ANSLF - Ansell Limited

Anita Chow: Welcome to Ansell's Financial Year '22 Results Webcast for the Full Year Ended 30th of June 2022. I am Anita Chow, Head of Investor Relations at Ansell. Joining us on the webcast today, we have Neil Salmon, our Managing Director and CEO; and Zubair Javeed, our CFO. The materials we will be discussing today have been lodged with the Australian Stock Exchange and can also be found in the Investor Relations section of our website. Before we start, I have 2 additional housekeeping points. Firstly, if you could take a minute to read the disclaimer on Slide 2. And secondly, we will -- there will be the opportunity to ask questions. You can either type them on the webcast in the Q&A box under the video window. [Operator Instructions] We will be addressing questions towards the end of the webcast. Thank you. And with that, I will hand over to Neil Salmon.
Neil Salmon: Thank you, Anita, and thank you to you all for attending today and for your interest in Ansell. Let me begin with a brief summary of the highlights that sum up the year just finished and a couple of points relevant to the year about to start. So 5 key points here with regards to results. So firstly, after having downgraded our expectations for the year in January, I'm pleased to say that subsequently, we delivered on every aspect of our revised guidance over the second half of the year with significantly improved second half performance on the first half. One notable accomplishment was improved cash conversion. We achieved 90% overall for the year, which is a significant improvement on the first half figure and also on the prior year, 61%. A key feature for the improved second half was improved margins in the Healthcare Global Business Unit. We saw continued very strong results from Surgical and Life Science, and this examined single-use business showed signs of stabilizing. Two lower points that are relevant to our F '23 as much as the prior year. So we have made the decision to exit our Russian commercial and manufacturing operations. I'll cover that in a little more detail in a moment. Accordingly, we have incurred a onetime charge in our prior year results and we will also address the sales and profitability from that business going forward. And then I also wanted to draw your attention to the FX headwind. You'll have noted that from significant movements that we've seen in rates and generally a strengthening of the U.S. dollar against our other revenue currencies. That's a big headwind into F '23. But if you strip out FX and Russia effects, we do expect underlying earnings to show good growth in F '23. And then 3 points in relation to our ESG objectives, which are covered in more detail coming up. Good safety results. As you will have read, we are now committed to a net 0 ambition, which we think is fundamental to our future and our position in our industry. And then also, we do see that the industry is making good progress on social compliance, and I'll talk to that in a moment. But before I get to those points, let me cover Russia in a little more detail. And this is why we're showing both statutory earnings and adjusted earnings. We recorded a charge in the half related to asset impairments and business restructuring associated with a complete exit of our commercial and manufacturing operations. There's a number of reasons that have gone into this decision. It's one that we take with great regret, having had a successful business in Russia for 30 years or more, a very strong employee team there, very strong customer relationships but after careful consideration we've concluded that it's just not viable to continue in operation financial in Russia, and therefore, we are pursuing now an exit of this business. The business stands a $9 million EBIT in fiscal '22, and we don't expect any earnings from the business in fiscal '23. So now let me cover those ESG objectives before I then spend a little bit longer on our financial results in the last year. So a very good outcome on safety. Everything about Ansell begins with safety. Our mission is to keep the wares of our products safe, also, of course, the workers who produce and all Ansell employees safe in the production of those products. We see here a good reduction in both lost time injuries and medical treatment injuries. In fact, our MTA rate is the lowest in many years, perhaps the lowest ever. And as you know, that's from a base that is already 1 of the best in the manufacturing sector. But perhaps the statistic I'm most pleased about here is the improvement in leading indicators, and we've seen very strong employee response to our efforts around training and awareness to get observations and reporting of unsafe conditions. In total, over 10,000 observations were made in the last 12 months by our employees on aspects of safety that needed attention, and that's up 50% on the prior year and a great sign of a safety culture taking route and I would hope leading to further improvements in safety outcomes in future years. Turning now to labor rates. A key priority for us, and we have stepped up our area of actions and focus on this within the last 12 months. I'll summarize a few points on the left of the slide here. So we further enhanced Ansell's governance processes around labor rights, establishing a formal labor rights committee, that is the decision-making body on these. We've continued to advance our audit program, but also look at ways to strengthen the issues that audits cannot cover and ensure we're getting broader coverage of the industry. Labor rights has been a key focus of all top-to-top engagement, including meetings I've held with suppliers, and I'm encouraged with the focus and commitment that I see in my meetings with key suppliers. We announced a year ago that we were launching a formal supplier management framework, and that's achieved a number of steps forward, including, as we note here, significant training to our suppliers on our code of conduct and our expectations of them. And then finally, as you're aware, the Responsible Glove Alliance was launched a few months ago, and this, we think, is essential because no one company can solve this issue by themselves. It requires industry collaboration, industry standards, common benchmarks, and that's what the Responsible Glove Alliance brings. What are we seeing in terms of outcomes? Well, continued intensive audit program has generally showed good progress in closing out nonconformances from previous audits. But certainly, there are still improvements that need to be made, and we're very focused on achieving those with our suppliers. We also acknowledge that audits are only a snapshot. They're only a point in time measure. And so having other mechanisms in place to get a more holistic picture of activities, our suppliers is key, and that's 1 of the areas of focus for the Responsible Glove Alliance. In my view is we are seeing improvements in labor standards, particularly over the last 12 months. The issue of recruitment fees is largely addressed now. We see compliance to overtime and rest day regulations, and we see significant improvement in the living conditions of workers, particularly in Malaysia and the hostel conditions they live in. So progress, but this is an area of continued vigilance and certainly no reason for complacency and will remain as committed to this area over the next 12 months as we have been in the last 12 months. Turning now to the environmental aspect of ESG. And hopefully, you saw our announcement on the next slide with regards to our net 0 ambition. So we've committed to net 0 with regards to the carbon emissions of our own operations, otherwise known as Scope 1 and Scope 2 emissions. And we're doing this the right way, the hard way, which means actually reducing our emissions and only depending on offsets for a very small residual, up to 10% of our emissions. So our goal is to reduce emissions 42% by 2030, 90% by 2040, with that small piece of offsets getting us to net zero. We would like to make a Scope 3 commitment, too, but we don't believe in making 1 until we're clearer that we've got an aligned supply chain. That means customers and suppliers on the journey with us and that we understand the plan with regards to the full end-to-end impact necessary for a commitment to Scope 3. We've announced new commitments around reducing our use of water. We signed up to the green electricity tariff in Malaysia. Our plants have made significant progress against our 0 waste to landfill objective and we're ahead of target on that one. And overall, it was great to see EcoVadis award us the silver medal and that was some months ago. So before this most recent news was in the public domain as recognition of outstanding in the industry and our leadership position. And then finally, I'm pleased to say that we're now fully in compliance with the recommendations of the task force on climate-related financial disclosure, as you will see in the annual report that we've released today. So now let me go on to our financial results and business results. This slide summarizes the 5 things that we set in January and February when setting out our revised guidance and that we said would be key to delivering the required improved second half necessary to hit that new guidance range. And I'm pleased to say that we delivered on every 1 of these. So sales were stronger in the second half. And encouragingly, it was particularly the more differentiated product lines that saw the strongest sales growth improvement. We did expect exam/single-use prices to continue declining and they did pretty much in line with our expectations. But in the third point here, we said that we would still see an improvement in the total gross profit dollars earned and that is viewed as the first half impact of selling through higher cost inventory would be much more muted in the second half. And that's how it panned out. And so even on lower pricing, total profit dollars improved, for example, single-use. At the time of our half year results, we are experiencing another round of COVID-enforced manufacturing shutdowns. Fortunately, that was, in fact, at the end of it, and we saw no further required shutdowns in manufacturing. So the cost impact of those was much reduced in the second half. However, the issue of