Ansell Limited (ANN) Earnings Call Transcript & Summary

Welcome to Ansell Limited's Financial Year 2021 Results Presentation for the 6 months ending 31st of December 2020. Joining us on the webcast today, from Brussels we have Magnus Nicolin, our Managing Director and CEO; as well as Zubair Javeed, our Chief Financial Officer. The materials we will be discussing today have been launched with the Australian Stock Exchange and can also be found on our website. Before we start, I would like to draw your attention to our disclaimer. If you could please take some time to read through this. I would like to hand over to Magnus Nicolin. And at the end of the presentation, we will be opening the lines for those on our conference call for Q&A.

Thank you, Anita, and welcome. It's a pleasure to be addressing you. So good morning, good evening or good afternoon. We'll take you through our usual update, but I would like, as usual, to start with thanking all of our employees around the world. This has been quite a ride and quite an unusual year, and they deserve a lot of credit for what we have been able to deliver as a company in the first half. So thank you to all of you who are on the call today and who may listen to this a little bit later on. Let me go right in, next page. And as you well know by now, this is a company that's very focused on safety. And rarely have we seen a time where safety is more important. And of course, safety spans a lot of different dimensions and not least in the last year and the mention of viral safety or protecting people from infections. And that's what we've been doing. And that goes along with all of the other work that we do to keep people safe from cuts and infections and abrasions and all sorts of challenges. Next page. When we look at the world we live in right now, this is our latest sum up of the situation with COVID. And as we know, it's far from over. On the left, you see the number of daily cases and number of daily death. And of course, it's still unbearably high. And on top of that, we've highlighted a couple of other stats in terms of cumulative cases, but also a very important one, and that is the population vaccinated so far, and that's about 2% of the world population. And we've all heard about references to 70% being needed to finally being able to combat this virus. So we're some ways off. Top right, we talk a little bit about our production environment. And of course, our big 2 countries, Malaysia and Sri Lanka, are going through some significant challenges at this point in time with hot zones. We have an MCO, a movement restriction order, in place in Malaysia. And we have more limited, but nevertheless, important hot zones popping up in Sri Lanka. In the other 3 very important production countries for us, it's calm, meaning very few cases and does not currently impact on our production. When it comes to impact on the PPE industry, in the short term, clearly, some increased demand. And in the long term, as we will show you in a moment or 2, we expect pretty significant demand, but we also expect a bit of a shakeout in the PPE industry, and we'll give you a little bit of a perspective on how that's likely to play out. And we also see a number of new behaviors at distribution level, end user level, where people are more concerned about getting the right kind of protection. And from governments who are constantly lobbying for potential local production or local assembly and so forth, so there are a lot of differing moves impacting on our world at this point in time. Next page, please. So clearly, a very strong performance. We are delighted with the numbers and even more so the volumes that we are delivering to market to protect people. And when you look at our numbers, amazingly strong top line, 23%; EBIT, 64% up; profit attributable, 61% up; EPS, 65% up. And based on this and based on the decision that we'll talk about a little bit later on dividend policy, we're also taking our dividends up 53%, and we'll come back to that. As part of a strong EBIT, we're seeing that translate through to a very strong return on capital employed at 16.3%. The one area that is red, as you can see, is operating cash flow, but for a reason, and that is that we're obviously building a lot of working capital to sustain this growth in the form of inventory and obviously, more accounts receivable, simply because we are selling more. We have also stepped up capital expenditure. Why? We'll talk quite a bit about it. But bottom line here is we see tremendous opportunity to respond to even higher demand and to move forward on our market positions in multiple geographies. And you're going to see that as we discuss this business unit by business unit. And finally, not very surprising, our balance sheet remains very strong. So we're in good shape here heading into the second half of the year. So let's move to the next one. And the next one really summarizes in a slightly longer time perspective, over 5 years, what the CAGR development on sales, EBIT and EPS has been with nice leverage through the P&L. Obviously, a big kicker in the last 12 months, 2 6-month periods, but even before that, a steady increase in most of these numbers over time. So I think it allowed us to go into this crisis in very good shape, meaning being very strong and having a lot of positive momentum that allowed us to respond to what the world needed very quickly and very effectively. Next page. So when we look at the business, we elected this time to share with you what it looks like business unit by business