Ansell Limited (ANN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Ansell Limited Acquisition of Kimberly-Clark Corporation's Personal Protective Equipment Business and Associated Equity Raising conference call. [Operator Instructions] I would now like to hand the conference over to Mr. Neil Salmon, Managing Director and Chief Executive Officer. Please go ahead.

Thank you, and good day to you all. Pleasure to be talking to you today. Yes, indeed, today, I'm excited to announce that we have reached an agreement with Kimberly-Clark Corporation to acquire their Personal Protective Equipment business and also announcing an associated equity raising. If we could advance through the slides here, I'd like to start with our strategic priorities for acquisitions. If we could go 2 slides further, please. And this is a reminder, of the lenses that we always use when considering the optimal M&A strategy for Ansell. To me, the formula is, firstly, M&A should position the business attractively in segments that themselves offer opportunities for elevated growth. And that's the most important part of any growth strategy in my mind. Secondly, that through M&A, we reinforce differentiation. Differentiation, which is valued by our end users and where we can obtain durable advantage in the market. Acquisitions should enhance the capabilities that build that differentiation. It can be in a number of different ways, but manufacturing footprint could be one, but also product technology and increasingly important to the future, a broader range of services that tackle the most important safety challenges that our end users are facing. And finally, of course, M&A must generate attractive returns. This is often the hardest part of the equation. But as you know, Ansell has been very disciplined on this lens as well over many years, and we will not pursue an acquisition unless we're confident it offers good returns. And generally, returns requires adding value both ways. We're clear that we can add value to the business we're acquiring. And we're also clear that the acquired business brings value to the base Ansell business. And if you can achieve both those at a reasonable price, then that to me is a secret to generating good returns. And as you can see down the right of this page, in my view, the acquisition we're announcing today takes all 4 of these key priorities, and that's what I will look to demonstrate together with Zubair during the course of this presentation. So going to the next page. Firstly, the Kimberly-Clark Scientific business is highly complementary to Ansell's market position. It improves our organic growth potential through increasing our presence in our fastest-growing scientific vertical. At Ansell, we refer to Life Science. Here, we're talking more broadly about Scientific, and I'll explain how those fit together in a moment. And you'll see how the Kimberly-Clark addition beautifully balances Ansell's product portfolio and geographic position, and significantly strengthens our overall brand portfolio as well in this attractive space. The second key attribute is that it improves our overall position in chemical protective clothing. Through a number of acquisitions in recent years, Ansell has rounded out a position in chemical protective clothing that we also see as offering us elevated growth prospects. However, most of our acquisitions have been in the EMEA, APAC region until now and still our presence in North America is relatively light. Kimberly-Clark brings a much stronger position in North America for chemical protective clothing. It rounds out our service capability. Ansell is very strong today in assessing in workplace environments, what is the optimal PPE. And as I'll show you in a moment, Kimberly-Clark is stronger in the post-sale service, and putting those 2 offerings together creates an end-to-end solution for customers. It drives economy of scale benefits. You'll see that it is accretive to the key P&L metrics, but also through the combination of the Kimberly-Clark and Ansell organization and supply chain, we see attractive synergy opportunity as we bring these businesses together. And lastly, it offers a significant value accretion opportunity for you, our shareholders, and that's what we will look to demonstrate today. So on the next page, I just want to highlight a few key elements of the transaction. The total purchase price, $640 million. We are funding that through the combination of a placement and a debt raise in the proportions highlighted here. The multiples are 9.7x EBIT multiple. And in this case, EBIT is the same as EBITDA as there is immaterial depreciation and amortization in the acquired P&L. After adjusting for 2 key additional elements of value creation, the net present value of tax benefits flowing from the amortization of goodwill in the U.S. and the $10 million run rate cost synergy figure, that reduces the multiple on the acquisition to 7.8x calendar year '23. Hence, what we view as significant value creation. Just framing this in EPS terms, the acquisition is mid-single-digit EPS accretive on a pro forma basis before synergies and low teens EPS accretive after including those run rate net cost synergies. A few comments on the Ansell-based business, and I'm pleased to be able to reaffirm our guidance range as published in our February half year results at $0.94 to $1.10 on an adjusted basis, as previously disclosed, for the Ansell-based business. However, of course, as there will be a period of time between signing and closing on this transaction and for the next couple of months, we expect the additional shares on issue to have a dilutive effect of roughly $0.01 to $0.02, and we'll exclude that from adjusted EPS communication when we get to the year-end results. So now let me go through some more details on the business that we are acquiring. If we can go 2 slides further, please. So KCPPE is a leading global PPE business. Similar to Ansell, they design, market and sell innovative and differentiated PPE products. Their portfolio is similar in that it -- primary focus is on gloves and protective apparel. They also have an attractive safety eyewear position focused on North America and one that we think we can develop. The products are sold into the global scientific verticals, which includes what we at Ansell call Life Science and also into the industrial safety markets where Ansell has a leading presence today. KC's strength has been built up over many decades of focus on these key verticals. We see that in the expertise of their teams, renowned in the industry for providing great support to some of the most demanding workplaces in the world where PPE protection is amongst the most critical both to workers and to the products being manufactured in those spaces. And accordingly, having built up strong brand recognition as well, and we're delighted to have the KCPPE brands now as part of Ansell. Those brands are Kimtech, oriented to the scientific space; and KleenGuard, oriented to the industrial safety space. And then K-C has done a very good job of building that customer service intimacy in the post-sale activity both the adoption and compliance with the use of PPE, and then this recycling service that we're quite excited about for the future. The one difference between K-C and Ansell is that K-C runs today a fully outsourced supply chain model. That's, as you are aware, quite a common model in our industry. And it's an area where Ansell brings more dimensions for value creation and that we run a combination of insourcing and outsourcing, and we can bring those extra dimensions to play as we create value from this combination going forward. You can see the key financial highlights to the right. On the calendar year '23 pro forma business, $270 million of revenue, $66 million of EBITDA and EBIT the same and a very strong cash generation as very limited CapEx with that outsourced model. Turning to these 2 key segments: Scientific and Industrial Safety. And here, this slide shows the difference -- if we could advance one, please, between Scientific and Life Science. You can see in the middle, Life Science, specifically is pharma and med device manufacturing environments where cleanrooms are critical to quality control and the end production. Scientific broadens that to include the rapidly growing semiconductor space where Kimberly-Clark has a stronger presence than Ansell today. And also the associated research labs, either in these companies or in related activities, which have many of the similar quality and safety requirements as the actual cleanroom process. So this broader Scientific vertical is an enhanced position versus Ansell's previous specific focus on Life Science. And you can see the products there are familiar to us and to you: gloves; protective apparel, where in particular, K-C has a good presence; and then masks, also oriented to the cleanroom space. On the Industrial Safety side, this is a very close overlap with Ansell's presence today, similar end markets, similar products. The key addition to the Ansell portfolio being that safety eyewear piece that I'll comment on a little bit further in a moment. So on the next page, a little more -- a few more words on the K-C product portfolio. Gloves, around 60% of the total; protected apparel, around 25%. Gloves and the protective apparel are both sold into both the Scientific and the Industrial spaces, which is what the different word color here indicates. But gloves, as you can see, primarily warranted to that Scientific vertical. Protective apparel primarily into Industrial end markets. Safety eyewear is an interesting portfolio, $40 million, as you can see here, and also very well positioned and branded in the e-commerce space. I'm seeing right now increased traction for Ansell products through various multiple marketplaces around the world. Many of our products now starting to record top-selling status in different countries, and building out our overall e-commerce presence with the safety eyewear portfolio, I think it offers additional opportunities for growth. And then a small position of -- in masks, but it's important to note that in this cleanroom vertical, there's more interest from customers to offer their complete portfolio of products that a worker needs, which would be gloves, protective apparel, masks, goggles and potentially, wipes, also into the cleanroom space. And having those all presented in a cleanroom packed version is of interest to customers. So rounding out the portfolio is important. And that's what you'll see as I get to illustrate the very strong fit between what K-C brings and what Ansell has today. So let me talk that through, beginning with the acquisition rationale, if we can go 2 slides further, please. So firstly, these sub-verticals should support an enhanced growth profile for Ansell's business. Multiple industry reports and Ansell's own experience within what we've previously called the Life Science space indicates that this is our highest growth vertical opportunity. And we cite one piece of research and as many others of a similar nature that indicate that the overall market for cleanroom gloves should grow in that high single-digit arena and for many years into the future. And what we also see is that the use of cleanrooms in manufacturing is extending outside of its traditional focus of Life Sciences. And we see cleanrooms being adopted across other manufacturing platforms where that heightened quality control and elimination of contamination is critical to the end product being produced. So it's a growing space. And as I illustrated in a moment, where Ansell's differentiation plays particularly well. And that's because these are highly regulated manufacturing processes. What's important to note is that in our pharmaceutical manufacturing line, the value of the product being produced is very significant and thus, the cost of the PPE being used in that application. If the PPE fails, it can cause a huge cost occurrence to the end-use customer either through contamination or through shutting down a production line. So the value opportunity relative to the cost of PPE is very significant. And then that requires a specialist sales force to deliver that, and that's something that we're particularly keen about this acquisition is the knowledge and capability that will join Ansell's existing strong presence in this space. through the Kimberly-Clark Scientific sales force that in future will be part of Ansell. And then it allows us to sell that broader safety solution, that portfolio of products, but also of services as I'll develop in a moment. And