U.S. markets close in 3 hours 16 minutes
  • S&P 500

    3,381.02
    +45.55 (+1.37%)
     
  • Dow 30

    27,926.07
    +473.41 (+1.72%)
     
  • Nasdaq

    11,226.56
    +141.31 (+1.27%)
     
  • Russell 2000

    1,525.36
    +20.63 (+1.37%)
     
  • Crude Oil

    39.82
    +0.53 (+1.35%)
     
  • Gold

    1,901.70
    -1.50 (-0.08%)
     
  • Silver

    23.93
    -0.51 (-2.09%)
     
  • EUR/USD

    1.1718
    -0.0028 (-0.23%)
     
  • 10-Yr Bond

    0.6970
    +0.0520 (+8.06%)
     
  • GBP/USD

    1.2897
    +0.0037 (+0.29%)
     
  • USD/JPY

    105.5500
    -0.1050 (-0.10%)
     
  • BTC-USD

    10,798.40
    -45.81 (-0.42%)
     
  • CMC Crypto 200

    222.60
    +1.21 (+0.54%)
     
  • FTSE 100

    5,866.10
    -31.40 (-0.53%)
     
  • Nikkei 225

    23,185.12
    -353.98 (-1.50%)
     

Edited Transcript of ANN.AX earnings conference call or presentation 24-Aug-20 10:00pm GMT

Full Year 2020 Ansell Ltd Earnings Call

Richmond, Victoria Aug 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Ansell Ltd earnings conference call or presentation Monday, August 24, 2020 at 10:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Anita Chow

Ansell Limited - Director of IR & Treasury

* Magnus R. Nicolin

Ansell Limited - MD, CEO & Executive Director

* Zubair Javeed

Ansell Limited - CFO

================================================================================

Conference Call Participants

================================================================================

* Andrew Goodsall

MST Marquee - Healthcare analyst

* David A. Low

JPMorgan 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 and Head of Healthcare in Australia & New Zealand

* Saul Hadassin

UBS Investment Bank, Research Division - Executive Director & Research Analyst

* Sean M. Laaman

Morgan Stanley, Research Division - Australian Healthcare Analyst

* Vanessa Thomson

Jefferies LLC, Research Division - Equity Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by, and welcome to Ansell's 2020 Full Year Results Presentation.

(Operator Instructions) I must advise you that this conference is being recorded today, Tuesday, the 25th of August 2020. I'd now like to hand the conference over to your first speaker today, Ms. Anita Chow, Director, Investor Relations and Treasury. Thank you. Please go ahead.

--------------------------------------------------------------------------------

Anita Chow, Ansell Limited - Director of IR & Treasury [2]

--------------------------------------------------------------------------------

Thank you, operator, and welcome to Ansell's 2020 Full Year Results Call. I am hosting this call from a locked-down Melbourne. Wherever you are, I hope you are all keeping safe. I think by now, we are all used to living through a virtual world, and we conduct this call virtually around the globe with Magnus Nicolin, our CEO and Managing Director, joining us from the U.S. and from Brussels, where it is past midnight, we have Zubair Javeed, our CFO.

At this time, I will direct you to our website, ansell.com, under the Investors section, where you will find our investor presentation, which will be discussed on the call today.

If you can just take a moment to read Slide 2, which contains our disclaimer. This presentation contains non-IFRS measures and should also be read in conjunction with our ASX disclosure, including financial statements. Today, our views will also include comments on Ansell's future performance and expected financial results. This information is inherently subject to uncertainties, which may be beyond the control of Ansell.

As usual, we will start with our safety messages. So if you can turn to Page 3. After an exceptional year in financial year '19, our LTIs in financial year '20 had a very slight uptick, but our track record remains exemplary when we benchmark against our global peers. After all, and as you've heard Magnus say many times, we are first and foremost a safety company. And so we spend a lot of focus in this area. COVID-19 resulted in an even more safety focus for our company as we were quick to implement COVID-19-specific safety practices, and Magnus will take you through more details of this shortly.

So with that said, I'll hand over to Magnus. And at the end of our session, we will be opening up the lines for Q&A.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Anita, and thank you to all of you for joining us. Good morning, good afternoon, good evening. I'm delighted to be sharing with you the results for the fiscal '20 year. It was indeed an exceptional year in many different ways for the global economy taking a hit that we haven't seen in a long, long time and for people struggling with the virus and families touched by it, but also for us as a safety company, this is what we do, and we needed to do it better than ever. It was a year when the word PPE went from "no one knew what that was" to "everyone knows what it is". It was a year with untold tragedy, but it was also a year when people everywhere around the world stepped up and did extraordinary things for their fellow human beings. And that was also the case with our Ansell staff. I'm so proud of what they have done during this really dynamic year. And I'm also very proud of the results that they've allowed us to deliver to our shareholders.

So with that, I'm going to take you through a few slides as usual. So I'm going to ask you to turn to the page called statutory results, Page 6. This, of course, doesn't provide an easy comparison because there -- last year, we had a number of adjustments. So the only figure on here that's truly apples-to-apples is dividend and with a meaningful increase of 7% year-on-year.

Let's instead turn to the following page, where we summarize our performance of the year. Starting top left, sales up 7.6% organic, and I think that's the main number to focus on. The 9.3%, of course, includes the benefit of some acquisitions. EBIT up 21%, constant currency, profit attributable up 19%, constant currency; earnings per share up 23.6%, constant currency, and our dividend up to $0.50, and that is the 17th year in a row of increasing dividends. We had a really strong -- we describe it even as exceptional cash flow, lots of reasons for that we'll go into. And I don't expect that we will hold on to 117% every year, but it certainly is good when it comes. Return on capital employed, 14%, in line with what we had guided to, up 85 basis points. And the leverage ratio remains low with lots of optionality for the company in spite of the fact that we did spend close to $68 million buying back shares in the earlier part of the year. So all in all, it's nice to see a chart with all arrows in green and pointing straight up. So we're pleased about that.

Next page. Taking you back a little bit to the guidance we provided 2.5 years ago at our last Capital Markets Day, we said we were going to grow top line, 3% to 5%, EPS, 5% to 10%, ROCE to hit 14% to 15% range and generate strong cash flow. And of course, this year, we exceeded all of these targets as I previously commented on. And that's something we always strive to do. We give our targets or our guidance and then rally the troops to deliver something better than what we said we were going to do.

Next page. I wanted to spend a little bit of time on COVID. It has changed all of our lives. So what have we done at Ansell? Well, first of all, we focused on safety. And safety of our employees by essentially, it started in China for us in late January, early February with the challenge to get our Xiamen plant up and running again. And we were successful in doing that, and we learned a lot of things about how to run the plant safely in a COVID-affected world. And that has continued. And we took those lessons learned throughout the Ansell world, that to all of our plants, all of our offices and all of our distribution centers and have been able to work very effectively remotely and continue to run our plants and continue to distribute products from our warehouses. And of course, it involved a lot of new habits or new rules regarding temperature control, travel history, tracking, social distancing in all of our locations, wearing of PPE, of course, increased sanitation of surfaces and indeed also workflow changes to minimize the risk for people transmitting the virus.

