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Edited Transcript of AHY.AX earnings conference call or presentation 21-Feb-18 11:00pm GMT

Full Year 2017 Asaleo Care Ltd Earnings Call

Box Hill, Victoria Apr 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Asaleo Care Ltd earnings conference call or presentation Wednesday, February 21, 2018 at 11:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lyndal York

Asaleo Care Limited - Former CFO

* Peter Diplaris

Asaleo Care Limited - Former CEO, MD, President & Director

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Conference Call Participants

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* Craig John Woolford

Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team

* Larry Gandler

Crédit Suisse AG, Research Division - Director

* Sudipta Ghosh

BofA Merrill Lynch, Research Division - Analyst

* Tim Lawson

Macquarie Research - Division Director of Australian Insurance and Diversified Financial Market Research

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Presentation

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Operator [1]

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Good morning, and welcome to Asaleo Care's Full Year 2017 Results Announcement.

Today's briefing will be delivered by CEO, Peter Diplaris; and CFO, Lyndal York. Questions will be taken at the end of the presentation. Peter, please go ahead.

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Peter Diplaris, Asaleo Care Limited - Former CEO, MD, President & Director [2]

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Thank you. Good morning, ladies and gentlemen, and thank you for joining the Asaleo Care 2017 Full Year Results Presentation. Lyndal York, our company's CFO, and I will be presenting our results. And we'll take questions at the conclusion of the presentation.

Let me start with Slide 4 and the results highlights. Our company enjoyed strong earnings growth in Tissue. It had a challenging year in the Personal Care segment. Underlying EBITDA of $124.3 million was down 4.9% on last year. Tissue EBITDA grew 8.5%, whilst Personal Care EBITDA declined 17.7%. Underlying NPAT declined 8% to $59.4 million, while statutory NPAT declined 3% to $57.2 million. Underlying earnings per share declined 5.2% from $0.115 per share to $0.109 per share.

It was pleasing to deliver solid results in the Tissue segment despite significant cost imposts associated with adverse foreign exchange and energy.

Personal Care reduced earnings were primarily in the segments of Feminine and Baby Care. Both of the segments have difficult, but different challenges in the second half of the year. However, these were addressed, and we have already seen improvements in both. I will go into further detail later.

The share buyback was completed in May, and we've now reduced our net debt from $295.2 million in December 2016 to $279.1 million. Our leverage ratio now stands at 2.25x EBITDA.

We continue to execute our strategy with our Feminine and Baby Care innovations in market. Whilst we had some challenges with these launches, we still believe these product enhancements will resonate with our consumers and sales will improve in the future. We successfully completed our capital optimization project with the Springvale site sale and leaseback coupled with our inventory reduction initiative.

Our Professional Hygiene and Incontinence Healthcare segments have solid sales growth. And in line with prior years, total dividends of $0.10 per share were declared for 2017. The final dividend will be $0.06 per share and franked at 40%.

In relation to our 2018 outlook, our organization will be faced with significant cost impost in pulp and energy. To counter these, there are a number of mitigating initiatives planned, which I will cover later. We will provide an EBITDA range for our guidance, which takes into consideration both timing and factors, which may impact effective execution of the initiatives.

We expect the retail environment to remain highly competitive. However, our Feminine Care and Baby Care business should be more competitive compared to the second half last year. Our marketing initiatives and product improvement initiatives will continue in 2018.

Turning now to Slide 5. I would like to cover some key metric trends, starting with safety. We have seen an improvement in our safety statistics, both -- and both our lost time injury frequency and total injury frequency rates are dropping. Our focus is on injury prevention, and this is working. We are also measuring the level of severity of an injury, and this is also coming down.

In relation to dividends, we have paid an annual dividend of $0.10 per share in the past 3 years, which demonstrates our commitment to capital management. It is also worth noting that we also had an approximate $100 million share buyback period -- share buyback over that period. Our ROIC, as highlighted on the chart on the bottom right of the page, has decreased slightly from 11.9% in 2016 to 11.7% in 2017.

I would now like to cover our segment performance starting with Personal Care on Slide 6. It was a disappointing year for our Personal Care segment. Our revenue declined 7.5% and EBITDA reduced by 17.7%. The EBITDA reduction was due to a drop in sales in both Feminine Care and Baby as well as costs associated with additional expenditure in A&P of $3 million and FX on raw materials and finished goods of $1.4 million.