you can see to the right here, and I'm sure you're aware of this as having covered Ansell for some time that it's been a consistent focus for us. Both our Life Science business has been amongst the best performing over a long period of time, and we have continued to build it out through prior acquisitions. The Nitritex acquisition that built our European presence under the BioClean brand some years ago, acquiring in emerging markets as well. And then we have been discussing this opportunity with Kimberly-Clark for some time. I have long rated it as the most attractive potential opportunity for us in the M&A space. And therefore, I'm delighted that it has finally come to pass or we finally reached agreement and expect to be closing on it in the near future. So let me illustrate now why I believe our business and Kimberly-Clark's PPE business fit so well together beginning with the Scientific business. If we could move forward again. And you can see that Ansell's presence is strongest in EMEA and APAC, whereas Kimberly-Clark's presence is strongest in North America. You can see that Ansell's presence is strongest in gloves, especially sterilized versions and left, right-hand specific gloves. Whereas Kimberly-Clark's presence is strongest in protective apparel, and this is a market that Ansell hasn't been able to generate a significant share in previously. And you can see that Ansell has a brand that works very well in EMEA, but not a brand today that really has the global reach that Kimtech has. And so that combination of Ansell, first of all, is clearly the #1 recognized company in the scientific space with Kimtech the #1 recognized product brand in the space. And Kimtech by Ansell, in my view, it becomes a strong combination. So together, we enhanced our global cleanroom business. We complement our geographic presence. We balanced our product portfolio and service solutions. We have a strengthened brand position, and that combination of sales expertise around the world will be very powerful. And in this market, more than any other, we see leading customers in both the med device and the pharma space keen to have conversations with us about setting a global standard. And then implementing that standard across all the operations in the world. And clearly, they need a safety partner who is able to do that. And with this combination, we will be even better placed to offer that opportunity to key global end-use customers. Talking to the fit in chemical protective clothing on the next page. And here again, through a number of prior acquisitions, Ansell has built out the AlphaTec brand, which is strongest globally in the high-end range for the general purpose products, which are still provide important safety protection. Our presence today is strongest outside of North America as the businesses we've acquired have largely been EMEA and APAC-oriented. So again, a very strong fit with Kimberly-Clark. And here, we acquired that North America presence that we don't have today, and we round out our global position in chemical protective clothing. The Ansell Chemical Guardian safety offering is widely recognized as leading in its space and now with a broader set of product solutions behind the Chemical Guardian device, I'm excited about the future of this portfolio as well. And KleenGuard fits very well alongside AlphaTec as a brand in our overall brand family. And then finally, turning to the services match. So Ansell, on the next page, very strong in analyzing workplace safety requirements through our Ansell Guardian and our Ansell Chemical Guardian offerings, increasingly as we develop our Inteliforz set of sensor-based solutions also analyzing and predicting workplace risks before safety incidents happen. So that's Ansell's strength at the, what product should I use for my workplace environment. KC's strength is after I've made that decision, how do I optimally use that PPE solution? And particularly in cleanroom, how do I ensure that my workers are properly trained and understand the compliance requirements to wear the PPE appropriately and avoid any contamination risk through donning and doffing procedures. That's the APEX program that they have pioneered. And then one of the biggest challenges we face in our industry is what alternative is there to landfill disposal. And Kimberly-Clark has developed the RightCycle Program, which is very well established in North America and is really the only leading platform that offers customers an alternative to landfill disposal of PPE. And we're excited to have that as part of Ansell because it really rounds out sustainability differentiation to customers. So the combination of services, it's our safety risk together with the post-sales support the broad spectrum of the 4 services and rounding out our sustainability offering. So all of that together, and if we go to the next slide, as you can already imagine, this has the potential to unlock scale benefits from the combined businesses. And overall, we're committing today to a run rate net cost synergy of $10 million per annum that we expect to achieve by the third full year of ownership. And in a moment, I'll talk through the phasing up to the third year so that you understand the sequence of events here. But talking to the ultimate goal here, firstly, supply chain savings. We expect there to be opportunity through the combined scale matching and bringing together the supplier relationships that Ansell and K-C have today. And then using Ansell's operating footprint to deliver additional opportunity potentially, in some cases, from insourcing or from supplier consolidation and also consolidating warehouse and logistics operations globally. In SG&A terms, the business P&L that I mentioned to you earlier has been presented on a stand-alone business basis. The business today, though, is run on an integrated business into Kimberly-Clark's overall share service structure. And in future, it will be integrated into Ansell's equivalent shared service structure so that the stand-alone cost assumed in the P&L will actually not be needed as we integrated it fully into Ansell. And that's the first element of SG&A savings that will be achieved, and I'll talk to the time line in a moment that will achieve that. And then as we put these 2 organizations together, there's an opportunity to really achieve enhanced leverage. And as we grow the top line, achieve overall SG&A productivity as these organizations move together. So a significant SG&A economy of scale benefit. Accelerated sales growth is an additional benefit that we are not relying on in this model in order to exceed our valuation hurdles. In other words, this is upside against our base case. We see the opportunity for accelerated sales growth both in the Scientific and Industrial spaces, and certainly as a result of the focus that Ansell will bring to this combined portfolio. Let me now talk at the bottom of this page a little bit about the timing, the composition and timing. So on closing of the business, initially, the business we are acquiring will still be supported by Kimberly-Clark under a transition service arrangement. Those transition services will be at a modestly higher cost than that stand-alone basis that I described in the P&L that we are presenting to you. And that, of course, ensures that both of us are incentivized to move off transition services and to integrate the business into Ansell as quickly as we can, but also without creating any risk of disruption to customers. We estimate at this time that it will take us 6 to 12 months to move the business from the Kimberly-Clark transition services integrated into Ansell. And only after we have completed that period, will we begin to see the cost synergies come through. Also important to note is, and I'll highlight this a little further later that although we're acquiring the Scientific sales force from Kimberly-Clark and the team that we're excited to have as part of Ansell, we're not acquiring any members of the broader Kimberly-Clark Professional sales force, which largely supports the Industrial Safety part of the business. Instead, responsibility for those sales will transfer to the Ansell sales force that's already in place, already has the right core points, already has the right geographic presence and as well, therefore, well placed to pick up and grow the Industrial Safety portfolio as well. Inevitably, though, it's only prudent to accept there could be some revenue leakage as we make that transition from K-C Professional to Ansell Industrial sales. And so I'm allowing for that in the first year or 2 of our ownership and in allowing for that, I remain confident that we can deliver the overall value opportunity from this business. And by the time we're through this transition service period, the cost synergies -- the gross synergies that are higher than the net cost number that I'm talking about here come through, and we see the greater organic growth opportunity of this acquired business than the full value of the acquisition will come through. So these transitional services are very important to the success of this transaction, and we spent significant time with Kimberly-Clark working through these and getting agreements that we believe support the transition of the business. And on the next page, I highlight these in a little more detail. Firstly, a recap here, as I've already mentioned, of what we're acquiring, which is the products, the IP, the customer less supply contracts, inventory and the dedicated workforce on the Scientific side. But we're not acquiring the K-C Professional sales force, clearly, as their primary focus is more on the broader portfolio, our solutions at K-C Professional takes into their primary verticals and nor are we acquiring the back office functions or IT systems. That's why we need the transitional services for a period of up to 12 months, as I mentioned. And during this period, we both need to prepare the Ansell systems and back office to receive the [ comp ] business and also the Ansell Industrial sales team to receive the customer relationships. An integration team is already established and is being rounded out. And Ansell led by key members of my executive team and with external resource to support that as necessarily as we go through this. A further word on the Ansell-based business, as you're very aware some months ago, we're committed by delivering our ancillary products to my executive team, investment and key to me in assessing where whether this is the right time for us to take on an acquisition, which for sure myself that this presents no risk to continue delivery of the goals that we have previously committed under the API Program. And the reason I'm confident about that is because the changes to our SG&A organization are complete. As you're aware, our new organization structure went into place in October '23. A few months on, I'm very pleased about how that is embedded in very quickly. Yes, of course, we're delivering the cost savings associated with that. But more importantly, I'm seeing its effectiveness come through, and we're achieving the results that I expected. And as I look at that organization structure and consider what is the optimal receiving organization in Ansell for this acquisition, and I'm confident we have already in place the broad organization structure necessary to make a success of this acquisition. From here, under the API Program, the objectives remaining are in the manufacturing organization. And as you already understand, as K-C does not have its own manufacturing operations, there should be no conflict in terms of priorities or focus between Ansell's manufacturing continuing to execute against its API goals and the initial integration with K-C focusing on the SG&A part of the organization. The one part of the program that we will rephase is the IT initiative. Here, we have given you an indication of the cost of the 1 ERP program, but we have not yet committed to benefits. It's actually good news that we have this team stood up and ready to go because now the same expertise and the same focus can adopt as their first milestone, the integration of Kimberly-Clark before then moving on to the broader ERP objectives that Ansell has. So that team is ready to go and positioned appropriately to manage the transition service and the integration activity. So that's a summary of the transition services. Now I'd like to hand over to Zubair, who unfortunately, is not able to join us on video, but you know what he looks like. And Zubair, over to you, please, to cover some more financial aspects of this transaction.

