ANSLF - Ansell Limited

Operator: Thank you for standing by, and welcome to the Ansell Limited FY '24 Half Year Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Neil Salmon, Chief Executive Officer. Please go ahead.
Neil Salmon: Thank you, and thank you to all of you for joining us today and for your ongoing interest in Ansell. A few words to begin. You will see in our presentation pack our normal disclaimer on forward-looking statements and clarification of non-IFRS measures. Passing through that, I'll talk -- today, give you a business update. That will be followed by Zubair Javeed giving you the financial results. Then I'll conclude with some comments on our outlook for the rest of fiscal year '24, and then we'll take your questions. So let me go to the business update. On the first slide, if we could advance, please; as usual, I want to provide some updates against our safety and sustainability objectives. Safety first. So the first area we track in safety is the ongoing engagement of our employees across all our manufacturing sites and office sites in making observations of issues that could lead to unsafe incidents, near-misreporting and so forth. And we continue to see very high levels of engagement against that metric. The second is, of course, tracking injuries. We've changed to the more internationally common measurement method of TRIFR, going forward. A reminder first that last year was a record low injury rate from Ansell. As you know, our injury rates already benchmark extremely well amongst best across industry peers. And last year was our best ever. This year, we have seen an uptick in injuries. Partly, it's due to the consolidation of Careplus, now known as Seremban within the Ansell family. As we often see, when we acquire a manufacturing entity, it starts with a much higher injury rate than the Ansell benchmark. We've already reduced it at Careplus, now Seremban, to 1/3 of what it was. And yet, it's still significantly above the Ansell benchmark. So that's one reason for high injury rate. And then in some areas, we have seen a few more injuries against our very-low benchmark. And of course, we want to get that back on track. We're addressing that as every year, we want to achieve a 10% improvement. On sustainability, a lot of good progress to report here. Firstly, against the -- our commitment to have our entire supply chain meet our very high standards, here, we're on track. Our audit issue closeout rate is improving. Our supplier ratings are improving. I updated you a year ago that all of our finished goods suppliers had completed their remediation fee reimbursement to migrant workers. We're going beyond that, though, and ensuring that our Tier 2 and Tier 3 suppliers also complete that step. And I can confirm today that all our packaging suppliers have also committed to us that they will address any issues of recruitment fee. Against our environmental goals, so we're tracking very well against our target to reduce our Scope 1 and Scope 2 emissions, including that midpoint of the 2030 42% reduction. We're also -- when I was in Sri Lanka a few weeks ago, I saw underway the installation of one of the largest rooftop solar panel installations in Sri Lanka. And that's a further step forward in the switch to renewable energy sources. We're also making progress in reducing our consumption of water. This is quite a technical challenge, reverse osmosis, which is the main technology we're using here, requires a lot of optimization to get it working optimally for the site and also making sure we're using the recycled water appropriately. So some way to go before I'm fully confident. In our F '25 goal, certainly, we will achieve that 35% reduction in due course there. A key milestone accomplished in the last few months is the zero-waste-to-landfill goal. So there, our objective was across all our sites to redirect thousands of tonnes from landfill to alternative post-life solutions. And that, we have accomplished for all the sites originally within that objective. And now, we're working on it for our newer sites and to Seremban and also our facility still under construction in India. And then I wanted to highlight a couple of other examples of how we're driving industry standards here. So we've done a lot of work around packaging. We've already reduced substantially the quantities of various materials, plastic, paper, card, that are used in our packaging. But a key step that required regulatory change was in the EU. Today, still, you must include a paper, instructions for use, in multiple languages with every pack of [ glove ] sold. We believe the EU is about to approve that, that can be -- you can switch from paper to include a QR code as a means of delivering those instructions for use. And that will save across the industry, thousands of tonnes of paper. And then in Sri Lanka and across our facilities where we use biomass, we want to be sure that the fuel sources for biomass are sustainably certified. We've worked with the Sri Lankan authorities to come up with an appropriate certification standard. And now 90% of the fuel sourced in Sri Lanka meets that certification standard. And that's our objective across all our facilities that our biomass is using fuel that's sustainably certified. So moving now to a performance overview. And the key message of this slide is all the points that we set out at the beginning of the year that here are on the left, panned out largely as expected in this middle section. So let me go through those individually. We said that we target -- we're targeting sales growth in Industrial, and we achieved that around 2% growth in Industrial. But a very strong margin improvement in Industrial. And as a result, overall EBIT improved in Industrial by close to 50% on the prior comparative period. We said within Healthcare that goal was to restore volume growth to the Exam/Single-Use business, we achieved that. But we did indicate that there was one further lap of price normalization to go, these being price reductions that we've taken just over 12 months ago. But we're still -- our current pricing is still lapping lower than the year-ago pricing. We said $30 million was our estimate, and in fact, it was $27 million in the half. We indicated that we felt within our Surgical and Life Science businesses, we had at least another 6 months to go in destocking. I'll explain this phenomenon a little later. Indeed, that was what happened. If anything, the destocking was a little deeper than we had anticipated. In other words, we made our estimates of where customers wanted to go from and to in their inventory levels. And some customers went a little low, and other customers joined the destocking movement that we hadn't anticipated. But overall, this was the major influence behind Surgical and Life Science in the half. But the key is that we believe we're now through the biggest effect of destocking, and it will be much less into the second half. I'll talk about that more in a moment. We said that would be slowing our own production rates to ensure we were reducing our own in-house inventory levels as well. We said that would drive a strong cash outcome, it did. We achieved a $36 million reduction