In our plants, the focus in addition to safety was also about keeping them running and that wasn't as easy as it might seem because in many countries, mandated shutdowns were triggered by local governments. And even when we came out of those mandated shutdowns, we needed to convince our employees that it was safe to come back. So we spent an extraordinary amount of time of working closely with our staff in all of these countries to make sure that they felt truly safe at being back in the plant, back in the warehouse and doing their best to deliver these life-saving products to customers all over the world.

We have also focused a lot on building capacity with a number of important new lines going live during the year and many more expected to go live during F'21 and that will contribute to significant increases in available volume on top of what we already have at this point in time. I think we are both good and lucky in striking the deal to acquire 50% ownership of Careplus that turned out to be exceedingly timely and will help us tremendously in bringing more exam glove volume and surgical volume to market, and we're super happy with that investment and with the team and the local leadership that we have there and our partner, who we're working with.

And we continue to add capacity also in Malaysia, Melaka and in Sri Lanka for Surgical. We also put a lot of focus on customers, of course. And existing customers, a lot of very strict rules on product allocation, meaning we wanted to take care of existing customers first before taking on new customers. Why? Well, because they earned it because we knew relatively early that demand was going to exceed capacity in a number of areas. We have implemented price surcharges as a result of increased cost in many areas primarily from OEM suppliers, some of them not so scrupulous, some of them are working as true partners. And we have taken the stance to only pass on to our customers the minimal amounts needed to protect the Ansell balance sheets and P&L and shareholder. We switched to virtual selling, and our sales force has largely been working from their respective homes. It's now starting to change. I will comment on that later.

We have clearly put a lot of emphasis on helping customers deal with this. We know a lot about safety. We know a lot about how to run the plant safely. And hence, we're taking that knowledge and what we have learned in running our own plants as safely as we have to share that scale or know-how with our customers, and that's working exceedingly well. And of course, in a world that is so challenged as the global economy is, we also have paid close attention to managing credit limits and outstanding payments, and we've done that really well. So all in all, a lot of challenges during the year, but well-executed by the Ansell team.

Next page, on Page 10. Here, you see a couple of illustrations of how COVID impacted our 5 different strategic business units. Mechanical, as you would expect, was the hardest hit. You see the first half in green and the second half in gray, and you see the discrepancy here. The first half was a little bit deflated compared to what it could have been because we run into back orders of some of the hot-selling products and therefore, put in significantly more capacity and placed bigger orders in the first half, and that product came to market and helped us a little bit in the second half. And that was especially important in the Exam/Single Use area where the true performance was a little bit better than the 1.4% in the first half, but wasn't completely materializing until we -- the product arrived in country in the second half, but that was also the reason why we could respond so aggressively to the increased COVID demand. So you see here the most extreme SBUs, mechanical, negatively impacted, Exam/Single Use, positively impacted. Within the industrial review, also the chemical SBU has been quite positive, primarily the body protection lines, but also the glove lines. And this is probably going to continue in the sense that a chemical glove is a multi-use, single-use glove and provides the same viral protection as a single-use glove does or better.

Surgical is a different story. We had a very strong first half, and we took a hit in the second half when COVID happened. Why? Well because elective surgeries were canceled, and that's a significant number of surgeries. And when we look at the number of surgical procedures performed around the world, it essentially fell 30%, 40% for a couple of months. It's starting to come back, but it's not back to pre-COVID levels yet and probably won't be for quite a while. And yet, our Surgical business continues to perform quite well because we're gaining share in a number of important geographies. Life Science finally, not surprising to see that grow fast and even faster in the second half. We all read about the massive amount of research and trials going on and laboratories working overtime. So clearly, we are playing a role there, too. So there, you have a visual of how the different SBUs are impacted by COVID and by the impact of COVID on the global economy.

Going to the next, Page 11. This shows how the geographies have fared differently. You see here the strong performance of APAC. Part of it is a strong comeback in China, but continued strong growth in India and Southeast Asia as well. North America, doing really well. Why? Well, because we were building inventory, we were ordering and shipping inventory in the first half that arrived in the second half. And on top of that COVID, and the third reason being North America is more dependent on single-use gloves, whereas Europe is more focused on mechanical and chemical. And that explains a large part of the delta or the difference between those 2 regions. LAC had a very mixed year with amazing results and performance in Brazil and a tougher year in Mexico, being really hurt by the delay in getting the new free trade agreement settled, the impact on the automotive industry and a few other alternate ends, including oil and gas, taking hit in Mexico. So a bit of a mixed bag, but generally, that mix is providing, in total, a good outcome for Ansell.

Next, Page 12. I wanted to give you a little bit of a step back into strategy, and the reason why we're doing that is because many of the things that we've been working on for a number of years are paying off, not just because of COVID, but because of the readiness and the ability of Ansell to respond and shift into the faster-growing areas. So we are a focused safety company, and we have a #1 and #2 position in each segment, and that's a good thing. We have spent $1.1 billion on acquisitions, and it includes adding significant strength in chemical protective clothing, Life Science and Exam, all 3 benefiting right now, and we divested Sexual Wellness and our boots business because they could not be a strong #1 or #2. Current performance versus the global financial crisis is strong because of the fact that we have a better portfolio of offsetting SBUs. And we also see the shift that we have made to emerging markets growing from 14% of $1 billion in sales to 21% or $1.6 billion in sales, clearly adds stability and strength to Ansell as well.

We've also focused a lot on building a specialized manufacturing capability as an organization, $500 million in capital expenditure in the last 10 years. And these investments have given us capabilities that we didn't have 10 years ago or even 5 years ago. We have numerous patents and trade secrets, and they guard our differentiated capabilities in all [5] (corrected by the company after the call) SBUs, and we have more differentiated products being produced in-house, and that's a very deliberate strategy. Everything that's differentiated, should be produced in an Ansell-controlled environment. If it's not differentiated, we can source it. And of course, we've done this with perfect -- no, not perfect. It's never perfect, but very good safety practices, and that will continue.

And the final dimension here of strike that's been important to us is to focus on core brands, and they now account for 80% of Ansell sales, up from only 45%, 8 years ago. And why is it so important? Well, because we're selling trust. You need to trust the products to protect you. And especially when you're dealing with the virus with the power of COVID-19, you really want to trust the product you are putting on. So clearly, having these strong brands that are trusted and are #1 around the world is important. We have deliberately expanded the sales force and now have more than 800 worldwide. And especially, we have expanded in emerging markets. Our digital footprint and capability is expanding very rapidly, and we're seeing really good insights coming from that.

And finally, as you well know, Guardian is an amazing capability and has become even more so when it comes to advising customers on how to be protected and productive in a COVID-challenged environment.