Feminine Care revenue declined, as an increasingly price competitive environment made it difficult for our Libra brand to compete on price in key retailers. Our brand was in Every Day Pricing for a large part of the year, approximately 10 months, with key retailers. And our competitors continuously sold at prices well below our everyday price plus increasing our price premiums.

In November, we exited Every Day Pricing on key segments with key retailers. So we now have the flexibility to compete on price when necessary. Since exiting Every Day Pricing with key retailers, we have achieved a share point increases for our brand. The bar chart to the bottom left of this slide highlights that both volume and value share have increased post-exiting Every Day Pricing.

We launched the Roll. Press. Go innovation. And despite the positive consumer sentiment on the product attribute, our uncompetitive price made it difficult to get the sort of uptake we had aimed for. We still see this as an important differentiation for our brand going forward.

Baby Care had a difficult second half. Firstly, sales were impacted by the loss of private label business, where sales were down 44% on last year. It is worth noting that margins on private label are less than those on branded. Our branded sales were also down in the second half as a result of quality issues associated with upgraded nappy machine. This has been rectified, and we are now producing a higher quality nappy.

Incontinence Care continues to perform strongly, with the Healthcare channel to highlight.

Moving now to Slide 7. Our pleasing results of Tissue, which was achieved in a very challenging environment. EBITDA grew 8.5% despite adverse FX and energy costs combined with a very competitive retail marketplace in Australia. Our Professional Hygiene or business-to-business segment had solid sales growth and mix upsides against the prior year, offsetting declines in Consumer Tissue and Pacific Islands. Lower production cost of $9 million versus prior year helped offset adverse energy of $5 million.

Movements in pulp and raw material prices were largely offset by FX movements. Logistics savings were also achieved as well as some small savings in sales manufacturing -- sales marketing and administration expenses. Our business-to-business sales growth was in both Australia and New Zealand, and we are benefiting from new contract wins and a better mix.

Consumer Tissue sales were impacted by the losses of $4 million private label contract and reduced promotional activity on our branded sales in key categories compared to the previous year.

Before I move on to our guidance for the year, I want to spend some time covering 2 charts that highlight the significant cost imposts that our company will face in 2018, as shown in Slide 8. Firstly, the chart on the left shows the pulp prices denominated in U.S. dollars for both BEK and NBSK, which are the 2 pulp grades that are primarily used in our Tissue products. Generally speaking, pulp prices from July 2017 to June 2018 are reflected in our product cost of goods sold for the full year 2018.

Looking at both the actual prices in hardline and the forecast prices in the dotted line for 2018, we forecast market pulp pricing will increase approximately 35% for BEK and 25% for NBSK. Please note, these are our estimates and may change specifically the future forecast. There will also be some currency upsides that will offset some of these costs. There will be energy cost imposts in 2018, and the chart on the right highlights the extent to which the 2018 electricity futures price in Victoria has increased compared to 2017. On average, they are 28% higher.

Now turning to Slide 9 and summary of our outlook. Our company will face significant cost imposts in 2018, specifically with pulp and energy. We have a number of initiatives planned to mitigate some of these cost increases. Timing and effective execution of our initiatives is crucial, and our guidance range reflects our view on potential upsides and downside.

Our guidance for our 2018 EBITDA to be in the range of between $113 million and $119 million. Our capital management principles are: we intend to maintain our current dividend amount subject to achieving our EBITDA guidance. We will also continue to deploy capital into higher returning investments that exceed our WACC hurdles.

The guidance range reflects management's assessment of potential upsides and downsides due to: timing of price increases, restructuring programs and other cost out initiatives; secondly, the effectiveness and timing impact of market growth initiatives.

I will now turn to Slide 10 in relation to -- and provide a strategy update. Our strategy remains unchanged. It is important that we execute effectively. We invested in a new nappy product last year. However, we had a misstep with quality. This is now rectified, as I said earlier. We will now start to reignite our marketing investment. Sorbent quality product -- Sorbent product quality will be enhanced, and we will continue to sell innovative proprietary systems for our Tork Tissue business. We will continue to build on our B2B business and expand our retail off to where possible, both with existing customers and online. Treasures, TENA and Libra had online offers and these are gaining traction. And cost out program continues. There will be a company-wide restructure planned to occur throughout 2018, specifically in the production area.

I will now hand over to Lyndal York.

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Lyndal York, Asaleo Care Limited - Former CFO [3]

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Thanks, Peter, and good morning, ladies and gentlemen. I'll spend some time going through more of the detail on the financial performance for the full year.