in inventory in the half. But we also said that would create some inefficiencies in operations and increase our cost of goods sold. That also happened with a $15 million negative EBIT impact, a temporary EBIT impact, in the half. Our goal was that inventory reduction would fully fund our Accelerated Productivity Investment Program. Indeed, it did. In fact, our total working capital reduction in the half of $60 million funded the cash cost of APIP of approximately $30 million and the $30 million share back -- share buyback that we executed in the half. So overall -- and overall, I said and I reiterated this at the AGM that we would see a greater-than-normal weighting of EPS delivery between first half and second half. The $0.41 that we delivered in the half was right around what I expected, and I'll talk to second half expectations in a moment. A few comments on our Accelerated Productivity Investment Program. So broadly, I'm very pleased with the progress here. The key change implemented in the half were 2 key changes. Firstly, a new organization structure that is lower cost but also, I believe, more effective in driving growth. That's in place, and early signs are very positive that it's having the desired results. And then major change in manufacturing in reducing direct and indirect labor, and I will also comment on that further in a moment. Overall, and I indicated that this was likely at the AGM, I'm pleased to be able to say that I've now increased my savings target for APIP to be $50 million in savings achieved by the FY '26. And we're on track or ahead of pace currently within the year. So -- but the overall expected pretax cash cost to deliver that will also increase slightly. And again, I indicated this at the AGM, a previous range of $70 million to $85 million and now just a little bit above the top end of the previous range, $85 million to $90 million. Turning to the financials here on the slide, and I will let Zubair run through them in more detail with you. So that very strong result in Industrial, more than offset by the weakness in Healthcare, but all of the reasons that we had flagged in advance. Clearly, sales through EBIT being lower than the prior year is not what we're targeting for the future as a company. And so our goal is to get back to growth, and I will talk to you about the progress that we're making and the goals that we're setting for the second half. But I would note the very strong cash flow performance here, and Zubair will provide more details on that also in a moment. So let me now turn to the product groupings within our GBUs and give you a bit more color to the top line result. So starting off with Industrial, overall, 2% growth. Within that, Mechanical, a little above; 2% to Chemical, a little below. Overall, I would assess the demand environment in industrial and manufacturing settings as positive, but a little softer than we had anticipated at the beginning of the half, still within our range of expectations, just slightly below the midpoint. And certainly, also some slowing at the end of the half and December a soft month and I think reported across the industry. So the key point though is as we begin this half, we think that was temporary. That was really a matter of some inventory management at the end of the half. And we're confident, as we look at our trends into the second half, that we're on track against our second-half expectations. So overall, with those comments, I would assess that 2% growth rates in Industrial, pretty much in line with market growth, as best I can estimate it. Within Mechanical, some good results from our growth strategies and emerging markets and new product innovation. I'll make a few further comments on that in a moment. Chemical also, very encouraged the growth of our high-end chemical protective clothing, which is the most differentiated part of our portfolio. But also very significant within Chemical are the steps we've taken to improve the margin of this business. Both business units improved their margin within Industrial, but Chemical by the most significant amount, and that's a key milestone in the journey forward for our Chemical business. On the Healthcare side, so Exam, I pretty much covered these comments already on Exam. But to say again, positive that we are achieving volume growth in Exam and particularly volume growth on our in-sourced [ sales ], which are more differentiated, and that differentiation is very much holding up in the market. And then I would remind you, and it remains the case today, that comparing pre-COVID to today, we have a higher-quality Exam/Single-Use business, higher margin, mix has improved. And we see strength, as I said earlier, continued strength in our more differentiated and in-house manufactured styles. So for Surgical and Life Science, similar effects on the business. A reminder, first of all, that Surgical, in the prior comparative period, was still a period in which customers were rebuilding inventory levels, in which customers were still concerned about supply chain reliability. And still, we're recovering from a long period of backorders. So you compare that prior period to this period, in which, over the last 12 months, customers realize they overshopped on inventory levels and have been bringing them down significantly. But what's important is if you look at the actual reports that distributors give to us of their sellout rates of our products into the market, those show that our sales to end users are still growing, even though that's not apparent in the demand on us in this time period. So as we go forward, as we expect destocking to diminish substantially, we should see that end-use demand translate through to Ansell demand, and that's the basis on which we are positive about our Healthcare trajectory, going forward. So similar trends for Life Science. Also, I believe we are close to the end of the destocking phase. And also, we see continued increase in demand by end users for our products. And coincidentally, both these businesses, comparing this half that is somewhat depressed by that destocking effect, still recorded a 4% growth rate, going back to F '19 on a compound annual growth rate basis. So top line, not looking great for those businesses. But look underneath the cover, separate the destocking effect, and actually both businesses are in good shape. And we'll see that emerge as we go forward. So let me comment a little further on our growth strategy and the key areas in which we're investing for the future. So as I mentioned, emerging markets continues to be a source of success for us, reached a new high, close to 26% of total Ansell sales. Here also, sales slightly down. And as you're very well aware, it's a more mixed picture in emerging markets, economically, right now. So China, a softer environment than we've seen in some time. But we've continued to see good results in many other locations. Latin America continuing to grow and put up good results, good results in India for both surgical gloves and for Life Science. Product innovation, particularly in Mechanical, we're building momentum here. So ultra-lightweight high-cut products, we have launched -- we're launching a family