Next page summarizes in a way you have seen many times before, how the Healthcare GBU came out in the year. And as you see, some very strong numbers on the Healthcare GBU, with all 3 SBUs doing really well, but impacted a little bit differently. EBIT up strongly and benefiting from some raw material effects, but more so by manufacturing efficiency and volume and pricing initiatives, but it was heavily offset by COVID-19 cost plant being shut down for periods of times. And also the cost of running the plants differently and equipping the team differently and taking everybody's temperature all the time and so forth. And FX being a significant negative effect during the year. Nevertheless, a strong result and obviously, EBIT on a constant currency basis, up close to 35% is not something I've seen before at Ansell and something that feels really good, of course.

Next page, just a couple of highlights on the Healthcare GBU. What is interesting here in the top right, you see demand, we estimate to be about 585 billion eaches or units, but supply is only capable of providing close to 400 billion. So we have a significant discrepancy between demand and supply, and that is why certain players are taking advantage. Ansell is instead using surcharges to essentially pass on our cost increases to customers, but we're trying to protect them, especially our long-term customers from too significant effects.

But having said that, some of these price increases are huge. And obviously, many of our customers are not happy about that, but it's not something we can avoid doing. We have also made significant progress in building more capacity. And in Thailand, where we have built a very substantial new facility that's coming on stream here in a couple of months. The brands are getting stronger. And I mentioned before, our Careplus joint venture is a really important move that's generated already a lot of value for shareholders. And is giving us a lot of optionality for how we can expand and how we can respond to customers' increasing demands on us. So very happy about that.

Going to next Page 15, Industrial GBU, a pretty solid performance, clearly, not as easy for this team to deal with the global market, a significant hit on the mechanical portfolio, primarily the cut portfolio that goes into automotive and metal fabrication and so forth. Less so in fact, the multipurpose range of mechanical gloves growing close to 5%, which is quite interesting, and that goes into distribution centers and food and general purpose handling. So we're seeing the breakthrough grip capabilities that we have with our multi-purpose products, really paying dividends, but the real offset to the negative challenges here is chemical. And here, as you know, we have invested aggressively for the last few years, both in building new lines, and we have a bunch of them going live this month actually, and also in our expansion in body protection where we have dramatically increased outputs from our key plants and added a couple of new plants or new lines to existing small plants in Lithuania and Brazil to be able to more effectively service the Latin America and European marketplaces. The EBIT impact here, up 7% on a constant currency and aided by transformation and product mix -- sorry, product mix was actually negative, but transformation was a big one. And clearly, volume in certain areas, notably in chemical was healthy. Some pricing benefits here and there, but not a huge number. So all in all, we're quite pleased with the results from the Industrial GBU, and they've certainly been fighting the fight. And I think our team, and our capabilities, and our plans are stronger now than they were 6 months ago. So they have also been paving the way for the period post-COVID. And yes, that will come.

A couple of observations on Page 16, highlighting here the chemical protective clothing. Clearly, the high-growth here. So the reason I want to put your attention on, it's starting to become a significant part of our business, and we have some interesting differentiation engineered into this line, and we're now integrating backwards into making our own clothing material, which is going to add to our capabilities in this space. We're very pleased with the AlphaTec brand, passing $200 million in sales for the first time, and this is particularly interesting. We put it in context, 5 years ago, we had 35 different chemical brands, and the biggest one had sales of $35 million, and it was not AlphaTec. So I think we've come a long way in making AlphaTec a second HyFlex, if you will, another strong dominant brand in its space with its particular DNA. So very pleased about that.

Next page, CSR sustainability. In a very dynamic year, we have not been able to progress our all of our targets when it comes to sustainability. I'm thinking especially about energy use and water use as key examples. And part of that is because the stop -- start and stop that we've seen happen in some of our plants related to COVID. We have, however, made significant progress on making sure that Ansell is leading the industry when it comes to how we deal with modern slavery and safety, of course. We are engaging with all of our suppliers to make sure that they comply with our standards. And on TCFD, we have made significant work to prepare for what we need to do in this area, and we have completed significant chunks of analysis related to the climate-related risks in our business. The one aspect of climate-related risk that I worry most about is water use. And so it's receiving a significant amount of investment to make sure that we reuse water as opposed to using freshwater, if I can call it that.

Finally, we have been very active in our communities as a successful company and having really critical products. We have been quite generous about donating gloves and suits and other products to numerous organizations around the world to help them get through this tough time. And that's, I think, what you would expect a market leader to do, and we have indeed, and with a tremendous involvement of our employees and the usual passion that we see at Ansell regarding this.

So with that, I'm going to hand over to Zubair to talk about some of the financials and give you a little bit more insight into how we got here. Zubair?

--------------------------------------------------------------------------------

Zubair Javeed, Ansell Limited - CFO [4]

--------------------------------------------------------------------------------

Thank you, Magnus. So I'll begin with our adjusted reported results on Slide 19. By now, you're familiar with the F '19 adjusted EPS of $1.115 and this, of course, included the add-back of transformation expense, which we consider to be nonrecurring. And clearly, it makes it more meaningful now to compare with the F '20 reported EPS of just under USD 122 (sic) [$1.218]. And as I've indicated before, the quality of earnings remains sharply in focus. And I'm pleased even in the pandemic-stricken second half that we've just been through, you can see in F '20, we have no need for any adjustments to the reported numbers. And that's further accentuated by a strong cash conversion, which I'll discuss shortly.

A couple of additional items to note on this slide. Firstly, the increased interest costs in F'20 that was driven by lower interest rates, we received on reduced cash balances. And then there was an accounting reclass as part of the new lease accounting standard. And then the second point to note is the 140 basis point or so increase in our effective tax rate, and I have detailed that in prior updates.

Both of these dilutive effects, clearly, they've been largely offset by the share buybacks that we've done over the last couple of years. And overall, this has led to a 9.2% EPS growth versus the F '19 adjusted number.

So turning to Slide 20, and I'll switch the dialogue to constant currency now and organic growth. And you can see, beginning with the revenue line, as Magnus highlighted earlier, the 9.3% growth in constant currency normalizes nearly $23 million of adverse FX movement year-over-year. And within that 9.3%, organic growth contributes 7.6%, and then the benefit from our Ringers and Digitcare acquisitions being the difference. Magnus has clearly covered the key drivers behind organic growth. So I'll move straight to the gross profit after distribution expansion line. And here, we grew pleasingly over 14% on a constant currency basis, while outpacing the revenue growth. However, on a reported basis, we continue to battle with the FX headwinds across the year in several revenue currencies, most notably the euro and sterling and on the cost side, the Thai baht. Again, we've mentioned this in previous calls, all going the wrong way for us in F '20. On a full year basis, the adverse hit to GPADE was in the region of about $27 million, and that's about 130 basis points of [usage] to the GPADE margin.

