Ansell Limited (ASX: ANN) is an Australian based manufacturer of protective and barrier healthcare products. These items include surgical, medical examination, industrial, and general purpose gloves sold primarily under the brand names HyFlex, Vileda, and Gammex. In addition, Ansell produces condoms and personal lubricants under the brand names LifeStyles, Matex, Manix, Contempo, and Blowtex. Ansell is the largest manufacturer of surgical gloves, second in sales of examination gloves behind Top Glove (TOPGLOV-KU), and the second largest producer of condoms after Church & Dwight Company (CHD).
While Ansell's medical, food-processing, and condom businesses are recession resistant, Ansell occupational products, which are used in automotive, chemical, and electronic manufacturing, formed 49% of FY 2009 revenue. In addition to economic cycles, Ansell's net revenue and EBIT margin are impacted by raw material costs and exchange rates. Raw material expenses formed 35% of Ansell 1H 2009 total costs. Ansell generated 42% of revenue in Australian dollars, Euros, and Canadian dollars, while 25% of costs were generated in Malaysian Ringgit (MYR), Thai Baht (THB), and Sri Lankan Rupee (LKR).
Ansell competes with medical suppliers such as Becton, Dickinson and Company (BDX), Motex Healthcare Corp., and Top Glove (TOPGLOV-KU) for distribution of surgical and examination gloves. Ansell's industrial/occupational segment shares a market with companies such as G.B. Industries and Medi-Flex Limited (5FF-SG). The consumer division competes with SSL International plc (SLSLF) and Church & Dwight Company (CHD).
Ansell is a manufacturer of industrial, household, and medical protective gloves. The Australian company also produces condoms and personal lubricants. The protective and barrier product manufacturer employs 11,000 people in 29 facilities and has a presence in 33 countries. The company not always been solely a manufacturing of barrier healthcare products. Ansell also produced tires and rubberware for three decades before shedding those business units. In 2002, Ansell began its transition away from tire and rubberware manufacturing businesses into a focus on protective healthcare products. Ansell sold its tire unit to Goodyear in 2006. Ansell plans to increase sales of surgical gloves, which carry a higher margin than examination gloves. In addition, the company acquired Brazilian condom manufacturer in May 2007, Blowtex, and plans to grow sales in emerging markets such as China, and Brazil.
Ansell operates in three segments: Occupational Healthcare, which manufactures and sells occupational health and safety gloves; Professional Healthcare segment, which manufactures and sells medical, surgical and examination gloves for hand barrier protection and infection control, and Consumer Healthcare segment, which manufactures and sells condoms, household gloves and other personal products.
Rapid industrialization in emerging markets and a healthy global economy resulted in strong growth in Ansell's product lines from 2006-2008. Showing the strongest of organic sales growth was Ansell's occupational healthcare products. This segment serves industrial manufacturing businesses, such as automotive, chemical, and electronic producers. The company had success with its industrial glove brand HyFlex, which sales grew 21% annually between 2001 and 2008. HyFlex formed approximately 15% of total sales during the 1H of FY 2009. However, management saw a sharp decline in sales in its occupational gloves, which includes HyFlex, in November 2008 through January 2009. Subsequently, Ansell lowered FY 2009 EPS guidance to US$0.65 - US$0.70 from US$0.70 - US$0.74 in early February 2009. Showing more resilient sales in the face of the economic downturn has been Ansell's consumer and professional products divisions. Professional products sales grew 11% during FY 2007 and then again in FY 2008. Growth in Ansell's Gammex line of surgical gloves helped sales volume, while rising raw material costs adversely impacted EBIT margin. Ansell's consumer division grew sales 30% in FY 2007 due to condom manufacturer acquisitions in Poland, China, and Brazil. While the Brazilian and Chinese purchases continued to grow into 2008, stagnate European and American markets kept sales growth at 5% during 2008.
Ansell's three business divisions (occupational, professional, and consumer healthcare) have had positive sales growth over 2006-2008; however, the occupational segment had a sharp slowdown in November 2008 as industrial manufacturers slowed down production in face of a rapidly declining demand for consumer goods resulting from the global recession. As of February 2009, management expects FY 2009 (ending June 2009) EPS to decline 2-18% compared to the prior year.
The Occupational Healthcare division manufacturers gloves used in industrial manufacturing and processing. Workers use Ansell's products to protect themselves against chemical burns, cuts, and bruises, as well as to gain grip. Gloves also are used by food processors and food service to prevent contamination. The Hyflex lines, which includes 15 styles, accounts for a quarter of this segment's sales. General purpose, chemical & liquid handling, and single use gloves each form a quarter of sales. Due to demand stemming from industrial manufacturers, a slowing economy adversely impacts sales.
