Ansell Limited

Thank you for standing by and welcome to the Ansell Limited FY25 half year results call. 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. I would now like to hand the conference over to Mr. Neil Salmon, CEO. Please go ahead.

Thank you. And thank you to all of you for your continued interest in Ansell as we update you on our progress over the last six months. And let me begin with a slide that summarizes the content we'll cover today and also what I hope you will find are the key takeaways from our current performance as a business. Firstly, in terms of performance overview, and I'm very satisfied to report double-digit top and bottom line growth, and that's come as a result of meeting or exceeding all our FY25 first half year performance objectives. Significant as part of that are results from the two major investments we've made, the acquisition of the KVU and our productivity programme. Both those are on or ahead of the goals that we previously communicated to you. Also significant to the result is our continued focus on what we consider to be our drivers of long-term growth and sustainability, and I'll outline how we continue to invest behind those. I'll then hand over to Zubair, who will summarise how that comes together in a strong financial performance and also in increasing balance sheet flexibility, all of which gives me confidence today to increase our overall EPS guidance range for the year. Having summarised that will then give you an opportunity to ask us questions. So to that performance overview, and as is our pattern, on the left-hand side of the page here are the goals that I communicated to you at the beginning of the fiscal year. In the middle is my progress assessment against those with summary financials to the right. So key as we begin And the year was to maintain improved organic sales growth in industrial and see healthcare return to organic growth. So certainly accomplished both those goals, very pleased with a 16% organic growth in healthcare and the 8% growth in industrial. Healthcare clearly showing evidence that the de-stocking effects of the last couple of years are firmly behind us. But we also saw some benefit from the catch up of delayed surgical orders that we communicated to you six months ago had been deferred from June fiscal year 24. Industrial success largely driven by new products. The KPU business is performing very well. 7% sales growth, strong performance in the KimTech range in particular. The APIC programme remains on track to the elevated goals we communicated a year ago, and that together resulted in very satisfying EBIT growth, 21% on an organic basis and significantly more on a reported basis. Strength in the first half, plus my confidence in the second half, for reasons I'll outline in a moment, are behind our increase in the guidance range. On the right-hand side, I also want to point out the net debt to EBITDA leverage at 1.6 times, which is well below where we thought it would be at this stage. Strategic investments at the bottom of the page are critical, but I'll cover the details on those in a moment. So to the next slide and a focus on our business unit performance. And what's particularly pleasing to see here is how every business unit has contributed and every part of the Ansell portfolio is performing at or above our best available benchmark of what market performance is in the current environment. Very satisfying to see above 10% growth in mechanical, but also that that's really been driven by the success of new products. We've talked to you before about our very promising ringers impact protection range, but also our high flex ultra lightweight cut protection products are also showing some of the fastest growth we've seen after the launch of new products. Within chemical, the performance is coming across the range, both top-end and bottom-end, hand and body protection ranges. But it's really that higher margin, high-end chemical portfolio, which is gaining traction with markets, that is most important and most promising for the future. And Ansell Guardian is also critical to the success, as I'll cover in a little more detail in a moment. Another strong half for the exam single-use business, and again, growth coming from the more differentiated products, largely made in-house. And then you can see here for both surgical and clean room, we're seeing strong growth in comparison to the half year last year, which was really the last period in which we saw the stocking reduce demand on Ansell. So overall strong delivery across our business units. Turning now to delivery against those key investments we've made. The KPU business has performed above our expectations, very satisfying to see the organic sales growth of 7% and also strong margins across the business geographically and in terms of portfolio. And that coupled with good progress against integration means we're well ahead of where we thought we would be in terms of value creation from the business case. Some more specifics on integration. So the key milestones are in the second half of fiscal year 25. But as I stand here today, I'm confident that we will be able to cut over from Kimberley-Clark transition services to Ansell integration ahead of our original target of the end of fiscal year 25. We will do that in a phased manner, beginning with our larger territories in North America and EMEA, and then followed by our operations in Latin America and APAC. As part of that, we are midstream in transferring responsibility for selling the Cleanguard industrial safety products that until today have still been supported by the Kimberley Clark sales team. And now we're in the process of transferring those to the Ansell general industrial sales team, which is very important to the focus and support required to get this business growing. So overall, we're on track to complete integration and exit transitional services before the end of fiscal year 25. I'm holding to our net pre-tax cost synergy target of $10 million. It's still a little early to revisit that view, but I do expect now an earlier delivery of the first part of those savings in the second half of fiscal year 25 versus my previous expectations. On the APIT program, And a relatively straightforward update for you here. We're on track to achieve our fiscal year 26 pre-tax savings target of 50 million. And we're also on track to deliver within fiscal