of new, very high cut, very flexible and comfortable and durable products. They're getting great reception from customers. We're seeing some of the fastest offtake in terms of demand for those products. And then the second product illustrated here is a product that's opening up a new category to us. We've combined our previous -- the Ringers technology that we acquired a few years ago, together with our HyFlex line of technology to come up with a new range of lightweight, supercomfortable impact-protection solutions that are allowing safety managers to specify these gloves in places where previously there wasn't an appropriate product. And this has the potential to open up a sizable new market opportunity for us. We're in discussions with customers about this right now. And as soon as we have further details, I'll be happy to update you on that. Manufacturing capacity for differentiated products has been a key source of growth investment as well. The main piece still to go is our Surgical investment in India. And then we don't see the need for as great a growth CapEx investment, going forward. And then finally, I wanted to comment about how we're taking all that good work on sustainability and translating it into a language which influences customer buying decisions. If you go to the Ansell website now, for many of our core product ranges, you can download a product data sheet, and it has a set of information about how the product is manufactured, how we have reduced packaging of the product. And increasingly, we're starting to also disclose information about the carbon cost of a product in comparison to an alternative. We're seeing great response from customers from this information. It's really helping them make informed decisions, and we think we're -- increasingly, we're seeing customers choose Ansell because of our sustainability differentiation. So I now wanted to step back a little bit and try to put where we are today in the context of the last 2 [ EBIT ] years. So the top strand to this chart here shows what you're familiar with, if you've been covering us during this time period, that we've been through this long period of market dislocation. Beginning with peak pandemic demand and then a realization at different phases by our customers and our end users that they had overestimated how much they were going to need of the safety products, personal protective equipment that we and others supply. And ever since then, we've been through a destocking phase and also, particularly in Exam, prices reverting from their pandemic peaks to more normal levels. So initially, Exam was destocking. But at that same time, Surgical and Life Science customers, as I said earlier, were actually still building their inventory levels. And then around 12 months ago, we saw the end, largely of the Exam/Single-Use, destocking. Second half of last year, our volumes in Exam/Single-Use were stable on the prior year. And 12 months ago was the last major adjustment in pricing, for Exam, but Surgical and Life Science still had their destocking wave to go. The important point is I now feel we're at the end of this lengthy period of market dislocation. I wouldn't say it's 100% complete, but I am confident that the second half will see much less in the form of headwinds from destocking, and that gives us the chance to grow our businesses again across all of our business units, and that's our key goal for the second half. But during this difficult period of market dislocation, we haven't been sitting on our hands. We've been actively working to position Ansell to be better placed to resume growth and drive our productivity strategy. And I want to highlight 3 main areas of focus. And then in my next slide, I'll give you some metrics that show the progress that we've been making. So firstly, our investment in manufacturing and sourcing. As I said earlier, we're now largely complete on our growth investment journey of several years, a substantial improvement in our in-house Exam capability through our investment in Thailand, and then our acquisition of the Careplus joint venture and ongoing the completion of our Surgical investment, the focus within manufacturing shifts from here to driving productivity. So a substantial change, as I'll comment in a moment, made in the last 6 months. And we now need to build on that. And we now need to ensure that [ even as ] we start growing again, we turn the more efficient running of our operations today into long-term productivity gains, and that's our objective. Secondly, around demand and supply planning. This has been a challenge for Ansell for many, many years. Our customers have always loved our products. They love the solutions that we bring to safety services and have frequently been frustrated at lack of reliability of our supply chain. We have transformed this root and branch, that means a new system. It means a new integrated business planning process, and it means new and very talented people, who have transformed our ability to deliver the service that our customers rightly expect in this area. We've seen big gains in service metrics. And what that now enables us to do, as you've just seen, is manage inventory far more effectively, while at the same time, improving service levels to customers. And that's our challenge, going forward, is to continue to optimize inventory while continuing to improve service. And then the third area was to look at our organization structure as a company and can ask the question, what is the optimal structure that best positions Ansell for growth? So we made our decisions on that at the end of the last fiscal year. We announced it in July as part of the APIP program. By the first of October, it was fully implemented. The first benefit that you see from this is lower cost in SG&A. But really, the more important benefit is that this is an organization that I believe is fit to grow. I see encouraging signs of that already. And now, of course, we need to demonstrate that to you in our future results trajectory. So the key goal going forward from here is to return to growth and to deliver the productivity gains that we set out to you. So here are the metrics that back up my statements here in terms of progress, and I could have had 2 or 3 pages of metrics, but I tried to pick just a few that illustrate our key areas of progress. So first, manufacturing and sourcing optimization. And key is that we can say to our customers that across our client chain, all elements of supply chain are fully in compliance with our standards. Today, now 91% of our finished goods suppliers meet either our A or B classification. We have an [ A,B,C,D ] classification, and that's up from 65% just a year ago. We've rebalanced our Exam/Single-Use sourcing. So now, around 50% of that volume is in-house manufactured, 50% outsourced. And the outsourced component is across a smaller number of suppliers that we feel we can really get in depth with in terms of their operations and fully understand the conditions and the quality of the product and the conditions in which the product is made, and that's of great importance to our customers. Of course, as you know, for all of our other businesses, we're