constrained labor and that impacting our ability to produce at full rates did continue throughout the second 6 months of the fiscal year. And then finally, as I noted already, very significant improvement in cash performance, and that's come through intense focus on working capital improvements in inventory and improvement in accounts receivable as well. So all of that delivering the adjusted EPS, if I exclude the Russian impact of $1.386, which is just above the midpoint of our revised guidance range. The next slide gives you the full P&L, and I won't present it in detail. It's more for your reference. And all these points we will cover on other slides. But I did pull out the first half and second half performance here so that you can see EPS going -- adjusted EPS going from $0.61 to $0.78 in the second half. And there also, you can see the improved cash conversion in the second half. So now let me walk through the P&L in a bit more detail in subsequent slides. And if I begin with the performance of our strategic business units on this page. And here, I'm showing both the year-over-year performance but also the 3-year performance. With the significant increased demand related to COVID-19 protection in fiscal '21, the normalization of demand and pricing in F '22, I think it's particularly important to look through those 2 years to see a longer-term trend, and that's why we're showing it here. So let me begin with exams/single-use. So yes, that business was down year-over-year, primarily as a result of lower volumes. Our prices were higher in the first half on half and then lower in the second half on half. But encouragingly, through that period of turbulence, particularly in the mid and less differentiated products within the range, we saw our most differentiated products, those that we manufacture in-house continuing to increase in volume. So a 15% growth in in-sourced products is, I think, a great result in challenging market conditions. And it was on the more commoditized styles that we saw the greatest declines, as you would expect, given results reported by those producers who specialize in that product range. For Ansell, as you know, it's a very small part of what we do. But then if you look at exam/single use over 3 years and you see a 15% CAGR, so yes, that still includes some pricing benefit, which we expect to normalize, but also a significantly improved mix profile for the business. And then there is in-sourced products now representing 25% of the business, up from just below 20% 3 years ago. Great results for Surgical. 17% growth overall for the year and a substantial improvement in the second half on the first half. We said at the time of the first half result that it was only supply that constrained our growth, and as we got healthier with regards to supply, then the business results improved, but we were still constrained by supply. And Surgical still is a question of bringing as much new capacity to the market as quickly as we can to tap into the growth potential that remains in that business. And then the 3-year growth rate also great for Surgical at 11%. And that's also a business that's seeing improved mix as there's a continued trend away from powdered NRL and then NRL more generally to the more premium synthetic styles, particularly in mature markets, but also starting to be the case in developing markets, too. The Life Sciences business is another business that was constrained by supply, a more significant constraint for that business than Surgical. And that's the only reason that it didn't grow well into the double digits. So 8% growth, still creditable, would have been much more if we had been able to bring more supply on. And there is additional capacity coming on in the next 12 months. About a 16% growth rate over 3 years, again, a great result for that business. Turning to Mechanical now. And overall, I think 3.7% is a creditable result for Mechanical, and we have to remember that the business that -- or the vertical that drove growth during the pandemic period, particularly logistics and warehousing and support of e-commerce, that went into a negative cycle as there was some inventory destocking there and generally demand normalized for warehousing linked to ecommerce. So -- but offsetting that was growth in other product categories. Cut Protection did very well. We saw improved results by our impact range supporting energy and overall mechanical a good result in the year and overall a 2% growth rate over 3 years, and that's through quite a challenging end market demand environment for Mechanical for major verticals like automotive and the like. Chemical, down 12%. So Chemical like Exam/Single-Use is suffering from the comparison to prior period demand for COVID protection. Chemical, also supply constrained, perhaps the most supply constraint relative to the other SBUs. And so it was not able to grow as much as the market potential, the high-end chemical lines and other particularly hand protection to offset that chemical growth. But note, Chemical also achieved a creditable 2.5% growth rate over 3 years, even considering this last supply chain constrained year. So overall, pretty satisfactory set of results and some very good results by SBU. So let me comment now on our progress more generally on our strategic priorities. And I think it's certainly tempting for a business experiencing a number of external challenges during the year to lose focus on those essence of strategy. But I'm pleased to say we have not done that. We've remained very, very focused on the long-term drivers of our success and continue to advance all these strategies. If I start on the right side of this page, a continued focus on our capacity expansion program. Our Indian surgical greenfield facility started its packaging operations in the last few weeks. And next step will be to bring forward the sterilization capability. And then we expect full dipping activity by fiscal '24. So that project on track. Thailand investments in those differentiated in-store styles that continue to grow, progressing well also. And then we've continued to invest in capacity in our Careplus joint venture as well. And that's been key as we have navigated through the supply chain shocks caused by WRO activity and other items. On the left, we continued to invest in R&D. Overall, it was a cautious year with regards to SG&A. There were a number of things that we opted to do more slowly or not as full as we otherwise would have liked in response to external conditions. But R&D, we continue to invest in. And what I think is particularly exciting in the R&D world right now is the number of products that we're bringing forward and have a meaningful sustainability benefit. And we're seeing great interest from our customers in these ranges. The 2 here are the 2 first to be launched, but we have a very interesting pipeline coming for products that are markedly different from their carbon impact as well as other areas of differentiation. And then in the middle is perhaps the most important work, improving our core business processes. Frankly, these have not been at the standard required to fully deliver on our strategic potential in the past. And I'm determined to get them to the point where they are a net add to growth rather than a barrier to growth. Our commercial digital transformation journey is progressing very well. We've made significant step forwards in our e-commerce capability and our ability to interface with customers and digital commerce strategies. We've overhauled our supply chain planning processes to ensure greater focus, better data, clearer decision-making and so forth. And then we've also continued our journey of upgrading what in some cases is very outdated ERP technology to the very latest cloud-based ERP and 4 systems went live and all perfectly without a single day's interruption to normal operations. So substantial work completed on improving business processes, that's very important to the future. Turning now to emerging markets. This continues to be an area of focus for us and another year of great results across many emerging markets. You can see the map of green and many impressive double-digits results, particularly in Latin America, also encouraging growth in India. The 2 not green are Russia, where already during the half, we started to stop -- we exited some product lines earlier, and we did not take new orders on other product lines, and that's the reason that Russia sales declined. China down, but that's primarily because China had the biggest COVID-19-related demand in the prior year. And if you strip out that factor, even with the 0 COVID policy impacting China, nevertheless, we saw growth across many of our SBUs in China. So the picture in China more positive than this slide would suggest. Then finally, I wanted to give you an update on Sri Lanka before I hand over to Zubair to take you more in depth through our financial results. So the first thing to say is clearly a very, very challenging time over the last 6 months in Sri Lanka as the country has battled a political and economic crisis. But our teams have done an absolutely outstanding job. They have not missed a beat with regards to achieving their operational goals. In fact, they've been setting new records with regards to output and with higher than usual yields as a result of investments we're making in advanced manufacturing methodologies and technologies. So of course, we have a responsibility to help our teams there. So we've taken a number of steps during the year, providing additional financial support and nonfinancial support to ensure that people can afford the basic essentials in a period of extreme inflation. And that's been very well received by our employees. And I am encouraged that today, things seem to be improving somewhat. So availability of fuel, consistent availability of power. Those basic essentials of life are becoming a little easier. And I myself am looking forward to visiting Sri Lanka in the next couple of weeks and catching up with our team there. So overall, very limited disruption to our operations and that's how we expect things to continue and a great credit to our teams for achieving that in very difficult circumstances. So now let me hand over to Zubair, and he'll give you further details on financial results.