Thank you, Neil, and good morning, everyone. Neil has touched on a lot of what I'm going to go through here. And so I'll be brief to cover a little more of the financial detail. Clearly, we're very excited about this acquisition of Kimberly-Clark's PPE business. And that's not only because of the strategic fit between 2 very high-quality businesses that Neil has just outlined, but also because we believe it will significantly enhance Ansell's financial profile. And that's perfectly illustrated here in this slide, labeled, strength and financial profile. And you can see in financial terms, the combined strength of the 2 businesses. Organic growth potential is increased with greater exposure and the mix towards this higher growth Scientific segment. We're also, as Neil just said, targeting these greater economies of scale through the combination. The EBIT margin has improved or will improve approximately 180 basis points on a pro forma basis. And that's before factoring in the impact of those synergies. The synergy opportunity, which, again, Neil has already covered, will further boost EBIT margins. And I've said many times in our Ansell earnings costs, the robust balance sheet that we have, it enables us to take advantage of both organic and inorganic investments as the right opportunities present themselves. This acquisition, clearly, we believe, is exactly one of those inorganic opportunities we've been patiently waiting for and in fact, tracking for a long time. And it comes with a price, which I'll talk to in a moment, that's enabled us to tailor our funding mix to ensure both good returns for our shareholders and also preserve our investment-grade rating. Pro forma net debt to EBITDA for the year ending 31st of December 2023 is 2.3 turns, and I expect we will delever relatively quickly and fall below 2 turns of net debt to EBITDA within 12 months of completing the acquisition. Note, this hasn't included any proceeds from the share purchase -- the share placement plan, which is not underwritten, and that could total to AUD 65 million and clearly further lower our leverage levels. The deleveraging, which I'm highlighting here is going to be driven by the strong cash flows of our Ansell base business, which are set to improve, and I mentioned this again in our half year earnings call as we exit a multiyear period of elevated CapEx as we increased our manufacturing capacity in key segments. And of course, it's going to be further enhanced by Kimberly-Clark's PPE strong cash conversion given their largely outsourced manufacturing model. So talking about significant value creation here on the next slide for the shareholders of Ansell. We've always maintained a disciplined approach to valuation and M&A processes, and our Board holds us very strictly to key financial hurdles. And starting with the acquisition price, the enterprise value to EBIT multiple of 9.7 turns pre-synergies, that we feel represents a very good discount and market transactions in the Safety and Life Sciences sectors at the moment and Ansell's current EV to EBIT trading multiple, which is circa 12.5x. The synergy opportunity is also very significant. We've identified this $10 million of run rate net cost synergies, which we'll target, as Neil said, by the third year of ownership of this property. And because this is a carve-out deal structured as an asset purchase, we'll be able to benefit from tax amortization of the stepped-up U.S. tax base, value of those intangible assets we're acquiring. And that's worth approximately USD 50 million in discounted cash flow terms. And when these 2 benefits are factored in, the implied acquisition multiple is reducing even further to that 7.8x in the -- which again is a significant discount to current multiples in the market for these types of assets. Now in the nearly 5 years I've been at Ansell, I've not seen anywhere near this type of all-in multiple for [indiscernible] in the health care and life sciences sector. And lastly, the transaction on an FY '24 pro forma basis is going to be strongly EPS accretive, and the expectation is mid- to high single-digit accretion, excluding those synergies and low teens to double-digit accretion, including the $10 million of run rate synergies I just outlined. Turning to the next slide. In terms of the institutional placement and share purchase plan. Again, I'll briefly talk about the equity raising. It's going to partially fund this acquisition. We'll be undertaking this fully underwritten institutional placement of AUD 400 million, and that represents just over 14% of our issued share capital. The issue price is going to be AUD 22.45 per share, and that's representing a 6% discount to the last close and an 8% discount to the 5-day VWAP. The new shares are going to be eligible for the next dividend. And again, we'll be undertaking this non-underwritten share purchase plan That will be close to AUD 65 million. On the next slide, quickly going through sources and uses. You can see the various sources and uses of funds here, and now it's excluding, again, that share purchase plan for in addition to the equity raise of USD 263 million, you can see the transaction will be funded with of $377 million of incremental debt, and that's in the form of a fully committed bridge facility, that will be a bridge facility, which has 12 months running on it. And I'll intend to pursue a permanent financing solution to take out this bridge in the second half of the calendar year. Previously mentioned post-transaction, the net leverage of 2.3x on a pro forma basis. Again, we expect to delever relatively quickly down to within 12 months down below the 2x that we're comfortable with, and it preserves again, that optionality and the strength of our balance sheet. So with that said, I'll hand back to Neil for closing remarks.

