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Edited Transcript of ANN.AX earnings conference call or presentation 19-Aug-18 11:30pm GMT

Full Year 2018 Ansell Ltd Earnings Call

Sydney, NSW Sep 5, 2018 (Thomson StreetEvents) -- Edited Transcript of Ansell Ltd earnings conference call or presentation Sunday, August 19, 2018 at 11:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Magnus R. Nicolin

Ansell Limited - MD, CEO & Executive Director

* Neil I. Salmon

Ansell Limited - CFO

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Conference Call Participants

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* Andrew Goodsall

MST Marquee - Healthcare analyst

* Craig Wong-Pan

Deutsche Bank AG, Research Division - Research Analyst

* David A. Low

JP Morgan Chase & Co, Research Division - Research Analyst

* David Bailey

Macquarie Research - Research Analyst

* Gretel Janu

Crédit Suisse AG, Research Division - Research Analyst

* John Deakin-Bell

Citigroup Inc, Research Division - Director & Head of Healthcare in Australia and New Zealand

* Sean M. Laaman

Morgan Stanley, Research Division - Australian Healthcare Analyst

* Thomas Godfrey

UBS Investment Bank, Research Division - Analyst

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Presentation

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [1]

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So good morning, good afternoon, wherever you are. We wanted to get started, and we're delighted to be back in Sydney and to get some cool temperature after a very hot summer in the northern hemisphere. So -- but it's been a good year, and we're delighted to be here to talk about the year that we've had.

I want to start to thank all my 12,000 colleagues at Ansell, a lot of hard work, as the company is reshaping itself into a focused safety company, and it's required heavy lifting on many, many areas. So in terms of our content, very familiar to you. In terms of our starting point, we are a safety company. We are not a glove company, we're not a suit company, we're not a surgical glove company, we are a safety company. And it's anchored in our own behaviors in our own plants, where we have 10,000-or-so employees. And on the left here, we see the very, very capable practices that we have in our plants that essentially allow us to have the lowest injury rates in the industry, and in lots of different industries. And that also gives us the tools to actually help our customers achieve the same safe practices, and that's what we do with Guardian. So this is underpinning everything we do in the company and how we manage our organization, our salespeople and our customers.

In terms of our statutory results, this just lays out totally reported -- total reported, including the endpoint of Sexual Wellness and of course, the gain related to that. And this is the last page that we'll actually include in reference to Sexual Wellness, specifically, as we talk to the P&L. And going forward, we will primarily address the continuing business of Ansell.

Here are a couple of quick stats on the year that passed, and as you can see, some pretty strong results across the board, top line, 8% reported, 5% constant currency. Adjusted EPS, 26%, up 18%, constant currency. ROCE improving 60 basis points. And EBIT, pretty solid, and we'll talk about some of the elements in that. Dividend up for the 15th year in the row. We have no net debts, so we have very strong position to act from. And of course, profit attributable up a high percentage as well. Cash flow, solid, but of course, down, because we divested Sexual Wellness and because we're paying for the some of the transformation activities and share buybacks continuing and having accomplished close to $100 million so far.

So all in all, some pretty solid numbers across the board.

What I will do now is talk to how that is driving through, specifically. And as you will see here in our summary of the P&L, we, in all cases, have both a reported EBIT and an adjusted EBIT. And the reason why we adjust, of course, is because there's so many different changes going on when you're divesting a big part of the company and running a major transformation program to adjust or adapt the remaining company to life as a focused safety company. So that's why we're highlighting the adjusted EBIT, adjusted PA and adjusted EPS, and we will go into the necessary detail to explain those adjustments. And they are both up and down, but net-net constitute the closest thing we can come to real underlying results.

And bottom line here, as I've talked to on the previous slide, we have some pretty good numbers. And I'm quite pleased with what was accomplished and especially the fact that on the EPS site, we were able to overcome the loss of Sexual Wellness and deliver similar or higher EPS even without deploying the cash, which we, of course, will at some point, but we are going to be very thoughtful about that.

So those being the results, I wanted to remind you of what we said 9 months ago at our Capital Markets Day. This is our shareholder-value model. We laid it out and talked to it in some detail at that point in time. And this is the model we are living and how we execute strategy across the company. And it starts by being certain things: By being differentiated; by being focused, hence the sharper focus program; by being efficient, hence reducing our central expenses; and by being agile, hence some organizational changes and take decisions faster, and so forth. And doing all that, we will drive share gain, we will drive innovation, manufacturing excellence and supply chain excellence. And that in turn will deliver our targets related to top line growth of 3% to 5% and EBIT growth, 5% to 10% and -- sorry, EPS growth, and ROCE improving steadily over time based on strong cash flow. And all of that allows us to reinvest in the business, and you get into a virtuous cycle of value creation. So that is our very simple model.

And given the amount of cash and flexibility we have on our balance sheet, we thought it would be a good idea to this time, and probably this time only, talk about the flexibility that we have. And we essentially have 4 different ways we can spend our cash, as we talked about on the previous page as well. It is related to investing in ourselves, investing in our plants and initiatives across the organization, which tends to be the most profitable way to invest cash. We have dividends, and we have continued to invest in higher and higher dividends. We have M&A opportunities, and we do like the M&A dimension. And that's you can see on this chart, we have a fairly significant capacity to invest in M&A, $800 million to $1.4 billion, essentially, depending on the profitability characteristics of the acquired businesses. But we are going to be cautious. We are not going to be spending money just because we have it. We will be true to our disciplined approach on making sure we get a strong return on the investments, as we have on pretty much all of the acquisitions that we have made to date. And then finally, buybacks is going to be opportunistic. We have an approved buyback program, and we're a little bit more than 1/3 of the way through that, and we intend to continue to exercise that program going forward.

And so what have we actually done on these areas of activity? Well, first of all, we have continued to invest in ourselves through building capacity, primarily in Vietnam right now, but also some significant investments in other key plants. We have invested in a transformation program, and all of this is very much aligned with the plan that we announced a year ago. We have continue to evaluate a number of acquisition opportunities, and we have, frankly, been very disciplined on those and have backed out at late stages of some very seemingly attractive opportunities when we -- when they did not meet our due diligence requirements. And we are not going to compromise on what we want in terms of return and strategic fit. And therefore, we will back out even if we incur expenses related to it. When it comes to dividends, we continue to use that. And given the strength of our balance sheet, you will have seen that we have taken up our dividend payout ratio a little bit, and we feel good about that.