On top of that, probably like so many businesses, we've had to contend with additional COVID-related costs impacting our margins. And you heard Magnus just refer to some of this earlier. But as we reshape some of our manufacturing facilities, the key was to keep our colleagues safe and sound as they continue to work through lockdowns and so forth, and that came with some considerable expense impacting the margin. But the combination of transformation savings, we had favorable input costs in terms of raw materials. I'll cover a bit more of that in a moment, and increased pricing across both business units helped to soften some of these headwinds. And pleasingly, we finished the year with the GPADE up 34.5%, up 20 basis points on a reported basis.

Switching to SG&A. I told you in our H1 earnings call, I wouldn't be expecting the run rate reported then at 22% as a percent of sales to carry across the year. And indeed, the SG&A came in at just under 21%. That's even after a step-up in the R&D expense and higher employee costs in selling, marketing, administration areas, and that's following our improved financial performance. Magnus will cover our EPS guidance very shortly, but let me cover some considerations before that.

So firstly, we expect organic revenue growth should be notably higher than our usual 3% to 5% target range, and that will include both volume and pricing growth, but the pricing will probably be the outsized component of this growth, and to a large extent, will dollar-to-dollar cover cost increases from outsourced suppliers, as Magnus just mentioned. These are unprecedented times in that respect, but that will also -- in that basis, we're going to see GPADE and EBIT margin is diluted. So you've seen for the last couple of years and given the current environment, we'll, of course, continue to keep our belts tied with SG&A spending. And I don't expect run rate in terms of percent of sales to be materially higher than where we landed in F '20. And then finally, in terms of that, I anticipate the effective rate to be in the region of 22% to 23%, which is a couple of 100 basis points increase at the top end versus F '20.

So turning to Slide 21, some key points regarding the raw materials. And of note here is the 12% or so favorable nitrile costs, tempered by the 5% increase in natural rubber latex costs. The nitrile benefit from H1, we saw that continue into H2, but unfortunately, it was, to a large extent, undone by the pricing from outsourced suppliers. And going forward, I'd expect we'll continue to help to navigate a fairly capricious environment when it comes to these costs. And it will -- it's not going to be surprising to see supply struggle to keep up with what feels like connectible demand in the Single Use/Exam category at the moment. But one thing I can say, when we look at our suppliers, making 50%, 60% EBITDA margin, it's not something Ansell will be doing. That's for sure. Our customers, we have long-term partnerships with them, and we want to continue that long into the future.

So moving to Slide 22. We landed at the lower end of our CapEx investment expectations, just under the $65 million in fiscal '20, but with COVID lockdowns and travel restrictions, some of our engineering and installation efforts were hampered on several programs, but as we know on the slide here, we do expect to ramp CapEx back up in '21. And it will be in the range of $95 million to $105 million, and we'll tell you more about this after our coming Capital Markets Day. But ahead of that, at the bottom of the slide, you see the types of investment we're going to be driving. All 3 of these areas, the chemical protection clothing there in the picture on the left, the single-use gloves in the middle and the rubber insulator gloves or RIGS on the far right there. These are fast growing, exciting markets. And at the same time, we're pretty excited by the overall CapEx opportunities we have ahead of us. And we said many times before, when it comes to deploying excess cash, we like to be able to invest in ourselves as a priority, and that's because we have a good track record of high returns when we do this.

And -- so turning to Slide 23. And so here's an overview of our cash generation in the usual format that you're used to by now. And again, it's another strong cash conversion year, which I mentioned at the start, really disciplined and tight management receivables and payables contribute to a significant working capital inflow as this year underpins the 117% or so cash conversion. Over on the right, beyond operating cash flow, you can see the timely investment Magnus highlighted in the cashless joint venture. That's included in the $12.3 million acquisition number. And then in that section, you also see the clear step down in share buybacks versus F '19. We purchased over 3 million [shares](added by the company after the call) this year versus 10 million [shares] (added by the company after the call) plus in fiscal '19. So a clear step down, but living in this pandemic world, I'd say the cash dynamics of our business. This provides us great comfort. But equally, it's great optionality, and we can move very quickly from any strategic opportunities that arise, and we're happy with that flexibility.

And so lastly, taking a look at our balance sheet on Slide 24. The strong cash flow I just spoke about. This helps our net debt-to-EBITDA ratio, which is now up 0.4x and 0.6, if you incorporate the recent lease accounting change. I would caution here though, just because we have plenty of this capital deployment optionality, it doesn't mean we, as management, or our Board will suddenly relinquish the sound financial stewardship. That's well-established by Ansell, and it's reflected by rating agencies like Moody's. It's that type of discipline now that you can see evidenced in our return on capital employed, and it's pleasingly reaching 14% this fiscal year.

And so -- and finally, last but not least, in terms of liquidity, again, in this uncertain world, this gives us great comfort. Table on the bottom right there shows cash and cash equivalent balances north of $400 million. And I would note, in addition to this, we have plenty of room to draw down against committed financing facilities, and that's if the need arises.

So that concludes the financial section, and I'll hand back to Magnus for some broader comments on the F '21 outlook and Q&A at the end of that.

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [5]

--------------------------------------------------------------------------------

Great. Thank you, Zubair. So let's turn to the guidance page, Page 26. So as you know, we have a balanced portfolio with strong brands, and that we are well positioned to respond to COVID-19 or anything for that matter. And we do expect COVID-19 to be part of our lives for at least another 12 months, probably longer. And therefore, we'll go into also F '22. The Exam/Single Use segment will continue to see significant supply shortages or expressed differently, a significant and high demand for quite a period of time. And we are seeing significant cost increases, and this is not done yet. We expect these cost increases to peak in the second half of this fiscal year. And our mission is going to be to protect and sole protect our shareholders by passing price increases on. We've already taken 3 price increases, and we are going to need to take a fourth one in all likelihood towards the end of the calendar year. It's our estimate at this point.

And as Zubair pointed out, the EBIT margin in percentage terms will see some negative effects from this. And the reason is we're electing to focus on the long-term as opposed to and desperately protecting an EBIT margin for the short-term and royally upsetting our customers. That's not what we want to do, and that's why we're being a little bit careful in thinking long when it comes to these points.