Important for me considering this transaction are a few things. Firstly, we as a business Ansell ready to make a success of an acquisition and the progress we've made in getting Ansell back on the right track implementing our accelerated productivity plan means that I believe, yes, indeed, we are ready to take this on and to drive value. Secondly, however, I would adopt a particularly discriminatory lens to which M&A we should be doing at this time for me to act, it would need to be absolutely core to our existing strategy. And frankly, in our position that you, as our shareholders, would not want me to pass up. And that's certainly how I assess this. And then thirdly, I'd have to be comfortable, of course, that is also an acquisition that offers the value upside that I would expect shareholders to see, and as you know, we regularly fail against that hurdle, and I will not be tempted to go forward with an acquisition if I don't believe there is significant value potential for Ansell's shareholders. And so in conclusion, this is why I believe that the Kimberly-Clark combination meets all those key criteria. It positions us better in our already most attractive vertical being the scientific business. It rounds out an important part of our overall PPE portfolio, the chemical protective clothing space, it creates a really significant opportunity in a broader set of service solutions, and I think those will be increasingly important sources of differentiation for Ansell for the long term in addition to the product differentiation we have always had. You've heard about the economy of scale benefits that we expect to deliver here. And lastly, as I mentioned already, I believe that represents a significant value creation opportunity to today's Ansell shareholders. Let us close there and now go to Q&A. And if I could ask us to try to limit questions to 2 each initially, and then we'll see how we go through the next time. So operator, over to you to initiate the Q&A session.