unit at the SBU level, and the SBU in this case being exam versus surgical versus mechanical and so forth. And we're starting with the exam. Why? Well, because it's where we see most of the very substantial dynamics. We have also put in a little bit of a code in the lower left and where we tried to share an easy-to-grasp way what the impact is on exam glove sales short term but also long term. And sometimes, as you will see, it's quite different. So some of the key observations on exam gloves is strong volume growth. And strong value growth as well because we're seeing a significant imbalance between supply and demand, and that has driven a significant price increase into the marketplace in multiple waves. We have responded to that to essentially protect our bottom line, not necessarily to protect our EBIT margin because we don't want to be viewed as a price gouger, and we're not. So we're quite careful and very deliberate about how we take price. So when you look at some of the other noteworthy points here is a very strong development in emerging markets. So if globally, the number is up 47%, then it's way more. And the increase is way higher than that in the emerging markets, which is what you would want to see as we continue to put a lot of emphasis and build our infrastructure in emerging markets. We're also confident that we're gaining share. And we're gaining share because we have enabled a lot of capacity and brought forth to the frontline a lot of volume that many of our competitors were unable to do. And part of the reason or answer to why and/or how we were able to do that is in the middle column, operations update, where we have significantly increased output in our own plants and where we have secured significant volume from outsource suppliers as well. And on top of that, we acquired about a year ago, actually, very close to a year ago, a 50% stake in Careplus. And that actually gave us significant incremental exam and surgical glove capacity exactly when it was needed. So sometimes you have to be lucky in making moves that just fall in place at exactly the right time, and that was the case here. We have also worked a lot about making sure that we get enough raw material because the world is sold out on nitrile. Many of our competitors cannot -- even if they build lines, cannot get nitrile to produce gloves. We were very long-term focused, in our view, to make sure that we secured availability of nitrile. On the commercial update side, a lot of interesting developments. We have been able to use the fact that we have product available to also secure significant new business in other product categories, by essentially bundling and providing a more comprehensive solution of protective equipment to our key customers. We also focused very clearly on serving our top customers, our long-standing customers first, and that's allowed us to continue to grow and take share with them and take share from many of our competitors. So at the bottom there, you see the development in the total industry. And what we see is the CAGR, or growth rate pre-COVID and what we expect post-COVID whenever we get there, which is unclear, we're going to see growth faster post-COVID. And we'll come back and explain why we think that, that is the case. And that's also, if you go back to the first thing I said on this page, the long-term arrow up is strong. So this is not a onetime thing. We expect that this will lead to a sustainable, higher demand for exam type of products. So that's the exam story, quite impactful and a situation where Ansell is gaining strength with significant new internal manufacturing capacity, not least in our big new plant in Bangkok, or outside Bangkok in Thailand. Let's go to the next one. So SBU number two is surgical, very different story. Start again at lower left. What you see there is a yellow sideways arrow, which essentially means that there are some elements of increased demand, but there are more elements of decreased demand, meaning elective surgeries have been postponed all over the world, and that obviously has drained away a lot of demand for surgical gloves. In spite of that, Ansell has done really well, as you can see, with 19.6% growth in the half. So why is that? How can we do so well? Well, part of the reason is, again, we had capacity. We have capacity of the right products, typically synthetic products, which is what the world is going to, moving from natural rubber latex to synthetics, PI and polychloroprene. Secondly, we have been able to deploy our sales forces very effectively, and they have converted a lot of new business. So let me jump to the far right first bullet point, where we talk about significant market share gains that we have seen in all of these key countries by signing up new distributors and by winning GPO contracts, by winning hospital group contracts and so forth. So that is tending to drive significant demand of surgical gloves. To keep supporting that, we have invested aggressively also in this area, with a couple of new lines going live as we speak in synthetics, and several new lines for natural rubber latex primarily to serve emerging markets where we see tremendous growth in China and India and places like that. So coming back to another point I wanted to make on the commercial update, and that is that we expect demand for our surgical gloves to continue for many years to come. Why? Well, because people are standing in line to have elective surgeries performed. Just look at the U.K., 4.5 million people waiting in line for routine surgical