Zubair Javeed: Thanks, Neil, and hello to everybody on the call, and thanks for taking the time to listen in. Now Neil's already gone through the housekeeping as it relates to that statutory to adjusted earnings. And so I'll just begin straight with the profit and loss summary on an adjusted basis, excluding those Russia-related costs. So beginning with the sales line. On a reported basis, we're down nearly 4%, but normalizing for the unfavorable foreign exchange. And that small Primus asset purchase, organic growth was down 2.2%. The largest decline in terms of currency, as Neil mentioned earlier, was the euro softening against the U.S. dollar, and that accounts for a significant part of the nearly $35 million year-over-year unfavorable currency impact to that revenue line. Now you can read more about all of this overall currency in the appendix to the investor slide or to the investor materials and Neil's again already shared some of the key drivers of the sales line. So I'll move straight to gross profit after distribution expenses. I think by now, it's well understood, margins were significantly hurt by the sell-through of that high-priced exam/single-use inventory that we'd purchased through the peak of the pandemic. We also told you in our H1 call, the Omicron wave had caused manufacturing shutdowns in our Asia facilities. And as a result of that, we were wearing higher-than-usual operating expense, all adding to increased cost of sales. And then lastly, like many companies around the world, we've absorbed higher distribution costs, up 20% on a constant currency basis versus fiscal '21. Now of course, this 29% GPADE margin here, we closed the year with, is clearly a lot lower than our historical run rates and what we would target to get back to. Offsetting that decline in GPADE margins was lower SG&A expense. And consistent with my commentary in the H1 earnings call and what Neil just mentioned earlier in terms of controlling discretionary expense in our usual disciplined manner. But let's be clear that most of that reduction was simply driven by lower variable employee incentivization costs, and a downgrade in earnings didn't help, of course. And although we do have this lens on near-term performance, it doesn't mean we're going to just pull back on investments where we see medium- or long-term value-creation opportunities. And again, you just heard, we've maintained a good rate of spend in R&D in the year. So closing out this P&L summary. I'll also note that the joint venture continued to be challenged with those exam/single-use market conditions as well as labor shortages in Malaysia, which are easing, but still, it printed a full year loss where our share amounted to just over USD 8 million. And again, we're targeting a much better financial performance with that entity in the new fiscal year. So all in all, EBIT of $245 million, EPS of just under $1.39, clearly disappointing when compared to the record-breaking fiscal '21 performance, still much higher than the midpoint of our guidance of where consensus was. But on a like-for-like basis, it's also our second highest financials over the last 10 years. And I think it's built on a very solid differentiated platform to work on for the future. So that brings me to the review of the GBU financials. If you can just advance the slide, please, Anita. And so let's start with the healthcare business unit. Again, here, the dominant headline is that exam/single-use pricing and muted volumes, but we do remain very pleased with the Surgical and Life Sciences momentum. In fact, Surgical sales grew nearly 30% in the second half. And again, as Neil said, we did indicate that in the H1 call as capacity came online and as workers came back from the shutdowns. And again, demand is still outpacing supply there. And overall, the HGBU closed the year down nearly 40% in margins, again, driven by that sell-through of the high cost inventory, but in part offset by the SG&A reduction. Now as conditions continue to normalize in exam/single-use, I cannot see why EBIT margin percentages in this particular global business unit wouldn't get back north of the 14% or 15% or even higher as we've seen previously. Turning to the Industrial business unit. Again, here, we see the impact of comparisons that were influenced by the COVID propel demand. And even though we had nearly 4% growth in Mechanical, again, as Neil said, it wasn't enough to offset the Chemical sales reduction in our protective clothing segment, and that led to an overall decline of just under 2%. Now you couple that with the COVID-driven manufacturing shutdowns in H1, those increased freight costs and continued inflationary impacts to the raw material purchases and we've seen a year-over-year decline in EBIT. Moving to the next slide. I'll drill down here on a couple of key points as it relates to our cost environment. Firstly, you can see here we're impacted by sometimes double-digit inflationary cost headwinds, and that's especially in the areas such as packaging or chemicals and yarns. We are offsetting these where we come through pricing. But you can imagine, managing that across a very broad supply chain with very long lead times, it does mean sometimes there's not a little bit of imprecision. As you saw in the year, we can be left with some residual unfavorable earnings impact. The other notable point on this slide is that the industry norms are returning. I think it's less of a capricious environment when it comes to MBR pricing and those supply surcharges with that raw material have now come away. But overall, though, both natural rubber latex and those nitrile input costs, they do remain stubbornly higher than prepandemic times. The next slide, this is showing our continued CapEx investments. We closed the year at just under $70 million of spend, which was clearly at the lower end of our guidance range. And I've mentioned in our last call, deploying that sort of capital, it was made difficult because of COVID-related travel disruptions, but there's a lot of credit to our teams, engineering teams, manufacturing teams for getting up and running those new manufacturing lines, for instance, in Thailand and our other Asia facilities. We're also very, very pleased with the speed our greenfield surgical site in India is coming along, kudos to our [ COVID ] team, well done for that. And packaging is now operational there. We're very proud of that team and for what they're doing there. And as we firm up our ESG ambitions, you'll notice in this slide, we're also direct in investment dollars behind things like solar panels, reverse osmosis facilities. And again, that should help with our water usage. Our Board of Directors are firmly encouraging this type of investment. And so I would expect you're going to be hearing more about these types of initiatives going forward. Moving on to the cash performance. Probably my favorite slide is the park here. Given the dilution we have in our working capital, clearly because of those elevated exam/single-use prices. It wasn't too surprising to see our cash conversion ratio down in the 60% range in half 1. By the time I did remind you in our last call that the cash fundamentals of this business remain absolutely solid, and I expect it would be back above the 90% mark in Page 2. Now thanks to the focus from our teams and the diligence we had around things like receivables and inventory, we even exceeded our own ambition in this regard. And in fact, not only under H2 with that north of 9%, we ended the full year back to a 90% cash conversion. So a remarkable achievement, I think, and gives me comfort for the movement going forward. Now working capital investment is also back to more normal levels, and a healthy net receipts clearly enables us to reinvest back into the business, but also leave plenty of room for other capital deployment options. And then lastly, I'll wrap up with a few comments in respect to the balance sheet, if you can advance the slide, please, Anita. I think in these uncertain times, 1 thing that pleases me very much is the constancy of this strength of this balance sheet and the optionality it continues to provide us with. And you'll see from this slide, overall return on capital employed from a -- on a pretax basis. It's back to probably historical run rates with just over 13% ROCE there, and on a post-tax basis, 11.3% return on equity for the year, still weigh above our cost of capital. Now cash remains well positioned. With that increased facility we mentioned in the first half, we have over $630 million of liquidity. That's U.S. dollars of liquidity available to us. And with that net debt-to-EBITDA ratio still staying below 1. I think we're going to be well positioned to ride out any macroeconomic or recession re-concerns. But at the same time, I think we can still be very proactive with investment opportunities as and when they present themselves. So I will finish by thanking all my Ansell colleagues across the globe for their agility and commitment through what was an especially challenging year and I'm going to hand back to Neil here now for fiscal '23 outlook and final comments.