And finally, on share buybacks, that will continue, and you will, I think, see more of that going forward.

So coming back to the transformation program. It's a big commitment to sharpen the focus of the company and adapt the suit to a slightly smaller organization, and we've been quite diligent on executing on that. It's got a number of components. The first one is related to SG&A, and that's essentially completed. We're going to get the full year effect of that this year. Not quite full year last year, of course, because we started the program in the early part of the year. And we show it here, it's 120%. What we mean by that is we're ahead of our plan, and we're pleased about that. We then have some manufacturing and supply chain related expenses, overheads, and so forth, that we have also reduced meaningfully. And again, we show it here as being ahead of that plan, 160%. So that team has done a fantastic job in delivering on that transformation element. And what we also have as part of that a significant series of activities related to our core facilities and investment in key facilities like Vietnam as well as consolidation of volumes to other plants for efficiency reasons, and we're very pleased about how that progresses. So in total, the program is ahead of plan, and the expectation is that we will deliver the savings that we had said or better. So all in all, very pleased with the execution of this program.

The value creation chart that I showed you included one component that talks about 8 dimensions of differentiation. This is how we communicate to our customers why work with Ansell. And we believe that we have 8 points of strength, and for this year, we are planning to invest in particular in 3 areas. The first one is the customer intimacy or how we get the safety story to our customers. And we're doing that both with end-user customers and distribution partners to essentially equip our distribution partners to sell the safety story, if you will. Number two, regulatory. The world is going through tremendous regulatory reform right now, and especially in Europe, we see a whole new regulatory landscape emerge. We have been very proactive leading the way on this one. And it is likely to benefit Ansell meaningfully, because we are so well prepared for it and because it does put in place very significant requirements on distribution to now ensure that every product they sell delivers exactly what it says on the product. And if it doesn't, they're liable for damages and fines, and so distributors are starting to take this very seriously. And it will benefit Ansell having a strong range of fully compliant product, and so that's a key one that we focus on. And then the final one is world-class manufacturing, where the big investments that we're making right now are going to be quite fundamental to making us even better and more efficient. And in addition to the Vietnam investments that we have talked about for a while, we're also getting ready to make some additional investments in another major plant of a similar order of magnitude. So we're seeing the profitability and the return that we're getting from these investments is very high, and therefore, we like doing more of it.

So when it comes then to the world that we live in, what is really happening? Well, first of all, we have a strong economy, generally speaking. We all follow what's going on, and clearly in the U.S., strong GDP growth, especially in the second quarter, but likely also in the third quarter. We see Europe being pretty solid, a little bit of a cooldown perhaps in Europe, but nothing major. Germany continues to run strong. China is a bit of a question mark, what is the impact going to be of the trade dispute on the Chinese economy generally. But on the other hand, we see countries like India getting stronger, and many other emerging markets that we focus on are doing really well. So generally the economic landscape is solid and quite attractive. We do have a number of uncertainties, and the trade dispute is one of them. It could add $5 million to $10 million of expense if fully enacted and enforced, and before us taking any action. Obviously, we have opportunities to take action by asking China-based suppliers to absorb some of the hit. We can take price increases. And so there are a number of things we can do, but this is just to give you a flavor for the order of magnitude at this point in time. And of course, any action takes time, so there will be a lag effect that we need to deal with. But when it comes to the U.S.-Europe disputes, as you all have noted, it seems to have cooled down, settled down, but it can flare up at any point in time, and something we keep a close eye on. Now we don't have too many -- too much volume coming from Europe into the U.S. or vice versa, so it's not going to be humongous. The bigger potential exposure, of course, is if a trade dispute were to also spread to Southeast Asia, but then again, it would impact the entire industry.

And then finally, raw materials and FX. As you follow this company, you all note we have significant exposure to 20, 30 currencies, and it's hard to predict how they're going to move. Often they balance one another out, but not always. So there is a bit of an exposure to FX, and even though we hedge, we still can't protect ourselves completely.

Raw materials go up and down, and you saw in the last year in the first half, a big spike from the second -- prior year raw material effects and that's sort of been worked through and reduced in our second half. We're now seeing a renewed set of raw material price hikes related to nitrile, but this time, not to natural latex. So again, we stay very focused on those and make sure that we adapt to them. But the reason why we highlight all this is because there's a lot going on here, and we stay very focused on it, but it's hard to predict exactly where it's going to land.

So our focus on F '18 has been on execution of the new focused company, and we've been quite pleased with the solid organic growth, 4%. We've also seen EBIT progress in a couple of areas, but we have also seen the effect of the raw material that I just talked about, that essentially consumed $17 million of short-term effect. We adjusted to that quite successfully, but nevertheless, it was an important driver. Cash flow was solid, but lower than prior year due to some -- due to the exit of Sexual Wellness. And as we talked about, transformation on plan. And so that's essentially what's happening on the continuing operations. When it comes to the four key strategic drivers of growth, we're very pleased with the continued core brand growth. HyFlex is getting bigger and bigger and more and more dominant in its space in the industry of mechanical protection. AlphaTec is our next industrial consolidation brand in the chemical space, and we expect that brand to continue to grow at a very rapid pace. It contains all of the -- or many of the chemical gloves and increasingly, the chemical body protection product. Edge is our value brand or entry price point brand, if you will, and we've seen very rapid growth on that, and we're quite pleased about how that performs. On the healthcare side, we see similar good growth on the core brands, and the newest kid on the block here is BioClean, which is the life science brand we acquired as part of Nitritex, and we expect that to become a much bigger part of our portfolio going forward.

Good momentum with our channel strategy. We signed up a number of new accounts. We elected to not continue to report on the number of accounts, it's not all that important. I can say that it's more than last year, but what's really important is the performance of each and every one of those distributor partnerships. And what we say here is that they now represent about 40% of total sales. So as you can see, it's now become a fairly significant part of how we do business. And we are very pleased with the progress of these, and we're also pleased that we're able to manage margin on profitability on these partnerships as they continue to evolve.

The third driver, emerging markets, continues to move ahead, double-digit growth, and you will have seen that over many years now, and that continues. And we're also pleased to have gotten really serious about India by opening a new legal entity and reinforcing our commitment to that now that we have 100% control of the surgical business in India after essentially buying out our Sexual Wellness partner for many years that we had in India. So a very good position.

