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Ansell Ltd. February 08, 2012

Ansell Limited Half Year Results 31 December, 2011 - Continued Momentum In A Turbulent Environment

HIGHLIGHTS:

  • SALES OF US$611.5M, UP 5%
  • EBIT OF US$74.7M, UP 8%
  • PROFIT ATTRIBUTABLE OF US$66.6M, UP 9%
  • EARNINGS PER SHARE OF US50.6¢, UP 10%
  • INTERIM DIVIDEND INCREASED TO A15.0¢, UP 7%

 

CHAIRMAN'S COMMENTS:

"We are pleased with the continued strong growth in the Emerging Markets and in our Sexual Wellness business. This was, however, partly offset by a difficult 1st phase of Ansell's global ERP implementation in the Americas and by a deteriorating economic situation in parts of Europe, testing Ansell's management team in the first half of F'12. The results however, have been solid and enable your Board to once again increase the interim dividend," said Ansell's Chairman, Mr Peter Barnes.

 

GUIDANCE:

F'12's guidance remains within the previously communicated range of US97¢-US103¢ EPS, up 6% -12% from F'11's US91.6¢. Within this guidance, the net EPS impact of Deferred Tax Asset adjustments and Non-Operational Tax Items remains in the previously forecast US7¢-US10¢ range.

Note: US dollars used unless otherwise specified. The USD is Ansell's predominant global currency and the one in which the business is managed. The USD information contained in this press release is purely a convenience translation of IFRS AUD financial information.

 

ANSELL LIMITED HALF YEAR 2012 RESULTS SUMMARY

Ansell Limited (ASX:ANN) today announced Profit Attributable for the first half of US$66.6m, up 9% on the previous year's US$61.0m.

EPS in Ansell's operating currency, the US dollar, rose 10% from F'11 H1 driven by higher sales and improved gross margins. Based on this, the Board declared an Interim Dividend of A15.0¢ a share, unfranked and payable on 14 March, 2012.

 

RESULTS SUMMARY:

   REPORTED IN AUSTRALIAN DOLLARS  RESULTS IN OPERATING CURRENCY - US DOLLARS
   F'11 H1 A$M  F'12 H1 A$M  F'11 H1 US$M  F'12 H1 US$M  %
 Sales  617.5  594.1  (4)  583.7  611.5  (5)
 EBIT  73.3  72.8  (1)  69.3  74.7  (8)
 Profit Attributable (PA)  64.2  64.9  1  61.0  66.6  9
 Earnings Per Share (EPS)*  48.4¢  49.3¢  2  46.0  50.6  10
 Dividend#  14.0¢  15.0¢  7      

 

The Company's results translated into Australian dollars, show lower year on year growth than the USD results entirely due to the AUD's 9% appreciation vs. the USD.

 

BUSINESS REVIEW:

"Ansell again delivered double digit EPS growth, demonstrating our ability to weather multiple challenges and still drive solid value creation for shareholders. Strong growth in Emerging Markets and Sexual Wellness globally, coupled with higher gross margins, more than offset our ERP implementation challenges in North America (NA) and part of Latin America and the Caribbean (LAC). The implementation did impact customer service levels and resulted in lost Industrial, New Verticals and Medical sales of about US$13m-US$15m, along with temporarily higher working capital of around US$25m-US$30m. Considerable effort and expense has gone into enhancing systems performance, correcting design problems and stabilizing the platform.

Ansell's sales were up 5% with Sexual Wellness completing an outstanding half with 12% growth. Industrial was up 5% (despite a slowdown in EMEA in the second quarter), New Verticals 4% and Medical 1%. Emerging Markets sales grew 16% and almost a quarter of our total revenue now comes from these faster growing regions.

We also made progress on the Business Development front during this half. We acquired Sandel Medical, an innovator in surgical safety solutions and also acquired one of our distributors in a key Emerging Market. We took a minority stake in Yulex Corporation to give us access to a new source for natural latex (guayule latex which is a shrub grown in arid climates). We are partnering with Koreca Industry Co (a leading hand protection specialist in Korea) as our Korean Industrial/New Verticals distributor, with an option to make equity investments. We entered into a technology licence agreement with Starpharma Holdings Ltd to commercialise a condom containing VivaGel®, an innovative antimicrobial agent, and finally we also invested in Lakeland Industries, Inc, a worldwide leader in protective clothing," said Ansell's CEO, Mr Magnus Nicolin.