[Operator Instructions] Please note, due to legal restrictions, the management team will not be discussing the process or details around the equity raising other than the basic terms referred to in the presentation. Please refrain from asking questions about the specific details of equity raising. With that, the first question comes from David Low from JPMorgan.

Neil, if we could just start with where you ended there. Just wanting to understand what drove the timing of this transaction because frankly, it is a little sooner than I would have expected given the IT program is still pretty much in the middle.

Yes. So ultimately, the timing was driven by Kimberly-Clark, of course, rather than ourselves. So if we go back some years, we've had on enough discussion with Kimberly-Clark dating back a period of time along the lines of -- are you sure you want to be in PPE long term? Is it really the optimal product portfolio and the one that you would choose to invest in, given Kimberly-Clark's many, many other extremely attractive positions globally. I think previously, they were sort of interested and thought, well maybe but circumstances were not right for us to do a transaction earlier. Clearly, though, that thought process was continuing within the Kimberly-Clark organization. And then they came to us a few months ago and said, well, we've actually concluded that it is time to move on this business. Just a couple of weeks ago, that culminated in an overall Investor Day communication that Kimberly-Clark announced to the market that we were not aware of that at the time. But clearly, this now fits to an overall repositioning that Kimberly-Clark has undertaken as they look to position that business. So in other words, they had determined the moment was now. And therefore, I had to conclude, and they also indicated to us that they had other strategic interest in the asset, although a high degree of confidence in us that we would be good owners of the business, which means also taking care of the Kimberly-Clark people who will become part of Ansell in the future, but nevertheless, a competitive process in which they had other strategic interest. So this was the moment, David. And I was concerned that if we didn't act now, we actually might lose this opportunity forever as, of course, if it had gone to another strategic holder then that would have been our chance to really cement our position in the scientific space lost. So I would agree, if I could have picked my perfect timing, maybe, as you said, but it wasn't my choice -- it wasn't my timing to call. I'm still confident that we are ready to take on this transaction, and that I'm not in any way risking our ongoing delivery as a company by moving forward at the pace that this transaction will require.