And then finally, on innovation, that just continues to perform, and we're seeing Intercept, our proprietary yarn platforms, just go from strength to strength. So very pleased about that. And we're seeing a similar level of engagement on the single-use side, with innovation, in particular with the multilayer platforms that are now rolling out a number of different variants worldwide with tremendous success. So all this looks pretty good.

If you summarize that in graphical forms, then we see organic growth staying quite solid. There is a little bit of a dip down in the second half, but remember, it's against a very strong second half in the prior year. So we're not displeased about this number at all. When it comes to the growth brand, you see it continue to be a bigger and bigger share of total sales, which of course, reinforces our position all the time.

And when it comes to emerging markets, we see that step up as a percentage of total sales. And for the first time ever, I think, I've been here, 8 years, we see all of the emerging markets green on our global chart. There always tends to be a yellow or a red somewhere in the world, but not this time. So that's nice to see. So all in all, pretty pleased with the performance here.

When it comes to the partnerships, we are very pleased with being selected as vendor of the year by a multitude of distribution partners. And being vendor of the year essentially means that they recognize Ansell as the best partner to profitably grow their business. And that typically means, we have to have good service levels, a lot of innovation, really good support of their sales forces and all of those things. And they score us on all of these different dimensions, so it's not easy to be vendor of the year. And we've now been elected vendor of the year by a number of very large partners in different parts of the world, and that's key.

On top of that, on the right-hand side, we also show you a couple of examples of products being selected as the most innovative product in the industry. So we're getting a lot of awards related to that. And opportunities going forward here are primarily on, as I said before, deepening the partnerships and the relationships. And we're also investing quite a bit of effort and time right now in newer digital channels. But make no mistake, many of our traditional distributors are very advanced when it comes to digital solutions to their customers. So they're just interacting with our customers in a different way, and we, of course, need to support them on that, and we're doing that by providing good data and good information and support when it comes to marketing. So digital is going to play a bigger and bigger role, and some of our traditional partners already have half of their sales through digital channels. And I think that's an important driver of change to this industry.

When it comes to the 2 GBUs, Healthcare GBU had a pretty solid year on a number of activities. We're particularly pleased with the life science area and with the industrial side of the exam, single use, with very strong growth on both. And the surgical is where we're not happy with the performance. And we have taken strong action on a number of areas and are starting to see some early green shoots relating to those actions. And so I feel pretty good about our ability to get the surgical business back to growth. Through this period of muted development, we're also pleased to see that the synthetic portfolio continues to deliver solid growth in the surgical.

But nevertheless, a little bit more work to do. Life science, of course, is benefiting from the Nitritex acquisition. But even if you take that out and look at organic, we see solid top line growth and even more important, we see the capability that we're building in the marketplace and through our sales forces grow significantly. So very excited about that.

EBIT-to-sales here up slightly, but nothing to write home about. But I feel pretty good that we've been able to weather some of the raw material effects and take compensatory price increases and mix management actions to drive the business. So that's essentially the story on health care. A couple of examples here, again, to illustrate some of the developments, very nice developments, primarily in the core brands. We have a number of key new products launching around the world. The double gloving, the one behind me here on the top right on the screen, is related to eliminating a lot of unnecessary packaging cost plus allow surgeons and nurses to don before going into the procedure much faster. So essentially, it's a green product, and it's a more productive product. And that's, after all, what we need to do, and when combined with safety, it's a perfect solution.

When it comes to the Industrial GBU, a very strong top line growth and especially on the mechanical side. Chemical side is lagging a little bit, and we're doing a lot of heavy lifting on the chemical side when it comes to rejuvenating, if you will, the chemical glove portfolio and adding a number of new solutions to that. The body protection side of chemical is doing extremely well, so we're very pleased about that.

The -- what we don't particularly like here is that the strong top line is not translating into the EBIT percentage growing. The EBIT in absolute terms, of course, is growing, but not percentage-wise, and it should. And part of the reason, of course, here is related to raw materials as well. HyFlex, for example, uses a lot of nitrile, and with the nitrile effect, primarily in the first half, that made it very difficult to compensate for. But nevertheless, we were very encouraged with the rapid expansion on -- of profitability in this portfolio in the second half versus the first half.

So we think we have a good plan for this business and expect that innovation will continue to support and sustain solid growth.

And again, a number of examples here of some really attractive core elements, primarily on the brand side, and the organic growth, 5%, is quite solid here as well. So that then brings us to the conclusion of this section, which is -- okay, so we told you 9 months ago, here are our targets, here's what we're going to do, here's what should be possible for Ansell to deliver with some level of predictability. 3% to 5% organic growth, we did 4%. So that's pretty solid. 5% to 10% on EPS, we did 18% at the constant currency definition. So we're quite pleased with that. ROCE should improve, and it is, 60 basis points is well on its way to get to the target that we have set for ourselves. And we should deliver strong cash flow, and we are. But we obviously have reset the business and are paying for some transformation this year, but do expect that cash flow will continue be very solid. And therefore, we expect to continue to deliver against our Capital Markets Day communicated targets. So with that, I'm going to hand over to Neil.

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Neil I. Salmon, Ansell Limited - CFO [2]

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Thanks, Magnus. So I'll begin by grounding you a little bit more in the results of the company and the adjustments that we've made so that you're confident on what's in or not on those figures, using the same formats that I shared at the half year. So beginning with the total P&L. To the left, you can see the fiscal '17 group results. Total company EPS of just over $1, and of that, $0.19 contributed by Sexual Wellness. So that was now reported under discontinued, and excluding that, $0.81 last year for the containing operations. Total group result this year, over $3 EPS, including the gain on sale. And the gain on sale plus the stub period results of Sexual Wellness showing under discontinued, I'll comment on that a little further in a moment. That gets us -- if you extract that, that gets us to continuing. And then we make the 3 adjustments that Magnus mentioned earlier that I will also give you some more detail on to get to what we think is a more meaningful adjusted result for fiscal '18. And that's consistent with how we set the guidance range as well for the year. So the $1.02 compares to our upgraded guidance for the half of $0.96 to $1.06.

So here's some more line-by-line on the adjustments within discontinued. So the gain on sale here in the end came in just over $340 million, a little bit lower than we had estimated at the half. I'll give you some more reasons on that in a moment. Also the stub period of Sexual Wellness results were slightly lower than we said at the half year, and that's because we have continued to earn our interest in the Indian joint venture. The process to closing that demerger or executing that demerger took longer than anticipated. And perhaps relating to the uncertainty that business was in, the business was also moderately loss-making during this time period.