already either 100% or the great majority in-sourced. So it's only the Exam/Single-Use business that has a component of -- a significant component of outsourcing. And then we made substantial progress in our ERP journey. So today, we have now completed 7 out of 10 manufacturing implementations on the new latest cloud-based ERP. We've barely talked about those with you before because they've gone smoothly. They've had minimal disruption to business operations, very successful. And it's the same core software that in 2 or 3 years' time, we will be rolling out to our commercial units as well as part of the IT component of APIP that I announced earlier. So our go-forward objectives in this space: Firstly, we want to rebalance some of our geographic sourcing to objectives to better manage supply chain risk; and secondly, also to take advantage of different cost rates in different countries. These are relatively small initiatives but still meaningful in terms of the benefit that they will bring and included within our APIP savings objectives. Rolling out that global ERP solution, including to our commercial objectives, is the key IT or systems go-forward objective and then ensuring that we leverage that technology across manufacturing and also continued automation of production lines to ensure that the reduction in employment today becomes a long-term productivity benefit for the company. Within demand and supply planning, you can see here that by preferred measure of ship to promise, meaning, every time we make a promise to a customer of a certain quantity of product to arrive by a certain date and what percentage of time do we achieve that. A couple of years ago, it was only 60% of the time, which is unacceptable in any business. And now, I'm pleased to say it's above 90%. There's still a ways to go before I would say we're truly best-in-class in our industry, but we see the difference that it makes. Previously, our channel partners would have often said they wanted to do more business with us, but they were concerned about supply chain reliability, concerned about being overly dependent on us. That conversation has changed around the world. And now we have a much more open conversation and a greater willingness by channel partners to put even more with their category in our hands. In the later -- lower down here, I also talk about collaborative forecasting with customers. We really had no set process for doing that previously. And now with [ 24 ] of our major customers, we have regular collaborative forecasting sessions. Often that extends to customers sharing their inventory levels with us, either in full detail, directionally. And we find through these processes that we're actually helping customers make better planning decisions as well as using that data for better forecasting within Ansell. And together, those improvements have allowed us to take $100 million out of inventory against the December figure of 12 months ago and do that while improving service. And that was something that we just weren't able to do before as a business. So great progress here. From here, the goal is, and we'll update you further on this, now we have a good chance to set what is that optimal future inventory level, consistent with the service goal that we want to achieve for our customers. And then a further significant change in this area, our major warehouse in the U.S. has been an issue with service levels for some time. We were wary of making that move, it's a high-risk move to make. We have now moved it to a much higher-quality facility, a custom-built facility with a leading 3PL provider. That was done in the half, again, with no disruption to customers. And we're very optimistic, positive about the improved service level we're now achieving from that facility. We also changed our Dubai warehouse, again, to a much higher-quality warehouse provider. Dubai is our key warehouse for supplying the Middle East but also most countries in Africa. We have some smaller warehouse moves to go under APIP. But now, we have a track record of doing these successfully as well. And then finally, that organization repositioned for growth. So you're aware that we have continued to invest in R&D. And even while we have reduced our resource levels in some functions, R&D is an area that we protected and continue to grow. I mentioned already the success of our emerging market structure. Again, also, that's a part of the business that we are continuing to invest in, and that continues to put up great results. We're focused on an omnichannel strategy. So I expect for the long time that the great majority of our sales will be through traditional distribution. But through e-commerce, we're opening up new markets, new customers who haven't had access to Ansell products before. There was a lot of work required to get that e-commerce channel really working effectively. We've achieved that now, and now we're achieving strong double-digit growth rates through e-commerce. And then finally, that new organization structure that I mentioned, that is in place as of October and where from here, we need it to drive organic sales growth. So, yes, key growth objectives are to see continued success of emerging markets, of our R&D investment and for this organization structure to prove its worth. So now let me give you some more specifics in terms of our progress on the Accelerated Productivity Investment Program. I won't go through every line here. Broadly, I would say, each component of the program is on track or ahead of its savings targets. I just will highlight one item for you to be aware of into next year. As part of our manufacturing rationalization, we've decided to exit a portion of our Chemical business, where we have no real market differentiation, where including manufacturing overheads, the business is EBIT neutral. And we've now decided to exit those product ranges. There will be a small EBIT benefit that's also included in the APIP program as we work out the overhead cost that is left behind once we have exited that product range. So that's a factor to take account for next year, but overall, an EBIT gain for the reasons that I've mentioned. So overall, H1 savings, [ $7 million ], but an exit rate higher than that, as I will talk about. We expect some incremental additional savings in the second half. So overall, we expect $20 million savings delivered in H2. Now the H1 cash cost of $33 million that was fully funded, as was our target by inventory reduction. Overall, for the year, we expect a cash cost of around $50 million this year. And then if I go to the next page, this shows you now an update to the total program. Previous -- my initial savings target was $45 million, and I've upped that now to $50 million. My initial spend estimate was $70 million to $85 million, and now it's $85 million to $90 million. So pleased with the update. I would note we do now have savings targeted for IT. However, we don't expect them to start benefiting materially until F '27 and so that outside of this time frame that I'm showing to you here. So that concludes my business update session. And now I'd like to hand over to Zubair to provide some more details on the financials.