That's very clear. Just my follow-up question. Could we talk a little bit about the market dynamics post the transaction? So where Ansell's market share is in some of these segments? And does this create a real competitive advantage, something that we could see Ansell's position actually delivers a premium, which frankly has been a little harder to see in the past?

Yes. Well, we're not quoting the specifics of market share here today. And as ever, there isn't publicly available data on market size. So it's always a question of industry estimates. I think what's important to note here is it's really that completion of the geographic position and that completion of where Ansell today will have a strong position in certain product categories and Kimberly-Clark has a strong position in other product categories. And when you put those together, you equal that total portfolio of solution, which is very important. And without naming names, some of the leading players in the med device and the pharma space are already coming to us today and saying, "Ansell, we want a portfolio solution delivered everywhere in the world. And let's agree that between us directly. How do we execute that?" Distribution remains important in fulfilling the product supply to various locations around the world. But let's have a strategic discussion about how Ansell can provide that. And we had some gaps in our portfolio along the lines that I've articulated through this presentation. And Kimberly-Clark happens to have strength in those areas that were key gaps before. So it rounds it out. But I think if you look specifically at life science, David, I think the performance of that sector for Ansell really has stood the test of time. Yes, over the last couple of years, it has suffered from those destocking effects that we've called out and been very specific about. And we do, we continue to see that business emerging. And as we have got under the hood and looked at the Kimberly-Clark business, we see them showing similar trends, both experiencing that destocking phase and also now emerging from the destocking phase, which is clearly very important. And if you normalize that over a longer period of time, I see the growth rate in evidence that I'm also promising here for the future, and we see very strong margin resilience across the products that go into this space. So that to me is sort of both historical and future promise evidence behind the value that I see, particularly in the scientific portfolio, yes.

Look, just if I could just push you a little bit. I mean, will you be the #1 provider in the life sciences or in this category?

Well, we are already. So, and -- but it's a question of the different product categories. So we're #1 in gloves, but then in chemical protective clothing, Kimberly-Clark was #1. So now today, we have a rounded-out position. Having said that, while we will be -- there remain a number of competitors in this space. So it will remain a competitive market, but yes. And I think also if you look at the brand recognition, so Ansell, we've done some recent brand research on this. The Ansell brand clearly recognized as indicating the company with the greatest credibility and on an aided and unaided basis in the space, but Kimtech being the product brand that also has the greatest recognition. And so that Kimtech by Ansell combination, I think, will be particularly powerful in North America, especially, but in other markets as well. Yes.

The next question comes from Sean Laaman from Morgan Stanley.

Neil, on the combinations of the portfolio. So it seems that it is quite synergistic. So just to be clear, there is no product rationalization necessary. And where our synergies come from is that there isn't perfect overlap with the sales.

Yes. So no significant product rationalization required. I mean there might be something at the margin. So the synergies come from the SG&A efficiency, as I described, and in particular, that the business is costed as if all the back-office functions were resource stand-alone within the business, which is not the case today as they're provided on a shared service basis and won't be the case in the picture, so the marginal cost to Ansell of taking on this activities is much lower than the stand-alone cost that assumes in the proforma P&L for the business synergies. So that's the first piece of SG&A synergies, which as drops out once we're through the transition service base. Then the second phase of SG&A, synergies comes from a long-term opportunity to grow the top line at a greater rate than we need to invest in SG&A because we have the opportunity of optimizing across the combined resources that will come together between the 2 organizations. Then the third synergy opportunity is around sourcing. So it's not product rationalization, but Ansell already today has the capacity available to in-source, some of the activities that Kimberly-Clark outsources. For example, the cleanroom packing step Ansell has existing cleanroom packaging facilities in 2 countries. We have existing capacity of chemical protective clothing. And we also have hypothesis at least that would only be able to verify once we fully own the business that there are sources raw material opportunities that we would have through our more extensive sourcing network that perhaps are not to Kimberly-Clark today that might of course offer sourcing competencies. So those are the 3 main areas that we have included within this $9 million to $10 million synergy. And of course, we'll look to identify further opportunities as once the business is part of Ansell and we're really able to get into those details specifically.

Maybe a quick one for Zubair. I'm not sure it's disclosed in the material, but are you able to give us a sense on what the rate on the bridge is?

Yes, it's not disclosed in the material, Sean. But obviously, we'll be looking to get off that bridge as soon as possible. And so in terms of if you're trying to model net interest cost, I think what you should think through, Sean, is our current debt book is 80% fixed interest. Clearly, that's keeping our average borrowing costs low. The acquisition debt, the incremental debt we're taking on, that's going to be priced at market. And so you do -- you have to model in an increase in our average borrowing cost through F '25. Again, we haven't disclosed that yet because we have to take the bridge out, and we'll provide specific guidance alongside our full year results in August for that.

Your next question comes from Saul Hadassin from Barrenjoey.