year 25 the savings we targeted for this year. I won't go through these details as they're largely in line with previous communications to you. I would say, though, that from fiscal year 26, the focus of this programme moves to our ERP upgrades. We've had continued success rolling out this platform to our manufacturing sites, but from fiscal year 26, we begin rolling it out in our promotional operations. So success is coming, as I said before, through consistent focus on the drivers of long-term growth. And we group those under six headings. Today, already, we have leading positions in growing markets, and we look to build on that. And I'm clear that the new customer-focused organic organization structure that we put in place about 18 months ago has been effective in strengthening our connection to the end user and ensuring that is the core of how we drive growth. But I also see improved emerging markets results. We streamlined our operations there. We're operating more as one ANSEL in those markets. And I see that enhancing growth and therefore building ANSEL's further geographic diversification. I've already commented to how our comprehensive product portfolio that we continue to innovate is key to our current success. I want to say a little bit more about the service solutions. And these are increasingly valued by our customers. We've expanded Ansell Guardian now to cover our medical operations as well. And using the Guardian methodology, we're able to communicate clearly to hospital systems how, for example, in converting standard to more advanced synthetic products, they can achieve overall productivity savings as well as improved patient and healthcare worker outcomes. As another example, we've continued to invest behind Chemical Guardian. And remarkably, this tool is now used approximately 200 times a day in support of customers, which is either our sales teams querying the database on behalf of customers or customers themselves gaining direct access to this very valuable data asset. I'll talk in a moment about our resilient supply chain, which is fundamental to our ability to navigate through the next period of time. One specific highlight for now is the construction of our surgical facility in India. I'm very pleased that we chose India as our site for the next major expansion. Construction is largely complete and we're in the lengthy validation phase necessary for surgical glove products. Sustainability leadership remains important to us, and we're focusing particularly on how when we introduce new products or when we look at rejuvenating existing products, we can do so in a way that features more sustainable materials while also improving product performance and with minimal cost expense either to answer or to our customers. A further aspect of our sustainability leadership is the right cycle recycling service, an aspect of the KBU business that's now a service within Ansell, and we're looking to expand that more broadly. But all of this is only possible if we stay focused on generating cash flow. Again, our improved demand and supply planning processes are critical to a good cash flow result in the hearth, and everything we do here needs to ensure that we continue to generate good cash returns out of our business. So those enablers of value create shareholder results through the four boxes at the bottom of this page, but they won't go through specifically at this time. So to that global diversified supply chain, you know, and you've seen before that we have 14 different manufacturing plants. Perhaps the more important statistic though, is that they are in nine different countries and that's supported further by an extensive outsource partner network. And really, that's what you need at this point in time. You need a flexible supply chain. You need options. And certainly, we believe that creates competitive advantage for Ansell at this time. Our largest combined manufacturing and sourcing locations are Malaysia and Sri Lanka. For some time now, we've been working on a strategy to ensure we minimize our single country dependence, whatever country that may be. Specifically for China, as part of our APIP initiatives, we've been scaling up production in Sri Lanka so that Sri Lanka is able to make the same products that historically we only were able to make in China. And that also, of course, reduces our dependence on exclusive China sourcing to the U.S. Overall, our best view of us versus the industry is that Ansell exports fewer China-made products to the US than the industry more generally. And of course, we've taken actions to reduce that China-Seoul country dependence. But we also know that other industry players are adopting similar strategies. Specific to Mexico and Canada, we have no Canadian-made products as part of Ansible's supply chain. We have a very limited number of products that are made in Mexico, but overall not a significant exposure. And then a general comment. I do believe, and these comments have been supported by others in our industry, that overall, should tariffs come into effect, our first step is to try to mitigate those through sourcing options. If that's unavoidable, then we do expect to be able to pass through tariff increases to our customers. So final word on sustainability before I hand over to Zubair. And generally I focus on this page more at the full year. So just a couple of comments. Firstly, you may remember last year, I was clear that the number of injuries we'd seen and our total recordable injury frequency rate had increased after many years prior to that of reduction. so this year it's very satisfying to see a substantial improvement in the tr ifr rate and that gets us back on or even ahead of our 2030 target there and secondly we're right in midstream onboarding the kvu suppliers onto ansel's very well established supplier management framework overall i'm satisfied with our initial assessment of those suppliers and i and i believe we can get them up to the overall rating that we expect of all answer suppliers within our targeted period of time to the right here we're generally on track to our sustainability goals uh particular focus in that last bullet point of how do we also ensure through product innovation that we're reducing the environmental impact of our pp portfolio So with those comments concluded, I'd now like to hand over to Zubair for more details on the financial results.