Starting on Slide 12. Firstly, revenue. There was a decline in revenue, driven by the challenges in the Feminine and Baby Care segment and the loss of private label Tissue sales. Partially offsetting this was solid sales growth in our Professional Hygiene and Incontinence segment. Peter provided the detail earlier, so I won't cover this again.

Cost of goods sold margin remained in line with last year. This was important, as the mix of our sales was more heavily weighted to the Tissue segment this year, which generally has lower margins than Personal Care. We were able to offset the unfavorable energy cost with manufacturing cost improvements in our operation, including reduced labor cost. Movement in pulp and raw material product pricing were largely offset by foreign exchange movement.

Distribution costs were down from last year due to reduced transport rates, lower volume and more efficient palette utilization. Sales, marketing and administrative costs were down due to savings through lower headcount and tight control over our discretionary spend. This was offset by increased advertising and promotional expenditure of around $3 million related to the Feminine Care and Baby Care new product initiatives.

Our EBITDA of $124.3 million was down 4.9% compared to the prior year. The net financing costs increased this year due to higher average gross debt level, $334 million compared to $322 million last year. The key drivers for the higher average gross debt level was the share buyback, through which we returned $99.5 million back to shareholders over the period from October 2015 to May 2017.

The effective interest rate was up slightly at 3.5% compared to 3.4% last year. Underlying NPAT of $59.4 million is down 8% on prior year. Statutory NPAT of $57.2 million is $2.2 million lower than the underlying result after adjusting for nonrecurring items. The nonrecurring items relate to costs associated with the finished goods reduction initiative, abnormal storage costs, restructuring costs and abnormal manufacturing costs, offset by the gain recognized on the sale of the Springvale property.

A reconciliation between underlying and statutory NPAT is set out on Slide 24 in the appendix.

Turning to cash flow on Slide 13. We have strong operating cash flow generation this year of $99.4 million. The positive working capital movement of $6.5 million is primarily made up of an improved trade and other payable position of $9 million, offset slightly by a net inventory increase of $2.8 million.

As was discussed in the half year, the initiatives to reduce finished good inventory were successfully completed in the first half. These initiatives have been offset by an increase in the level of imported finished goods associated with our growth in the Professional Hygiene and Incontinence Healthcare categories and higher pulp and electricity costs for manufactured goods.

At the end of the year, we also built up levels of inventory ahead of sales activity and manufacturing maintenance planned in early 2018. The trade and other payable balances were higher due to increased purchases of raw materials and imported finished goods, along with timing of payments to suppliers and higher operational and utility accrual.

We invested $20.9 million in maintenance CapEx and $10.5 million in growth CapEx during the year.

Now to Slide 14. The company delivered a solid free cash flow result of $85.8 million or $75.3 million after growth CapEx. As illustrated on the left-hand side of the slide, we've shown the breakdown of free cash flow, which sum to $85.8 million, and includes proceeds from the sale of the Springvale property.

We then highlight how the free cash is applied to capital allocation items, consistent with our capital management principles. The capital management principles are set out in Slide 23 in the appendix.

The $85.8 million free cash has been allocated as follows. $10.5 million was spent on growth CapEx, same CapEx, which has been identified as meeting or exceeding our internal rate of return criteria. $54.5 million was paid in dividend and $4.5 million being the finalization of the company's share buyback program. The remaining $16 million was used to reduce the net debt.

Moving to Slide 15. Maintenance CapEx of $20.9 million was largely spent on site improvements at the Box Hill, Kawerau plant, together with investment in digital platforms and increased investment in dispensers aligned to the growth in our Professional Hygiene proprietary product sales.

The growth CapEx of $10.5 million was primarily for the relocation and upgrade of the nappy machine in New Zealand, the Box Hill paper machine upgrade and pre-engineering work associated with a proposed Professional Hygiene investment.

Depreciation has remained fairly consistent over the past few years. It is expected to increase to approximately $30 million next year, with the full year impact of the nappy machine relocation and investment in dispensers aligned to growth in the Professional Hygiene proprietary product sales.

Slide 16 shows the company's net debt position with $279.1 million as at 31st of December 2017. Net debt-to-EBITDA leverage is slightly down to 2.25x as at 31st of December 2017. The company has stayed at a comfortable leverage level even after paying out $99.5 million on the share buyback program. We are likely to have a higher leverage ratio through most of 2018, reflecting the outlook Peter has discussed earlier.

The company has total facilities of $350 million, with $308.5 million being drawn as at 31st of December 2017. The weighted average maturity of our debt is 2.6 years, following the refinancing in December 2016 of facilities A and C. Facility B is scheduled to mature in June 2019.