When it comes to the strategic business units, we expect a mixed outcome through F '21. Exam/Single Use will grow rapidly. Chemical will grow meaningfully. Surgical will continue to grow, and in fact, we are seeing a bit of a pent-up demand being created for surgical procedures because when you have 3 or 4 months when elective procedures are not completed, it doesn't mean that they go away. It just means that those individuals now get more desperate to have them made later. So we're going to see strong demand. We expect for Surgical going into this year and into F '22 and Life Science for same reasons I mentioned before. And then, of course, mechanical is going to continue to take a bit of a beating, but we think that we are quite astute in how we're dealing with at this point. Yes, there are certain segments of mechanical where there's no work around other than gaining share, which we're working on, but we also have significant segments within mechanical that are growing nicely because of recent innovative products that we have launched and new capacity that we have recently completed. And for that reason, we think we can manage the challenge in mechanical. And that's why we're seeing confidently that we will grow substantially higher than 3% to 5% long-term target levels, driven both by price. Zubair covered some of the interest expense and taxes, and they will be a meaningful adjustment to our numbers year-on-year. And based on these, we are guiding to an F '21 EPS between $1.26 and $1.38. But we also acknowledge that the COVID situation is very, very hard to predict exactly what it's going to do and when vaccines will be readily available and so forth. And for that reason, we wanted to point out that this range will be impacted by a lot of things, raw material pricing. We have seen some favorability in this area over the last year, but we're now seeing nitrile spike up and we expect that, that will continue, and it will be quite dramatic. In fact, the industry is running out of nitrile, which is another aspect that's going to be a bit challenging for many companies, especially smaller companies, who may not be able to secure nitriles to even keep the dip lines running. So that's one.

Foreign exchange has had some significant swings up and down. And we expect the foreign exchange effects to be better certainly than we saw in the past year, but who knows what's going to happen after the U.S. election, and there is other significant events coming up in the year. And then, of course, we are going to have to manage really well, the prices, and we're going to need to manage really well, our ability to supply more volume because it's needed. We do all that, and the chart on the right, we should be able to deliver another significant lift to EPS after 3 years of double-digit EPS growth. We obviously want to target something in that range that you see spelled out there. And we think that we're in a good place to do that.

Let me go to the final Page 27 and formally invite you to our Capital Markets Day, Thursday, October 15, and we are going to be doing that virtually as well for obvious reasons. And we're also going to be following that up with a particular Q&A session for our European and North American investors, in particular, who may not like the time slot, Australia Time 3 PM. And what we're going to cover here, of course, is an update on what's happening with COVID, what's happening with the industry and competitive developments, clearly how we are traveling in this very dynamic world, regional highlights, future investments, we'll share with you what we're doing in some more detail. And some of the exciting investments that are starting to bear fruit. And then, of course, we're also going to give you an update on CSR and sustainability, where we expect to make significant progress during F'20 -- F '21.

So with that, we want to turn to questions, and I look forward to these and also some of the follow-on meetings to further clarify what we're doing, where we're heading. And again, I want to say thank you to my colleagues around the Ansell world, all 13,800 of them, and they have performed in a rather magnificent way during this very difficult year. So thank you to my colleagues. Questions?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions)

Our first question comes from Andrew Goodsall from MST Marquee.

--------------------------------------------------------------------------------

Andrew Goodsall, MST Marquee - Healthcare analyst [2]

--------------------------------------------------------------------------------

Congratulations on the result, and congratulations for also doing it epically compared to some of the competitors. Just wanted to ask you, just in terms of this result, the extent to which you think this result was boosted by some forward purchasing. We certainly saw a lot of countries and companies purchasing. And then perhaps just comment on sort of how that translates into the following year in terms of continued growth.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. Yes, I would say that there is some forward purchasing, but there is also an equal or bigger amount of orders being placed for later delivery, meaning capacity is not available to be shipped now, and yet many customers are placing orders for delivery in December or March and so forth.

So I don't think that there is a huge element of current sale being swooped up temporarily. Rather, we think that higher level of demand is going to continue for a while. And that's why we use those words carefully when we say significant higher than 3% to 5%. We wouldn't say that unless we felt that, that was a very high likelihood rate.

--------------------------------------------------------------------------------

Andrew Goodsall, MST Marquee - Healthcare analyst [4]

--------------------------------------------------------------------------------

Okay. So the visibility you've got, when giving that number, is the forward order book is actually looking pretty good and that might have...

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [5]

--------------------------------------------------------------------------------

Yes. I mean in our industry, we usually don't work with long order books. But right now, we are.

--------------------------------------------------------------------------------

Andrew Goodsall, MST Marquee - Healthcare analyst [6]

--------------------------------------------------------------------------------

Okay. And my second question, just -- there was no mention of buyback. Just any thoughts around these levels, whether you renew the buyback or continue the buyback.

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [7]

--------------------------------------------------------------------------------

Well we'll always keep our options open. It is a discussion topic at every Board meeting. But we also think that it's prudent in these very uncertain times to keep a lot of powder dry, and that's what we've decided to do. Obviously, that is greatly helped by the fact that we generate a lot of cash, but nevertheless, who knows what this world is going to look like 6 months from now. I don't think any one of us can predict that at this point, and therefore, we perhaps are a little bit on the side of caution.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Our next question comes from David Bailey from Macquarie.

--------------------------------------------------------------------------------

David Bailey, Macquarie Research - Research Analyst [9]

--------------------------------------------------------------------------------

Yes. Magnus, just tied the imbalance between supply and demand on Slide 14 there. Just wondering if you could give us a bit of a characterization of the type of product you're talking to there. And then within your Healthcare GBU as well just give us a bit of a sense as to what proportion is outsourced to OEMs basically, outsourced manufacturers.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. So this imbalance that we show on that Page 14 refers to Exam/Single Use, that there is a little bit of a supply imbalance also in some other areas, but it's dramatically smaller. So the real challenge here is on single use. So I think that's what you should take away from this one. And clearly, every participant in the industry is building capacity at this point in time. And while that will add to this $370 million (sic) [$370 billion] and at some point, it's going to get up close to the $585 billion that we have on that Page 14.

And the follow-on question you might have, well, isn't that at some point going to lead to deep discounting when demand goes down? And yes, there is a little bit of risk for that. And we are prepared for that by making sure that our own manufacturing operation is competitive and efficient. And we also focused a lot on making sure that whatever we produce in our own plants are differentiated products that are not going to be subject to the same amount of pricing effects on the upswing nor on the downswing. So they are slightly different products for different purposes. So we think that we're well prepared to deal with the swings that will come -- invariably will come. And -- yes, so let me stop there.

--------------------------------------------------------------------------------

David Bailey, Macquarie Research - Research Analyst [11]

--------------------------------------------------------------------------------

Yes. No worries. And then just a follow-on, last final question for me just on capacity utilization. Just wondering if you can just give us a bit of a sense as to where capacity utilization sits across various SBUs at the moment.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

It's sitting pretty -- well, first of all, in single use, it's sitting as high as it can be, so to speak. We're maximizing output. In clothing, we are looking to, for the medium term, set our utilization at 85%, mechanical and chemical, about the same thing. And the reason why we're setting at 85% is because we are putting more emphasis on flexibility and being able to move and to guarantee a high service level to customers.

We have some further work to do in this area. Some of our customers are not happy with us and with our service level and we recognize that, and are doing our utmost to address all of the reasons. And that includes not planning our plants to run at 100%. Plan them to run at 85% or maybe in some cases, 90%. That gives you some flex to respond to new wins and new orders and those kinds of things while still providing to end the service levels to existing customers. So that's the plan.