Zubair Javeed: Thank you, Neil, and hello, everyone, and thanks for joining the call. And I'll begin, as usual, highlighting a few key items in the P&L summary. Now Neil has covered a lot of this, but beginning with the half-on-half revenue decline of just over $50 million. As you've heard already, the growth in Industrial was more than offset by lower Healthcare sales, and that led to an overall decline of 7.6% in constant currency terms. Now bear in mind, we still have that Exam/Single-Use pricing reset Neil just talked to, and that accounted for nearly 300 basis points of that decline on the top line. Foreign exchange rates also moved in our favor in the half, with a revenue tailwind of approximately $14 million. And you can see details of that in the appendix to the deck. We improved gross profit by 90 basis points to 31.4%, and that's driven by this significant improvement in Industrial margin which I'll touch on in a moment. But offsetting that, of course, was this decline in Healthcare margins. This was as expected, as Neil said, because of the earnings effect from that planned production slowdown and especially in Surgical. I just mentioned underlying foreign exchange was positive to the top line. However, we did record a [ $13 million ], that's [ $1-3 million ], unfavorable swing in our hedge book versus the first half of last year. And that translated to an overall earnings headwind of $7.5 million in the half. That should be temporary because of the nature of the hedging program we operate. Now moving down here to the SG&A line. We closed the half just over 1% on a constant currency basis. However, as I outlined in our last earnings call, this fiscal year, we've been rebuilding our incentive accruals. And if you normalize the prior period for those adjustments we've made to long-term incentive accruals, SG&A would, in fact, be marginally down year-on-year as we start to see savings from our productivity program or APIP, as we are calling it. We expect a more pronounced SG&A savings in the second half. That will continue to be masked, however, by these incentives rebuild. And as a reminder, in the last fiscal year, we had that really heavy unwind of the short-term incentive provisions in the second half. And so on a reported basis, expect to see significant growth in SG&A year-on-year. But that underlying basis of SG&A, we're targeting to trend back down to perhaps the 20% to 21% of sales range. Moving down the P&L, the significant-items line represents the cost of executing APIP. And since Neil's already just covered that, I'll move to the net interest line. And here, you see the costs have increased marginally, and that shouldn't be too much of a surprise, given the higher interest rate environment we're in. But we also had a slight uptick in some leasehold expense that impacts that line as well. Now I did anticipate a higher interest number on a full year basis, but the timing of those APIP savings being better than what we thought and also my gross debt assumptions have improved, as such, absent any fundamental change in our capital allocation, I think those interest costs will be closer to the $23 million mark versus the $29 million I guided coming into the fiscal year. And then wrapping up on this slide, you can see the underlying effective tax rate there, landed exactly within the reach we guided back in August. Now let me spend a couple of minutes as we move on to the business unit performance. Starting here with Industrial. As Neil mentioned, we grew the business just under 2% constant currency on the top line, and that was with growth in both Mechanical and Chemical. The highlight clearly was the result in EBIT performance, delivering that just under [ 44% ] constant currency growth and expanded margins by 320 basis points, and that's despite that net foreign exchange here. So although part of this improvement, I would caution, is because we're lapping a soft prior-period comparison, so where we have that timing of price increases having quite much with cost inflation, and we did have some productivity challenges at one of our chemical manufacturing plants. But nevertheless, we're now back to the sort of margin we expect from Industrial, and we're not going to give that up lightly. Turning to Healthcare, where now we see this revenue decline due to that continued customer destocking in Surgical and Life Sciences and the Exam/Single-Use price reductions I mentioned earlier. The EBIT decline, of course, was greater than the revenue decline because, as I previously outlined, we had to destock our own Surgical inventory. That drove down total production volume. And therefore, in turn, when you're spreading lower absorption of your manufacturing fixed costs, it's going to lead to higher cost of goods sold, and that's exactly what's happened here. Now, as we revert to normal production levels, coming into the second half and beyond, and particularly in Surgical, we expect to see overhead leverage and EBIT margins, therefore, ticking back up towards historical levels. The next slide, moving on to the cost summary. This is our usual cost summary slide. You can see here, raw material costs were generally stable on a sequential basis. But we are starting to see a slight upward trend in cost of natural rubber latex. Inflation and conversion costs has persisted, particularly in employee costs in our key manufacturing locations, but we are offsetting much of this through the automation Neil talked to and APIP, where we've reduced headcount significantly over the course of the half. And of course, that program is expected to deliver even more offset as we go into the second half. Now it is worth pointing out here as well because we said it a few times in previous calls, the outsourced product costs are reducing as a percentage of cost of goods sold as we continue to in-source more of our proprietary and differentiated styles, especially within that Exam/Single-Use portfolio. Moving to the cash flow slide. You'll recall, I said I was very bullish in terms of our ability to drive high cash conversion this fiscal year, and we committed to funding the cash cost of APIP, excluding those IT costs from working capital. Now I'm very pleased we've delivered our promise in the half and with an adjusted cash conversion of 158%. We also generated ample cash to fund our ongoing CapEx program, and that's included $15 million spent on the Surgical plant, you've heard about that we're building in India. And at the same time, we are accelerating our share buyback program, where we deployed $30 million, USD 30 million, over the course of the half. Turning to the balance sheet. Despite the last couple of years of that pandemic driven up and down, this balance sheet, I think, remains in a shape that preserves our optionality for all types of investments. Our net debt was stable through the half, and that's even after the APIP cost. A feature of the first-half result, clearly, was that improvement we're able to drive in working capital, yet maintaining customer service levels. And that took out over $35 million of inventory. And at the same time, we restored trade payables back towards normal levels as we position the business for increased production in the second half. Our collections also remains very, very strong, with debtor days remaining at near record lows. As I've said previously, the investments we've made in manufacturing capacity over the past few years, including that factory in India, of course, that's acted as a temporary earnings effect in terms of reducing inventory in the half through APIP. But as production normalizes, APIP savings materialized in our Healthcare GBU, shows that volume improvement we're expecting as it emerges from the current destocking period, we would, of course, target improving -- these improvement returns on the growth investments we've been making and expect return on capital employed to commensurately improve as well. Now wrapping up this financial section, I'll give a brief overview of our debt profile. And as you can see here, firstly, we have $100 million of senior notes maturing. And in the next few months, I think with our conservative funding profile, we'll have the optionality to either repay or refinance these. And then consistent with my comments from previous calls, we continue to operate the business with plenty of headroom in terms of liquidity. And that enables us to fund initiatives such as APIP or greenfield investments like the one in India. And I will end my section, again, thanking all my colleagues on the line listening in and those that will watch the recording. It was another dynamic half, but I believe the hard work in executing, especially against APIP, has set us up really well for the second half and the future beyond. And with that, I will turn back to Neil to comment on the outlook for the rest of fiscal '24.