Thanks, Neil. And hello, everybody. As always, I'll add a bit more colour to that financial overview Neil's just provided. But before I do that, I just wanted to begin with my own summary of the half. And that's one where after many months, and maybe you could even say years without those external pandemic related hangover issues Neil has just referred to such as destocking. We were able to over deliver on our commitments and with that golden rule, I think clearly met saying what you're going to do and then actually doing what you said you were going to do. And it's very pleasing that first half EPS came in at just under 56 cents. as Neil outlined on an adjusted basis. You've already heard a comprehensive summary of the sales line, and so I'll start with G-Paid margins up 140 basis points versus that prior half. And when we were acquiring that KBU business, we did outline then we'd see a mixed benefit from that business, from their higher margins. And in our own business, we'd also expect operating leverage with a normalization in those healthcare cells, and then a further boost from APIP savings, and all of that combining together to improve G-paid and G-paid margins. Now, freight costs were a headwind to margins in the half, but some of that cost, however, was very intentional, and we see it rather as an investment because we used more expensive air freight than usual, building up channel safety stocks, and that was to support strong demand in some of those new product launches. Now, as Neil mentioned, within our strategic or refreshed strategic framework, I should say, our commercial teams are very judicious about using multiple levers such as air freight or higher safety stocks when they know that will secure competitive advantage and it will delight our customers. We also believe that's an extra point of differentiation, supplementing our very high quality product ranges. And last in terms of gross margin, we did continue to see inflation like so many businesses and a couple of key raw material items, but those increases are timing related and should be offset by pricing actions we implemented in January. Moving to that SG&A line, this was up 7% on an organic constant currency basis. And a couple of points to note here. Firstly, we've increased incentive accruals in the half, and that's commensurate with our better than target performance, evidenced by that upgrade in EPS guidance. And secondly, we incurred temporary higher KBU expenses associated with that transitional services agreement. And I'd say the final point to note here is that those incremental APIP savings have indeed partially offset some of this increased SG&A spend. And as you'll see in the appendix, overall foreign exchange, a big talking point is foreign exchange around the world. That provided just under $1 million of a tailwind to our earnings for the half. And although underlying currency movements were unfavorable to EBIT, our hedge program was always working as designed and that muted some of this impact and it left an overall modest gain in terms of foreign exchange. And so wrapping up all of that, we arrived at an EBIT increase of just under 21% on an organic basis. The significant items line, that's over $30 million, includes APIP expense and those KBU transaction and integration costs, which we signaled again on acquisition. EBIT margin was 12.5%, which is the best first half result, incidentally, in my time as CFO at Ansell, and that excluding the fiscal 21 year, which included that pandemic sugar hit. Moving to the net profit line, interest here was higher due to the incremental borrowings required to fund the acquisition. And then lastly, our effective tax rate came right in as guided at 23.5%. So overall, a good start to fiscal 25 and it's promising momentum in the business, which we're fully focused on maintaining through to that second half. Turning to the next slide here on the industrial segment, as Neil mentioned, we've got organic constant currency sales growth here of over 8%, and it's pleasing to see growth in both mechanical and chemical. And that was largely, as we've just heard, a better mix in mechanical, where we had very strong contribution from those great new products and volume growth and chemical where we're winning with our range of high-end chemical gloves and suits as neil mentioned and that's after multi-year program and targeting that exact type of product range now with ebit growing at a faster rate than sales clearly our margins in this segment are improving and now at uh 15 and a half percent with apip savings a key contributor, but also partially offset by those intentionally higher freight costs I mentioned earlier. Moving to the next slide, the healthcare segment. Now here, if you pull our comments from our call a couple of years ago at the end of fiscal 23, and that seems quite a while ago, but then we anticipated here in fiscal 25, we would see an end to customer destocking and end market conditions normalizing. With that, we're able to deliver strong top line organic growth with first half sales of just over 16% above the prior year. Now that was volume growth across each healthcare unit and in particular surgical and clean room, which both had those de-stocking effects in the prior comparable period. And as