procedures at this point. This is the longest line they've had in a long, long time, if not ever. And it's not that the National Health Service hasn't had lines before, but they are way longer now because they had to shut down hospitals to rededicate their health caregivers to COVID fighting. So that's why we have these big lines, and it's going to take years to eat into these lines, and that's why demand for surgical gloves can remain strong for many years to come, and that's where I'll end on this one as well. The green arrow pointing up, long term, we're going to see strong demand for surgical into the future. Next one, and next one is life science. And as you know, we invested in a relatively small company in the U.K., Nitritex, 3-or-so years ago, and that turned out to be a really timely move. We have since then grown rapidly in the life science area, with long-cuffed gloves with a range of clothing, goggles and so forth, all clean packed, so designed for laboratories, testing facilities, pharmaceutical research facilities and so forth. And of course that turned out to be an area of significant demand at this point in time, and no surprise. And you've seen some really good numbers here, short-term strong growth in the U.S., particularly proud of the team and what they've been able to do there with almost 48% growth year-on-year. And here too, we have added capacity and capacity in the form of clean-room manufacturing capability, specialty built rooms with clean packaging capability. And that's going to help us continue and sustain this growth. We also made a small acquisition in India. Why? Well, because India is one of the fastest-growing pharmaceutical manufacturing countries in the world. So we felt that, that was the place to invest. And the Primus brand is actually quite well-known in India and gives us a bit of a running start. We had a little bit of business in India before, but this really turbocharges our business in India. So we continue to invest in this space. We're adding additional salespeople. We're developing additional products for the portfolio. And we have established amazing relationships, both with the top distributors in this space and with the end users. And we, in fact, serve all of the current leading producers of the COVID-19 vaccine, just to give you a flavor for where we're active at this point in time. So next page then sums up the 3 SBUs that make up our health care GBU. And since we talked about the sales number, let me focus on the EBIT number where we see a very strong, more than 400 basis points growth in the EBIT percentage from 14-or-so to 18-or-so. And that, of course, accompanies a very strong sales growth as well. And clearly, we see amazing leverage through the P&L with SG&A not growing as fast, and it just translates to the bottom line very efficiently. We've also done some really good work, and the team has really worked hard on making sure that we take the prices that need to be taken, but also manage the mix where there is an opportunity, sometimes to simplify the range, so that we can produce more because we have fewer changeovers on the machines. And that needed, then, the sales force to be very nimble and shift customers from product A to product B. And that's worked really well, and they've done that really effectively. So that's the health care business unit, a pretty strong performance. Now let's move over to the industrial area, starting on the next page with mechanical. And mechanical as you can see, lower left, short-term red downward pointing arrow. Why? Well, because automotive, aerospace, transportation sectors all falling off dramatically. So we saw a significant negative effect on this business. What was interesting though is that compared to prior crisis situations, we had a broader range and we were able to pivot to instead focus on areas where there was opportunity in multipurpose and electrical protection gloves as 2 key examples. Here too, we have expanded manufacturing capacity, especially of the Ansell proprietary FORTIX range, which is a unique grip and very high abrasion resistance. And this grip is so unique that there are customers who will absolutely swear by it, will accept nothing else but Ansell HyFlex FORTIX technology. So we're growing very nicely in this area, and that's offsetting the invariable decline in some cut areas in automotive and obviously in aerospace. So we are expanding FORTIX. We have a new line going live in Portugal shortly. And we have also converted some other lines in Asia to do the same thing. And we're expanding our electrical shock protection business at the same time, so doing well on that. Commercially, the team has been quite capable of shifting to the areas with strong demand. As you can imagine, food has been quite strong. And we have been able to go after those opportunities and provide the solutions that they needed to maximize output of certain food items and so forth. And we have many of our products that are food approved or food rated. We have also launched a number of new products. I talked about FORTIX. Another interesting one is the antimicrobial protection with HyFlex 11-100. It's got a silver coating that essentially knocks out viruses, including COVID-19. And it's been quite effective as a tool to engage customers on how do you now protect your workers. It's one thing, you can wash your hands all day; but if you get reinfected, it doesn't help much. But if you have a glove that continues to kill the virus as soon it hits the surface of the glove, now you've got some serious