Ansell Limited (ANN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is John Bevan, and I am the Chair of Ansell Limited. It is my great pleasure to welcome you today. Before I open the meeting, I'd like to take you through the procedural aspects of the meeting. Today's meeting has been held online via the Lumi platform. This allows shareholders, proxy holders and guests to attend the meeting virtually through a live webcast. In addition, shareholders and proxy holders have the ability to ask questions and submit votes. I would like to highlight to shareholders that there is a slight transmission delay within the Lumi platform. We have structured the meeting to take into account this delay and will include necessary pauses where interacting with shareholders. Every effort has been made to ensure the meeting runs smoothly. In the event we experience technical difficulties and I can no longer participate in the meeting, the Board has agreed that Mr. Peter Day, another Ansell Director, will step in as Chair for the rest of the meeting. Any further procedural updates will be provided on our website and a recording will be available. Shareholders and proxy holders' questions will be dealt with through an online system. To ask a question, please press on the speech bubble icon on your screen. This will open a new screen. At the bottom of that screen, there is a section for you to type your question. Please also note which resolution your question relates to. Once you have finished typing, please hit the arrow symbol to send. Questions can be submitted at any time, and you do not need to wait for the relevant item of business to ask your question. We encourage you to start asking questions now. If you have any difficulties, please contact the AGM hotline number, which is displayed on the screen now. We will hold all questions until the relevant time in the meeting. Questions may be moderated or if we receive multiple questions on one topic combined together. Depending on the question asked, I will decide as to whether I will answer or ask a member of management or the auditor to respond. Today, Catherine Stribley, our Company Secretary, will be reading out the questions. We also received 2 questions from shareholders in advance of the meeting, and I will respond to these as well. Voting today will be conducted by way of a poll on all items of business. Voting for all resolutions will open shortly, and the poll will remain open during the AGM, so you can vote on all items at any time. If you are eligible to vote, a new polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit Submit or Enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare voting closed. Voting is now open on all items of business. The polling icon will soon appear. Please submit your votes at any time. A warning will be provided before I move to closing voting. The Company Secretary has confirmed that a quorum is present, and I declare this Annual General Meeting open. The notice of meeting was released on the 28th of September 2020. And with your approval, I will take the notice as read. This is a shareholders meeting, and only shareholders, their attorneys, proxies and authorized company representatives are entitled to vote and ask questions at this meeting. If you are attending as a proxy and you have been instructed how to vote, I ask you to ensure that any vote you cast is in accordance with those instructions. We have appointed Mr. Michael Hutchison, a Manager of Computershare Investor Services Proprietary Limited, assisted by members of his staff as returning officer to this meeting. Joining me today is Ansell's Managing Director and Chief Executive Officer, Magnus Nicolin; and my other Board colleagues, Peter Day, Leslie Dejardins, Marissa Peterson, Bill Reilly, Christina Stercken, Christine Yan and Nigel Garrard. Our Company Secretary, Catherine Stribley, also joins us. I would also like to welcome members of the executive leadership team present during today's meeting: Zubair Javeed, our Chief Financial Officer; and Michael Gilleece, our General Counsel. Penny Stragalinos, who was KPMG's audit engagement partner on the Ansell account for fiscal year 2020, is also in line and available to answer any questions during the meeting regarding the conduct of the audit and the content and preparation of the audit report. Now for my address. As with many aspects of this extraordinary year, we find ourselves meeting virtually for the first time. This is my first meeting as your Chair. I took over from Glenn Barnes after last year's meeting. And here, I'd like to acknowledge Glenn's remarkable contribution to our company. Over many years, Glenn provided stability and consistent direction to enable Magnus Nicolin and his management team to build the modern Ansell. The company has performed exceptionally well this year. Of course, the circumstances were unprecedented, but the onset of the pandemic found Ansell, in Glenn's own words last year, a clearly focused, market-leading company in the personal protection space. Undoubtedly, this was a year of enormous challenges and