiatives. And Neil's going to describe more about that shortly. And then the last thing I would note here in terms of the P&L is the effective tax rate, which closed the year at just over 21%. At the half year, I did outline, although we had a steep increase in the Sri Lanka corporate tax rate, we benefited from using unbooked tax losses we'd built up in our Australian entity against FX hedge contract gains. Now, absent that size of benefit, we're tracking to a higher effective tax rate, And that's going to be expected to move all the way across fiscal 24. Now, in the next couple of slides, I'll talk to the global business unit performance. And beginning here with the healthcare business unit on slide 12, you can see the full effect of that exam single use pricing coming off from the top line, as well as the stocking in both surgical and life sciences. Also of note is nearly $50 million of unfavorability driven by FX. and our exit from Russia. And with that sort of sales reduction, it's no surprise to see a commensurate drop there in EBIT dollars. Now that said, constant currency EBIT margins in fact showed 80 basis points of improvement because of that pricing normalization in the exam business, as I've just mentioned. Turning to the industrial business unit, here a much better top line story with just over 4% constant currency growth. And as highlighted by Neil, the mechanical business unit is delivering good growth. We're pleased with the new product introductions and both mechanical and chemical business units enjoying the benefit of favorable pricing and mix. Now in constant currency terms, EBIT grew double digits, although on a reported basis, the industrial gbu was also impacted by that russia exit and unfavorable effects without those items ebit margins grew 120 basis points and we think that provides a really good base going forward as we look to accelerate productivity initiatives which again neil is going to describe very shortly the next slide is our usual cost summary Overall, it's been a mixed bag in terms of our cost picture. We've experienced double digit reductions in the cost of natural rubber latex and NBR costs versus fiscal 22. But to a large extent, those savings were offset by higher employee costs at a couple of our larger manufacturing sites. And that was together with increased energy costs in Malaysia and Sri Lanka. As we look out into fiscal 24, I don't expect further significant reductions in NRL and NBR costs, but at the same time, we are planning for lower energy costs with trends in the second half of fiscal 22, or sorry, fiscal 23, supporting my assumptions there. And then lastly, in terms of costs, just reconfirming here that the exam single-use outsourced product costs now remain stable. and somewhat predictable compared to the last couple of years. In terms of capital expenditure, turning to slide 15, here you'll notice that we've spent just under $70 million with a large portion of that going into the Greenfield India Surgical site. At the same time, further insourcing of some of our differentiated exam single-use products is also included in that $70 million of spend. For fiscal 24, we're targeting CapEx to be in the 60 to $80 million range. And this will include spend to realize some of our ESG ambition. And it's, you know, obviously we'll continue progress with the Greenfield site there in India. We've also recently established a brand new distribution facility in North America and fitting that out will incur some CapEx in fiscal 24. Now, although this is still elevated spend versus our history, I've said this many times, when we reinvest in ourselves, we do yield the best returns in our overall deployment of capital, and therefore we continue to encourage our teams and ourselves to look for innovative ways to drive further automation and support sales growth. Moving to the cash flow slide, slide 16. Following our H1 results, I did say that we would be targeting a much better H2 cash picture, and we did realize some of that goal with a 93% cash conversion. But at the same time, I did say I'd be disappointed if we didn't close out the full year in the 90% plus range. Clearly, we fell shy of that ambition, but a result of that sharp destocking we endured in surgical and life sciences. Now, preparing for the slowdown in production in fiscal 24, which we spoke to in the July call as well, also drove a significant reduction in trade payables in the fourth quarter. And, of course, that consumes working capital. Now, given our inventory reduction plans for fiscal 24, I also target for this significant working capital unwind and a corresponding cash inflow in the next 12 months or so. Turning to the balance sheet. So despite all the noise in the last two years in this industry, the one constant signal is our strong balance sheet. And as you can see here, even following those capacity investments and the somewhat bumpy sales trajectory, we continue to operate with relatively low levels for net debt. And here you can see we've only just ticked up above that one turn of net debt to EBITDA, and that's following the new leasing arrangements we've got for that new warehouse facility in America. I've just mentioned a few moments ago. Also of note on this slide is the working capital movement. We've driven down nearly $70 million of inventory since the half one results. At the same time, we have that offsetting reduction in trade payables I just mentioned. And then lastly of note on this slide, we closed the year with pre-tax ROCHI at 11%. and that's not surprising, it was surprisingly down on fiscal 22 given we have lower EBIT and lower and higher capital employed. Now the multi-year expansion of that capacity to support the growth in our premium and differentiate product lines is inevitably going to create a temporary drag on Roche and we plan for that but we do target increased returns in the mid-term as we're going to leverage that newly installed capacity and our EBIT will benefit from the productivity programs. And wrapping up this financial section, I'll give a brief overview of our debt profile. And again, consistent with my comments at the half year, we continue to operate the business with plenty of room in terms of liquidity. And as called out on this slide, we have $100 million of senior notes maturing in the next few months, but these will be more than covered by our undrawn facilities. And also of note, I'd say here, most of our gross debt is with fixed interest rates. And so we do have some protection against the current swings in the macro interest rate environment, and who knows where that's heading. So in summary, quite a few moving parts, both internally and externally. We've been managing that for one, two years now, but we'll continue again to manage this business with a keen eye on long-term value creation. And with that said, I'll hand back to Neil, who can describe more about what that means.