We're moving ahead on that now though and expect that demerger to complete any day. And as a result of that, as Magnus mentioned, we will then have a wholly owned operation in India to continue our medical and industrial business, which we think has great prospects for the future.

And then the 3 items we've adjusted out of continuing. So transformation costs, we gave you an indication of what we thought these would be at the beginning of the year, they're pretty much in line. Actually, the cash spend in fiscal '18 a little bit less than we had forecast for the year, but in total, for the program, we're right in line with where we thought we would be. And then the 2 major non-cash items that I called out at the half year, the effect on our deferred tax value of the U.S. rate change and then this change in accounting estimate to no longer capitalize development costs, but expense them as incurred. So those are the 2 noncash items that we've also excluded from the adjusted result.

So we think adjusted against last year continuing is the more meaningful set of comparisons. Magnus has made most of these points already, but let me just recap a couple. So total constant currency sales growth of 5%. An improvement in the second half in industrial, I'm very pleased by the industrial results in the second half, slightly lower in healthcare. Healthcare, of course, less exposed to the economic cycle than industrial. So industrial really benefited from stronger market conditions in the second half.

Gross profit growth slightly lower than sales growth, so a slightly lower margin. That's the effect of raw materials at the beginning of the period. A little bit of an offset coming from a onetime benefit we recorded in healthcare. These are indirect taxes that we'd accrued in prior periods and determined this year that we didn't, in fact, need to pay those, so we reversed that accrual. So that's the $4 million help within GPADE and within healthcare.

In SG&A, we had the benefits of transformation coming in, with a little bit of an offset there by a provision we've made for demolition and site-clearance costs of a facility in Louisiana. This has never had anything to do with the current Ansell business, a legacy site from Pacific Dunlop days. A long story, but the short version is, we're now finally able to move ahead with clearing up that site, removing the buildings on the site, which are no longer in use and just making the site safe. So we've -- and we are now able to do that, we weren't able to do it before. And so we've recorded the cost of doing that within the P&L for this period.

So all of that delivered EBIT growth of 5% and profitable attributable growth of 15%, and the difference being the interest benefit of the Sexual Wellness cash and a favorable tax rate, a couple of non-recurring items within there, which I'll comment on in a moment. And overall EPS growth of 18% on this basis.

So the Sexual Wellness sale, as I mentioned, the profit on sale a little lower than we said at the half year. We've now included the results of demerging JK Ansell, and that ended up in a slight book loss, just the mechanics of how that demerger has gone through. And then we also, in the end, had somewhat higher tax on sale and a few additional disposal costs that came in higher than we estimated at the half year. So all of those together is why the gain on sale a little bit lower than we said, but still, of course, a great result. Within tax, the main onetime item we had was this benefit that we mentioned at the half year of a legal entity restructuring we've done in the U.S. And by doing that restructure, we've created a capital loss. A part of that capital loss was used to a good result on the Sexual Wellness gain, and the remainder we've carried back against capital gains previously paid. And so that gives us that $5 million-plus benefit to taxation in the half, but a onetime event that won't recur next year.

Overall, our forward expectation of tax is the same as it was before. 20% to 22% effective tax rate next year is my best estimate and then increasing again in fiscal '20 to around 24% to 25%. And the reason for that increase is primarily some of our very longstanding concessions related to manufacturing activity reaching the end of that concession period. And so as we move to a normal tax-paying situation, and that's what's leading to an increase in the effective rate.

And then share buyback in adjusted items, I think we've already covered sufficiently.

A couple of additional topics, give you a little bit more comment on raw materials. Magnus already gave you the highlights. If you look at the mix of spend, important to note that now fibers and engineered yarns is actually our largest spend category, and within that, there's a very broad, diverse set of materials. Second-biggest spend category is natural latex. And then natural rubber latex is now down the list, so still a sizeable spend, but much smaller than it was historically. So if we look ahead on raw materials, we mentioned a very high prices that we saw about 15, 16 months ago, mainly on natural rubber latex. Natural rubber latex has come down, subsequently, and if anything, the trends look to be favorable from here on natural rubber latex. Those are fully offset though by increases in natural latex, generally very strong supply-demand conditions for nitrile. And that's led to increases over the last few months. So if I look at the total basket of spend on raw materials, over the -- total purchase of those materials, my sort of average price today is, in fact, about the same as it was at the peak level in fiscal '17. And then the question from here is, does it stay at that level or does it come down? We think it's likely to come down, but there's a risk if it stays at the current high level. So overall, raw material cost likely to be higher year-on-year on a price basis and with some downside risk, as we'll comment when we get there, plus also potentially the impact of duties, uncertainty as to whether or when those will come in as well.

Capital expenditure has been running at about $45 million to $50 million level the last couple of years, but we expect it to step up from here to around $60 million to $65 million. The pictures at the bottom show the transformation of our Vietnam facility. So we've almost fully built out that site. And the new building that you see, the higher building on the after picture is being built out, that also has sufficient -- significant space for future expansion. So we're very excited about Vietnam. It's going to be a great facility, very cost competitive, but also very high quality in the range of products it can make. And we plan -- our first priority is to look for additional investments of this nature, where we think we can get very nice returns going forward. And that's behind my forecast of a high level of spend for the next couple of years. Beyond that, we should be back more to the $45 million to $50 million level, which I think is consistent with the sales and EBIT growth that Magnus called for earlier. So if we spend more, it would be because we see a higher return in -- on that spend.

Cash flow lower for 3 main reasons. The Sexual Wellness no longer in the numbers. This is a total group comparison. The second being the spend on transformation costs, so those would have been as expected. The third, slight increase -- or $25 million increase in working capital. Part of that is also related to transformation, as we have put in place additional inventory to cushion the shift of production from one side to another, as next year we go through that phase of the transformation program, but then also some timing differences on accounts receivable and accounts payable. Overall, the cash story remains very positive even though the cash conversion rate is a little bit lower this year going forward. I think that's going to be positive as we work away that additional inventory-related transformation. And then we get the more strategic benefits of our focus on supply chain, where we expect a $30 million benefit to working capital to come through.

And then on the balance sheet, the 2 most important points are the net cash position and the improvement in return on capital employed. Hopefully, we're at the beginning of that improvement trajectory on return on capital employed, and transformation benefit should continue to impact that metric. A comment on our gross debt versus net debt. So the reason we still have a sizable interest expense of around $12 million to $13 million even with a net cash position is because the long-term debt that we have in place, or USPP. And so that has a competitive coupon attached to it, but a higher coupon, clearly, than you can get on the cash balance. So that's why those are going to continue to be around $12 million to $13 million interest expense, and that will move according to how and when we redeploy the Sexual Wellness proceeds.