protection. So that's what we've been doing. And so the combination of pivoting sales force, adding capacity and delivering the solutions that were needed at this point in time is what explains why the mechanical part of the business that's been the weakest of all of our 5 SBUs still has delivered quite a strong result, not least on the bottom line. So let's go to the final of our SBUs, which is the chemical one, where you have both gloves and suits. Again, we've seen very strong growth here, primarily driven by the chemical suit side, where, of course, our line of suits all the way from less than $1 per suit, all the way up to really advanced protection at thousands of dollars per suit. So we have the full range. Where most of the demand has been is the low end, and you see it on TV every day. It's the suit that they wear in hospitals and labs and vaccination centers and all of these places, they need to wear these suits. So we've been able to double output from our Xiamen, China plant and also from our relatively new plant in Sri Lanka. So that's been key to deliver the right solutions at the right time. We have also added capacity on chemical gloves, and all of this has contributed to a very strong performance of the chemical SBU. And when it comes to the short-term impact, it's positive. The long-term, it's also positive. So we think that this is going to play an increasing role in our portfolio. Here too, we have been able to pivot to food as a key growth area. And you see the example of a food-specific product here, the 310, the light blue on the right, that is being produced on that machine called CR7, you see a picture there. My team calls that the most beautiful monster, and it really is a beautiful monster. And it's working beautifully and producing an amazing quantity of lower end, very comfortable, relatively thin but multi-use products. So they're not single-use, they're multi-use. And we're also seeing some customers worrying a little bit about the sustainability, as I mentioned, of single-use, migrating to more multi-use solutions. And we expect that, that will continue for quite a while. In fact, it will probably accelerate. So next page then summarizes the industrial GBU, the combination of those last 2. And what we see here, again, is a very strong development of the EBIT and profitability level, 300 basis points in constant currency on a 7% top line growth, and again, leverage through the P&L and highly efficient manufacturing and high levels of throughput, all are contributing factors to the high level of profitability here. So all in all, a very strong result under quite difficult circumstances for the industrial GBU. Next page. While all this is going on, we have also not been sitting on our hands when it comes to sustainability. So we talk about protecting people and protecting the planet. So when it comes to people, we continue to push very aggressively in first of all making sure that we take care of our people in the best possible way so that they can be safe coming to the plant and working to produce these products to save other people's lives. And we started doing random and rolling PCR tests to a point where we are actually [Technical Difficulty] because we are so early in testing our employees to find out what's going on. And then as soon as we find a case, if we do find a case, then we send them home. We protect them. We do contact tracing and so forth. So we have a very elaborate protocol to make sure that our people are as safe as they can be. We continue to do a lot of work also on the area of traditional safety, so that people don't fall and hurt themselves and those kinds of things, so we have a very strong focus on that. And of course we also pay a lot of attention to how we take care of all of our workers, including foreign workers. As some of you know, there's been quite a bit of debates about recruitment fees and so forth. We stopped doing that several years ago, and we actually completed a reimbursement program to foreign workers who had paid a recruitment fee. So we've taken our responsibility, and we're demanding that same responsibility from all of our suppliers as well and continue to work very closely with our employees to make sure that they're fully engaged and feel well taken care of by Ansell. When it comes to the environment, a lot of work here. All companies are very focused on this at this point in time. Clearly, TCFD is setting out a pathway. We're following that pathway very [Technical Difficulty] and doing scenario analysis and qualitative assessment of climate-related risks and so forth. We've also made a lot of progress against our key environmental goals that we have published going back a couple of years related to emissions and water and waste to landfill and so forth. And we'll continue to update you on that as we get to the full year in our next sustainability report that will come out in September. We continue to make significant investments in solar panels, biomass boilers and water recycling and reversals, mostly cleaning systems and so forth. So it's a big part of our investments now to make sure that we do our part to take care of our environment, in a fairly difficult industry with a lot of energy use, a lot of water use and so forth. So we have some more work to do here, but it's very high on our agenda. So with that, I will wrap up for now and hand over to Zubair, who will take you through a few more specifics on the financials and how that is playing out and what we can expect a little bit later. So Zubair, all yours.

