Ansell shows healthy return but looks to escape from soaring latex costs

CONDOM and rubber gloves maker Ansell is steadily abandoning natural latex as rising raw material prices continue to unsettle the company.

By InvestSMART · 16 Aug 2011

By InvestSMART ·
16 Aug 2011

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CONDOM and rubber gloves maker Ansell is steadily abandoning natural latex as rising raw material prices continue to unsettle the company.

Yesterday, Ansell said surging latex prices wiped about $50 million off its earnings for the year ending June 30.

Nevertheless, the Australian, US-based company's net profit rose 3 per cent to $122.7 million and it tipped its earnings per share to rise as much as 12 per cent this financial year.

The chief financial officer, Rustom Jilla, said Ansell was shifting away from products where natural rubber was the main cost driver and had cut its exposure by 4 per cent in the past year.

Morningstar analyst Nathan Zaia said Ansell hadn't rushed to fight escalating latex prices, adopting its strategy in 2008.

The chief executive, Magnus Nicolin, said the company had achieved double digit sales and profit growth after it reorganised into a global company.

Ansell's industrial division generated $US471.6 million ($465million) in sales or 39 per cent of total revenue. Mr Nicolin said the sexual wellness division was improving, especially in emerging markets, with sales growing at 18 per cent, while the new divisions and medical business were held back.

He said US leaders fighting over controlling debt was unsettling the world's biggest healthcare market.

"We suffer from the political debate, as have all other Americans, and there isn't any clear guidance in sight as to what's going to happen in North America," Mr Nicolin said.

Despite Europe suffering similar debt problems, Mr Nicolin said 60 per cent of the continent was contributing to Ansell's growth, particularly eastern Europe and Scandinavia.

Mr Nicolin said Ansell was looking at buying more companies and was assessing targets outside condom and rubber glove manufacturing.

Ansell bought US surgical safety products maker Sandel Medical Industries for $US13.5 million last month - Mr Nicolin's first acquisition.

The company will pay a 19? dividend - up 1.5? on 2010. Ansell's shares rose 54?, or 4.1 per cent, to $13.68.

AT A GLANCE

2011 2010

Sales $1.22b $1.23b (-0.6%)

Profit $122m $119m ( 3%)

EPS 92.4? 89.6? ( 3.1%)

Dividend 19? 17.5? ( 8.5%)

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Frequently Asked Questions about this Article…

What impact did soaring natural latex prices have on Ansell's earnings?

Surging natural latex prices wiped about US$50 million off Ansell's earnings for the year ending June 30, according to the company. That raw-material pressure has been a key headwind for the business.

Did Ansell still grow profit despite higher latex costs?

Yes. Ansell's net profit rose about 3% to roughly $122.7 million year-on-year, and the company said earnings per share could rise by as much as 12% in the coming financial year.

How is Ansell responding to escalating latex and rubber costs?

Ansell is steadily shifting away from products where natural rubber is the main cost driver. The company cut its exposure to natural rubber by around 4% over the past year as part of a longer-term strategy to reduce sensitivity to latex price swings.

Which Ansell divisions are driving revenue growth?

Ansell's industrial division generated about US$471.6 million in sales (around 39% of total revenue). Its sexual-wellness division is improving—especially in emerging markets—posting roughly 18% sales growth, while some new divisions and the medical business were held back.

Is Ansell pursuing acquisitions to fuel growth?

Yes. Ansell is assessing acquisition targets beyond condoms and rubber gloves and recently bought US surgical safety-products maker Sandel Medical Industries for US$13.5 million — the CEO's first acquisition under the current plan.

How are geopolitical and debt debates affecting Ansell's markets?

Ansell's CEO said the political debate over controlling debt in the US is unsettling the North American healthcare market, creating uncertainty. By contrast, about 60% of Ansell's European contribution to growth is coming from regions such as eastern Europe and Scandinavia.

What did Ansell say about shareholder returns and its share price?

Ansell increased its dividend (reported as 19 versus 17.5 the prior year, an 8.5% rise in the company summary) and its shares rose about 4.1% to $13.68 following the results.

Has Ansell's global reorganisation improved financial performance?

According to CEO Magnus Nicolin, Ansell achieved double‑digit sales and profit growth after reorganising into a global company, a step management credits with improving overall performance despite raw-material pressures.