And so with that, back to Magnus.

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [3]

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Thank you, Neil. So I think fairly consistent with the theme of this presentation. We have a pretty clear set of expectations for our guidance here. But first of all, conditions are generally good, as I said before, but we do see some inflationary pressure on raw material related to demand on some raw materials. And we also have the uncertainty of tariffs and foreign exchange. With that said, we are targeting our 3% to 5%, that's what we have said before and what we're committed to, and we believe, that we have the basis to deliver the 3% to 5% range on top line. And we do see opportunities within that 3% to 5% to manage the mix and manage pricing, and so forth, to support EBIT growth. The tax rate will be going up, as Neil said, and we are estimating that to be $0.03 to $0.05 effect versus '18. And that then brings us to our EPS guidance range of $1 to $1.12. And there are 2 factors you need to measure against that range. One is a negative, and it's the series of pressures from raw material, FX and potential trade disputes and duties that could put meaningful downside risk on that range. On the other hand, we have not accounted on the -- any help from acquisitions or buyback to counter that on the baseline. And we also see some further opportunities, of course, as a management team to drive the successful platforms harder and deliver better effects, and so forth.

But nevertheless, when you balance all that out, we think that the $1, $1.12 is a reasonable range and something that we feel comfortable with. That should be viewed, obviously, in the context of a very significant lift versus F '17 to this year. And on top of that lift, we're saying that we think that there is a meaningful opportunity to go up further.

So the takeaway from where we are is organic growth momentum is solid and will continue, and it's driven by the factors that we've talked about now for a number of years. There will be effects here on commodities, on expense and the way to deal with it is price increase, mix management, productivity in the plants, and so forth, nothing new there, and something the organization is well used to. Transformation program goes into some heavy lifting phases here, primarily when it comes to the plants and plant changes. And as we have said, we have essentially completed the SG&A element and overhead elements of this plan already. And the sharper focus as a safety company will deliver, we believe, some further benefits related to speed, agility and simplicity in the organization. And that's going to be important -- an important indirect driver to performance. So that's why we really like where we've landed in terms of strategy and direction for the company.

So with that, I think we're ready to go into some Q&A. And...

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Neil I. Salmon, Ansell Limited - CFO [4]

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And we'll start with questions in the room and then move to questions on the phone. And if we could start as usual with two questions, please.

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Questions and Answers

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Operator [1]

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We'll have our first question go to David Low.

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David A. Low, JP Morgan Chase & Co, Research Division - Research Analyst [2]

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If I could just start with the guidance. It's a little bit unclear to me. So we've got a wide range there, which we're used to, but the comments on the slide there suggest that, effectively, if conditions as they stand today continue, we're going to be at the bottom end. Is that the way to think about it? Or if you allowed for this in sort of midpoint of the guidance range?

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [3]

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Well, our resumption is, when we put a guidance range is that the most likely outcome is in the middle. But having said that, we're also highlighting here both the upside opportunities and the downside risks. So our intent in balancing this out is to deliver the middle.

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Neil I. Salmon, Ansell Limited - CFO [4]

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There's 2 components to this downside risk we wanted to be transparent with you on. The first is the duties' effect, and that is not yet a fact, it's not yet established. And so -- and we would not have any greater insight as to whether those will come in or not. The second is, yes, current raw materials, if they continue at that level through the year, that represents downside risk, but we're also working very hard on offsetting that. So it's not a case that this is a downside risk and there's nothing we can do about it. The uncertainty, really, is only about timing. By the end of this fiscal year, we should have found ways to substantially offset that going into the future year. What we're unsure about is how quickly these things will come in and how quickly our mitigating actions can offset. That even if that's a net downside after those mitigating actions, Magnus has also talked about upside opportunities we have, which we're going to work on offsetting, including deployment of the Sexual Wellness proceeds.

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David A. Low, JP Morgan Chase & Co, Research Division - Research Analyst [5]

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Great. And the other one is related. So the raw materials, you've said, are at the peak of FY '17 today. Yet in the commentary and when we look at these prices, we see natural rubber latex down, we see nitrile up, and I understand they're not a perfect offset. But it would seem, with those 2 variables alone, you're not at the peak that you were at previously.

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [6]

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Well, it also includes fibers, and fiber is now the biggest category, and we're sort of pleased about that. But there are a number of fiber categories, HPPE and Kevlar, notably, who are increasing. As you know, we're busy working away at essentially using our own formulas for these yarns, which essentially gives us an opportunity to source individual fibers strands from a whole host of different suppliers. And that is one way of mitigating it. But if you just take at face value, current raw material of the mix that we laid out for you is on par with that level.

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David A. Low, JP Morgan Chase & Co, Research Division - Research Analyst [7]

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Okay, just the last one for me. Then your transformation program is ahead of schedule, it's delivered $10 million, we got another $10 million coming through in this year. So effectively, the guidance allowing for some of those pressures, we're going to trade sideways despite the fact that you found another $10 million of savings. So it feels like the way we've been before with them. So much in so much as there's a restructuring program put in place and yet the benefit seen by shareholders is fairly modest. Is that the right way to think about it?

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [8]

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Do you want to start on that one?

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Neil I. Salmon, Ansell Limited - CFO [9]

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I think the main offset we're seeing is a period of high raw material costs, and we've been through this cycle before. And as -- if it plays out as it has in the past, then, yes, there is some negative pressure in a period of inflation. But when we then are around the other side of the cycle, we are able to maintain pricing and profitability for a long period of time after raw materials have come back down the other side. So it's not that these are 2 different effects and they're not related. But yes, that's the sort of combined equation that impacts EPS growth over the next couple of years. I think the other thing to say about the transformation is, it's not only the immediate benefits that we're realizing, but we're also pretty confident that particularly the manufacturing footprint that we'll have at the end of the program will set us up very well for the future and more productive, more specialized set of really world-class facilities. And that will avoid some of the risk that we've seen, where we have some underutilized facilities or less effective facilities, which we haven't called out in the year, but is something that's underperforming against our expectations. So in addition to those specific benefit, I think we'll have a better manufacturing base to drive EBIT growth for the long term as well.