Neil Salmon: Great. Thanks, Zubair. So as I think about our priorities in the near term, which really means the next 12 to 18 months, I organized them under 3 headings as the next slide shows. So the first is we'll continue that long-term focus. Yes, F '23, as we start, has also its own uncertainties, but we will not use that as an excuse to divert from our long-term priorities. So continued focus on capacity expansion on those differentiated styles, continued investments behind our digital commerce strategy, and this opens up significant new areas of growth in parts of the market that Ansell hasn't been strong in before. And we're seeing early and very encouraging signs, but still from a small base. Also opportunities to drive productivity as well in this area. ESG, our leadership position is both the right thing to do. It's essential that all companies do this. It's also clear to me that there's a big differentiation potential here, too. Now we're doing things the right way. We're not into greenwashing or dubious marketing claims, and that means it's taken us -- it's taking us a while to get really to the fundamentals here and be able to position to customers. We can tell you how your carbon footprint will change with different PPE solutions, but that's where we're getting to now. And we see very strong interest from customers across the globe to the offerings that we're bringing forward. And then finally, we continue to work on our connected PPE. We see some good results in pilot phase, where we have a demonstrable impact on hard-to-address injuries. Now we are focused on commercializing that technology and going from pilot to repeat to customer success. In the middle here, we continue to remain focused on improving that operational effectiveness that I talked to earlier. Of course, once we've installed capacity, we have to get it running at optimal rates, and we're investing behind new manufacturing approaches that I think will bring us to new heights of efficiency, productivity and yield on our installed base. We're investing significantly behind systems and processes for enhanced supply chain reliability. We're putting in a new end-to-end supply chain planning tool using the latest cloud-based and digital technology that I think will transform the visibility and effectiveness of our supply chain planning. Continued vigilance, as I've mentioned already, on labor rights for as far ahead as I can see and ensuring that the industry continues to make the progress that I was noting in my remarks earlier. And then finally, like all companies, we've got work to do to ensure that our culture thrives in this new hybrid world and making sure that as we advance our broader diversity, equity and inclusion objectives, that, that gains traction and that's real meaning to our employees. We've had good progress on gender diversity, and we're ahead of our goals there, and now I want to see progress on broader measures of diversity. But we have to pay attention to shorter market trends as well, of course. So it's our goal to fully offset the impact of inflation in the next 12 months through a combination of price increases and also some cost reduction initiatives, at this point in time, that objective seems eminently achievable. We will be cautious on SG&A expense, which I think is only wise, where there is a risk of recessionary conditions taking hold. But that will not stop us selectively investing behind those longer-term strategies and particularly investing in continued innovation. We have plans to accelerate delivery within operations of our automation objectives. Those initiatives were a little behind their time line last year, again, because of the difficulties of accomplishing those projects in a COVID-disrupted world. But we see increased momentum and a lot of great ideas from our global engineering team that are now showing results in practice. And then, of course, following the announcement I made earlier, we now need to exit our Russian operations in a way that considers the interest of our employees, our customers and also preserves value for shareholders, and that will be a key priority over the next few months. So what does this translate to in terms of EPS guidance? So we're sitting in a range here of $1.15 to $1.35. Clearly, that's below the EPS -- adjusted EPS that we've just reported for the last year. But the reason for that is those 2 factors I've already mentioned. So if you go to the third and fourth from the bottom of the bullets, you can see the foreign currency effect at $0.25 year-on-year and you can see the exit from Russia effect of just under $0.06 year-on-year. So if I take those off the prior year figure, that gets me to $1.07 in the chart on the right. And so our EPS range requires good organic growth on an adjusted basis against that normalized $1.07 base. How will we achieve that? Well, today, we expect the external environment as we see that external environment to support it for continued good demand conditions across all our SBUs. We expect continued strong results from Surgical and Life Science. And as I mentioned, Mechanical, we're seeing improved performance in the second half of last year, and we expect that to continue, and we plan a turnaround in our Chemical and Exam/Single-Use performance with regards to volume. We do anticipate a continued normalization of exam/single-use pricing. But that will not have the EBIT impact you might expect because, of course, we will also no longer have the margin compression that occurred in the first half of last year through selling through that high-cost inventory. So lower selling price, but less of that high cost effect and those 2 should net out. And overall, those 2 factors be EBIT neutral for the Exam/Single-Use business. And that means GPADE margin should improve as that GPADE profit will stay more constant on a lower revenue base with lower pricing. SG&A costs will increase. We do see higher inflation, including wage inflation, but we are remaining cautious on managing overall employee numbers, as I mentioned earlier. And then a couple of comments on interest and tax. So overall, I think this is an achievable EPS outcome on the business. And I think it will represent good growth on an underlying basis, again, compared to the prior year. So now I'd like to hand it back to Anita, who will give you an update on what's next in terms of stakeholder communication and then we'll go to Q&A.
Anita Chow: Thanks, Neil. There's been an increased focus from the investor community in relation to sustainability. And as a result, in conjunction with our release of our sustainability report on the 13th of September '22, we will be hosting a webcast for the community. It will be held on 28th of September 2022 at 4:00 p.m. Australian Eastern Daylight Times, so please mark your calendar. We will cover aspects in relation to social compliance at our own plants, our engagement with suppliers in relation to labor rights, which is an increasingly important area. But then we will also cover how we will be dealing with environmental considerations in our supply chain, but also, we will also have a look at our product innovation as well as diversity, equity and inclusion.
Anita Chow: So now we will turn over to Q&A. [Operator Instructions] So first up, we have Lyanne Harrison from Bank of America.
Lyanne Harrison: Can I start with the higher cost inventory? So if I'm looking at your balance sheet, obviously, inventory levels is lower than what we saw in December, but still elevated. Has all of that higher cost single-use exam inventory cycled through? And if so, can you explain reasons for higher inventory levels? Is that largely driven by costs or volume?