Thank you, Magnus. So I'll begin with the profit and loss summary as usual, and beginning with the revenue line. The actual sales growth of 24.5%. When we remove the impact of foreign exchange, this led to constant currency growth you heard from Magnus earlier of just under 23%. Now absent acquisitions, constant currency and organic growth are, of course, both the same this half. And within this number, the volume growth was over 12% in the half. And price/mix, the difference at just under 11%. Now you've already heard from Magnus the key sales drivers, so I'll not repeat those. But of course we're very pleased with the volume growth rate and being able to get product to the front line. And at the same time, we do know we're comparing against a 'pre-pandemic period. So from a volume perspective, at least, the second half is going to be a much tougher comparison. But you may recall from our last earnings update in the second half of fiscal '20, we were well on the way to rebuilding inventory levels. Instead, we ended up selling through most of those safety stocks in the fourth quarter of the fiscal year. And that was basically to service the high demand for PPE as COVID-19 became recognized as a worldwide pandemic. This leads to some of those tougher comparisons I've just mentioned. So moving to the gross profit after distribution expense. The 180 basis points improvement there you see in the slide in GPADE from 34.1% to 35.9% is driven in the large part by manufacturing efficiencies and overhead leverage, and that's alongside the pricing Magnus spoke to. There's some small unfavorable offset there with foreign exchange and of course, COVID-related costs. Now as we move across the second half, we will look to continue protecting these margins. But I think there will be some dilution in terms of percentage because the pricing from our outsourced suppliers has really stepped up and really accelerated versus the first half. Moving to SG&A expense. Now of course, we continue to manage these costs prudently and very well. And that's made easier, of course, as travel expenses and other in-person sales-related costs are almost nonexistent. In the very short term, I think the run rate here, at least in terms of percent of sales, I think that remains where it is, if not even more leveraged in the second half. But as I've said in previous calls, we'd expect to rebuild SG&A and normalize back to a range of around about 21% to 22% sales in the midterm. Now note the year-on-year increase here you see in SG&A from a quantum perspective for the large part is driven by employee costs. And specifically those related to variable compensation plans. And that's of course driven by higher company performance levels. Now just under the SG&A line, you see here for the first time, we're reporting our share of the JV profits or the joint venture profits from Careplus. We account for this entity on an equity basis, and the $2.7 million there represents 50% of the net profits in the half. Now clearly this JV was very well timed, as Magnus alluded to there. And although we told you it was going to be a marginally accretive deal to EPS in F '21, it's clearly turning out to be exceeding our original expectations. So we're very happy with what we get from our partnership there. In summary therefore, the strong EBIT growth of 64% in the first half is reflective of all the factors I've just gone through. And of course, in turn, this leads to a commensurate growth in earnings per share. Now the question is what happens in the remainder of the year? Magnus is going to cover much more about this in the guidance in a moment, but very briefly, we don't see any drastic reduction in the demand environment. The pricing from outsourced suppliers, as I've said, it continues on this very aggressive upward trend. And it doesn't look like we're getting back to travel, or the world is getting back to travel, anytime soon. At the same time, and you probably heard from -- or you've seen in the deck already, we have ocean freight. That remains fairly constrained. We're seeing small clusters of COVID outbreaks periodically impacting manufacturing and supply chains. Now that's both within our facilities as well as our outsourced suppliers. And it's because of this type of uncertainty and as well as the fact we will be lapping a much tougher prior period comparison, we have signaled we don't expect a significant step-up in the second half growth rates. And that's at least in terms of earnings like you would have seen historically. Turning to Slide 19, and I'll quickly review here the raw materials composition. I think the key point here is the unprecedented demand for PPE. This led to the supply side imbalance that's well noted at this stage. And basically that's dislocated all the usual industry dynamics right across the value chain. And of course, when it comes to raw material pricing. So although headline components of nitrile raw material pricing may have trended down in the half, that usual pass-through of savings by outsourced suppliers was not seen at the finished goods level. As long as supply remains unable to find an equilibrium with the current demand, I'd expect nitrile costs, and in fact nitrile rubber pricing, to remain very elevated. And that's what we see. Our spot price is trending much higher than where they've been. You also see there in the pie chart below, the outsourced costs as a percentage of our overall cost of goods is higher than historical norms. But as we execute against in-house manufacturing expansion plans, I'm sure this balance is going to be reset. Now with that said, and turning to Slide 20 for a view of cash flows. So overall, it's been a half of significant reinvestment into the business. I think the current backdrop, I think, is very clear why we don't think this is a time for parsimony, as it relates to expansion plans and working capital investment. And as Magnus said, we built up key customer partnerships over many years, and that sort of long-term view is always front and center with our regional teams, our teams facing customers. And so we don't go around asking for things like payments in advance or short-term payment terms like others have done in the industry to increase supply of much needed PPE products. So that alongside the higher cost of inventory is behind this $74 million or so of working capital outflow you see here in the chart. Now I do see this investment continuing across H2, but perhaps at a slower pace as we move forward. The other point to note on this slide is the $45 million of net CapEx spend in the half. Magnus has covered some of the investments we're making. This is no different to the plans we've already shared with you just at our recent Capital Markets Day. So that leads me to wrap up the financial section of the call. And as always, I'll take a final look at the balance sheet here in Slide 21. First couple of lines, you see the working capital and the fixed asset investments here I just spoke about. And you can see in the relevant lines of the balance sheet where we're measuring our return on capital employed and return on equity. You see the higher EBIT levels on a trailing 12-month basis. Clearly, we're enjoying a very healthy return on capital employed, over 16% on a pretax basis; and return on equity equally strong at just under 14%. Now the Board, the executive, will continue to manage the company in the usual disciplined manner you're accustomed to. And we're very happy, of course, how we built up the strategic optionality this balance sheet is providing us with as we move through the pandemic and the world resets to hopefully growth mode. So that wraps up the financial section. I'll hand back to Magnus here for more about -- and you can hear more about the F '21 outlook and Q&A.

