Ferrets Stock to Watch: ANSELL LIMITED 09:07, Monday, May 07, 2007
LOCAL COMPANY NOW PRODUCING 20pc OF CONDOMS IN BRAZIL
Sydney - Monday - May 7: (RWE Aust Business News) *************************************************
OVERVIEW ********
Ansell, the global condom and surgical glove maker, had a rough half year due the rise in the cost of latex but could be making up for it with business expansion.
The company announced on Friday that it has acquired Fabrica de Artefatos de Latex Blowtex Ltda of Brazil.
Terms of the transaction were not disclosed.
Blowtex is a leading player in Brazil's attractive retail condom market, with sales of around $US10 million and a manufacturing facility near Sao Paulo.
It has steadily grown to about 20 per cent of the Brazilian retail market, giving it the third largest share in the country.
Scott Papier, Ansell's vice president and regional director of the America's consumer division, remarked; "Brazil is the fifth largest condom market in the world, equal to the United Kingdom, with a youthful population and double-digit growth rates."
He said Blowtex is a well-regarded brand and has major share strength in a number of regions of the country and Ansell looks forward to developing the business even more quickly.
Doug Tough, Ansell's CEO, then said; "As per our strategy, Ansell continues to look for bolt-on acquisitions in countries where we are not represented.
"Blowtex fulfills all the criteria; strong and respected brands, solid market share, entrepreneurial and innovative management with efficient manufacturing and the opportunity to extend marketing reach, thereby allowing for significant growth potential.
"We welcome the Blowtex team to Ansell," Mr Tough said.
Rustom Jilla, Ansell's CFO, noted that the acquisition was expected to be earnings per share neutral for the remainder of the 2007 financial year and accretive from FY 2008 onwards.
In February, Ansell reported net profit of $US38.3 million for the first half ended December, down 11.5 per cent compared with the previous corresponding period.
Profit was down 15.7 per cent if the previous corresponding period's $US4.1 million write-down relating to the South Pacific Tyres (SPT) joint venture is excluded.
EPS was $US0.226, down 5.4 per cent and EPS for the full year to June should be in the range of $US0.46 to $US0.50, compared with $US0.573 last year.
Mr Tough told Corporatefile that early in the 2007 financial year the company said that the net negative impact of latex costs was expected to be approximately $US10 million for the year and that the company had invest an additional $US12 million in "growth" expenses and initiatives.
The net negative impact of latex is now likely to be higher, with lower selling price increases than expected.
However, the CEO said the company has had had stronger sales growth at 16 per cent, and are comfortable with the trade-off.
The investment in growth expenses and infrastructure will continue as planned.
Ansell's believes that the second half will produce higher sales volumes and a better mix will offset the latex price impact and the higher operating expenses.
Mr Tough declared, "We expect that this will enable us to be at the higher end of our EPS guidance".
SHARE PRICE MOVEMENTS *********************
Shares of Ansell on Friday slipped 5c to $11.63. Rolling high for the year is $12.40 and low $10.52. dividend is 22c a share to yield a meagre 1.91 per cent. Earnings per share is 71.2c and p/e ratio 16.14. The company has 145 million shares on issue with a market cap of $1.6 billion.
Mr Tough added the growth was partly due to the initiatives flagged in recent years and mostly due to a change where Ansell has moved from a focus on delivering the four-year operation full potential segment EBIT targets to seeking faster growth.
"More importantly, this is not profitless growth," he said.
"Yes, we sold additional lower margin exam gloves, but the major part of the increase came from higher value added HyFlex gloves, surgical gloves and condoms.
"We expect sales increases to continue, though not at first-half growth rates.
CFO Rustom Jilla said there was no profit erosion due to higher sales.
The first half's broad based sales growth brought higher gross margins roughly in line with the previous year.
The reduction in first-half margins was basically due to absorbing higher latex costs.
Mr Tough said raising selling prices has been harder than expected.
"The substantial fall in latex prices early in the financial year made it difficult to convince customers the full increases we sought were necessary.
"In other developments, the major initiatives were China, where we set up a new organisation that has doubled sales; Japan, where we continued to invest in our occupational business and where sales have grown 60 per cent, and in channel expansions in our more mature markets in the US and Europe.
"We continued to invest in sales and marketing in general and our occupational business also bore about half the infrastructure expense increase," Mr Tough declared.
BACKGROUND **********
Ansell Ltd, headquartered in Melbourne, is the name of the company formerly known as Pacific Dunlop Ltd.
The company's name was changed in April 2002 as a result of a strategic repositioning of the company to concentrate on its core business, protective products and services in a broad healthcare context, and following the disposition of a series of other business units that did not fit within the strategy.
The new direction now being taken by the company leverages the solid foundation provided by the Ansell Healthcare business that has been a major part of the parent company's portfolio of businesses since it was acquired in 1969.
Ansell has a long and distinguished career dating back to when its first business, pneumatic bicycle tyre manufacture, commenced in Australia in 1889.
Since its commencement the company has changed its name on many occasions to reflect the nature of the businesses in which it was involved at the time.
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