Neil mentioned, surgical also benefited from clearing those back orders from fiscal 24, which were worth about $17 million. Earnings were higher on improved sales. You've got better operating leverage and growing APIP savings. Now the magnitude of that organic constant currency EBIT growth in part is reflecting that soft comparative period. of earnings, no doubt in that, when we slowed our manufacturing production to prevent inventory buildup, but we also had the accretion from the KBU acquisition. So overall, it's good to see a return to those underlying fundamentals in the healthcare business, but we're certainly not done in terms of further improvements there in the months and years to come. Now, next, a quick word on input costs. Here, raw material costs, I think, is well documented externally as well. They're higher than expected. Both nitrile and natural rubber latex trending higher both through the half and against the prior year. But other raw material costs that we incur or that we use are broadly stable. We do continue to see inflation and conversion costs, and that's most notably in our employment costs driven by minimum wage increases across various Asian entities and some of our social compliance actions, which we're addressing or offsetting through various productivity initiatives. We also saw increases in some of our outsourced product costs, but we're passing them through to the market alongside these increases in key raw material costs. Now, moving to that all important cash flow slide, which again, cash is king. I'm pleased to say we delivered yet another strong result. First operating cash flow at just under $54 million with cash conversion, a healthy 104%. Our teams remain very focused on cash. and we're able to offset one-off costs from APIP and the KBU deal and the investment in working capital with improved inventory turns and tight management of receivables and payables. Net capex. was over $28 million for the half. And a big piece of that spend was funding the completion of construction of our new surgical plant in India. And of course, that last step there on the screen or on the slide there was the increase in net debt, which enabled that KBU acquisition at the start of the half. Switching now to the balance sheet. Again, very robust here, as you can see from the slide. And at the same time, we're now returning to that healthier trend in terms of our return on capital employed metric. When you strip out the closing inventory from the KBU acquisition, our working capital was broadly flat versus the prior year or versus June 2024. And we did say at the time KBU's outsourced manufacturing model, it requires lighter inventory carry. So we'd see some mixed benefit in our turns from that. And that increased to 2.4 turns. Now, again, this improvement is not just happening by chance, but rather is through a lot of effort by so many of my colleagues. And it reflects that supply chain continuous improvement that Neil referred to earlier. And wrapping up here, that roadsheet metric did improve. It's just over 11% now on the back of those strong earnings and the KBU acquisition. We're also seeing strong initial returns. so closing out my financial section here a couple of words on funding profile firstly adjusting for kbu our pro forma net debt was 1.6 times our ebitda at the half year which is a small reduction versus the end of fiscal 24. now with incentive insurance payments which we typically make in the first half Our cash generation is weighted usually to the second half. And so I expect this ratio to, or the net debt to EBITDA ratio to further reduce over the coming months. And also adjusting for the timing of the payment of the KBU acquisition at the start of year, that net debt number did reduce by about $27 million in the half. And that's a really pleasing outcome given our focus on de-levering as quick as possible. And as you can see on the slide, we have a very balanced maturity profile. The average tenor is just under five years and much of our debt remains fixed, driving a close to average interest rate at 5%. Now, with this kind of balance sheet headroom and that maturity profile combined with the strong cash flow generation, we remain focused on seeking out value accretive, both organic and inorganic investments. But as always, we'll remain highly disciplined with our capital allocation. Now, before I hand back to Neil, since this is my last results presentation as Ansell CFO, I did want to take the liberty of a few more seconds so I could thank everyone both on the buy side listening in here and the sell side for your very engaging interactions over the last few years and let's call it encouragement. But thanks especially to Neil and the board and all my colleagues across the Ansell world for your unbelievably generous support and, quite frankly, putting up with my high expectations and demands over the last six years or so. Now, Ansell is a top notch market leader. We have an amazing set of products combined with an amazing set of high quality people with a culture I'm delighted to have been a part of. And I'm very pleased to be able to sign off with the company in arguably the best shape it's ever been in under Neil's leadership. And with that said, back to you, Neil, for final comments and Q&A.