Great. Thank you, Zubair. So we've picked our words carefully here, as always. And as you can see, we talked first about macro, and our expectation for the future is that COVID will continue to impact the world for quite some time. It can be debated exactly how long. No one knows at this point, but it may be for many years. However, assuming that the pandemic or the peak, if you will, the overloaded hospitals and that situation is brought under control with the help of vaccines targeting health caregivers and older people, then we think that the economy will get a little bit of a boost. And that will jump-start a couple of sectors that have taken a bit of a beating through COVID such as automotive, oil and gas. And we've seen it a little bit over the last couple of weeks. And we also expect that hospitals will return to more normal, meaning doing their normal elective surgeries and so forth. And that will start to eat into the lineup of people waiting. So what does that mean for the PPE industry? Well, first of all for the next 12 months, we expect to see strong demand across the board. And we gave you, for the each of the 5 SBUs, our estimate for the long-term, next year or 2 or 3. And what we're saying also is that even when 70% of the world population is vaccinated, we do expect elevated demand to continue. Why is that? Well, first of all, enhanced safety practices. Everybody has gotten used to using PPE in a different way. And that's going to stay with a lot of companies, hospitals and people in general. You want to feel safe, and especially if you have further mutations of the virus and new strains emerging, then clearly this is going to continue for a while. And we're going to continue to wear masks and distance and so forth, right? So that's one. Number two is protection awareness and increased glove use per capita. So we're seeing a evening-out of usage around the world. Before the crisis, the average American used 8x as many gloves as the average person in Asia, and we're seeing that gap closing. And of course, there are many more people living in Asia than in North America, so that's going to drive some increased demand. We see research and testing activities worldwide. And if we're going to continue to vaccinate people and then test and then we have a further mutation, testing is part of life in a way that it wasn't. For me, myself, I've been tested 7 times just to be able to move between a couple of countries. And that story is shared by many of us. You constantly have to test to be able to be moving about seeing customers and doing your job. So that's part of our future. And of course, laboratories and so forth are going to work overtime to come up with new treatments and so forth. Potential need for annual COVID vaccinations, we don't know that yet, but there are some scientists who are expecting that just like influenza vaccine, we're probably going to have to take COVID-19 vaccines in some form or other every year for a great many years. And then finally, improving industrial activity. So there are a number of reasons to believe that demand is going to be high for quite a while. Specifically, exam and single-use is going to continue to be very, very dynamic, up and down. Price increases, cost increases, and we're just going to have to be super agile in responding to that and managing mix and so forth and keeping customers happy, and we are. But we're also going to see elevated demand for the other 4 SBUs. But having said that, we do expect a lot of challenges with supply. We're going to have hot zones popping up in Asia, especially in Asia because most Asian countries have not bought the quantities of vaccine doses as we have in Australia or in Europe or in the U.S. So it's going to take a much, much longer before the bulk of the population in Asia is vaccinated. And so therefore, we need to be prepared for hot zones and spikes for the next 1.5 years probably. And then we're going to continue to deal with shipping issues that have been really difficult. And I'm sure many of you know that because you follow a lot of companies who are exporting from Asia and for container availability. So those are going to be issues. All of those factors, combined with our statements here on interest and tax, is what then lead us to say that our guidance for this year is now going to be $1.60 to $1.70. And that implies a further upgrade to what we have said prior. And if we focus on the chart, it essentially translates into the fourth year in a row where, in constant currency terms, we deliver double-digit EPS growth. And I think it's a strong testament to the strength of this organization and the capabilities that we have to deliver value, not only to the people we're here to protect, but also to our shareholders in a sustained way. So with that, we're going to go into our Q&A. And Anita will take the lead on that and make sure that you all get a chance to ask your questions. So back to you, Anita.