Zubair Javeed: So let me take that, Neil? Yes. So firstly, Lyanne, in terms of the overall inventory, as I would have said in the H1 earnings call, we were carrying a little bit more inventory than what you would have seen us in the past, because there was increased lead times. The overall supply chain, as you know, there was a lot of turbulence around the world in just logistics. Getting product from the Far East to places like the U.S. and Europe was difficult. Increased lead times meant higher -- in-transit times meant higher inventory. Alongside that, we also -- the purchase decision to build additional inventory because of the shutdowns that were taking place because of that Omicron wave, and then finally, of course, there was some higher inventory levels on the Exam/Single-Use business. But we -- I would say, we cycled through a vast proportion of that as well as revaluing down the cost of that inventory to the pricing we were seeing in the market. There's a little bit of residual left in terms of that revaluation down. We told you about that in the first half. We could see anywhere between $10 million to $20 million going into the next fiscal year. At this point, closing the year, we'll probably beat that or come right in the middle of the fairway in terms of that further revaluation down. And at this point, we're looking at about $15 million more of a revalue, and that's based -- it's clearly in our guidance range as well. So hopefully, that answers your question on inventory.
Lyanne Harrison: Yes, that does. And then if I could ask on prices. So we saw an interesting graph there about exam and single-use ASP. Obviously, that's come down from the highs that we saw earlier in the pandemic. What's your views on that? Is there more price declines expected in '23? And are we likely to get to that 20% pre-COVID level?
Neil Salmon: Yes. So we need to separate the business into exam/single-use on the 1 side and then all the rest on the other. So this is -- for exam/single-use prices, as we exited the half, we're still quite a bit above the pre-COVID levels. And you might contrast that to some of the specialist commodity players who are already talking about pricing at pre-COVID levels. And that really talks to our differentiation and the different nature of our customer relationships, which are much less dominated by tendering, and price is the only criteria in decision-making. So to some degree, the improvement is a mix phenomenon and also supporting what we've long said at the differentiation of our product portfolio. But indeed, as I said in my guidance comments, we do expect a further step-down in exam/single-use pricing. Now it's hard to be confident whether it will land exactly at the pre-COVID level. I suspect not because overall costs in the industry are increasing at this point. And so that will provide a floor under pricing. But clearly, there's quite significant competition in that commodity end, which is not why Ansell plays between the new capacity that's come on in China and then the existing Malaysian producers. So that's at the bottom end of the market at the sort of sharing price, that's putting pressure on pricing, but we see it much less for our product categories. Now for the rest of the business, we are increasing prices. We've seen good receptivity to those price increases. And that's why I remain confident that we should be able to fully pass through the inflation effects we see on the rest of our business.
Anita Chow: Okay. Thanks, Lyanne. Next up, we have Dan Hurren from MST Marquee.
Dan Hurren: I was just wondering if -- I know you haven't given -- sorry, do you have me?
Neil Salmon: I can hear you, Dan. Go ahead.
Dan Hurren: Great. I know you're not giving any specifics, but I was just wondering, if we took out the adverse inventory of that high or the adverse impact is rather of that high-cost inventory in health care from both halves, in broad terms, did we see underlying improvement second half on first half in that part of the business? Just trying to understand your operating conditions and the exit rate, I guess.
Neil Salmon: So that was -- the gross profit dollar improvement that I talked about was mainly because we didn't cycle the -- we didn't have that impact of high cost inventory. So if you step back from this, we said some time ago that exam/single-use profitability would normalize over a 2-year period. And that was -- that's always been part of our strategic projections for the business. What caught us by surprise was only the speed at which it happened and more the speed of the demand correction than the pricing correction. And that's what created the accelerated decline in margin in the first half. But it's a timing function. And so overall, what we're getting to is where we expected to into F '23. The correction happened more quickly rather than over the 2-year period that we had assumed previously. So I hope that gives you some directional comments on this in response to your question, Dan.
Dan Hurren: I think so.
Anita Chow: Thanks, Dan. Next up, we have David Low from JPMorgan.
David Low: Can we just stick with exam glove -- can you hear me?
Neil Salmon: Yes.
David Low: Can we start with exam gloves and just the proportion that's now outsourced versus in-house and where you expect that to go? While we're on the topic, I mean am I right to assume that there will be a drag from that pricing differential from your buying price to the selling price just given prices are still trending down?
Neil Salmon: So let me take the first one. So yes, we're 75-25 now, 25 being the in-sourced piece. Increasingly, we see advantage to being the Ansell manufacturer, Ansell weight -- carries weight with our customers. And as we talk about options to in-source further along the range, so we've always had the touch and tough chemical protective range that's unique in the industry. We would only ever make that ourselves because it's so differentiated. And then in the middle, we have the Microflex range that still has differentiation to emergency response and other markets like that, pentanol protection and so forth. Those products, we are now looking at options to bring in-house. We're increasingly relying on our Careplus joint venture as the source for those products. So I think this is a strategy that will continue, David. I would like to see us get to 50-50 over a period of time. I'm not able to be confident at this stage how quickly we can get there. But if we can do so in a value-accretive way, then I know that, that might be of great interest to our customers. So yes, managing the spread between purchase price and selling price is something that we've done pretty well throughout. But you haven't seen that in the financials because of we were not -- the costs that we're reporting, we're not at the current purchase price, but the purchase price at the time we bought that inventory. So we've actually done a pretty good job of managing that spread and keeping it constant during this whole time period. There may be some compression in that spread into next year, and that's included in our guidance range, but we don't expect it to be significant. For our in-sourced products and the prices of those went up by much less and have less to come down. But there, our cost base is more fixed, I think, to the underlying raw materials rather than to finished goods. So there will be some margin compression in the in-sourced products into next year, but also something that we've taken account of. And we expect those products to continue to premium because of their differentiated capability. So I hope that gives you a bit more context to the exam/single-use performance.
David Low: It does. But when you say you've managed it well, I thought that was the big issue in the first half, that the spread you end up with inventory that was -- that was older and higher price. To say that you've managed it well, am I missing something?
Neil Salmon: No. Well, we managed well that the price we are paying current -- the current price we are paying on new purposes versus the current selling price in the market, we manage that spread well. But yes, what we didn't manage well was the timing of those purchases. And so we bought too much at earlier high cost...
David Low: And my question -- I mean I know it's difficult and I don't mean to have a go at you. I'm just -- the question I have is, looking into this financial year, do you think because prices are falling, that, that's a headwind, which I presume you would have allowed for in your guidance?
Neil Salmon: I think we've done a -- no, much less. So yes, a moderate headwind, which is to the $10 million to $20 million that Zubair talked about, but much less because we have a much better lineup of purchase orders compared to sort of water pricing versus demand requirements and managing in mature more effectively. So yes.
David Low: Okay. Great. I did have 1 other perhaps for Zubair. I mean FX is obviously a huge headwind in the guidance. How much of that's locked in with hedging? Or how much uncertainty is there around that FX headwind item in the guidance, please?
Zubair Javeed: Yes. So David, of course, I don't have a crystal ball on the rates. If you assume current spot rates hold, especially if you see in the appendix to our slides here, you'll see I'm assuming the euro being at parity with the U.S. dollar. Clearly, that's going to act as a large drag on the revenue line. But at the same time, it's going to -- as you're anticipating, it's going to drive a significant hedge book gain. All in all, I'm assuming that we'll see north of $30 million earnings impact when you compare it to fiscal '22 because of that sharp appreciation of the dollar. And then coming on to your question, in terms of guidance, just under 80% of our euro exposure is hedged at this point in the year. And so everything else remaining equal, I think it's really that unhedged piece of 20% on the euro exposure that will largely determine where in our EPS guidance we will land in terms of the FX side and [ accounts ]. So I hope that answers your question.