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [10]

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And we're already seeing some of the benefit from that in that we can be very competitive on pricing with some of our usual competitors. And it's allowed us to secure higher market share with key distributors with decent margins. So this investment in capability is allowing Ansell to be more proactive, aggressive in the marketplace, which we need to be and want to be.

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Thomas Godfrey, UBS Investment Bank, Research Division - Analyst [11]

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Tom Godfrey from UBS, sorry. Can I just go back to industrial EBIT margins and the decline there in FY '18? I realize you guys have called out raw material cost, but it seems a little soft just given the transformation program and the strength of the top line. Can you just maybe step through what else we might be missing there, and in particular, the pricing dynamics with your key distribution partners?

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [12]

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The big effect was raw material in the first half, and the second half was meaningfully stronger in terms of EBIT and perhaps a little bit more representative of what we can do going forward. But that's certainly how we intend to drive the business. We now need to take to the bottom line the benefits of the increasing volumes and efficiencies we're also getting in our plants from that. Anything else?

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Neil I. Salmon, Ansell Limited - CFO [13]

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Yes. I think -- so the benefits of the transformation to industrial is largely still to come over the next couple of years. And most of the manufacturing-productivity benefits will be to industrial. So they should benefit nicely from that. The other factor, which we mentioned at the half year, we haven't put too much emphasis on, but as we said, a couple of key customers were in a destocking phase through the year. They're quite sizable, in fact, 2 of our largest customers. And as they have worked through that destocking phase, we've had some underutilization on the manufacturing asset base. And it also happens to be some of the assets that we're looking to improve in productivity terms going forward anyway. So that was another factor that held back industrial EBIT margin, but a temporary factor. And as I say, we're very confident that we have the right manufacturing base going forward to really drive EBIT growth in that business.

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Thomas Godfrey, UBS Investment Bank, Research Division - Analyst [14]

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Okay, got it. And just one more for me. And maybe one for you Neil, just on the effects. You provide a slide which helps us with what the EBIT gain would have been in February based on your forecast rate. At that time, you were forecasting $13.2 million, I believe. It's come in at $7.2 million. I realize the hedge went against you, but can you just help us out with what else was driving that?

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Neil I. Salmon, Ansell Limited - CFO [15]

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Yes. Well we saw generally -- so that was, I think, at the peak in terms of the euro, and the euro has weakened ever since then. So that's the primary difference versus the view that we had at the half. We're not fully hedged. So it varies between 50% and 70% hedged, depending on the status of that program. Yes.

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Andrew Goodsall, MST Marquee - Healthcare analyst [16]

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Andrew Goodsall from MST. Actually, a follow-on from Tom's question, just on FX going into the next 12 months, just how you see that playing out. I think, normally, you carry a 6-months trailing hedge. So sort of what the second half effect might be at current rate?

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Neil I. Salmon, Ansell Limited - CFO [17]

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Yes. I mean, I'd say, average rates now are slightly unfavorable versus average rates in fiscal '18. But I don't think it's -- at this point, I don't think it's going to be a huge effect if the -- but that assumes some strengthening in the euro from here. We've put in our appendix that our base euro assumption is $1.18. Euro is reasonably well hedged, so even if it stays at $1.14, that's not going to be a huge effect during the year. But net-net, I see it as being a moderate headwind in F '19 versus F '18.

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Andrew Goodsall, MST Marquee - Healthcare analyst [18]

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So a couple of cents perhaps in that...

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Neil I. Salmon, Ansell Limited - CFO [19]

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Yes, maximum. Yes.

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Andrew Goodsall, MST Marquee - Healthcare analyst [20]

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And then just a question for Magnus. Just some of the reports we had coming into, I guess, the trade dispute, where that sort of around the July period, there was a lot of advanced purchasing in the U.S., particularly, I guess, trying to get ahead of the price increases from that. Did you see anything in your -- in this sort of first quarter particularly different?

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [21]

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No. Not a lot. Nothing that sort of showed up above norm. We tend to manage the relationship with the top distributors quite transparently. So we know what they're doing, and we know weekly purchase patterns, and so forth. So there was nothing significant there. And probably the main reason is that it's so uncertain, so people don't know whether it going to happen or not and is it really worthwhile stocking up for something that you don't know will happen. So at this point in time, no. But I mean, we're keeping close eye on this, and we're looking ourselves at what we can do to minimize potential exposure even before we're faced -- facing the fact of it potentially happening. Should we go on the phone?

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Operator [22]

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Sure.

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Operator [23]

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(Operator Instructions) And our first question comes from the line of Sean Laaman from Morgan Stanley.

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Sean M. Laaman, Morgan Stanley, Research Division - Australian Healthcare Analyst [24]

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Just a follow-up from an earlier question on the guidance. So just to clarify that 5% to 6% -- $0.05 to $0.06 potential downside from the tariffs and raw materials, you say that it applies to the midpoint of the guidance range. Does that mean that the guidance range still stands at sort of $1 to $1.12 even with these costs? Or should we be thinking that both ends of the range move down should you not find any offset?

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [25]

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Well, no, you shouldn't expect that, because that assumes that we're going to be sitting on our hands for the rest of the year, and we don't intend to do that. So clearly, if we do get these $0.05 to $0.06 effect starting to materialize, then we will take all kinds of corrective actions as quickly as humanly possible. And that includes making sure that our suppliers, if they are in China, absorb some of the hit. It includes taking price increase and includes mix management and includes moving product to one country to another. So we have lots of levers to pull on this one, and we will. So that's, I think, an important takeaway on that one. But what we wanted to do was to highlight for you that it could be a significant incremental challenge that we then have to deal with.

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Sean M. Laaman, Morgan Stanley, Research Division - Australian Healthcare Analyst [26]

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Sure. Got it. And then Magnus, you referred to in the presentation a larger acquisition. Are you able to define what a larger acquisition is, if you could give us a range. And then just to follow on, does that mean that the buyback is ring-fenced in terms of acquisition?

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [27]

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Well, larger in our world would probably be sort of the $50 million to $100 million range or bigger. But -- so clearly, if it's that, then we have the capacity to do one or two of those and do our buyback as well. So I don't think that we're going to be constrained on what we can do working on multiple fronts at the same time. And then on top of that, we're continuing to evaluate a number of smaller tuck-in acquisitions as well, and that, of course, will not even register in terms of the load on the balance sheet.