--------------------------------------------------------------------------------

David Bailey, Macquarie Research - Research Analyst [13]

--------------------------------------------------------------------------------

Yes. All right. And just sorry, just quickly on the increase in Thailand of 35%. Is that chemical or will that be single use as well?

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [14]

--------------------------------------------------------------------------------

That's single use.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Our next question comes from Sean Laaman from Morgan Stanley.

--------------------------------------------------------------------------------

Sean M. Laaman, Morgan Stanley, Research Division - Australian Healthcare Analyst [16]

--------------------------------------------------------------------------------

Congratulations on the solid result. Still on capacity, could you give us a view on what the capacity expansion is total across the group? And how that ties into the bump in CapEx for next year? And sort of how much are -- over time, have you brought capacity?

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [17]

--------------------------------------------------------------------------------

Well, that's a very complex question. But -- so I think we -- for the most part, answered the question on the single use, where the plan is indeed to significantly increase our internal capacity. Historically, we had outsourced a great majority of single use, and some of that came from the very safe acquisition that was 100% outsourced when we acquired the company. And we have gradually evolved the plan to focus more on internal manufacturing, on the very thing that's differentiated. So that's shifting, and this will help in that regard with the significant investments, not only in Thailand, but also in Careplus. Our partnership will give us significant -- significantly more control over the single use volume, if you will, and that is going to be an important way to control our destiny a little bit better. It was something else you asked.

--------------------------------------------------------------------------------

Sean M. Laaman, Morgan Stanley, Research Division - Australian Healthcare Analyst [18]

--------------------------------------------------------------------------------

Just how that ties into the bump in CapEx that you're forecasting for fiscal '21? And I guess sort of where CapEx, as it relates to capacity, goes forward from there?

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [19]

--------------------------------------------------------------------------------

Yes. So in F '20, the jump up in CapEx from $43 million to $65 million was heavily impacted by the investments in Thailand on single use, but also some chemical lines going into Malaysia as well as some surgical investments in Melaka and Sri Lanka and finally, a number of mechanical lines, primarily the multipurpose type of high-flex gloves, and -- that are growing nicely.

So investments were pretty broad in all of the areas where we see good growth, and we expect that, that will continue. And so there will be further significant investments in Life Science and more investments in chemical and [more] protection, more investment in single use, and more investment in Surgical. And generally, we see a pretty fertile ground here for Ansell to drive differentiation by controlling the amount of manufacturing we do.

We have a number of new technologies that we roll into these new lines that we're building that we think are going to be essential, especially when it comes to single use and when it comes to defending positions and defending pricing when at some point, a year from now or 18 months from now, prices come down to earth again.

So yes, I think that tells you what the intent is.

--------------------------------------------------------------------------------

Sean M. Laaman, Morgan Stanley, Research Division - Australian Healthcare Analyst [20]

--------------------------------------------------------------------------------

Sure. And one more follow-up, if I may, Magnus. So I was intrigued by your comments on the bump in nitrile price and some of the smaller scale players. And just in terms of -- how do you think that might play out? I mean do you see this sort of organic rate of business attrition? Do you think it may open up M&A opportunities, especially considering the strength in your balance sheet, particularly after the year you've just had?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes, it could. I think it's going to get really hairy for a number of players. And we, I think, will retain a lot of strength through this super dynamic period, and that should give us quite a bit of optionality.

So I'm confident that we can do some interesting things here as the ground is going to be shaking under some of our competitors.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

Our next question comes from Gretel Janu from Crédit Suisse.

--------------------------------------------------------------------------------

Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [23]

--------------------------------------------------------------------------------

Just first question for me, just on the sales by SBU on Slide 10. Can you give us some indication as to how each of the SBUs performed as you exited at FY '20 and through July? Are those growth rates still applicable into July?

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [24]

--------------------------------------------------------------------------------

Zubair, for a change in voice, do you want to take this one?

--------------------------------------------------------------------------------

Zubair Javeed, Ansell Limited - CFO [25]

--------------------------------------------------------------------------------

Yes. Thanks, Magnus. So Gretel, the trends that we saw -- of course, we're going against softer comparisons against the prior year. But so far, and as Magnus said, the demand from single use has not dissipated. So we're seeing good trends in July and where we are in August in that area.

And I would say, mechanical on the Industrial side is also holding up. So across all SBUs, I think we've got good trends, and we're happy with the results so far. I mean that's all I would comment on that.

--------------------------------------------------------------------------------

Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [26]

--------------------------------------------------------------------------------

Okay. Good. And then just in terms of the guidance, does it include any benefits from share buyback in FY '21?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes, we haven't...

--------------------------------------------------------------------------------

Zubair Javeed, Ansell Limited - CFO [28]

--------------------------------------------------------------------------------

We haven't modeled any share buyback in F '21, of course. But we -- as Magnus has said, we continue to keep that option open. And yes, when we look at the guidance range, probably in the second half, we'll probably start looking at that optionality again. But as Magnus said, we want to keep the power dry in the first half, so to speak.

--------------------------------------------------------------------------------

Gretel Janu, Crédit Suisse AG, Research Division - Research Analyst [29]

--------------------------------------------------------------------------------

I understand. And then just final question, just on the transformation program. It's now complete. So how should we think about future cost savings?

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [30]

--------------------------------------------------------------------------------

Well...

--------------------------------------------------------------------------------

Zubair Javeed, Ansell Limited - CFO [31]

--------------------------------------------------------------------------------

So this is how I would characterize -- sorry, go ahead, Magnus.

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [32]

--------------------------------------------------------------------------------

Okay. We're very pleased with the program overall. It has been fully implemented. It's created fewer and larger plants, and we're seeing the benefits of that. We have, though, also seen some other effects kicking in that has nothing to do with the transformation program.

We're seeing CSR expectations in many countries increasing. We see sustainability-type expectations increase, and we intend to be continuing to lead our industry and therefore, will take on these expenses to make sure that we run our plants better than anybody else when it comes to CSR and sustainability. But that's going to cost a little bit of money, but we think it's well worth it. And we also believe that many customers are paying more and more attention to this, and some of our competitors who may not want to follow are probably going to struggle a little bit with certain customers who will absolutely refuse to buy from them. So it's the right thing to do, and we intend to keep at it, but it will cost a little bit of money. So that's a factor.

And then, of course, COVID has also been quite expensive when it comes to manufacturing and manufacturing efficiency. And now I think that's going to probably improve a little bit as we have made the upfront investments in automatic temperature control devices and reeling our plans and stuff like that, and building new cafeteria spaces so that we can spread out our employees and those kinds of things. But even so, it is a little bit more expensive to run the plant. That's going to be orchestrated to be super safe in a COVID environment. So I think you need to keep that in mind, but I'm not backing away from the statement that we delivered our transformation benefits.

