Ansell Limited Provides FY22 Trading and Business Update - ANN Transcript Summary

Anita Chow: Thank you for joining us today. I'm Anita Chow, Head of Investor Relations at Ansell. With me, I have Neil Salmon, our CEO; and Zubair Javeed, our CFO.

 

As you may be aware, we released an announcement to the Australian Stock Exchange this morning, providing an update on our FY 2022 trading and business.

 

Today, Neil will provide some opening remarks, and then we will open up for questions. Before we begin, just some basic housekeeping. You can ask questions by text or audio. To submit questions by text, select the messaging tab at the top of the LUMI platform, on the left-hand side.

 

At the top of the tab, there’s a section for you to type your question. Once you finish typing, please hit the arrow symbol to send. I’ll turn it to [Lee] to ask a live audio question. You can do so by using the phone number provided in asking audio question section or using the web browser by clicking on the link.

 

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I will now hand over to Neil to commence the call.

 

Neil Salmon: Thank you, Anita, and good morning to you all. As you will have seen this morning, we updated the market on our trading performance, providing provisional results for our first half and a reduced guidance range for the year.

 

Let me begin by talking you through that announcement, with comments on our first half. I'll then provide some details of two recent events, which we have had to factor into our revised expectations of the year and then we'll take your questions.

 

You will understand that as we have not yet published our half year results in full, there may be some questions you have, which I'll need to defer to be addressed during our scheduled results call on February 15. I will also not be in a position today to provide significant additional detail beyond that provided in our release earlier today.

 

Let me start by reminding you of our expectations for the year as we published our year-end results in August. We said, we expected to see continued demand for Mechanical, Surgical, Life Science products and our internally manufactured single-use gloves.

 

We said lower demand was expected in areas, which benefited most from COVID-19 in prior year, i.e. Chemical Body Protection and undifferentiated Exam/Single Use gloves, and we said pricing was expected to be a feature positively and negatively. These trends were all apparent in the half.

 

Surgical and Life Science achieved good growth on strong demand. Mechanical performed above our expectations in emerging markets and that overcame weaker than anticipated demand in mature markets to record solid Mechanical growth overall.

 

For single use and Chemical, we did experience lower demand with the dip in demand more pronounced than anticipated. A significant factor was high levels of inventory ahead of us in the supply chain. We continue to expect demand conditions to normalize once excess customer inventory is worked through.

 

Encouragingly, even in these challenging market conditions, our in-sourced single use products under our TouchNTuff brand name, did well, recording volume growth over last year and supporting our investment case behind the construction of our new in-house manufacturing capacity in Thailand. Although single use volumes overall were below expectation, pricing developed largely as anticipated and we have also secured lower pricing from our outsourced suppliers.

 

Our reported margins were lower for reasons I will now turn to.

 

As we indicated at the start of the year and in my comments at the AGM, we anticipated first half margins to be lower as a result of a number of factors [that will be at limited] time duration.

 

Biggest factor is that although both, our selling prices and our outsourced supplier purchase prices reduced in the half, the half year result reflects fully the impact of lower selling prices.

 

However, the benefit of lower purchasing prices has been substantially delayed by the consequence of lower demand, leading to a slower than expected sell-through of higher cost inventory purchased at the higher prices of some months ago. As demand returns and selling price and cost prices come back into line in the P&L, this effect will normalize.

 

The other factors negative to first half margins were the cost of the manufacturing shutdowns in the first couple of months of the year. And inflation factors, particularly on logistics costs, which came in higher than expected. These were partly recouped by price increases, with additional increases having taken effect from the first of January 2022. We were successful in partially offsetting lower GPADE margins through tight management of SG&A expense.

 

The final factor impacting first half performance versus earlier expectations was challenges we experienced catching up on the loss production arising from COVID-related shutdowns earlier in the year, continued shortages in worker availability, particularly for packaging operations and further delays to shipping lead times, contributed to a sales shortfall in the final months of the half as orders on hand could not be fulfilled during the half.

 

In summary, most of our businesses performed in line with expectations in the half. The single use, we saw a steeper dip in demand of outsourced single use products than expected. Continued supply chain disruption held back the realized revenue of all businesses and margins were lower for the reasons stated.

 

Let me now comment on the two recent events, which we have disclosed to the market today, and which we have considered in our updated guidance range.

 

Firstly, we were required by local authorities to shut one of our Malaysian facilities on Thursday of last week, after we reported to them a moderate rise in the positivity rate of our ongoing COVID testing.

 

Our revised guidance assumes, we will be able to restart production within the next few days, consistent with the guidance given by local authorities. Achieving this will be subject to reduced positive testing rates prior to the restart.

 

Secondly, late on Friday, the 28^th, US time, we became aware of a withhold release order that U.S. Customs and Border Protection issued against YTY Industry Holdings. YTY is a key supplier of single use gloves to Ansell, primarily to customers in North America. As a result, we have suspended our orders from YTY to customers in North America. We are now developing plans to ensure continuity of supply to customers through current product offerings or equivalent alternatives.

 

Taking into account our lower than anticipated performance for the first half, our current estimate of the impact of disruption to manufacturing arising from the Omicron variant in the second half, and our current estimate of the impact of the withhold release order on YTY on our US sales, we are today lowering our guidance range to a new range of $1.25 to $1.45.

 

While I take no satisfaction from having to deliver this news to you today, I want to reiterate that across most of our businesses, our performance is continuing to develop in line with expectations and with significant growth from pre-pandemic levels to today.

 

The primary reasons for our lower expectations for earnings in this fiscal year are the impacts of the news announced to you today and the lower performance of the Exam/Single Use business as a result of challenging market conditions.

 

Let me conclude by saying, I remain confident in our strategy going forward and in the value and growth prospects of our business. We have a committed and talented Ansell team, who are determined to deliver on our strategic goals and I look forward to providing more details on this at our half year results release, on February the 15^th.

 

So, now let me hand it back to Anita, and I will take your questions.

 

Q&A 

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