opportunities. Among those were impacts on the core business of the Board, which was forced to defer both the CEO succession and our scheduled Board renewal processes. From where we sit now, I believe that at the next AGM in 2020, we will be able to introduce shareholders to a new CEO, and we'll also farewell 2 long-standing Board members, Marissa Peterson and Peter Day. Let me now make some broad observation about Ansell's experience in this pandemic year. Firstly, I particularly want to highlight how well the organization has done. Ansell has kept its employees safe while expanding supply to unprecedented levels. There have been very few COVID cases anywhere in the company so far. And of course, we remain acutely vigilant. The factories have managed the pandemic due to high-quality systems in place, sensible reconfiguration of work and rigorous controls on the movements in and out of production areas. They've done this in the face of unprecedented demand, reaching supply levels the company has never achieved before. Secondly, I believe the pandemic has triggered lasting behavioral responses around the world that will see significant and sustainable step changes in demand for PPE. Social distancing requires failsafe hand and body protection. And this lies squarely at the heart of Ansell's specialized global capability and market niche. So we see significant volume growth and positive markets ahead. The company is responding with sustained investment in both new plants and expansion of existing ones to add significant volumes over the next 2 to 3 years. Thirdly, in the face of extraordinary pressure, owing to the nature of the crisis, Ansell has maintained its values and business standards and is determined to continue to do so. We have a 125-year history of doing business responsibly, and we don't intend to mar our reputation by exploiting short-term opportunities. In the face of extraordinary demand this year, we prioritized our existing customers first. We also maintained our traditional pricing, except to the extent that we were forced to pass on the rising cost of some inputs. In addition, during the pandemic, we have maintained our commitment to improving labor standards, both in our own operations and in the supply chain. As we updated you last year, we are auditoring our own plants and those of our suppliers. Our independent auditors of suppliers were, however, interrupted, owing to the impact of the pandemic on international travel. We see these audits as even more important than ever, and we have started to resume our audit program. This year, we have also released our first modern slavery statement now required under Australian law. Finally, shareholders, we have seen that business condition enabled the Board to increase the dividend to USD 0.50 this year, a rise of 7%. We believe this was a prudent and measured increase. Yes, the pandemic boosted our health care business and allowed us to swing in extra production from our industrial business, but our traditional industrial business suffered with the broader social and economic impacts of disruptions, lockdowns and reduced activity globally. So we took a balanced view. In the same way, we applied a careful lens to senior management remuneration. During a year of unprecedented impacts in our business, it was critical for the Board to ensure that remuneration outcomes align to company's performance, shareholder experience, workforce impact and the state of the broader community. We applied downward discretion to incentive outcomes because the unexpected boost in PPE volumes triggered by the pandemic, to some extent, represented a windfall, outside of management control. On the other hand, management was able to achieve a corresponding boost in actual sales by effectively managing our virus risks by working around the clock to reconfigure plants and supply chains and by reconfiguring the business itself to deliver exceptionally well out of the office and away from customers. So again, we took a balanced view. We intend to complete a thorough review of our remuneration framework this year, which may lead to changes in FY '22. Where any evolutions are made to our framework, we will ensure strong alignment to the fundamentals of our business and the shareholder experience, and we will consult widely before making any final decisions. Overall, I think our year at Ansell was one of achievement in extraordinary circumstance. It takes time, perseverance and commitment to build a global market leader in manufacturing. As Glenn Barnes would agree, Ansell's leadership was a little more than an aspiration when he and Magnus forged their strategy and vision over 10 years ago. Now, however, the creation of such a business is there for all to see. Finally, I'd like to acknowledge the tremendous leadership of our CEO, Magnus Nicolin, and his leadership team and to express on behalf of the Board our deep gratitude to the team and the thousands of Ansell employees all over the world. I would like to now invite Magnus to provide more detailed comments on the results outlook for the current year.