--------------------------------------------------------------------------------

Operator [33]

--------------------------------------------------------------------------------

Our next question comes from Saul Hadassin from UBS.

--------------------------------------------------------------------------------

Saul Hadassin, UBS Investment Bank, Research Division - Executive Director & Research Analyst [34]

--------------------------------------------------------------------------------

Magnus, just one on -- you mentioned nitrile supply and potential capacity issues there. Are you seeing any capacity expansion announcements from those supplies? I mean what do you expect as to that tightness of nitrile during FY '21?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. Yes, we are seeing a number of initiatives by the lead players, like Synthomer, to build more nitrile capacity. But much like it takes us 1 year or more to build a mega new dip line, it takes them at least that time to build more capacity to produce nitriles. So there's going to be a time period here when many glove companies will not be able to get all the nitrile they need, and we're already seeing some people bidding to get more volume. And this is where long-term relationships, again, play a role. And the ability to sort of guarantee stability and supporting those suppliers through thick and thin is important. And that's what Ansell does, and that's why we are faring quite well in this kind of a situation.

--------------------------------------------------------------------------------

Saul Hadassin, UBS Investment Bank, Research Division - Executive Director & Research Analyst [36]

--------------------------------------------------------------------------------

And just to follow-up on that Slide 14, just to make sure I've understood this correctly. When you talk about the Thailand expansion and what that does, for instance, as it relates to internal manufacturing of Exam/Single Use. Do you guys currently outsource effectively 80% of that product to OEMs? And in increasing your capacity by 35% internally, I'm assuming that -- if it is 80%, that will fall to somewhere around 70%. Is that how to think about what that capacity expanding does for your internal manufacturing capability?

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [37]

--------------------------------------------------------------------------------

Directionally right, we're expanding in some other places as well. So there's a little bit more opportunity than your mathematical example indicates.

--------------------------------------------------------------------------------

Saul Hadassin, UBS Investment Bank, Research Division - Executive Director & Research Analyst [38]

--------------------------------------------------------------------------------

At the end of FY '21, I guess the question is what percentage of your Exam/Single Use will still be sourced from third parties?

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [39]

--------------------------------------------------------------------------------

Well, first of all, I don't know precisely. And even if I did, I probably wouldn't want to talk about it at this point. But just know that we are going after this quite aggressively.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

Our next question comes from Vanessa Thomson from Jefferies.

--------------------------------------------------------------------------------

Vanessa Thomson, Jefferies LLC, Research Division - Equity Analyst [41]

--------------------------------------------------------------------------------

You noted that one of the challenges in FY '21 is supplying volume. I wondered if this was around manufacturing the volume or more around supply chain disruption.

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [42]

--------------------------------------------------------------------------------

It's a little bit of everything, I would say. Clearly, when we were forced to shut down some plants due to COVID, we lost, in some cases, a month of production. And if you're running your plant at 90%, and you're losing a month production, you're not going to recover that in the year. So that's one aspect.

The other one is these shutdowns don't spread evenly like butter on the sandwich. So they can hit harder in one particular area than others, so that's a factor.

Third, transportation has been a big challenge. Air freight has all but disappeared, and the reason is that most air freight in the world goes on passenger planes, and they don't exist anymore, at least not much. So that's been an issue.

We've also seen a number of the containership suppliers also withdrawing capacity from markets so -- to hold or keep prices up. So there's been lots of different challenges.

And just to add to that one, we've seen, in some of our warehouses, COVID hitting an employee or 2, and guess what that means? Well, we shut the place down. We send everybody home, and we do some tracking on who talked to whom, and then we start the facility up a few days later. But again, if you're running pretty intensively with high utilization and you lose 2 or 3 days of delivery, that's not going to help in the scheme of things.

So as you can tell from my answer, lots of different reasons. In fact, there are thousands of them that we've been dealing with on the last 6 months. But all in all, I think our team has done a really good job in driving volume to market.

--------------------------------------------------------------------------------

Vanessa Thomson, Jefferies LLC, Research Division - Equity Analyst [43]

--------------------------------------------------------------------------------

Okay. We understand that on supply, again, that contracts are typically multiyear. Has there been any change to that more recently? And then are you selling much product out of contract?

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [44]

--------------------------------------------------------------------------------

This is when we source, you mean? Or when we sell?

--------------------------------------------------------------------------------

Vanessa Thomson, Jefferies LLC, Research Division - Equity Analyst [45]

--------------------------------------------------------------------------------

Sorry, when you sell.

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [46]

--------------------------------------------------------------------------------

Yes. So -- and that's what I meant by protecting these long-term customers. Where we -- as you rightly surmised, we do sell a relatively fixed volume every day or every month, and we wanted to protect those customers so that they continue to receive their allotment.

And then number two, we wanted to give them a chance to take part on the upside opportunity. So we primarily focused on our strongest partners and distribution partners to give them more volume before taking on new customers. So that's generally how we've handled it.

--------------------------------------------------------------------------------

Vanessa Thomson, Jefferies LLC, Research Division - Equity Analyst [47]

--------------------------------------------------------------------------------

And so it is still sold mostly on a contract basis?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Not -- well, yes. And there's a relatively high percentage on some form of contract. But there's also quite an amount of business that is fluid, so to speak. It's not a specific contract. It may be an implied contract or it's a rhythm that's been established over a period of time, but without necessarily a fixed contract. So we have a bit of both, and we have some of it going direct and some of it going through our distribution centers. So there are a number of different models that we use.

--------------------------------------------------------------------------------

Vanessa Thomson, Jefferies LLC, Research Division - Equity Analyst [49]

--------------------------------------------------------------------------------

Okay. And then one last question was just around labor costs. You've noted that they've increased the industrial unit, and I wondered where you're seeing these increases and what you're expecting for the future.

--------------------------------------------------------------------------------

Magnus R. Nicolin, Ansell Limited - MD, CEO & Executive Director [50]

--------------------------------------------------------------------------------

Well it's -- yes, I understand. So it's not only increasing in the industrial, it's increasing everywhere, and part of it is normal and natural labor cost inflation. And in many of the countries where we produce, the annual labor rates increase by somewhere between 5% and 10%, depending on the country. And then on top of that, we had additional costs related to COVID. And on top of that, we had additional costs related to how we run the plants with foreign workers and how we manage that specifically, especially in view of modern slavery requirements, where we are leading developments in this area by making sure that recruiters who help hire these foreign workers in their home countries behave in the right way. So that's required some close attention as well.

--------------------------------------------------------------------------------

Operator [51]

--------------------------------------------------------------------------------

Our next question comes from John Deakin-Bell from Citigroup.