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Sean M. Laaman, Morgan Stanley, Research Division - Australian Healthcare Analyst [28]

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Sure. And just to squeeze one last one in, just more for bookkeeping. Could you give us your estimate on what the benefit of the buyback so far will be on F '19, EPS?

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Neil I. Salmon, Ansell Limited - CFO [29]

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Well, we haven't given that figure specifically. I'd point you to the figure last year, where we said we could see around a $0.02 or $0.03 benefit. So I think that's -- I mean, it's not so hard to do, the math on that one. So a number of factors that will influence it, including the share price at which we buy back shares. But I think that's a good base assumption, and that's part of the offset, clearly, that would help if we are faced with the downside there on raw materials and duties.

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Operator [30]

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And our next question comes from the line of Craig Wong-Pan from Deutsche Bank.

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Craig Wong-Pan, Deutsche Bank AG, Research Division - Research Analyst [31]

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First one just on the narrowing of the transformation in your cost to $45 million, $50 million. What's been the main reason driving that narrowing?

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Neil I. Salmon, Ansell Limited - CFO [32]

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Sorry, the line is a little unclear. Can you state the -- we heard of the $45 million to $50 million, but what was the question related to it?

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Craig Wong-Pan, Deutsche Bank AG, Research Division - Research Analyst [33]

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Yes. I just wanted to understand the reason for that narrowing of the range from $40 million to $50 million, now to $45 million to $50 million.

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Neil I. Salmon, Ansell Limited - CFO [34]

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Well, just greater certainty as we've moved through the program, with a higher degree of accuracy to estimates of cost. So that -- yes, I mean, that's -- we're 12 months through. A lot of the actions are still to happen. And one of the things that we've always not wanted to commit ourselves to is the timing of different events that lead to some of the accounting impacts. And those are happening later than we had thought perhaps 12 months ago, but that doesn't mean there's any delay to the program. It just means we've thought through differently -- exactly how we're going to sequence change. So greater certainty with 12 months gone as to what the impact is going to be is the reason for the narrowing of the range.

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [35]

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The one point I wanted to make, as you can understand, we have to be a little bit careful with what -- how precise we are in stating what we're doing. Many of the changes we are putting in place in the plants will affect people, and we cannot be super specific until we have made final decisions and notify people who will be affected by the change. So I don't want you to mistake that for lack of understanding and precision in execution, it's there.

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Craig Wong-Pan, Deutsche Bank AG, Research Division - Research Analyst [36]

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Okay, sure. I understand. And then second question. On your disciplined approach to acquisition, you mentioned there's been a few that you walked away towards the end, despite incurring some cost. Just wondering if there were any material cost incurred from walking away within your FY '18 numbers.

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Neil I. Salmon, Ansell Limited - CFO [37]

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We wouldn't necessarily say material, but we had due diligence cost of close to $2 million within the year. So that's higher than an average year, certainly, but didn't think it was sufficient enough to call out. So -- but that's the answer to your question. Yes.

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Operator [38]

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And next question comes from the line of David Bailey from Macquarie.

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David Bailey, Macquarie Research - Research Analyst [39]

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Just (inaudible) as you mentioned in the second half in the healthcare JV, it looked to be a little bit weaker at the top line in current currency terms. I know did cite (inaudible) the fact you're cycling a stronger PCP. But interested if you can expand a little bit on the comments in relation to the surgical segment and what you're seeing there is the weakness that you called out earlier?

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [40]

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It was related very much to the surgical business. And if you recall from the prior year, the surgical business grew very nicely during that time, driven by a lot of synthetic conversions, but also by the powder ban in the U.S. That essentially cost all of the powdered glove users to upgrade to powder-free. That drove some incremental sales last year, which of course, did not repeat this year. So those were 2 important factors. Anything else you want to add, Neil?

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Neil I. Salmon, Ansell Limited - CFO [41]

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Yes, I think that's right. If you draw a line over 2 years, the trajectory of the business is okay, not as good as we hoped. And with hindsight, the growth that we recorded in fiscal '17 was a little artificially boosted by those effects, and then we're seeing that correction in fiscal '18. But fundamentally, the business is tracking with the market as opposed to gaining share, and that's our ambition to gain share. So what we need to do and what we're seeing positive signs of is, is gain more momentum behind the new products we've launched, which have had good customers reception, but selling cycles are always slower for the surgical business. And then as time goes by and the supply disruptions of fiscal '16 are more distant in memories, then customers, we think, will be more confident in giving us a greater share of wallets again. So there's a lot we can do, a lot we're working on that we think will improve the performance of the surgical business going forward.

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David Bailey, Macquarie Research - Research Analyst [42]

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Understood. And then just secondly, it's on the effective tax rate, 18%. I look back to the first half '18 presentation, you guiding to 20% to -- 20% or 20.5% to 21.5%. Is there anything -- am I right in saying that, that's a bit down really to the expectations you brought at the first half result.

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Neil I. Salmon, Ansell Limited - CFO [43]

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Yes, it was a lot of favorable combination of items. So yes, a slight boost in tax in the second half versus my base case assumption at the February point.

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David Bailey, Macquarie Research - Research Analyst [44]

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Okay. And then just one last final, just financially as well. Just the benefit you're getting in the Healthcare GBU of $4 million. So I'm correct in assuming that's being offset by the provision from the -- in the -- for the Pacific Dunlop site in Louisiana?

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Neil I. Salmon, Ansell Limited - CFO [45]

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Yes, they occur in different lines of the P&L, different GBUs, one is in healthcare, one is in corporate. But yes, the net-net at the EBIT level they offset, yes.

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Operator [46]

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And the next question comes from the line of John Deakin-Bell from Citigroup.

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John Deakin-Bell, Citigroup Inc, Research Division - Director & Head of Healthcare in Australia and New Zealand [47]

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My question was just around the -- your ability to increase prices with the raw material costs going up and how it's been relative to other periods, where you've seen raw materials going up. I know there's a lag, but can you just give us some comparison of what's happening in the market?

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [48]

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First of all, we did take a number of price increases during F '18, but we were not entirely happy with our team's ability to get all of the benefit that we needed, wanted to see in the marketplace. And we've done quite a bit of work to understand what caused us to not get all of the benefit that we wanted and have taken some action related to how we drive the sales force, how we incentivize the sales force and how we track and trace price increases, taken and planned, and so forth. For that reason, we are more confident as we now go forward and likely face a further round of price increases, that we can do that with a higher level of precision and better effect. And of course, it's easier to do, generally, when everybody is affected. So for example, if you have a duty in China, 25%, it's going to impact private label coming from China, it's going to impact all of our competitors sourcing from China. And in fact, it's going to impact them more than us, because we are relatively less dependent on China than the majority of our competitors and essentially, all of the private label programs. So in some weird way, a trade dispute might actually be a good for Ansell, at least in the long term. So that's how we see some of these issues.