Thank you, John. And thank you for that introduction. It has indeed been an extraordinary year of challenge and opportunity and a year that started with a lot of focus on keeping our teams safe so that we can deliver our safety solutions to customers all over the world. I wanted to say that it's been helped greatly by having a passionate organization and passionate employees all over the world and also having a very dedicated and hard-working Board. And John, I want to thank you for your guidance and leadership on this journey and during a dramatic and interesting year. Now I'm going to take you through a couple of slides to talk to what we have been focusing on as an organization and to give you a little bit of an insight into what we expect will come next. Next page. Of course, we have our usual disclaimer. And since this is posted on our website, you can study this later. Next page. Clearly, Ansell is positioned as a safety company. Yes, we are the biggest purveyor of gloves of any and all types to customers around the world. But the fact is we're not in the business of selling gloves, we're in the business of providing safety solutions. And traditionally, that has addressed challenges of cut protection or chemical protection or even electrical shop protection, and of course, this year, more than ever before, viral protection. So this is at the core of who we are. This is in the DNA of this amazing company. On the left on this page, you see our safety record because, yes, we are in the business of selling safety, but we also practice safety. We make sure that our plants and offices operate at the highest standards of safety. And on the right, you see a number of different examples or comments to how we surround our solutions with safety, including Guardian, our patented solution to provide a software support to safety officers to find the right safety solution. Next page. When it comes to statutory results, they look very beautiful this year because we're comparing to adjusted results last year. So the most meaningful number on this page, I would say, is the dividend increase of 7%. So let me go to the next page, please, where we have a real apples-to-apples comparison of results delivered. Starting with sales, where, in constant currency, our sales grew 9.3%. And in organic terms, that was 7.6%. So without the benefit of M&A or acquisitions, it was 7.5% roughly. That translated into EBIT growth of 21% constant currency; profit attributable, up 19% constant currency; and with the help of a little bit of buyback of our shares, turned into earnings per share growth of almost 24% in constant currency, with strong return on capital employed of 14% and an increase again for the 17th year in a row of our dividend to $0.50. And all this with very strong -- a very strong balance sheet and low levels of debt. Operating cash flow, about as high as it's ever been with 118% cash conversion. And of course, we bought back $68 million worth of shares. So a really good year and with all arrows in green and pointing up. So in my book, this is a beautiful picture. Next page, please. Now 3 years ago, we organized the Capital Markets Day to describe for our shareholders what our longer-term ambition was for this company. At that point, we set an organic growth number of sales to be 3% to 5% per year as an average over a period. This past year, we delivered, as we talked about, 9.3% in constant currency. So a nice achievement of -- or exceeding of that target. When it comes to the -- on the financial goals, we have 5% to 10% EPS growth per annum is what we strive to accomplish. Past year, 24% on constant currency. ROCE to get into the range of $14 million to $15 million. We got into the range barely, but nevertheless, into the range of 14% and up from 12.3%, I think it was 3 years ago. So a significant improvement in return on capital employed. And of course, again, with strong cash flow generation as per our long-term guidance. And recently, we organized another Capital Markets Day, and I will come back to that in a minute to talk to how we evolve this. Next page. Now this result is anchored in a very purposeful strategy and one that we forged almost 10 years ago. And it was one to very deliberately focus Ansell on safety and focusing the company to be #1 or #2 in each segment. And if we couldn't, then get out of the way. And the conviction being that if you're not #1 or #2 in the world, then you're not going to have long-term, sustainable, high levels of profitability. We have supported this with more than $1 billion in acquisitions in our core areas. And we have divested what we consider to be noncore or where we saw that we couldn't be #1 or #2. And we have shifted fairly aggressively into emerging markets. After all, this is where working hands are more and more. This is where a higher and higher percentage of total surgical procedures are taking place, emerging markets. So we have beefed up our coverage. We have also invested in our manufacturing capabilities, $500 million, over the last number of years. Numerous patents and trade secrets are created and launched to protect our differentiated capabilities. And we have very deliberately taken in-house all of our differentiated products, while we still continue to outsource for production with various vendors some of the less differentiated products. And we do all this with superior safety practices and industry-leading CSR practices in terms of how we take care of our workers, whether they are local or foreign workers, in every aspect of their relationship with us. And we do this while focusing on our core brands: HyFlex, AlphaTec, MICROFLEX and GAMMEX. And we have very aggressively focused from -- when I came to Ansell, we had 250 different brands. Now we essentially have 10 key brands, and our main brands now account for 80% of our total sales. So it's starting to be very consistent, very clean and very well defined. We have expanded our sales force to 800 people worldwide. And we're investing aggressively in our digital capabilities and the ability for customers to get access to the right data. And of course, we're surrounding this with our safety advisory services. Next page. We have also, during this year, of course, had a lot of focus on COVID. So an AGM presentation this year that doesn't spend a meaningful time talking about COVID probably has missed something. So let me outline for you what we've been focusing on. First of all, safety, making sure that our employees are safe at all times. It has entailed redesigning our plans and workflows, taking the temperature of every employee every day. It is the wearing of PPE, of course. It is setting out schedules for how people have lunch at different times so that we maximize social distancing and so forth. And we've done this rather successfully because most of our plants are fairly dense with a lot of employees, sometimes 2,000 or 3,000 in a single location. So to do this, while keeping our workers safe is really difficult but really important, and we've been very successful in doing so. We've also focused on manufacturing. Why? Well, because demand for our products is increasing rapidly. So we needed to step up and increase output in most of our facilities, and we've done that through accelerated investment, temporary rationalization of the product offering so that we could run our machines more efficiently, and of course, building capacity in our various facilities around the world, in Thailand, in particular, in Sri Lanka and in Malaysia, in China for body protection. And we've also set up small body protection assembly operations in Lithuania and in São Paulo. So a lot of effort has gone into maximizing our ability to bring these life-saving products to market in