Anita Chow: Thanks, David. Next up, we have Sean Laaman from Morgan Stanley.
Sean Laaman: Maybe -- I don't know, Neil, just to triple check, just the exam and single-use price normalization is anticipated to result in overall sales decline in FY '23. That just relates to that product category, right?
Neil Salmon: Yes. Yes.
Sean Laaman: Yes. Got it. And Neil, ex that, I mean you're able to sort of characterize the organic growth that you see in the business across fiscal '23, granted that, that is a huge headwind from FX that David pointed out.
Neil Salmon: Yes. So let me go through [indiscernible] view. So Surgical and Life Science remain at a very strong position relative to market demand. And those markets, as you're aware, are not sensitive to an industrial recession. So it continues to be more a function of supply versus demand and our ability to bring that supply on. Now it's true in the Surgical market that some competitors are also bringing new supply to market. But we still see -- but not at a rate that we think threatens our own inability to achieve our above-target growth rates in Surgical and Life Science. So -- and those businesses well set. Within the Industrial business, Mechanical, we'll probably see some recession effects, although as we start the year, we're not seeing those currently, a couple of spots of weakness. German demand has been affected by the water levels in the rain and a slowdown in the chemical industry there. But overall, if we look at mechanical as we begin the year, that business looks in good shape and is also being boosted by continued successful new product innovation. And then other verticals, the energy vertical, for example, is a growth vertical and that should mitigate against any negative effect from industrial production on mechanical. Chemical has a rebound opportunity because of that supply constraint last year. And as that normalizes the business covers from the back orders that were created as a result, I expect improved organic growth from chemical. So that leaves exam/single-use. And there also, we need and want to get back to volume growth. There is still some congestion in the supply chain ahead of us linked to excess inventory. And we believe it's much less now on Ansell products and -- but still -- some customers bought stuff that they don't really want. It wasn't really the right policy, but they still have it and they're working in a way. But overall, I see that picture improving and we are returning to more normal demand conditions in key parts of the market. So that needs to continue, and we need to continue against our differentiation strategy. And then we'll see exam/single-use volume growth also into -- through F '23. So yes, hopefully, that gives you a bit more color to make confidence on organic growth profile for our business units.
Sean Laaman: Neil, appreciate it. And Zubair, can you just remind us sort of the balance sheet targets and if anything has changed there?
Zubair Javeed: Yes. No. We continue -- as I said, we continue to make sure we maintain that resilient balance sheet. Leverage levels, I'm happy with -- the Board's happy with that net debt-to-EBITDA ratio. I think we're comfortable with 1 turn. We've got increased liquidity. Again, it's good dry powder to invest in opportunities as and when they present themselves. And again, we're prioritizing internal investments. We've got to finish out the India facility. We've got to look at increased lines in our other facilities. We've got automation ahead of us. So all in all, that balance sheet will help us towards those objectives.
Anita Chow: Next up, we have Vanessa Thomson from Jefferies.
Vanessa Thomson: I wanted to just cover off on that inventory levels more from the customer perspective. You said that some of them have inventory that they're still working through. Is that generally true for -- across your customers? And are any of them at the point where they are rebuilding stockpiles? Or is that, I think, just a temporary thing with COVID?
Neil Salmon: So it's no longer generally true, and that's why certainly some customers have returned to more normal ordering patterns. But in other spots, more in the health care space, we still see some congestion. So it's improving. I expect it to still to be a feature that there'll be some customers who have not returned to normal ordering patents over the next 6 months. But beyond that, I think we'll be back to more normal demand conditions. So yes, it's not generally true, but still true in parts in the industry.
Vanessa Thomson: And do you see customers, especially, of course, in the health care space, thinking about stockpiles? Or is that something that was just a pandemic kind of thing that we've discussed and have moved on from that?
Neil Salmon: Yes. I think it's unclear where that's going to land. So the whole reimagining of supply chain has not progressed as ambitiously as some would have, and yet I think once the dust settles out and once people get back to more normal conditions, it will come back as a strategy. The decision by hospitals, in some cases, to hold that extra inventory themselves cause some of these problems because, of course, they don't protect that inventory and so they end up worried about shelf life and so forth. So we've consistently advocated different solutions where ourselves or where the distribution channel can adopt a policy that provides greater stock reliability and avoids those write-off risks. I think we'll see greater interest in that once people have worked through the more current issues. So yes, I'd say some of the predicted outcomes post pandemic have not yet taken place. But I think there's still time for people to think that through once they've worked through the more immediate issues. So I'll come back to you on that in future results and discussions.
Vanessa Thomson: And then just 1 last question. I just wondered if you could give us some insight into the freight situation at the moment and if that's as it was or if there's still some disruption.
Neil Salmon: So we still see longer lead times, as Zubair mentioned, and that's a big piece of the reason why we have higher inventory levels than historically. The predictability of freight has improved quite a bit. So our ability to get container bookings as -- on the dates and times that we planned as important and our backlog overall has reduced somewhat with regards to container availability. So it's moving more reliably, more consistently, but still with those longer lead times and still at elevated costs. Now there's certainly some in the industry that are predicting that from here, freight costs moved down. I'm not sure that we'll see that in the next 6 months, but I would hope that we do see it into -- towards the end of our fiscal year. So it does seem as if we're past the worst on those lengthened and expensive supply chains. But it's still too early to predict a meaningful return back to pre-COVID conditions in the supply chain.
Anita Chow: Thanks, Vanessa. Next up, we have Gretel Janu from Credit Suisse.
Gretel Janu: So firstly, just to go back to exam/single-use. Just that $15 million cost headwind to FY '23, is that expected to be completely washed through in the first half? Or should we consider it to last the whole full year? I'm just trying to think about that guidance and how we should think about phasing between first half and second half.
Zubair Javeed: Yes. So in terms of -- we expect the first half will be awash of that inventory need, Gretel, because of the way we'll cycle that through. And as Neil said, the purchases that we're doing now from Ansell's suppliers, we know that margin spread is back to more normal "spreads" that we've seen historically. So yes, the first half is where we will notice or wash through all inventory.
Gretel Janu: And so in terms of your other guidance comments that you've made, so that's the only 1 that will impact first half. Everything else should be felt progressively throughout the full year. Is that how we should think about it?
Zubair Javeed: Yes.
Neil Salmon: Yes. We do always see a stronger second half than first half. So -- and I would expect that seasonal weighting to be, as usual, in the next 12 months as well. Yes.
Gretel Janu: Great. Understood. And then just to go to the U.S. withhold release order and the issues that you have with YTY. I guess has that been resolved now? Do you have any other comments relating to those issues? Have we seen any other further move from the U.S. customers and Board of patrol looking at any of your other customers here?