This business segment includes gloves used by medical professionals. The two main subdivisions are examination and surgical gloves. Each form about half of sales; however, the surgical gloves generate higher revenue and margin as hospitals buy surgical gloves on quality and not strictly on price. In 2007, rising raw material costs led to a contraction of margins from 14.3% to 13.0%. However, a product shift in 2008 to more surgical glove sales boosted margins and EBIT. EBIT grew 35%.
Consumer healthcare includes condoms, household gloves, and personal lubricants; however, condoms form over 80% of total sales. Sales exploded in 2007 as Ansell's three new acquisitions (Jissbon - China, Blowtex - Brazil, Unimil - Poland) added to the bottom-line. The positive growth continued into 2008, but sharp competition in the US and Europe limited expansion. While Blowtex and Jissbon have led sales growth, LifeStyle SKYN condoms have shown strong sales in the US.
On July 2, 2008, Ansell acquired Hawkeye Glove Company, a glove supplier to the United States military.
Occupational healthcare formed half of Ansell's revenue during FY 2008. Sales growth was strong from 2002-2008, but as the global economy slowed during late 2008, sales volume declined sharply. In response, management lowered FY 2009 EPS expectations 5.5%. Automotives and chemical manufacturing companies form 14% of total Ansell's customers. When these companies slow production, it reduces the glove replacement rate and increases price sensitivity among customers. Ansell's consumer and professional business are less cyclical as condom and basic medical supplies do not fluctuate as much as the economy in general.
Raw material costs formed 35% of expenses during 2008. The price of rubber latex was 50% lower at the beginning of 2009 compared to its peak in mid-2008. Likewise, butadiene, the other key ingredient in Ansell's products, fell 80% from its high. Lower input costs translate to better margins if product prices do not fall an equivalent amount. The market for condoms and surgical gloves maintain prices and expand margins better than examination gloves. Ansell did not show a benefit in June-December 2008 figures as prices fell as it already had bought its supply at higher prices. The positive impact will be felt in the 2H of FY 2009.
Condoms formed approximately 17% of Ansell's sales during July-December 2008. Increased public awareness that translates to higher levels of safe sex supports condom usage. Ansell sees a big opportunity to increase the condom market in emerging markets, and made investments in condom manufacturers in Brazil and China. The Blowtex and Jissbon investments have been Ansell's fastest growers. Market expansion opportunities remain in developed markets, too. The New York Department of Health purchased 20 million LifeStyle condoms and packets of lubricants for US$1.57 million in March 2009. As of March 2009, the Department has distributed 1.5 million condoms at no cost to the end-users. Organizations such as clinics, advocacy groups, bars, nightclubs, and prisons can order an unlimited supply of condoms at not cost through an online ordering system.
As baby boomers age, there will be increasing medical visits and surgeries. Skyline foresees doctor visits increasing 53% from 2007 levels to 2020. More surgeries and doctor visits translate to more protective gloves being demanded. Similar, the World Health Organization sees cancer rates increasing 50% in 2020. With the higher rate, there will increasing number of hazardous cytostatics handled and a greater need for protection.
All else equal, a strengthening U.S. Dollar (USD) adversely impacts its financial data is reported in US dollars, yet over half its revenue is generated outside America. Also influencing Ansell's financial numbers are the relationship between developed markets and curriencies in Malaysia and Thailand. A weakening Canadian Dollar (CAD), Euro (EUR), and Australian Dollar (AUD) relative to the Malaysian ringgit and Thai Baht Sri Lankan rupee adversely impacts Ansell's margins. This negative influence is occurring during FY 2009.
Competition for protective gloves and condoms is fierce. Ansell differentiates from competitors by continuously developing new products and having specialized programs in place to understand and match customer needs. The company also shies away from competing for standard latex examination gloves and focuses on surgical gloves where customers rate quality as the number factor impacting purchasing decision. Ansell also maintains competitiveness against Top Glove (TOPGLOV-KU), Church & Dwight Company (CHD), SSL International plc (SLSLF), Medi-Flex Limited (5FF-SG), and others by locating its production facilites where raw materials are produced. Ansell benefits from consumers' favorable view of Australian goods. The FutureBrand's 2007 survey of international customers showed that consumers had the best attitude towards Australia.
Ansell has 20% market share of the US $2.4 billion dollar occupational glove industry.
With 14% of the global market share for condoms, Ansell is the second largest manufacturer of condoms. The company has 50% of the Polish market, 8% in Germany, 20% in Brazil (3rd largest), Number 1 in Australia, and is the fastest growing brand in Canada.
Ansell is the biggest manufacturer of surgical gloves in terms of sales volume and second largest manufacturer of examination gloves. Top Glove is number one.