Neil Salmon: Thank you, Zubair, thank you for your shout-out to our colleagues, very well said, indeed. So against those goals in the first half, we delivered every one of those that we set out to you at the beginning of the half. So what expectations are we setting for the second half? Well, let me update you on the overall external operating environment. And here, no substantial change, from my view, 6 months ago. Industrial market, we think, remains conducive to growth. Even though you've seen some of our major U.S. customers reporting a slower growth rate going forward, it's still a growing environment. And we see also pockets of outperformance in the market that we aim to leverage further into the second half, our outperformance versus the market. Key is that we are through the worst of H2 destocking. Of course, we've had challenges predicting when the destocking will end. Therefore, I'm hesitant a little bit until we've seen a whole half. But the early indications, as we begin the second half, is that, that statement is correct and that we have the environment that we need to get all our businesses back to growth. We're watching the Red Sea situation very closely. At this point in time, it's not having a major consequence, our contracts are protecting us on a cost point of view, and we're managing the lead time impact. If we do see costs increase, then we're ready to respond in the form of pricing. So what are our H2 focus areas? Well, return to growth across the entire business. This is the moment that we need to show you again, and we need to begin a long trajectory of Ansell growing at our target rates in our markets. We need to improve Healthcare EBIT margin. That will come naturally as sales mix improves and as we reduce that impact Zubair has described, of the lower production impact on COGS. We need to continue another delivery -- another half of strong cash flow delivery, with a further inventory reduction, probably a little smaller than the first half but still meaningful. We need to complete the next phase of our APIP program, very much on track or even slightly ahead at this point. And with that strong cash flow return from APIP and also with the -- a phasing down of our growth CapEx investment, that allows us to revisit or continue, I should say, to pursue that balanced capital allocation strategy. We remain convinced that the highest return on investments that we can make are in our business. And we look for opportunities -- future opportunities to do that while also, of course, ensuring that shareholders get continued good dividend and buyback as part of our portfolio, as conditions permit. So more specifically on the assumptions that I've employed in narrowing our guidance range, so continued sales growth in Industrial, return to sales growth in Healthcare as destocking [ fades ]. For the Accelerated Productivity program, we delivered around a $0.05 benefit in the half, so our $0.41 includes a $0.05 APIP benefit. But as I'll explain a little further, on the right chart, the actual run rate of savings that are already delivered, and if we had implemented those at the beginning of the half rather than progressively through the half, that would have been another $0.05 benefit of initiatives already done, already completed. So our $0.41 becomes $0.46 on that basis. But then there's another $0.03 additional savings to benefit the second half, and that's what takes me to the $0.13 APIP benefit that I anticipate for the second half. But after adjusting for the cost of APIP, we expect our statutory EPS to be in the range of $0.54 to $0.70. So together, on track through the first half, satisfied with our progress against the key drivers of our second-half objectives. And that allows me now to narrow our guidance range. It was previously $0.92 to $1.12. Our new range is $0.94 to $1.10. If I look at the first half, second half phasing, if I adjust that first half to include a full portion of savings delivered in the half, it's [ $0.46 ]. The [ $0.46 to $0.53 to $0.69 ] is the range that is very much in line with historical phasing patterns that we've seen EPS first half to second half and a number of supportive reasons that we've gone through in this presentation that should give you further confidence that this year, indeed, we will see a stronger H2 EPS. So that concludes our presentation today. Now we'd like to go to questions, and I'll hand over to the operator to facilitate that.
Operator: [Operator Instructions]. Your first question comes from Vanessa Thomson from Jefferies.
Vanessa Thomson: Neil and Zubair, I just wanted to ask, you said that the cash cost in FY '24 will now be $50 million. And I just wanted to ask, what that will be funded from? I know we funded it in the first half from inventory reduction, that will be less in the second half, I think. So if you could just talk me through that.
Neil Salmon: You want to take that, Zubair?
Zubair Javeed: Yes. So Vanessa, we spent -- as Neil said, there was cash cost of about $33 million in the first half. If the total program cost of $50 million to $55 million, we have another $20 million plus of entry to go in the second half. So we'd expect, again, to cover the total program cash costs with that working capital reduction.
Vanessa Thomson: Clear. And then I just wanted to ask, we think that you're thinking that destocking should end in the second half of '24. Does that mean that you think that we can then start comping '25 to FY '19? I note that some of the Southeast Asian manufacturers are still talking to an oversupply and waiting for prices to kind of start to increase a little. I just wondered about your thoughts on that.
Neil Salmon: Yes. So that's why we've continued to show our business tracking against F '19. And yes -- so let me talk a little bit to the segment you referred to, the Asian manufacturers. So that's very specifically an Exam/Single-Use comment. And yes, in the very large volume commodity end, where we have a very, very small participation, indeed, volumes are still low. And many of the Malaysian producers who are the ones whose results more public, have lost share to Chinese producers. And so that's also a second factor that's influencing their results. So I think it's, frankly, impressive that our business is actually achieving volume growth year-over-year and, as I commented earlier, a healthier margin mix and improved margin mix against pre-COVID time. So that's a big contrast to your reference of the Malaysian producers. And that just confirms, in our view, how different -- we've always said our business is different to that commodity, and results are bearing that out. So -- but for Surgical and Life Science, that's where we have still seen significant destocking in the half. And you see it reported by our customers, you see it reported by our peers. But all those reports also are aligned with my comments that the major steps down in destocking are complete. There may be still some customers who are not all the way to their target inventory levels in the second half, but the substantial portion is complete. So indeed, the demand on Ansell, we expect now to come up to the ongoing end-user demand level. And that's an improvement that you should see as our second half pans out, yes.
Operator: The next question is from Gretel Janu from E&P.
Gretel Janu: So I just want to touch on the Healthcare margins. So definitely, significantly weak, which you've explained, but just trying to work out the trajectory from here. So once destocking ends, should we expect to see a substantial step-up in margins straightaway? Or is -- and how do we think about medium-term margins there as well? Has the price impacts throughout COVID led to potentially structurally weaker margins in Healthcare, going forward?
Neil Salmon: Zubair, do you want to start with that?