Neil Salmon: So YTY themselves remain under WRO. They have submitted extensive documentation to the U.S. CVP and that they believe demonstrates that they're fully in compliance with the required labor standards, but the CVP is now reviewing that information, as I understand it. And we don't expect that to be a determination in the next few weeks, not sometime until September probably before there's any news on that front. What we have done is resourced most of the products that we were previously buying from YTY, and we're now bringing those products into market. There was a gap of a couple of months or 3 months in some cases between when we were no longer able to supply YTY products into the U.S. market and when we brought additional new sources into the market, and that affected second half and was part of -- we've seen that in the guidance range that we provided back in January and February. So now some of that business has gone to other sales. So we have to win it back, of course, but that's what the team is very focused on right now. And credit to them for the speed at which they were able to find alternative sources for those products with our Careplus joint venture playing a very, very big part in our ability to respond so quickly. But more broadly, no, we've not seen any further action by the CVP in the form of WROs. I think the CVP is pleased with the industry's actions and overall the formation of the Responsible Glove Alliance. So that's not based on any direct information that I have, but on comments that I've seen. So -- but I'm sure the CVP is continuing, as they should be, to scrutinize the industry. So I certainly wouldn't curse so far as to say the CVP is no longer considering WROs as a measure that may be required in circumstances. And of course, it's our job in Ansell to ensure that we have a supply chain that's fully compliant and that there's no risk of WRO action and our in-source, outsource strategy linked to that, as I discussed in response to an earlier question as well.
Gretel Janu: Great. And then just lastly, in terms of the surgical growth, very strong growth in the second half. I guess how confident are you that any market share gains you've made here are sustainable?
Neil Salmon: Yes. So we've pursued some different approaches this time that I think have been really effective and I believe will be durable into the future. So the U.S. market for many, many years was 1 that we were struggling to gain share in. But we've adopted very strong co-branding relationships with the leading GPOs, and it's a highly synergistic relationship. And it's not the value they see from the Ansell brand being on their co-brand is very significant. And the value we see from the GPO access that we are -- that we achieve, which we didn't have access to previously, is very significant to the growth. So even when competitors have a stronger [indiscernible] position, I think our ability to grow using that strategy will continue. And I'm confident that we will be able to maintain the share gains. And then I would say more generally, surgical, there's sort of very significant shift potential as we continue the journey from nitrile latex to synthetic. Even in the U.S., for example, I think it was the state of Illinois that just a few weeks ago announced to complete an on all nitrile latex in the health care system in that state. And if that becomes a trend, then we'll see a further acceleration in the U.S. away from nitrile latex-containing products. In Europe, we've had to slow walk the conversion to synthetic because of a lack of availability. But we know there is pent-up demand in Europe, too, to move in that direction. And then as I said, it's also going to become an increasing trend in emerging markets. And as you're aware, while the lower end of nitrile latex surgical gloves is less differentiated, still there's only a handful of producers who can make the synthetic products to the very demanding quality standards that are required by surgeons worldwide. So we think the Surgical business is set up for long-term success, and that's why we're pursuing Indian investment as fast as we can to bring additional at the market. I would also say that, that Indian manufacturing facility is going to be 1 of the cleanest glove manufacturing facilities in the world with regards to its environmental footprint. So it will be 100% renewable energy, and it will have minimal water demand on the surrounding area. So it will have a very strong sustainability differentiation as well, and we think that will be of interest to our customers.
Operator: And our next question comes from the line of John Deakin-Bell with Citi.
John Deakin-Bell: My question is more about the margin. And first of all, just in the current year, going through the annual report, the STI not achieved and obviously a big difference. You had this $50 million decline in wages and salaries. Can you just confirm that, that's mostly from these STIs and its versus budget, I'm assuming. So given that the budget or the forecast, the guidance in FY '23 is lowered, should we assume that wages and salaries line gets back closer towards where it was in 2021?
Zubair Javeed: Yes. So overall, John, the number you quote includes, obviously, other costs in there. So it's not entirely the STI plus the LTI. There is a large proportion of that. And of course, in our F '23 guidance, we then have to rebuild some of those incentive costs, which is included in the guidance range we've given you, where it's not that $50 million quantum, but it's obviously a large majority of it.
Neil Salmon: Just to add 1 thing. The F '21 achievement, of course, was significantly above target to -- than a swing to F '22 achievement that was very low versus target.
John Deakin-Bell: Understand. Sort of somewhere in the middle is the more normal year. And then -- and just getting back to your comments, Zubair, earlier about EBIT margins, which is really what we're all trying to work out in 2 or 3 years' time and all this craziness disappears, where is that going to land? The -- if I look at FY '19, your revenue was $1.5 billion, and the EBIT margin, 13.5%. I mean what are the limiting factors from -- obviously, going forward, your revenue is going to be quite a bit higher than where it was in FY '19 even when -- get back to normal. What are the limiting factors in getting that margin back to that -- given that you're talking about -- you think you can pass on price increases from inflation in the examples, et cetera? I mean I just -- I'm trying to understand why you wouldn't get back to that margin.
Zubair Javeed: Yes. So in terms of -- it's a good question, John. In terms of -- I look at it this way. How do we get back to that margin? And then, yes, indeed, what limits us? How do we get back to that margin? We make use of the capacity we're building in specialty areas like Surgical, in Life Sciences, in the higher-margin internalized differentiated Exam/Single-Use products. All of those should help us as we ramp the volumes back up, help us with margin because the mix is just so much better, as you know, in those higher priced environment. Now what limits that is, of course, we don't know where inflation is heading. At the moment, we're passing through most of that inflation, but we don't know where it's heading. We don't know where FX is heading in 2, 3 years' time. But of course, again, we're building that as much as we can into pricing assumptions. And then we don't know where our leverage will land in terms of the volumes we pass through. But at this point in time, and like I said in my remarks, I don't see why we wouldn't get back to the levels we've seen in the past. I don't see any reason why we wouldn't -- Neil, I don't know if you want to add some more color to that at this point. Again, 2, 3 years is a long time. We're not going to predict that far out on this call. But Neil, would you want to add any other color to that?
Neil Salmon: I think it's a good summary. And John, as you say, we'll land with higher revenue than prior period. And although that revenue growth has come, as I showed on that slide, from the more differentiated businesses, so the mix trends are favorable to the margin story. The one piece -- the one challenge that I would add to Zubair's list that we have to get right is our operational productivity. So there's a series of inflationary challenges to manufacturing in Asia right now from labor rights through to energy costs and then the cost of the supply chain as well. So I think some of those will start to reduce. But fundamentally, we have to get the productivity journey right and we have to get our automation investments and building momentum, but that's also what I'm confident in given the success that we've seen recently. So that will be the other piece that we need to get right in your formula, John. And then yes, absolutely, we should be getting back to those margin levels in the future.
John Deakin-Bell: Yes. Because all of those things you talk about, they're industry-wise, so everyone faces in the margins for the whole industry or just permanently been lower, but as you say, assuming everyone can pass prices on, then it would make sense that you can get back to the way you were.
Neil Salmon: Yes. And over a long, long period of time, we've seen the industry has always been able to do that in both the exam/single-use space but -- and also in the products that we are more focused on. Yes.