a very efficient and fast way. We have also focused on customers. Our customers needed a lot of help. They needed guidance on how do we set up our operation, how do we run our plant, how do we run our hospital in such a way that we can be safe and protect our customers or patients or employees as the case may be. We have been forced to take some pricing surcharges to be able to deliver products to customers and be able to secure them in the marketplace or to be able to secure raw materials to produce them. We have switched our teams, and it's one of the enduring strengths of Ansell that we're so capable in reaching many different verticals. So if one vertical has low demand and another one has higher demand, we can shift our team to focus on where the need is the greatest. And we've been doing that with a lot of agility in the past year. And this is what we have focused on and will continue to focus on over the next several months and maybe years because COVID is not going to go away anytime soon, and that is our best estimate at this point in time. Next page. This page lays out in simple color-coded fashion where we see a net increase in demand for safety services by verticals. So obviously, no surprise, acute care, alternate care, life and bioscience, meaning laboratories and pharmaceutical companies, government food processing, warehousing and janitorial and sanitation segments, all seeing strong demand growth. In the middle, you have businesses where there's both positive or increased demand for our products and also some pushback or some businesses not doing too well, so needing less services. And at the bottom, of course, no surprise to most of you, oil and gas, aerospace, automotive are examples of verticals where demand is actually down. And we, of course, have, as I said earlier, shifted our sales force and our customer service teams to focus on where our help is needed most. Next page. And when we look at the geographies of the world, Ansell is, as you know, a super global company. Our management team is positioned all over the world. And what we have seen is particularly strong demand growth in North America and Asia Pacific. Europe, a little bit less so, primarily because the European business is heavier -- or has a heavier focus on the mechanical, automotive and aerospace-type segments. So you see more of a balancing factor there. And LAC, of course. Latin America was hit very, very hard by COVID, so it really shut down many economies in the region. So that's made it really difficult for a lot of customers in that geography. But nevertheless, we're seeing some really good developments in China and India. And since the year ended -- last year ended and into this fiscal year, we've seen some really strong continued development in APAC, EMEA and North America as well as Latin America coming back. So looking quite good for the coming period. Next page. So when it comes to CSR, as a shareholder, I'm sure you want to make sure that the company you're invested in is acting in the right way, is taking responsibility for our employees in the best possible way. And we are indeed. We believe in the modern slavery and safety standards and have put them in place across the Ansell organization as well as with our suppliers and partners to make sure that we are in good alignment with best practice, not only in our industry but across industries. We are also doing a lot of work related to climate change and obviously are preparing to be fully compliant with TCFD and are making really good progress here. We, of course, are producing products all over the world, but especially in Asia. And we do indeed see some potential effect -- or effects of climate change, particularly when it comes to availability of water since in our operations, we use a lot of water. So we have to invest in recycling and whatnot to manage that, but first, you need to understand the impact. And then, of course, being active in the communities, where our employees are indeed very active in many different ways and where we have donated product or donated time to things as different as fighting bushfires, to help protect people from COVID in various places around the world. And this is very much in our DNA as a company as well. Next, please. This page really lays out our shareholder value creation model on one page. And it really specifies what we aspire to be, differentiated, focused, efficient and agile; how we work to gain share and demonstrate industry leadership; what our targets are. And these are also the targets that we reconfirmed in our recent Capital Markets Day. We kept the 3% to 5% top line sales growth as our long-term guidance target. But we also said that this particular year, we will significantly over-deliver on that target. We already know that and can see that. We have also upgraded our earnings per share growth target over the medium term from 5% to 10% to 6% to 12% EPS growth per annum. We are holding our ROCE range. We think that's a good range. And we have refined our cash conversion target to be within this relatively tight range. And as we do that, we enable an ability to reinvest. And those are the 5 streams that are illustrated on this page: invest in CSR and sustainability, invest in the base business, acquisitions, dividend and share buybacks. And that creates a virtuous circle of value creation. And all of this, of course, is anchored on a foundation of passionate employees and sustainable business practices. Next page. So to conclude, we -- when we look ahead at the rest of this year, we're 4 months into the year, we note, first of all, that we have a balanced portfolio with strong brands and well positioned to adapt to any and all potential impact of COVID-19. And we expect COVID to be around for the rest of this year and in all likelihood, well into fiscal '22 as well. We note that our performance for the first 4 months of the year has been strong. And it's been strong despite a lot of continued uncertainties, a lot of negative pressure on surgical procedure with deferment of surgical procedures, as an example, negative impact on aerospace, on metal fabrication and many other industries. So in spite of that, we're seeing good demand for most of our product categories. And that is why we are upgrading our guidance range for the year, and we did that with a separate announcement last week, so from $1.26 to $1.38 range to now $1.35 to $1.45 range. It's important to note, though, that as confident as we are as a management team and as a Board regarding the potential and opportunity of this company, we must point out the considerable risks that still remain related to COVID. It could disrupt supply chains. It could disrupt a plant from running. It could shut down the customer. So it's very unpredictable. And yet we think in most cases, we can find workarounds. Final note, we are continuing to make sure that we preserve a lot of dry powder, ability to invest as opportunities emerge. And as part of that, we have slowed down our share buyback program, but we have continued our dividend increases. And we have stepped up in a rather dramatic way our deployment of capital into our business. And we will continue to look for and assess acquisition opportunities. But as always, we'll be picky and will not overpay. And to the right, you see the steadily improving earnings per share that we have delivered over the last number of years and the range that we are guiding for, for the remainder of this year. So all in all, we feel very confident in our abilities as an organization. And we believe that we will deliver another strong year while taking care of the world and keeping as many people as we can safe. So with that, I will hand back to our Chairman. So John, over to you.