Zubair Javeed: Yes. So I'll just begin with the numbers, Gretel, and then Neil can add some color on the strategic aspects. But -- so clearly 6.8% in the half of the Healthcare margin wasn't where we want to land. But the nuance in that, as Neil pointed to earlier, was this slowdown in production in the Surgical business units. So just piecing or passing that margin out, when you compare it against the prior-year Healthcare margin in the half of 12%, you get 6.8%, it moves to around about 7.4% in constant currency terms. So foreign exchange, clearly, was a drag. Then we had -- if you then bring back the incentive normalization, you would get to around about 7.8%. So 100 basis points, explained by foreign exchange and incentives. Then when you wrap all the surgical volume that was down in the half, plus this forced slowdown in production where we had loss of overhead leverage, that's accounting for nearly 400 basis points. So clearly, when you remove that, you're going to get back closer to that 12% -- 11%, 12% of the previous half, and that's where we would start as a platform, going into the future. And then we're going to obviously try and work through much more productivity, have a better focus on the mix and all sorts of other strategic imperatives or initiatives that we'll pull the lever on. So that's probably in the next 12, 24 months where we see the trajectory going. And I'm back to Neil for any strategic color on the business aspects as well.
Neil Salmon: Yes. So thank you, Zubair. So if I comment on the quality of the Healthcare business. So -- and I already made some comments on the quality Exam/Single-Use portfolio at this time. Life Science is -- actually got behind me is an image of someone [ dawned ] in Life Science, protective equipment. So -- and we've rechecked with market sources, does that remain? As we've always said, it is a very highly differentiated, very attractive market for the future for us. All indications are that it remains so, a high single-digit growth rate and where all the value that Ansell brings in product performance and supply chain reliability and differentiation and sustainability and our overall portfolio solution set is valued the highest by those very demanding customers in a clean-room space, whether in pharmaceutical manufacturing or other end markets where clean-room manufacturing is involved. So that remains attractive. It's high-margin business, higher growth rate than the average for our industry, and we continue to look for opportunities to build out our space. Within Surgical, so in Surgical, there are some cases where pricing is lower than prior to COVID. But there's also partly a mix effect because we see, as I mentioned, great growth opportunities within emerging markets. The margin in emerging markets is still attractive or a little bit -- but a little bit lower than mature-market margins. India is going to be a huge market for us. And with that India-based manufacturing location, key source of future growth. Latin America, we're only just starting in building out our Surgical position in Latin America. So some mix, unfavorable effects in Surgical, if you go back to the pre-COVID times. But for Exam/Single-Use and Life Science, I think I'm very confident in the margin and growth profile of those businesses, going forward. So hopefully, that gives you the color you were looking for there, Gretel.
Gretel Janu: Thanks, Neil, it does. And then I just want to touch on just the reduced production. So are you actually at a point now where you can increase production in terms of where you are destocking? Or do you still think you are a couple of months away from that? I'm just wanting to be clear on timing here.
Neil Salmon: Yes. No, we're starting to ramp back up production. Yes, yes.
Operator: This question is from Dan Hurren from MST Marquee.
Dan Hurren: Can you hear me?
Neil Salmon: Yes.
Dan Hurren: Look, just I wonder if you could split up the segment a little bit. I know you don't like to give too much detail, but in the subsegments within Healthcare, where you've already completed that destocking, could you talk to what you're seeing for underlying demand? I mean what is the system actually using?
Neil Salmon: Yes. So I think this is an important step that we've made. So it's not an easy task to gather what distributors report in terms of their sell-out rates. So let me, first of all, we -- really clear what we're talking about. Distributors report to us on a regular basis with varying levels of coverage across the world, the sales that they see of our products. And it's actually quite a lot of work to clean that data to align it with our internal systems and to use it consistently for business decision-making purposes. So we've done that. And now we can talk with more confidence about what the trends are that data is indicating to us. So -- and those -- that's the basis of the statements that I've made to you today that across the world, our distributors are reporting continued growth in their sales of our products to end customers. And it's -- I'm not going to give an exact percentage because it's not accurate enough really for me to quote a percentage to you, but it's in line with the sort of growth rates that we expect from those markets. So that's the source of the data. That's the work we've done to really build those data into our decision-making processes. And having made those steps forward, we now incorporate it more into our view, going forward. So does that fully answer your question there in terms of...
Dan Hurren: Just perhaps a follow-up. I mean what is -- when you said they're growing, what is the right base for us to think about? I mean going from...
Neil Salmon: This is a year-over-year [ guide ]. Yes, this is against the prior half so -- but really consistently through this time period. I'd say -- well, let me -- okay, let me add a few more comments. So Surgical has been a fairly steady -- the end-use demand of our products has been fairly steady over this time period and now and growing again in this most recent half. In Life Science, certainly, we saw a peak demand in COVID because Life Science customers ramped up for vaccine production and other activities, And Life Science customers themselves also bought significant levels of inventory. So not only did the channel build up inventory, but key end-use customers themselves, we -- anecdotally, we heard stories of end-use customers with a year's worth of product. So Life Science end-use demand did retrace for a while. And now we are showing that it is growing again in the most recent 6-month period. So that data would suggest our end-use customers were already themselves at the end of their destocking period. The channel still had some way to go, and that's what we expect to happen next year. But if you normalize for that vaccine peak and then decline, as I said earlier, the fundamentals of Life Science as a vertical remains attractive for long-term growth. And I would take the market for that vertical in the mid- to low, high single digits. So yes, above our average growth rate across our different markets.
Dan Hurren: That's very helpful. And just perhaps a similar question, acknowledging that it is a tough channel that you've seen above. We have heard a couple of comments from Industrial suppliers talking about destocking. Now, this has not been specifically about PPE, but do you think you've got full visibility down to that channel? Is that to be certain that we don't have any nasty surprises waiting in that?