Moving to Slide 17. From a shareholder returns perspective, underlying earnings per share were down 5.2% on prior year, reflecting the decline in profit. On a statutory basis, earnings per share was unchanged at $0.105 (sic) [$0.109] per share. The underlying return on invested capital and return on equity were also down on last year. The company focused on strictly managing its balance sheet and capital in the light of the declining profit, and this is reflected in the return on invested capital only dropping by 20 basis points.

Over to Slide 18. The company has declared a final dividend of $0.06 per share, which will be 40% franked. We have maintained the full year dividend at $0.10 per share, which is in line with our capital management principles of returning excess cash to shareholders. As discussed at the half year, the share buyback program was completed in May 2017. Through this program, 10% or approximately 60.3 million company shares were bought back at an average price of $1.65 per share between October 2015 and May 2017. A total of $99.5 million was returned to shareholders over this period.

I will now hand back to Peter.

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Peter Diplaris, Asaleo Care Limited - Former CEO, MD, President & Director [4]

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Thank you, Lyndal. To summarize today's presentation, our 2017 full year results are in line with the revised guidance given in December.

The Tissue result showed strong profit growth, with Personal Care declining. The key segments impacting performance in Personal Care were Feminine and Baby Care. Our full year dividend of $0.10 per share was paid with a final dividend of $0.06 per share 40% franked. We also completed the share buyback program. We have cost pressures in pulp and energy in 2018, and we have initiated the mitigating action.

Our EBITDA range of $113 million to $119 million for the 2018 takes into consideration our estimate of cost imposts and the timing and likelihood of success of our mitigating action. We intend to maintain the current dividend amount in 2018, subject to achieving EBITDA guidance.

Before we go to the Q&A, I'd like to close off by reiterating what was in our media release this morning. That is, I will be stepping down as the CEO of Asaleo Care after 7 years with the company and working alongside an exceptional group of employees. Subsequent to my departure on May 22, Sid Takla, our Chief Operating Officer, will take on the position of Interim CEO. Sid has over 20 years industry experience and has held a number of senior finance and operational roles during his time with Asaleo Care. I will continue to work very closely with Sid over the next 3 months.

Thank you for your time, and we will now take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Craig Woolford of Citigroup.

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Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [2]

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First question is just on the Feminine hygiene market. I'm probably really asking around guidance and what your expectation is of the environment -- the competitive environment in Feminine hygiene. Your chart shows an encouraging sign around market shares gains, albeit value share gains of more than volume share, which is the expected. What sort of competitive response is really embedded in the guidance in Feminine hygiene?

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Peter Diplaris, Asaleo Care Limited - Former CEO, MD, President & Director [3]

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Our assumption, Craig, has been that the competitive environment would continue. But the difference now is that we can respond as opposed to things sort of left out there at a high price for -- it's a 3-odd months, where it was very hard to compete. So our view has been that there will continue to be a very competitive environment, in line with what happened last year. I think it's the best way to approach it.

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Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [4]

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Okay. The other question -- you talked about cost savings for FY '18. Is this about -- and within production, is this about extra automation? Is there any clarity you can provide about where -- what was the source of cost savings?

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Peter Diplaris, Asaleo Care Limited - Former CEO, MD, President & Director [5]

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Yes, most of the savings will be in the production area. We've just found a lot more efficient ways of doing things on our existing equipment. So we will require less labor. And we're looking at something in the order of between 30 to 40 net employee reduction. So there is going to be some savings associated with just being more efficient.

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Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [6]

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Okay. Is there any CapEx associated with that?

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Peter Diplaris, Asaleo Care Limited - Former CEO, MD, President & Director [7]

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No, there's no CapEx associated with it. It's just basically better ways of doing things and becoming better at operating the machines over time.

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Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [8]

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Okay. And my other question was just the small one around, it looks like there's an extra $2.2 million in nonrecurring items for the second half. What does that relate to?

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Lyndal York, Asaleo Care Limited - Former CFO [9]

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Yes. So the detail of that is in the last page. So there was a few more restructuring costs as well as some abnormal manufacturing costs that we spoke about related to Box Hill, though predominantly the same things in the second half.

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Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [10]

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What does that actually mean, abnormal manufacturing costs? Like why is that...

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Lyndal York, Asaleo Care Limited - Former CFO [11]

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It's where...