[Operator Instructions] First up, we have David Low from JPMorgan.

Can you hear me?

Yes.

Yes, we can hear you, David.

Just going to start off just with this disruption. You talked about disruption in the -- due to COVID. I was just wondering how much that impacted Ansell's production in the first half, if at all? And what we should be expecting more of the same going into the rest of the year?

Yes, it did impact the first half a little bit. We do expect slightly more of an impact in the second half, primarily because we have seen the situation in Malaysia deteriorate. We have some of the big volume manufacturers in Malaysia now down, with some of their biggest plants not running and with thousands of workers sent home or sent back to their hostels. So it is significant for the industry. It is not impacting on us very dramatically at this point in time. We had more of an impact in Lanka because we had a spike that we discovered. And it was one of those examples that I mentioned in my presentation. But we found the spike before the government did, and essentially were able to deal with it and sent people home and make sure that it didn't spread. And it actually didn't, so we were able to recover relatively fast and lost maybe 2 weeks of packaging capability in one of the areas of the plant. So it was somewhat costly, but not catastrophic by any means, and I think we'll recover much of it by working double overtime. But these are the difficulties we're going to have to deal with. And it's not over. It's going to continue, and I'm afraid it's going to get worse, especially in Malaysia after everybody comes back from Chinese New Year celebrations and so forth. So it's not going to be easy for quite a while.

Okay. And if we could just move on to the guidance and -- well, some of the assumptions that you've made. So in each of the SBUs, you've given some commentary about short term and long term. Two questions, I mean what time period do you consider short term? I see that you're talking about a recovery in FY '22. And then the second part of that, just organic growth rates, I mean historically, I think we've had 3% to 5% organic sales growth target. Just wondering what you're thinking now in this new environment, please?

Well, first, if I start with the second part of your question. In the 1- to 2-year perspective, it is likely that we'll do better than the 3% to 5%. And part of it is elevated demand in many different areas and this high level of awareness. It's going to be very much a function of what happens to the virus and how many new strands pop up. And how -- are they going to be as bad as the South African version, or are going to be a little bit milder like the Danish version? So as you know, there are hundreds of strands already that have evolved away from the original main strand of COVID-19. So much is not known here, and that's going to have a big impact on this. But I think for the next 1 to 2 years, 3% to 5% is something that we'll exceed. And Zubair, anything else you wanted to add to that part of the answer?

No, I think you said it well, Magnus. I think it's still early days. It depends when our volume comes online. These capacity expansions, as we've highlighted, should drive some meaningful volume growth. Now we haven't quite clearly honed in on how much over the 3% to 5% range, David, we're going to be. But as Magnus said, it should be higher, given all the capacity and pricing that's going on in the market at the moment.

Okay. Thanks, David. Next up, we have Andrew Goodsall from MST Marquee.

Just thinking about the second half, I know you've called out price versus volume. But some of the hospitals we're talking to are saying that their PPE is sort of coming off the peak cost. So I was just wondering if you could talk to whether that's a reflection of where your pricing was at versus, say, those that gouged them? And then also just if you could talk to whether seasonally, you'd expect the same sort of seasonal second half as -- sort of a stronger second half as a factor, just given the current environment where that's still sort of a prevailing factor? Or are we sort of working to a different timetable at the moment?

Yes. There's been some examples, some of the worst price gougers having taken some of the peak pricing down. But some of it was actually quite egregious, and it's not surprising that they were sort of forced to come back down to earth. So I'm not sure that you can interpret that as a problem solved and balance returned. That's not yet the case. We still see a world where demand for single-use gloves is significantly higher than maximum manufacturing capacity of all manufacturers combined. So there is this imbalance, and that will prop up pricing for a while as much as we would like it to come down. So I think it's going to last well into our fiscal '22. But as we have said in our wording, if you will, in both the ASX announcement and in the presentation, we do expect some level of normalization to start in F '22. But we also expect to land at the price point in exam-type gloves. That's going to be meaningfully above where it was before COVID. And there are a couple of reasons for that. Raw material is now more expensive for various reasons. And secondly, labor cost is higher because much of the industry is now starting to do what we have done for a couple of years. And that is to manage safety of the workforce with a higher purpose in mind. And I think that will tend to drive their cost up. So we should expect that it's going to stay higher than it was before COVID.