--------------------------------------------------------------------------------

John Deakin-Bell, Citigroup Inc., Research Division - Director and Head of Healthcare in Australia & New Zealand [52]

--------------------------------------------------------------------------------

A couple of quick questions. Just on the Surgical business, you commented that there was some recovery currently. Can you just give us a bit of a feel geographically, where that's coming from? Is it uniform? Or is it better in Europe than in U.S.?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. It's -- so the Surgical business has developed quite well worldwide, actually. We've had some significant wins in North America. Latin America, although small, has played an interesting part here. In Europe, we've seen some really good wins in places like Germany and the Nordics and Russia. And in Asia, had some really successful developments in Japan, strong growth in China, amazing growth in India and some significant wins in a whole host of small countries.

So I think the Ansell global footprint is really playing out here, and we're seeing strong growth, both in natural rubber latex surgical gloves as well as in synthetics, polyisoprenes and so forth.

So it's pretty broad-based and driven by good, strong attention to the business, more volume being made available through our investments in more capacity and quality steadily improving. It is intended to be the best in the industry, and now it clearly is the best in the industry.

So I think there are lots of reasons here, some new distribution partners that we have signed up with and some big hospitals that we converted from the competition. So there are many different reasons. But generally, we feel pretty good about the Surgical business.

--------------------------------------------------------------------------------

John Deakin-Bell, Citigroup Inc., Research Division - Director and Head of Healthcare in Australia & New Zealand [54]

--------------------------------------------------------------------------------

And the -- this pent-up demand from the deferral in elected surgery, is that broadly coming back? Or is that more in some countries than others?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

A little bit is coming back. I mean if the surgical activity level went from 100% in January to 60% or 50% in April, it's maybe back to 60% or 70% now. But it certainly isn't 100%. So clearly, there are a lot of procedures that are not being done.

I would assume that some, particularly super elective surgeries, cosmetic surgeries, might get sort of lost forever, so to speak, or will not be conducted. But there are other elective surgeries that are actually quite necessary that will and must come back, and that can be everything from cancer-related or related to cardiology and those kinds of things. So I think there's going to be a bit of a pent-up demand here in Surgical.

--------------------------------------------------------------------------------

John Deakin-Bell, Citigroup Inc., Research Division - Director and Head of Healthcare in Australia & New Zealand [56]

--------------------------------------------------------------------------------

Okay. And just my final question, just on pricing. You obviously commented in (inaudible), et cetera that you've passed on increased costs. But in the areas that have been negatively affected like the mechanical business and to some degree, the Surgical. Have you put through your normal price rises in the second half? Or is it -- you just kind of left everything at a pause?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. Zubair, do you want to take this one here?

--------------------------------------------------------------------------------

Zubair Javeed, Ansell Limited - CFO [58]

--------------------------------------------------------------------------------

Yes. So thanks, Magnus. In terms of the pricing, we've got our usual pricing dynamics. We're not going to give those up because of the pandemic. Obviously, on the Exam/Single Use, pricing just went crazy, but the outsource supply is coming through, as Magnus has said, and it's clear by now. But on something like Industrial where we have innovation, that is coming through the pipeline. We still want to price that innovation and also a lot of the discipline we put in a couple of years ago and just holding on to price we've maintained. And then you'll recall in the first half, we had tariffs that were coming at as well, that was still priced in. But overall on the Industrial side, I'd say we have to be very careful, clearly. We don't -- some of those customers are also buying our Exams/Single Use products. So we kind of look at it as part of the portfolio. But overall, we do have some small price still being maintained there, and we've got our usual pattern into fiscal '21 as well on both business units.

--------------------------------------------------------------------------------

Operator [59]

--------------------------------------------------------------------------------

Our final question will come from David Low from JPMorgan.

--------------------------------------------------------------------------------

David A. Low, JPMorgan Chase & Co, Research Division - Research Analyst [60]

--------------------------------------------------------------------------------

Just one question for me. Magnus, long term, I mean you've presumably given this a lot of thought, and I'm looking at Slide 10 where we've got the breakdown into the various subcategories. But what do you think COVID-19, which parts of it do you think are going to have a permanent effect? And I guess we can figure out some obvious ones where there's probably going to be elevated demand where it might come off again. Just wondering how you're thinking about that perhaps 2 or 3 years out.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. I believe single use will have a permanent or lasting effect, at least for many, many years, call it, 5, because this virus has alerted people to the fact that you need to protect yourself. And a single-use glove is a very inexpensive way to do so. And so I think that one is going to see a lasting effect.

The other factor here is that different parts of the world is using a much smaller number of single-use gloves per capita. The highest usage is in North America, and it's 10 or 20x the usage per capita of, say, Asia as a whole. Obviously, a big variability within Asia, but I think it says something about what protection is all about. And I think we've all, as I said in my intro, we all know what PPE is and what it does and why it's important and so forth. And I think we're going to see a permanent effect of that.

Second one, in chemical, we've been able to step forward here and take a bigger role in the broader protection area. We are clearly in the #2 global position behind DuPont in this area. And it's also seeing probably a buildup of demand that's going to last for quite a while.

And then the third one is Life Science. We've been in love with this business segment for a while now, and that's why we made the acquisition we did 3 years ago in Nitritex, and it has been growing double digits ever since. And we think that a disease like this one is going to remind every pharmaceutical company in the world and every private equity firm in the world that, hey, this is an attractor space to invest, because if you get it right, it's huge. So we think that Life Science is going to continue to be super attractive. And I think within mechanical, we're making some bets on a couple of areas as well. Not least, smart gloves or connected gloves, that essentially communicate with the wear and tell them what's going on and -- or tells them what's going on, those kinds of things. So I'm actually quite optimistic about the PPE industry, if you will, or the Healthcare & Safety industry, generally speaking.

And a lot of this crisis serves as a reminder to everybody that this is important. And it's kind of striking that because people are paying attention to this and washing their hands and wearing a mask and that kind of stuff, all kinds of other influenzas and whatever is way down. So I think people are learning a lot about how to protect themselves.

So...

--------------------------------------------------------------------------------

Operator [62]

--------------------------------------------------------------------------------

That was our final -- sorry, go ahead.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Excellent. So let me then wrap up. First of all, thanking you for taking so much time to spend with us. We're excited about what the company has been able to do, but we're also very humble about the challenges ahead. This is a nasty virus, and it's not done yet, and we're going to have to be vigilant. We're going to have to continue with our safe practices for probably years, and it's not going to be easy. We've seen a lot of enthusiasm from people being allowed to work from home, but there's going to come a time when we need to meet face-to-face again and when we need to travel again. And walking that fine line of moving forward into a post-COVID environment is going to be tricky, and we're focusing quite a bit of management time in figuring that one out at this point, and it will entail a certain amount of little stepping stones to learn and develop.

But with that, thank you so much, and we hope to see you or at least virtually see you on our Capital Markets Day, and I think we'll have some interesting stories to tell at that point in time. So thank you, everybody.

--------------------------------------------------------------------------------

Operator [64]

--------------------------------------------------------------------------------

Thank you so much. Ladies and gentlemen, that does conclude the call today. Thank you for attending. You may now disconnect.