Operator: And our next question comes from the line of Andrew Paine with CLSA.
Andrew Paine: One of your -- some of your comments. Can you hear me?
Neil Salmon: Yes, we can.
Andrew Paine: Yes. Just looking at some of your commentary on the surgical industry capacity you expected to recover in FY '23. I'm not sure if you covered this before, but can you just give a bit more color on who these competitors are and whether they're coming back online? Or is this adding new capacity to the system?
Neil Salmon: Yes. So there is 4 big players, particularly in the synthetic surgical space, haven't changed. Cardinal is the market leader in the U.S. Melaka has strong positions in a couple of markets, but much less of a global presence versus Ansell. And then Medline also has an important role to play. And the 4 of us between us have around 80% of surgical market share. So with surgical demand being so strong, of course, it's no surprise that Cardinal and Melaka are also adding capacity. As we project this out over several years, we see the continued demand for synthetics being met by the capacity that we're bringing on and others are bringing on. So -- and as I mentioned also, there are other aspects of our differentiation with regards to go-to-market that we think also put us in a good place going forward. So we were the only ones adding capacity for a while and the consistency of our strategic focus on surgical has really borne dividends. And remember, that's been the key way we've played this pandemic all throughout is not lose sight of the long-term fundamentals, not chase after temporarily high gains on nonstrategic products, but instead stick to the strategies that we had already set out prior to COVID-19 coming on. And that's been very successful, and that's something that we will continue to do. So some more normal competitive supply situation reemerging, but still plenty of opportunity for our Surgical business to continue growing.
Andrew Paine: Yes. And just -- so just thinking about, obviously, the capacity coming on for exam and single-use, and I know it's quite different in the manufacturing process, but is there any risk that capacity comes online there and demand falls and they start to look to those lines like Surgical? I know other lesion manufacturers do it in very small volumes and don't indicate that they want to increase in that area, but do you see that as a risk going forward? Or do you think you can kind of hold it to the current players in the market?
Neil Salmon: I believe so. I see no significant signs of a major step into the more differentiated surgical lines by new entrants. And there's a whole series -- there's a whole set of constraints. Sterilization capacity and availability is highly limited. The product technology is not widely available. The quality standards are very high. And then access to market and brand reputation were also key to success, particularly in mature markets. So it's a very different piece to exam/single-use. And remember, all the capacity in exam/single use has come in at the very bottom end of the products that are really sold on price and price alone. And that's just not the case for any of the surgical portfolio, certainly not for the differentiated synthetic range. And then the final point is these volumes are small in comparison to the very large volumes available in commodities and single use. So it's never going to be a sufficient offset to someone who is not happy about the performance of the exam/single-use, commodity business. So yes, I mean I've answered that question many, many times over the last few years and have been able to give the same answer pretty much every time because we haven't seen that shift that some have long predicted. Still make something to be happening currently.
Anita Chow: Okay. Thanks, Andrew. So that's all with the telephone Q&A. So we'll switch over to the webcast questions. Next up, we have David Bailey from Macquarie. Can you talk to the composition of finished with inventory balance? Why does this sit above historical levels? And is there a risk of inventory write-down based on exam and single-use dynamics?
Zubair Javeed: Yes, Anita, I think I gave that answer earlier, and it was in relation to the long lead times. It was in relation to our intentional decision to increase inventory as a result of COVID shutdowns and, again, wanting to bounce back with good inventory levels in the segment we expect to have high service levels in. And then obviously, there was that exam/single-use pricing that we have to work through. We've -- and as I said earlier, we've worked through mostly the expensive, highly costed inventory repurchase. There's a residual balance left. And as I said to Gretel there, I think, earlier, we will have in the first half of work-through most of that is the expected cadence.
Anita Chow: Thanks, Zubair. Another question from David. Can you expand on the drivers of expectations for GPADE margin improvement as well as HGBU?
Zubair Javeed: Go ahead, Neil. Go ahead.
Neil Salmon: So I think we've covered the GPADE aspects for exam/single-use. So I think Dave's asking for the rest. So for Industrial, the lower second half EBIT margin was -- because although we did put price through successfully in January with the benefit of hindsight, it wasn't sufficient to cover the inflation that we had in the end saw come through in the half. So a timing lag, and we've long said to you that we will generally experience a timing lag in an inflationary environment. But with the price increases that are going through now, I expect that to catch up and that's the reason for overall industrial margins improving. And then the Chemical business suffered from a significant additional manufacturing costs linked to COVID-related constraints. And so as that improves and works through and volumes normalize in Chemical, then we should see improved margins in that business for that reason as well. On the HGBU side, it's for Surgical and Life Science. So also ability to pass on price, but also generally, those businesses being high mix, so high margin. So as those businesses grow at a higher rate than the average, then you have a mix benefit. So those are the other factors that go into our view on GPADE margin going forward. Would you add anything, Zubair?
Zubair Javeed: No, I think that was comprehensive, Neil.
Neil Salmon: So I see the web questions. So let's go to Saul. So a good question from Saul. Splitting the Russia effect by GBU, so I'm going to have to swag this one, but just to clarify what we've reported, the F '22 adjusted, that number between adjusted EPS and statutory is the onetime exit costs. It doesn't include the business trading in the last year. So the $9 million EBIT, $0.058 EPS was in the prior year, adjusted EBIT number, the $1.386, but we will not enjoy those earnings in F '23. You asked for the split by GBU. So I don't have that, but I think it's going to be approximately 2/3 industrial, 1/3 health care, but we'll try to get that more accurately and follow up if it's significantly different to that. But that's about the sales mix. And I would expect the EBIT mix to be some of that. Zubair, did you have a more accurate number on that?
Zubair Javeed: No, I think that's good.
Neil Salmon: Any last question, it seems -- David, actually no, we've covered that on GPADE expectations. So it looks like we've covered all the online questions as well. If we still lost Anita, then perhaps I'll conclude with some remarks and then we'll conclude the webcast. So overall, clearly, although I'm happy that we delivered on our revised earnings guidance, overall, it was not a triumphant year with regards to financial results for the business with the decline year-over-year and the miss versus the guidance range that we set at the beginning of the year. So -- but I think if you look underneath the financial results and you look at the accomplishments that we've made against our strategic priorities, building out our digital commerce strategy, continued focus on investment behind differentiated products, the innovation journey that we're on and the potential that our sustainability commitment provides, I believe we'll look back on F '22 as laying very important foundations for our long-term success. And that's what we're focused on as a team. Huge credit to my Ansell colleagues worldwide for the resilience they've shown. It's been a very, very challenging year in which a number of factors have come at us unexpectedly from various different corners of the world. And in every case, the team has handled them adeptly -- keeping employees safe, keeping our customers supplied and enfold. And I'm hugely grateful to the resilience that our team has shown. So as we move forward into F '23, we'll stay focused on those long-term strategic drivers. And I believe the business is in great shape to weather whatever uncertainties F '23 brings. And of course, that means for you, our shareholders, that you should see long-term value creation from here. And that's my commitment and objective for you as the CEO of Ansell. So thank you for your time and interest and questions today. We look forward to further opportunities to catch up over the next 6 months.