And is seasonality a factor in the second half? Traditionally, you've come home a lot stronger in that second half. Or is that sort of mixed now with the current operating environment?

Yes. I think, Zubair, you commented on it, but you might want to clarify that again.

Yes. So I would say in terms of the rates, it's different on the revenue line, as Magnus said, the pricing hasn't abated. In fact, the first half, we saw just the beginning of the price increasing. And the way it works is our suppliers will give us monthly pricing, and we'll give an estimate of how much they keep increasing those prices. And they have actually elevated significantly in the second half, so you will see somewhat more pricing in the second half. Now that isn't seasonality. It's just the nature of the market and the industry at this point in time. Now equally, that translates into our cost base. So as you've heard us say before, we're not price gouging. We could take far more price than we are doing in the market to date. But because in partnership with our customers, we're servicing their volume, and we will maintain that discipline in the second half. So long answer was to a short question is basically the revenue line will see some uptick, and the earnings will probably -- will stay where in the same run rate you saw in the first half is our likely scenario at the moment.

And just final one for me, just the CapEx outlook into FY '22, just any commentary around the range you expect?

It's too early to say at the moment. We're still obviously trying to execute against our $100 million target this year, but we did say, and Magnus said at Capital Markets Day, we'll continue to have very elevated CapEx. So that's going to be north of $50 million, $60 million at least next year as we highlighted in Capital Markets Day as well.

Next up, we have Saul Hadassin from UBS.

Just the first one, Magnus, I'm just wondering if you're willing to tell us by the end of FY '21, what percentage of your exam single-use will be internally produced versus externally sourced?

Well, first of all, what we said is that we are doubling the internally produced, compared to where we were before this expansion program and in-sourcing move started. And we expect that it will get closer to 50-50, but I'm not going to be more precise than that. But that's a long way from where we used to be, which was more like 20-80. So it's a fairly significant set of moves to give us more control of all of the -- or many of the differentiated platforms and also gets more control of how we manage processes and quality, and quality of labor practices and so forth. So there are many reasons why we're doing this besides it being a good thing to do, financially speaking.

Sure. And then just a couple for Zubair. Just the full year '21 FX impact, there's -- I've seen the slide pack. There hasn't been an update to the commentary at the August result last year. But just what's your expectation of currency, particularly in the second half and contribution to earnings?

Yes. So as you know, we have a 12-month rolling FX hedging program. Because of that, we are well hedged, and especially over the next probably 6 months to 12 months, where I would say 80 or -- probably about 85% of our FX exposure is basically covered. Now we make good use of zero-cost collars, as you know. And so this limits essentially any participation in any major upside as the USD continues its depreciation. So I've outlined something around FX rates in the appendix to the earnings release. And I'd say, long story short, if current spot rates continue as they are for the next few months, it's quite feasible this could add another $0.01 or $0.02 to EPS. But clearly that picture can change very quickly. And as you can imagine, I'm not going to be able to provide a precise forecast in regards to FX. But because we are hedged like I say, that's probably a good enough number for you.

Right. And last one for me. Just you mentioned capital management and dividend pay. I was just wondering what the thinking is regarding share buybacks at this point in time.

Yes. So the Board -- yes, go ahead, Magnus.

Yes, and link -- take that, Zubair, and link it to our dividend policy. I think they sort of go hand in hand, to a degree.

Yes, indeed. So we've been evaluating all capital deployment options, as you can imagine, with the Board. And we've -- this is why you see the dividend policy where we've clearly increased our payout this fall and that as a result of the good performance and the way to deploy -- one way of deploying capital. At the same time, we do continue to take a look at our intrinsic revenue, as we've always done. We evaluate this with the Board. And we'd say at the moment, given the outlook where we're at, we still feel there's probably room in our share price the way it's looking at the moment. We do think there's good prospects for the company. Now that's not a forecast, but it's certainly, given the industry dynamic, we think there's good value. Now how the Board then evaluates that in terms of a buyback, we will determine as we progress. But they are open to executing buybacks as we progress. Now we can't signal to you, of course, when we will do that, if we will do that, but that buyback program is very much active. Magnus, I don't know if you wanted to comment anything additionally there.

No, no. I think that provides a good answer.

Next up, we have Sean Laaman from Morgan Stanley.