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Peter Diplaris, Asaleo Care Limited - Former CEO, MD, President & Director [12]

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It's because we've had to take some machines down for a period of time to initiate some major CapEx, which is abnormal. So therefore, we basically had to -- it was not what you would call a typical production running of the machine. So we had to take some time off on the machines. And we basically put that below the line to implement some major CapEx. We put in -- our paper machines had a heavy investment last year. And part of that was the machines had to be down for a period of time.

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Craig John Woolford, Citigroup Inc, Research Division - MD and Head of Australian Consumer Research Team [13]

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Right. Like how often -- what was the heavy investment on the paper machine tool, like what was the...

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Peter Diplaris, Asaleo Care Limited - Former CEO, MD, President & Director [14]

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It was for a -- it was part of -- it was hoods replacement for our paper machine and to replace the hoods, that's something you do every probably 20 years. It's not something you do every year. And it was a major item. And we had to do it because it's such a big job.

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Operator [15]

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The next question comes from the line of Sudipta Ghosh of Bank of America Merrill Lynch.

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Sudipta Ghosh, BofA Merrill Lynch, Research Division - Analyst [16]

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My first question is around the earnings drops that we are seeing year-on-year. There seems to be about $8 million to $10 million year-on-year. Over the last couple of years, that has decreased. I understand that there are various moving parts, but just wanted to understand how much of that is actually due to cost imposts that you're struggling to pass on to consumers and how much is that due to lost market share? And effectively, how do you stabilize the 2 going forward?

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Peter Diplaris, Asaleo Care Limited - Former CEO, MD, President & Director [17]

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Look, there's 2 components, you're right. If you look at our Tissue business, we did have a good result in 2017 to 2018, the imposts of pulp being the magnitude of the increases in pulp and energy, whilst we've got mitigating actions such as price and cost out, et cetera. In terms of timing, we wouldn't have been able to recoup all of that within 1 year, because what happens, as you announce a price increase in November, and it takes 3 months to implement after you give notification to somebody. But subsequent to November, you had price -- costs going up again on pulp. So therefore, recouping at -- over a whole year was going to be very, very difficult. So from a Tissue perspective, next -- this year, a large proportion of the impost will be the increase in pulp and energy, offset obviously by FX and -- offset by FX as well as offset by some of the mitigating actions we spoke about. In terms of Personal Care, we're expecting -- our view is we're in a more competitive position than we were in the second half last year. So we do have a level of ambition that is higher, obviously, this year than it was last year. The pricing uncompetitiveness really did hurt us for 3 months last year, 3 to 4 months, as you're well aware, and you're seeing the Personal Care result. And having that -- the commissioning problems with the new nappy also hurt us. So we're actually feeling a lot more positive about Personal Care than we had in the second half of last year. So really this year, Tissue will be under some cost pressures, whereas Personal Care, we're confident that we're going to have better times ahead. And we also -- look, our earnings also in Personal Care, we invested over $3 million additional in A&P compared to previous year. So whilst we were trying to support brands and innovation and relaunch, there was some pricing activity in the marketplace. And we still believe that long term, you've got to keep investing in innovation -- investing in your marketing, but we also understand that you can't be uncompetitive on price. So going to this year, we don't have the uncompetitive position we had last year. Hope that answers your question.

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Sudipta Ghosh, BofA Merrill Lynch, Research Division - Analyst [18]

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Yes, it does. And my second question is just around the time line, so the softer earnings that you guided during the outlook statement, is it mainly going to hit in the first half? Is it the effect of the drop that we saw in the second half of last year being annualized in the first half? And then the second half of '18 is more of a stabilization, or is it going to be across? So just if you could provide a sense around the timing of the earnings hit, that would be great.

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Lyndal York, Asaleo Care Limited - Former CFO [19]

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So it's going to be fairly evenly spread across the 2 halves for a variety of reasons. One, we had a much stronger first half last year, as you mentioned, with a softer second half being the comparable. But as you can see in the pulp chart that we've shown in the presentation, the big hit of pulp will be later towards the back end of the year. So there will be significant cost imposts towards sort of Q2, 3 and 4 with that. So we expect it to be fairly evenly weighted.

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Operator [20]

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The next question comes from the line of Larry Gandler from Crédit Suisse.

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Larry Gandler, Crédit Suisse AG, Research Division - Director [21]

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Just my question is, in calendar '17, you had a couple of important revenue initiatives. They didn't quite work as planned. But I'm just wondering for '18, it might be more of a consolidation year, I don't know. But are you planning significant revenue initiatives like we saw in '17?