Thank you, Magnus. Ladies and gentlemen, we will now move to the formal items of business set out in the notice of meeting. As a first step, I'd like to turn to the issue of director elections. Today, Nigel Garrard who was elected by the Board as a director on the 1st of March 2020 is standing for election. And Christina Stercken and Bill Reilly are both standing for reelection. The notice of meeting outlines the Board's recommendation to elect Nigel and reelect Christina and Bill. I'd like to invite Nigel, Christina and Bill to now say a few words. Nigel?

Thank you, Mr. Chairman. To all our shareholders, I've enjoyed my first 8 months as a director of Ansell and have been particularly impressed with the culture of the organization and the passion our people have for our products and our customers. While global travel restrictions have meant I haven't been able to visit many Ansell sites, it has, on the other hand, enabled me to enjoy a significant number of one-on-ones with key Ansell management as I've learned about the company and its strategy. Ansell was a business with a strong team who have worked tirelessly for our customers and our shareholders over these difficult months, and they have delivered strong results. My most recent experience as a CEO of an ASX-listed international manufacturing and distribution company has helped me understand and appreciate both the challenges and the exciting opportunities that Ansell has before it in these unique times. My experience is in industries across manufacturing, distribution, marketing and FMCG across multiple geographies. I am passionate about businesses continuing to invest in manufacturing capability and capacity as it is that continued investment that ensures the business maintains and grows its competitive advantage. In addition, investment in innovation, in customer centricity and a business's people are essential to long-term success. The past 8 months as a director has confirmed my belief that Ansell was well placed to continue to profitably invest in these areas in the future. There are certainly challenges in these uncertain times, but there are also opportunities for strong and well-focused companies such as Ansell to prosper with a nimble but disciplined strategy and investment outlook. I'm excited by what Ansell has before it and look forward to working with my fellow Board directors and Ansell's strong management team in the time ahead. Thank you.