 

MEDICAL GBU

   A$M  US$M
   F'11 H1  F'12 H1  F'11 H1  F'12 H1
 Sales  180.0  167.4  170.2  172.2
 Segment EBIT  22.1  16.0  20.8   16.3
 Ebit/Sales  12.3%  9.6%  12.2%  9.5%

 

The Medical GBU accounts for 28% of Revenue and 20% of Segment EBIT.

 

Sales were up 1%, aided by the Sandel acquisition, which added ~US$5.6m or ~3%. Organic sales were down in NA and EMEA but up in LAC and AP. Surgical glove sales rose 3%, due to strong growth in the expanded synthetic line which grew 20%. Exam glove sales fell 9%, as Ansell continued to exit more commoditised areas.

New products continue to drive growth, with the recent launch of Gammex® PF with AMT TM in EMEA and Gammex® polyisoprene products in EMEA/AP markets. The family of polyisoprene products continues to expand in NA as well. To support our Emerging Markets platform, Medigrip® powdered was launched in China/Asia.

EBIT declined 22% due to higher SG&A expenses, which included ~US$2m of Sandel costs not in the prior year, as well as continued investments in growth. GPADE margins were unchanged year on year as higher NRL costs (compared to F'11 H1) and lower sales volumes were offset by price/product mix.

Sandel is being integrated into Ansell's Medical GBU. Its results to date are broadly in line with expectations, with sales lower and EBIT higher and it is expected to be EPS accretive in F'12.

 

INDUSTRIAL GBU

   A$M  US$M
   F'11 H1  F'12 H1  F'11 H1 F'12 H1 
Sales   246.7  236.6  232.9  243.6
 Segment EBIT  45.2  38.5  42.7  39.7
 Ebit/Sales  18.3%  16.3%  18.3%  16.3%

 

The Industrial GBU accounts for 40% of revenue and 50% of segment EBIT.

Sales were up 5%, with mixed regional results. NA and LAC were impacted by Fusion, with sales down 6% and 1% respectively versus the comparative period. EMEA sales were strong, especially in Russia, UK, CEE and Germany despite a second quarter economic slowdown in some parts of Europe. AP experienced solid sales growth driven by China (43%) and ANZ.

The Industrial GBU also defined the core brand platforms and started work on optimising its offering by focussing on 3 principal brands HyFlex®, AlphaTec® and TouchNTuff®. To improve the speed of new product development, the Industrial GBU is also centralizing resources and building a new R&D center equipped with pilot lines.

Segment EBIT declined 7% vs. F'11 H1. GPADE margins were slightly higher as positive prices/product mix offset the negative impact of higher raw material costs (NBR), higher distribution costs (Fusion in NA and a warehouse change in EMEA), and ~US$1.7m of restructuring (including the closure of a US plant). SG&A expenses increased with investment in infrastructure and in additional sales and marketing personnel to expand Ansell's geographical and vertical coverage.

 

NEW VERTICALS GBU

   A$M  US$M
   F'11 H1  F'12 H1  F'11 H1  F'12 H1
 Sales  87.8  84.0  82.9  86.4
 Segment EBIT  0.8  4.7  0.8  4.8
 Ebit/Sales  0.9%  5.5%  0.9%  5.5%

 

The New Verticals GBU accounts for 14% of revenue and 6% of Segment EBIT.

 

Sales and EBIT results reflect pricing/mix benefits from rationalising poorly performing products (Disposables), revising the positioning of several key products (Disposables, Household Gloves) and growing the "non tender" Military business.

The half was focused on new product launches, such as the 4 new application specific gloves (carpenters, plumbers, electricians and heating, ventilation and air conditioning) and a new cold weather combat glove. Additional launches are planned in H2.