Neil, can I just ask you about the historical performance of the KCPPE business. There's 2 years' worth of revenue and EBITDA. Can you tell us what the revenue of that business was pre-COVID? Is it higher today than it was then?

Yes, yes. Although profits were similar. So Yes. I mean as we have experienced also perhaps to a slightly lesser degree, the business did encounter some disruption, supply chain disruption through that COVID period. And that meant some of the business they had back then, they did not have today. And this is a function of anyone operating an outsourced model had difficulty securing the volumes that they were seeking. And then there were other reasons as well as you're well aware of supply chain disruption. But I would say the good news for us is that the overall quality of the portfolio has improved through that period. The pieces that we were most interested in before have been preserved and protected and grown. And the aspects of the portfolio not in the business today are ones that we didn't put so much value on. So the quality of the business has improved. And if you look more specifically at the more recent time frame, we see that very much in evidence as though we're seeing. So that was a clear area of due diligence, focus for us. We're sure that like our own life science business that the business is through those effects that the end-use demand for the portfolio is secure. The distribution is at or reaching the end of its destocking cycle and the business is on a solid footing to move forward again. And that's very -- that was our conclusion early on in due diligence and has been borne out by the continued performance of the business we're acquiring during the period in which we've been running this process. Yes.

And just my second question is you've reaffirmed your underlying guidance for this fiscal year. I'm just wondering what is left? What's the unknown that's left that leaves you with that wide guidance range? What are you waiting to see that you haven't been able to see in the last 2 months of this fiscal year that leaves you with such a wide range?

Well, we didn't really consider narrowing the range. I think the point is that the overall picture, as I saw in February is largely unchanged. So, so yes, the key message is that Ansell's on track to the goals that I outlined in February, and that's what I mean to indicate with reaffirming the guidance range there. Yes.

Your next question comes from Gretel Janu from E&P.

Firstly, just on the transitional service period, how much will that impact margin? Could you talk about the 24% margin in the financials in the pack, but in the short term, should we expect that to be much weaker?

Well, it's, I mean, not much, I wouldn't agree with not much. It's a slight cost increase over the stand-alone cost basis. The total amount of that, there's a number of aspects of timing that are uncertain. Timing to close is uncertain. The timing of the transition services is also uncertain. We will push to be through those in that 6-month time period, but only once we're further down the detailed integration planning path, will we know for sure whether it's a 6- or 12-month transition. So that makes it difficult for you to model out next fiscal year specifically, and we'll look to update you on those various key timing components when we get to close and also at our August year-end results communication. Yes.

Okay. Understood. And then just in terms of the fully outsourced supply chain model. So who does the manufacturing for the Kimberly-Clark PPE? How many suppliers are there? Have you done much due diligence on these suppliers? And is it your intention into the medium term to bring it all in-house?

So generally, the suppliers, I mean, there's some visibility that remains competitively protected through this process, of course, as we remain competitive today. But what we understood the suppliers that we know are working with Kimberly-Clark anyway are the ones that we also generally have a relationship with, sometimes are also a customer of. And I'm confident they've made good choices about the suppliers they've chosen to work with and also that they have a solid and recognized auditing methodology that means that doing the right things and assuring themselves that suppliers are meeting the right standards that, of course, would be minimum standard for Ansell. So that's on the supply base. I'm not going to give any more specific numbers about that at this point, though. I wouldn't say we plan to in-source all of it. You know that within our single-use business. We're now at a 50-50 insourced-outsourced model. I think that's optimal for that business. I haven't yet set the exact percentage mix for the Kimberly-Clark business that we're acquiring. And it will depend a little bit also on timing and priorities. So you shouldn't -- we need to recognize that. Because these products are qualified into cleanroom environments, which are themselves regulated, if you're going to make any changes to the product formulation or to its manufacturing source, that requires usually a requalification process. So you need to move at a measured pace here. And now there can still be benefits to customers from doing that, especially what Ansell will be able to do really uniquely in the industry is offer and twin track supply chain, where we will have no single point of dependence on any particular country or any particular manufacturing facility through the multiple steps from raw materials through base product manufacturer to cleanroom packing and sterilization and so we'll offer true supply chain resilience and redundancy in a way that no other supplier can and that's important. So we'll be able to work with customers in improving supply resilience and probably also cost through that in-sourcing, outsourcing strategy, but we have to go at a measured pace as these are qualified products. Of course, that's fundamentally a good thing as it means that, that is all part of the differentiation that we're offering to customers here.

Your next question comes from Dan Hurren from MST Marquee.

Neil, I got a little lost when you were talking about sales responsibility. You explained again just the integration of KCPPE and Ansell's sales force and who will do what anyway?