Thanks, Nigel. Christina now.

Thank you, Mr. Chairman. Ladies and gentlemen, my name is Christina Stercken, and I'm a member of the Ansell Board since the AGM 2017. When I joined the Board in 2017, the company had gone through a strategic portfolio review, which resulted in the divestment of the sexual wellness business and concentration on the industrial and health care business. This strategic review also led to an increased investment in organic growth. In addition, the company had initiated a huge transformation program aiming at a simplified and lower-cost organization and increased focus on supply chain excellence, improved product cost and manufacturing base. And the company delivered. And I'm proud of what has been achieved by the management team and the people of Ansell. With all these measures, Ansell was able to manage the extreme challenges caused by COVID-19 pandemic and laid the ground for the times beyond. Ansell is a safety company. And with the greater awareness on continuous need of PPE, the company has started to significantly increase in capacity across many product areas as well as geographies. These investments will help to further strengthen and expand Ansell's market position. There are more challenges ahead of the company, for example, improving the environmental impact, increased digital road map and further improvement of quality of supply, just to mention a few. With my business responsibilities in large corporations such as Siemens and BMW as well as running my own consulting company, advising numerous companies in industries such as health care, chemicals, automotive and machinery industries, it's in a lot of industries relevant for Ansell. I'm German, feel European and think global. I've lived and worked in countries on 3 continents, for example, China and South Africa. With my functional focus on internationalization strategy and operational excellence in emerging markets as well as strong background in M&A, I bring a broad range of competencies which are important to Ansell's growth strategy. I'm excited about the opportunity to further support Ansell to invest and acquire for scale and further profitable growth. Thank you.

Thank you, Christina. Now Bill?

Thank you, Mr. Chairman. Ladies and gentlemen, fellow shareholders, I come before you today from New Jersey in the United States for the second time now, seeking reelection to Ansell's Board of Directors. As stated in the notice of meeting, I served as Ansell's General Counsel and a senior member of its management team from July of 2000 until August 2017 when I retired from my full-time executive career. Unquestionably, the road to becoming and serving as Ansell's General Counsel has been the crowning achievement in the 37 plus years business and legal career. I'm incredibly proud of all that we have accomplished in the last 20 years, resurrecting Ansell from its Pacific Dunlop legacy, reshaping and growing Ansell into the incredible company it is today. As General Counsel of Ansell, I help build a culture that values and models integrity and trustworthiness among its core values. I am proud and deeply honored to be a member of your Board of Directors, a group of exceptionally high-credential colleagues who set a very high bar for best-in-class corporate governance. I thank you for once again giving me the chance to continue my directorship and service to Ansell. This is a moment of personal honor, but also a deep personal responsibility, one I do not take lightly. Rest assured that upon reelection, I will work hard to assure that the voice of the shareholder is present at each and every meeting. I will emphasize continuing our record of building long-term sustainable value for Ansell's shareholders. I will continue to hold myself accountable for continuing personal improvement while reinforcing Ansell's distinctive CSR and sustainability strategy. I understand my fiduciary responsibilities and pledge my ongoing efforts to always act in good faith with integrity and to the best of my abilities to help make Ansell a safer, smarter and stronger company. Thank you.

Thanks, Bill. Turning to the items of business on the agenda, these being: to receive and consider the financial report and the reports of the directors and the auditor for the year ended the 30th of June 2020. And to consider, and if thought fit, pass the following resolutions as ordinary resolutions. Firstly, to elect Nigel Garrard and reelect Christina Stercken and Bill Reilly as directors of the company; to adopt the new constitution; to approve the grant of performance rights to the Chief Executive Officer; and a nonbinding advisory vote in respect of the remuneration report. Rather than step through each of the items of business, I'm going to accept submitted questions on all items now. I encourage you to submit a question via the online platform, if you have not already done so. As has been mentioned earlier, the poll is open on all items. Proxy results in respect to the items of business being voted on today should now be displayed on your screen. To give you some time to submit your questions, I'm going to first address the questions received prior to the AGM, of which there were only 2: [ Ms. Eckerick ] from London; and [ Mr. Noble ] from Tolga in Queensland, both commented that granting of performance share rights should cease, noting that KMPs have already been well rewarded and should be operated for the betterment of the company as a whole, without the imposition on those who provide the capital. So thank you for those questions, and this is a topic that it gets a lot of discussion. As Magnus indicated, Ansell is a truly global organization. We have people in every geography across the world. And in those markets, to attract and retain the best staff, you have to offer market-competitive pricing of labor in terms of salaries and benefits. And you also need to design that system to encourage the right behavior. And in the case of Ansell, it's to look long-term to creation of value for all shareholders and all stakeholders, and to maintain the values which are important to the company. We believe our system of remuneration covers off this area very well. And you will note that all of our KMP members are significant shareholders of the company. And we believe in that being the case, that they ride the ups and downs of the marketplace that you, as a shareholder, also do. So we think our current package is appropriate. I'm now going to ask the company secretary to read out the questions received during the meeting. Just a reminder that voting will close at the end of question time. So if you have not done so already, please submit your votes.