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Peter Diplaris, Asaleo Care Limited - Former CEO, MD, President & Director [22]

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Well, I think with '17, Larry, it's important to sort of recapture what we had before some of the competitive pressures that we felt in Feminine. So therefore, in 2018 in Feminine, we have to get behind our marketing programs. So we'll continue to support our brands. But we'll also be careful to make sure that we don't become uncompetitive on price. So we felt that our strategy was right, Larry, but our premium to our nearest competitor doubled in price. So that made it very, very difficult. And I think if somebody knows that you can't react, it's very hard. It's very easy for them to go hard. So we will continue to invest in marketing, and we'll also continue to be competitive on price. In relation to nappies in Personal Care, I think we're in a much, much better position than we have been for quite some time because the nappy that we're making now is much superior quality, so what we've ever had. And we had to make some adjustments. And the feedback we're getting -- the early feedback we're getting has been quite positive. And the minute we have that new product or new improved product adding in the market completely, we will certainly get behind our nappy product again. So we're going to continue to support our initiatives, Larry. We think it's important. We can't -- if we're going to be in consumer goods and branded consumer goods, getting behind our brands is going to be critical. If you have a bad 6 months or 4 or 6 months, you've got to -- we shouldn't become too gun shy. We better look at this from a long-term perspective.

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Larry Gandler, Crédit Suisse AG, Research Division - Director [23]

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So just to be clear, so you definitely have to continue to support the existing initiatives. In '17, you repackaged Tissue, launched nappy, launched Fem Care. From what you're saying is we're not going to see that sort of new product activity in '18?

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Peter Diplaris, Asaleo Care Limited - Former CEO, MD, President & Director [24]

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No. No, you won't. There's not the level. I think last year, we had a heavy investment, we had new packaging, we had new TV, new digital platforms, all those things are being done. So what I'm saying is, this year, we'll have a continuation. But we won't be doing all the, if you like, the upfront production things that we did in '17.

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Larry Gandler, Crédit Suisse AG, Research Division - Director [25]

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Okay. And this question may have been asked.

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Peter Diplaris, Asaleo Care Limited - Former CEO, MD, President & Director [26]

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TV production -- I'm sorry, we got digital production.

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Larry Gandler, Crédit Suisse AG, Research Division - Director [27]

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Okay, great. And with the guidance, are you anticipating anymore costs that you guys described is one-off in there? Or do you expect statutory and normalized to be the same?

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Lyndal York, Asaleo Care Limited - Former CFO [28]

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We will have some nonrecurring items related to the restructure, as we've spoken about, those 30 to 40 heads that we'll be taking out of production. So the total cost will be around about $10 million, of which about $6 million of that will be cash out in FY '18.

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Peter Diplaris, Asaleo Care Limited - Former CEO, MD, President & Director [29]

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The cash component...

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Lyndal York, Asaleo Care Limited - Former CFO [30]

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The cash component, yes.

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Larry Gandler, Crédit Suisse AG, Research Division - Director [31]

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And is that the extent of those one-offs, or are there others?

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Lyndal York, Asaleo Care Limited - Former CFO [32]

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That's what we have planned.

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Operator [33]

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The next question comes from the line of Tim Lawson of Macquarie.

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Tim Lawson, Macquarie Research - Division Director of Australian Insurance and Diversified Financial Market Research [34]

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My question is just around the inventory levels and cash side, particularly in the second half. Can you just talk about the movement there? I suspect it's around the inventory cost changes. But just to say, what's driving that movement?

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Lyndal York, Asaleo Care Limited - Former CFO [35]

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There is a few items to that, Tim. So the first one is certainly the cost, the pulp and electricity costs starting to work their way into our inventory. As you know, there's around about a 6-month lag from when we buy pulp to when it hit that coast, but that will be reflected in our raw materials as well as in part of our finished goods than with the electricity. We also have a higher proportion of imported products where we need longer lead times to get those products in-house and on our shore and ensure that we have sufficient safety stock of those. With the increased growth in our B2B business, that necessitated holding high level in terms of volumes of the imported product. We also then have the planned activity, as you can see, that we're doing the promotions. Now we've been off AVP. We have planned activities in the beginning of 2018 that we needed to make sure that we've got sufficient stock to be able to support those planned activities as well as the usual maintenance shuts that we usually have in the beginning of the year.

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Operator [36]

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There are no further questions at this time. Please continue.

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Peter Diplaris, Asaleo Care Limited - Former CEO, MD, President & Director [37]

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Thank you. I think that's a close, and thank you for joining us today. Thank you.

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Operator [38]

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Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.