Neil Salmon: It varies market to market. So we generally get pretty good visibility in North America. We get much less direct data sharing with customers in other markets. But then the North America market is much more consolidated. So when you have one of our very large distributors make it an inventory decision, it's material. And rest of the world, no distributor is as material in its inventory decisions. Collectively, yes, I would say -- and the destocking effect in Industrial are more normal course. It's going to be a future of our business forever. I'm afraid that there'll be times when distributors are increasing inventory levels and there are times when they're reducing inventory levels. We need to be better at forecasting that, and I've talked about the steps we've taken to do that. So generally, I would say, yes, for the most part, this is a bit of a sweeping statement, but most Industrial distributors ended the last 6-month period with lower inventory than they started it. But I haven't even adjusted for that in talking about the growth rates that we've reported for Mechanical and Chemical because I see that more normal course in that industry. Yes.
Operator: The next question is from Laura Sutcliffe from UBS.
Laura Sutcliffe: Maybe just a follow-up on some of the methodology you used to try and get better at forecasting some of the supply and demand dynamics. I think, at one point you were talking about maybe even working with other parties, either in -- competitors, I think, to try and do that in a collaborative way. Did you ever manage to achieve anything to that end? Or did you ultimately decide to pursue other routes?
Neil Salmon: So we're never with competitors, but Zubair has been the driver behind a lot of these initiatives. So Zubair, let me hand over that question of how we've improved forecasting to you.
Zubair Javeed: Yes. Thanks, Neil. So the first thing we've done was fix our internal processes. So as Neil said, earlier, we've made a root-and-branch fix of our business planning. So we start with our regional forecasts. And then, we effectively crunch those numbers, make decisions on them, bearing in mind, stocking, destocking phenomenon that's going on. But the key thing that's changed recently is our customer collaborative forecasting. A number of our key distributors now share and are willing to share that data with us. And we can then take that data. We call it point-of-sale data. We look at the point-of-sale data, make deductions about what inventory they're holding. And then in turn, we can look at our own planning internally and make that judgment call, as Neil said, where, for instance, in our Surgical business, now we can see the data that the end-use level is modestly growing. And therefore, we know we're coming out of this destocking phase. So it's really the collaboration with customers, not with competitors, that's a key change. And we've got at least 20 distributors or so in that program, and the teams constantly work with them analyzing this data. That's a big change for us.
Neil Salmon: Yes, and it's driving benefits across the system. I just would comment that, that process is typically short-range forecasting. So -- and we target whether -- we look at whether our expectation of orders on the warehouse 3 months out is accurate, how accurate it is and substantial improvement there. Of course, when we're talking to you, we're talking more mid-range forecasting. So it helps, but we have to -- there are many other factors that we have to look at as we look a year ahead in the discussions that we have with you and just to add a little bit more context to that. But yes, an important improvement and great credit to the teams who are driving it.
Laura Sutcliffe: Okay. And that was my second question then is just with all that in mind, how confident are you that the recovery you've mentioned today is indeed a second-half 2024 event and not, say, a first-half 2025 event?
Neil Salmon: So yes, good question. I don't have 100% visibility. That's clear. So I rely on the statements from the customers who've shared it with us, and they are supportive of it being improvements in the second half. And I rely on what I see. So we're just sort of 6 weeks into the second half. I rely on what I'm seeing in terms of order intake and sell-out trends through the first 6 weeks of the year. And both of those, at this point, are supportive to us seeing a change in the second half. But that's not the total picture, I'd have to admit. And there are some parts of our puzzle that I don't yet have full visibility. But I'm relying on those statements. And I believe, I hope that they will be indicative of the broader market. So I mean I think if what happens with regards to Red Sea disruption is clearly an unknown, whether -- it seems like economic forecasts have now moved firmly to the soft-landing camp. That's also behind our assumptions here. And that supports our trajectory for the second half. But if either of those change substantially, then yes, there's still time in the rest of this year for that to be material to our second half, but we're not seeing any effects from that at this point, just to round out more for you the assumptions that were relying on here.
Operator: [Operator Instructions]. Your next question is from Christine [ Trin ] from Macquarie Bank.
David Bailey: It's actually David. I just used Christine's dial-in. Just in terms of the guidance, the additional productivity benefits looks like it gives you about $0.04 to $0.07 of benefit and then also the low interest cost of that, too. Is there anything else that -- any changes in assumptions that we should be thinking about relative to the guidance, given FY '23? Just noting those two factors probably account for anywhere between $0.06 and $0.09 per share when you add them together.
Neil Salmon: Well, as I said, as I went through -- particularly in the first half, although it was within the -- the drivers were as called out initially, but that destocking effect in the first half was deeper than we had forecast. Some additional customers told us partway through the year that they were planning to take inventory another leg lower or new customers came forward and said "We've got some destocking to go." So that was one area which, although it was what we called out, the impact was deeper than anticipated in the first half. And then secondly, as I said, particularly towards the end of the half, we saw something of -- somewhat of a slowing -- still growth, but a slowing of growth in Industrial end markets. So those were some offsets in the first half. And we've made up for those with APIP savings that even in the first half, was slightly better than expected and interest costs as well. So that gives you more of the picture as to why, overall, we're maintaining our EPS guidance range for the year, but narrowing the range, as I commented earlier, yes.
Operator: There are no further questions at this time. I'll now hand back to Mr. Salmon for closing remarks.
Neil Salmon: Thank you for your interest, and thank you for the questions, and I look forward to updating you on our progress against our second-half goals in 6 months' time. Thank you for your time today.
Zubair Javeed: Thank you.
Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.