Yes. So there's 2 sales teams within Kimberly-Clark that support this business today. There's the dedicated scientific sales team. And they have -- I mean we have admired them for a long time from -- as competitors that they have some of the -- been renowned as some of the -- they are true experts in the industry, generate long tenures and really known. And this is a market and a vertical that requires that level of expertise for the reasons that I was talking about earlier. These are such critical products and helping customers through that qualification and requirements process is key. So that's a scientific sales team that's coming to Ansell, and we're delighted to have them. It's really going to strengthen our overall presence in the industry. However, the more general industrial safety products are sold by the generalist K-C Professional sales team that is taking that full portfolio at Kimberly-Clark products that you will see and observe in sanitation and janitorial spaces both public and private. And so it's a part of an overall portfolio of Ansell by K-C Professional. But also, I think, I don't think K-C Professional would mind me saying that the PPE piece of that of their bag today is perhaps not their top priority as Kimberly-Clark is known for tissue and nonwoven products and so forth. And that's been their core focus for many, many years. So that sales team is a generalist sales team, is not a specialist in safety, will not come to Ansell. And instead, the sales responsibility will be picked up by the Ansell Industrial sales team, which is already in place in all the key markets. For the most part, we're already selling to the same distributors. We have many of the existing end-user relationships. And so it's, and once it has been transitioned successfully, we'll bring more focus to the PPE part of that portfolio than perhaps it has today under the K-C Professional organization. But however, of course, there's a little bit of difficulty in moving responsibility from one sales team to another. The transitional services period is meant to facilitate that. My commercial objective is that every dollar we're acquiring here, we grow into the future, and yet it is only prudent for me also to recognize that there's a risk of revenue leakage as we make this transition. That's fully assumed in our model, and I've made sure that we will still deliver strong returns overall even if my commercial objective is not fully met, and there is some revenue leakage as we make the transition. So does that clear up the confusion there on that transition.

And just it's a reiterating a question that we've had earlier today. Just to be clear, where is this business in regards to the destocking of their customers? Is it in a similar position to Ansell? Is it in front or behind?

So similar position. And in other words, now leaving destocking behind it, which is also what we see and what I said was my prediction for the Ansell business at the February results. And the destocking cycle geographically, Also, we saw our North America business emerge sooner from destocking than our EMEA business. We've seen the same for Kimberly-Clark. But of course, Kimberly-Clark is more in North America. Therefore, their relative geographic mix means that overall as a business, they're actually slightly ahead of us in moving through that destocking phase. So yes, as we go into this calendar year, we see both businesses look those largely leaving the destocking effect behind and being positioned to grow again, which of course, is great news. Yes.

Your next question comes from David Bailey from Macquarie.

Yes, you sort of mentioned the Kimberly-Clark is willing to sell at a reasonably attractive multiple. I mean once the destocking is done, how should we be thinking about the growth rates for top line and EBIT for the Kimberly-Clark business on a go-forward basis?

Yes. So the scientific growth rate is that 7%, 8% that I indicated as the market growth rates. At this point, I'm not assuming additional share growth on top of that. Of course, we will strive to achieve that. The industrial safety portfolio, though, would be more typical to the Ansell mechanical growth rate, and we've indicated GDP plus of it as being the typical market growth rate of that portfolio. So -- and you have the weighting of the 2 and you can do a blended average of that. I would say that on a base business basis, on product margins, we've seen over a long period of time, product margins hold up very consistently, also be resilient to inflationary trends, and that's an evidence for both the Ansell business and the Kimberly-Clark business. So I don't expect a major shift in product gross margin going forward, but where the EBIT synergies comes in, the net cost synergies come in, should leverage the EBIT component of that. So yes, fundamentally, the business is growing at that market rate plus then the net cost synergy being an overall accretion, as Zubair highlighted in his slide earlier. Yes.

Okay. So for the business you're acquiring, probably hold the margin with the margin uplift coming from the synergy benefits?

Yes.

And in terms of ROIC, I mean, I'm looking at there's more leverage coming through, but then also a bit of margin improvement. But can you quantify the impacts on the return on invested capital for your business once the transaction has been completed?

You want to take that, Zubair?

Yes. So in terms of, as you know, we've got strict returns criteria for all of our acquisitions. So we're not going to pinpoint the ROIC for you now and in which year, but I can say first and foremost, our ROI is at least on any acquisition, it has to be 1.5x our weighted average cost of capital. In terms of the ROIC post-tax, we also have to exceed that same weighted average cost of capital within 3 to 5 years. And then obviously, we have to have EPS accretion in the full first year of ownership. This acquisition clears all those hurdles.

Got it. That's clear. And then just finally, just coming back to Dan's question. I mean for those people that are remaining within the Kimberly-Clark sales force, are there any restrictions in terms of what they're able to do from a competitive standpoint?

Zubair, do you want to continue with that?

Yes. So from a competitive standpoint, they will -- so obviously, firstly, we have to close the deal. And then we will have exclusive rights in the geographies that we have negotiated. There's a couple that we don't have rights to. And yes, they can sell fully into the scientific channels and the safety channels and Kimberly-Clark will exit from both of those completely. And on top of that, we've negotiated, obviously, Kimberly-Clark has a very strong presence in wipers. And in 3 years' time, we'll also have access to that very market as well, and it gives us that rounded out portfolio that Neil spoke to and especially in those scientific cleanrooms.

Thank you. There are no further questions at this time. I'll now hand the conference back to Mr. Salmon for any closing remarks.

Well, thank you all for your interest today. This is a key moment for us at Ansell as we move forward beyond the last couple of years of the post-COVID hangover. I'm excited about this transaction. This is absolutely the one that I was keenest on that is always featured as highest in our overall M&A assessment of opportunities for Ansell. I think we are at the moment when we can deliver the value required. Yes, there's some complexity in the overall process as we described, but that's also why we were a compelling partner for Kimberly-Clark in the decision that they took to move this business on. So our organization is ready to go, is geared up to make a success of this transaction, and I look forward to reporting to you on that as we go through the next few reporting periods. Thank you for your time today.