Ansell Limited Delivers Robust Earnings Despite Macro Pressures


Ansell Limited delivered a respectable result on Tuesday, with net profit after tax, or NPAT, growing 5%. While earnings per share, or EPS, were around 5% below our forecast and at the bottom of the firm’s forecast range, the company did well to recover from a 14% fall in first-half profit. The second half benefited from new product launches combined with increased marketing investment, and contribution from acquisitions. Guidance is for fiscal 2014 earnings before interest and tax, or EBIT, growth in high single-digits to low teens and EPS growth of 5% to 11%.

Sales grew 9% and earnings before interest and tax (EBIT) by 11%. Excluding acquisitions, revenue fell 3% (1% increase in constant currency (CC)) and EBIT increased 4%, the divergence reflecting Ansell’s “weed and feed” strategy that removes lower margin products to focus on more profitable lines. The board declared a final dividend of USD 0.22 per share unfranked, which results in a full year dividend of USD 0.38, up 7% on fiscal year 2012. Organic growth was impacted by a number of factors. The high level of acquisition and integration activity diverted resources from organic sales programs. New products launched in fiscal year 2013 usually take six to nine months to gain substantial traction, and many only entered the market late in the first half or in the second half, and there was some negative residual effect in the first half from the Fusion management system upgrade in North America.

Fusion is now functioning to expectation and the North American business growing again. Sales continue to expand strongly in emerging markets, with organic growth at 8%. The USD 18 million increase in EBIT was largely driven by a USD 18 million increase in gross profit (margin increased 131 basis points to 37.7% and has risen 300 basis points over the last two years) partly offset by USD 7 million higher sales and marketing spend on new products, and USD 11 million additional contribution from acquisitions. We expect ongoing manufacturing efficiency gains, supply chain efficiencies, rising buying power and cost and revenue synergies to increase EBIT margins from 12.4% to 13.6% over the five years to fiscal 2018.

Net operating cashflow increased strongly from USD 95.2 million to USD 127 million. The balance sheet remains sound with net debt to equity at 30% and EBIT covering interest around 8.5 times, leaving capacity for further acquisitions, which we consider likely.


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