The GBU also continued to build its new brand platforms Activarmr®, ProjeXTM and VersaTouchTM - all of which are closely aligned with target Verticals and end users. Global marketing efforts around product design, packaging and market positioning are helping to create unique and recognisable new brand identities.

 

SEXUAL WELLNESS GBU

   A$M  US$M
   F'11 H1  F'12 H1  F'11 H1  F'12 H1
 Sales  246.7  236.6  232.9  243.6
 Segment EBIT  45.2  38.5  42.7  39.7
 Ebit/Sales  18.3%  16.3%  18.3%  16.3%

 

Sexual Wellness continued to record strong growth in the SKYN® product line and benefited from a broadening of the SKYN® family of products together with increased advertising and promotion (A&P) investment. The SKYN® growth was however largely offset by lower sales of other regional brands with the overall sales decline attributable to lower tender and private label sales, distributor destocking in Europe and FX.

EBIT Margins were lower as the business maintained its A&P investment on sales that were lower due to the factors noted above.

 

FINANCE:

Average market spot FX rates were favourable in F'12 H1 compared to H1 last year, boosting sales growth approximately 2%. EBIT was also assisted by FX rates and Ansell's hedging program. Continued volatility in FX markets is expected, but existing hedges should provide sufficient protection in H2 and this has been incorporated into the guidance.

Restructuring costs were US$2.9m, up on last year's US$1.8m, due largely to factory closures in Germany (SW) and the USA (Industrial). The effective book tax rate was steady year on year, as was the DTA adjustment.

Capex has continued at the higher level of last year, although Fusion expenditure was lower at US$5.9m (last year US$11.4m). Plant Capex has risen to US$15.5m, up from last year's US$11.8m due to capacity expansion and spending on a new R&D facility. Capex spending in H2 will continue to be high with several large projects underway or planned. Working Capital increased by US$48.2m, including US$2.1m from Sandel. Inventory accounted for US$41.1m, partly to support customer service levels as we implemented our ERP system.

During the half, we purchased the business of Sandel Medical Industries for US$13.6m and made a US$4.6m minority investment in Lakeland Industries, Inc.

In August 2011, a new Share Buy-Back Program of 5m shares was announced. 2.45m shares were purchased at a cost of A$32.6m, equating to an average price of A$13.30 a share.

NIBD increased to US$108m during the half resulting in gearing of 13.5%, up YOY from 6.5%. Additional bank lines totalling US$145m were put in place, and, together with cash of US$204.2m, provide strong liquidity for the Company.

 

DIVIDEND REINVESTMENT PLAN

As a way of providing shareholders with a cost effective and convenient mechanism to acquire shares in lieu of receiving a cash dividend, Ansell has decided to implement a dividend reinvestment plan with no initial discount to market. Participation closes on the record date of 4 March 2014 and pricing commences two days later and runs for 10 days.The company will retain the option to offset the dilutive effect of this program by repurchasing shares on the open market. The DRP will be available to shareholders from and including the F’14 Interim Dividend announced today. For the F’14 interim dividend, new shares will be issued to satisfy any DRP requirements.

 

DIVIDEND:

The Ansell Board has announced an increased interim dividend of A15.0¢ (A14¢ in 2011) per share unfranked. The dividend will have a record date of 22 February, 2012 and payment date of 14 March, 2012.

For non-resident shareholders, the dividend will not attract withholding tax as it is sourced entirely from the Company's Conduit Foreign Income Account.

 

F'12 OUTLOOK:

The economic outlook is decidedly mixed with a recovering USA and strong Asia Pacific expected to offset a weaker Europe and resultant lower Euro. The benefit of lower input costs should also flow through in the second half. With regard to the ERP implementation, Ansell expects to continue to recover lost ground during H2 and to continue the global roll out in F'13.

Ansell's F'12 EPS guidance remains within the previously communicated US97¢-US103¢ range up 6%-12% from F'11's US91.6¢.

Within this guidance, the net EPS impact of Deferred Tax Asset adjustments and Non-Operational Tax Items remains in the previously forecast US7¢-US10¢ per share range.