Thank you, Mr. Chairman. Our first is a comment from John Whittington from the Australian Shareholders Association. [indiscernible] and the ASA today holds proxies from 181 ASA members and nonmembers for over 280,000 of shares, which, if consolidated, would make the ASA the 18th largest shareholder. Mr. Whittington would like to first thank you, the Board, management and all Ansell employees for their efforts in producing a good result in very difficult times. Mr. Whittington would also like to thank you and Mr. Chow, for making the time to consider and discuss the many questions raised before the meeting.

Thank you, Mr. Whittington. I mean, we always meet with the Australian Shareholders Association over a number of years, and we thank you for taking the time to come in and ask us the questions that you do.

The next question is from Mr. Whittington again from the ASA. Mr. Chairman, the value of the company is dependent on the company's social license to operate, which is impacted by the issue of modern slavery. We welcome your recent report on this subject and would like to understand more about the area where you have indicated that you do not walk away from suppliers with problems in these areas, but engage with them on how to improve their practices. What percentage of your business is based on suppliers in this category? And how long will you give these suppliers to improve their performance before they're dumped? Finally, is getting all suppliers to quickly clean status in the KPIs of relevant management?

Thank you, John, for another good question there. This is a really important area for the company. And this is a long journey. We've been working at this now for more than 5 years. And initially, our focus was on ensuring that we are internally, in our own operations, compliant with the local laws in terms of all of our employment practices. And we've adopted for our suppliers a sort of risk-based assessment of where the areas of noncompliance may be and which suppliers we should focus on. Now for each of those suppliers, we sit down with them and work through what our expectations are. And we have quarterly meetings with them or 6 monthly meetings with them to ensure that our overall relationship is working well and that they are, in fact, working towards compliance in all of these areas. We prefer to work with our suppliers over time and not to immediately reject them if they don't conform. These are long-term relationships that the company has had. And from a general improvement in the industry, all of the human rights sort of advocates here, believe it's best that the industry works to solve the problem properly. I can give you an example, though, of where we had 1 supplier who was not conforming to the standards we were looking for. And after repeated discussions, we decided to terminate their sales relationship or purchase relationship we had with them. In that particular case, that organization responded by a significant change of its leadership. Chief executive changed out, CFO changed out, a new Board of Directors came in, and they demonstrated to us that they had, in fact, changed their mind on how they wanted to operate, and were working hard to comply. Now we had already terminated their -- our relationship with them, but on the basis of a newfound commitment and following some audits to comply with that, we were able to engage with them again and are now repurchasing product from them. So this is a journey, and it's a journey with all of our suppliers. And we don't have a hard and fast rule in terms of when someone has dumped or not dumped, to use your language. Of course, making our supply chain work to the standard that we're looking for is a very important element and it is a key KPI of those relevant managers who are operating our supply chain. So good question, and I think we're working very hard on. So thank you, John.

Okay. The next question is from Mr. Whittington from the ASA. Mr. Chairman, we note the substantial increase in both operating and free cash flow in the last 2 years. Is this due to the transformation program or something else? And is it a temporary increase? Or is it likely to be a new normal?

Thank you again for a good question. You would have seen in Magnus' presentation that we have an objective to maintain a fairly close range of what our free cash flow should be. This is an organization that's always generated a lot of operating cash flow. And the only thing that we see different in the years -- next few years ahead is that our level of capital expenditure will be higher, but we still expect from our operations a strong cash flow.

The next question is more of a comment from [ Mr. Winnington ] from the [ AFA ]. Mr. Chairman, we'd like to thank Mr. Garrard for his level of commitment to the company through the shareholding he has already accumulated. The next question is from [ Mr. Winnington ] from the [ AFA ]. Mr. Chairman, I have a question for the auditor regarding this item. Ms. Auditor, we have been told that the calculation of the metrics on which these rights will be granted is audited by yourself as part of your audit of the remuneration report. Would you please tell us how you verify that the metrics have been consistently applied from year-to-year and how you verify that they align with what has been approved by shareholders at a previous AGM?

Penny, would you like to comment on that, please?