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John Deakin-Bell, Citigroup Inc, Research Division - Director & Head of Healthcare in Australia and New Zealand [49]

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Did you have more success on the industrial side or the healthcare side in increasing prices?

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Neil I. Salmon, Ansell Limited - CFO [50]

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Yes, we did. Yes, and that's -- I think the business that had a particularly tough time last year was the surgical business, which was affected, still sells quite a high quantity of natural rubber latex-containing products. And prices in surgical are set typically with long time periods and often under contract, and it's also a competitive market. So if we look at the raw materials that are going up now, not natural rubber latex, we tend to have less longer-duration pricing in place. And it's a case where the whole market is moving. And so if anything, raw material inflation is easier to deal with than last year's. That doesn't make it easy, just somewhat easier. And then I think the points that Magnus made are key as well. The last year was actually the first time in some time that the sales team had sold a price increase, and we think we can improve further on the execution and we're working on that.

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Operator [51]

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(Operator Instructions) And our next question comes from the line of Gretel Janu from Credit Suisse.

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Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [52]

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Just a couple of questions for me. Firstly, just on the acquisition pipeline. I know you said that you walked away from a couple of acquisitions in the second half, but is the pipeline still looking attractive as we move into FY '19? Are there lots of opportunities out there?

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [53]

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Yes, the answer is yes. There's more opportunities in the pipeline today than in a long time. So in spite of the fact that we walked away from a couple, I think there's been a series of new ones emerging on the horizon. In some cases, they emerge as part of an investment bank essentially doing a process. More often than not, they emerge because we have worked the relationships with the owner of the business for many years, and then finally, they decide to sell, and then we sit down and engage on the dialogue. So both of those sources are working in our favor right now. So yes, it looks quite interesting right now.

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Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [54]

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And previously, you were talking about acquiring within the life sciences side, is that still on the cards? Is that the way you're focused on?

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [55]

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It is a very attractive business, and we're very, very pleased with the Nitritex acquisition and how it's performing for the company right now. So that would lead you to say, absolutely.

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Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [56]

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Okay, good. And just on the industrial business. So I know that some of your U.S. distributors have all been achieving sales of around 10%, yet you generated around 5% organic growth in the industrial business. So I'm just trying to get some more understanding as to why there's a lot of discrepancy between the two different businesses?

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [57]

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Yes. I mean, it's a good question, and we've done quite a bit of analysis on this. We are very close to many of our distribution partners in the U.S. and in Europe. And we have pretty good data on what subcategories within their offering that are growing and what rates they're growing at. And what we're seeing is that the kinds of consumables sold by these distributors that are directly linked to production volumes and gain disproportionately. So if an automotive company ramps up production by 10%, they will buy 10% more fasteners and 10% more bolts and 10% more oil. They will not necessarily buy 10% more gloves. Why? Well, because they won't necessarily add 10% more workers. So the PPE category, generally, is showing a flatter curve. It doesn't go up as much when times are good, and it doesn't go down as much when times are not good. So that's the main reason for this. And 5%, we believe, is good enough to clearly demonstrate share gain. And we can do that on an account-by-account basis, and we can do it related to total market size to get a lot of confidence that we're gaining share.

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Neil I. Salmon, Ansell Limited - CFO [58]

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Yes. A couple of points I'd add is, if you look at our sales of those products to those distributers, then we are seeing growth rates similar to the number you mentioned, Gretel. And in fact, that represents a share gain, because the PPE category is growing slower than the headline number. So -- but you have to remember that, that's only about 2/3 of our U.S. business. We also sell into other -- 2/3 of our industrial U.S. business. Healthcare not as affected. And then within Industrial, we sell to other end markets that aren't as economically sensitive.

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [59]

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Like food, for example.

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Neil I. Salmon, Ansell Limited - CFO [60]

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Yes. And then you also have the global effect as well. So specifically against those competitors that are reporting, our numbers stack up very well, and we're very pleased with the results. But then you have to layer in the other aspects of what Ansell does. And you should still be happy with the 5% result, and it doesn't mean there's any problem in selling through to Grainger or (inaudible) or the rest.

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [61]

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Any other questions in the room?

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Unidentified Analyst, [62]

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(inaudible) for Investors Mutual. Can you just expand on the comment around the European Union regulations, when they're expected to be introduced? And specifically what impact it will have on Ansell? And also if there's any scope for that U.S?

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [63]

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Yes. The big EU legislative changes are slated to go live in April next year. And that essentially means there's a bit of a queue into the testing laboratories in Europe right now to get products tested and qualified and approved, and so forth. And the good news for Ansell is that we were very early in doing that and therefore, are very confident that we will have all of our products approved and ready to go at the magic date, so to speak. And we do expect that some of our competitors will not be so lucky. So that will be a net benefit to Ansell . The other aspect is, there's a lot of education that goes with this, and we are called upon right now to help distributors understand what this means and what they have to do. And it's actually helping us quite a bit in becoming the preferred vendor, because they do need a lot of help to sort through this and make sure that their offering is approved and meet all testing requirements. And we are providing right now a lot of help to key distributors across Europe.

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Unidentified Analyst, [64]

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In the U.S?

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Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [65]

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In the U.S., there hasn't been a dramatic change in the regulatory environment, that there's a study evolution to tougher terms and tougher tests. But there also tends to be a little bit of influence back and forth. So when U.S. authorities see what Europe is doing, they tend to copy that within a certain period of time. And in Europe, the new legislation is very specific. If you're testing for cut resistance, then you need to change the blade after x cycles and those kinds of things, right. And so it's very precise, and I do expect that we're going to see U.S. testing requirements get firmed up as well. But it will probably take 1 year or 2 before they enforce that in the U.S. And then the rest of the world follows as well. And what we're seeing in China, as we've talked to you about many times, China is now enacting, in many cases, tougher regulatory rules than even in Europe in some areas. So it's spreading worldwide and the more complex, the better it is for Ansell .

All right. I think we say thank you very much. Really appreciate your interest and all your good questions. And look forward to interacting with you in the coming weeks and months to answer any further questions. But above all, we're going to be very focused on execution. Thank you.