TOP CONTRIBUTORS

Andrew Liyana

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.^[1] In addition, Ansell produces condoms and personal lubricants under the brand names LifeStyles, Matex, Manix, Contempo, and Blowtex.^[2] With 2008 sales of US$1.116 billion, 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).^[3]

While Ansell's medical, food-processing, and condom businesses are recession resistant,^[4] Ansell occupational products, which are used in automotive, chemical, and electronic manufacturing, formed 49% of 1H FY 2009 revenue.^[5] 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.^[5] 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).^[5]

Ansell competes against 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).

Company Overview

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.^[6] The company not always been solely a manufacturing of barrier healthcare products. Ansell also produced tires and rubberware for three decades before shedding the units.^[7] In April 2002, Ansell began its transition away from tire and rubberware manufacturing businesses into a focus on protective healthcare products.^[7] Ansell sold its tire unit to Goodyear in 2006. Ansell aims at developing at increasing sales of surgical gloves, which carry a higher margin than examination gloves.^[4] 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.^[8]

Financial Highlights

All three segments of Ansell's had positive sales growth over the past three years; however, rising raw materials costs and restructuring costs in the consumer division applied pressure to margins. Occupational EBIT had the largest growth in sales and EBIT, but is experiencing the sharpest slowdown during FY 2009.^[9]

Rapid industrialization in emerging markets and a healthy global economy resulted in strong growth in Ansell's product lines from 2006-2008.^[9]. Showing the strongest of organic sales growth was Ansell's occupational healthcare products.^[8] 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.^[8] HyFlex formed approximately 15% of total sales during the 1H of FY 2009.^[5] However, management saw a sharp decline in sales in its occupational gloves, which includes HyFlex, in November 2008 through January 2009.^[4] 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.^[4] Showing more resilient sales in face of the economic downturn has been Ansell's consumer and professional products divisions.^[4] Professional products sales grew 11% during FY 2007 and then again in FY 2008.^[9] Growth in Ansell's Gammex line of surgical gloves helped sales volume, while rising raw material costs adversely impacted EBIT margin.^[8] Ansell's consumer division grew sales 30% in FY 2007 due to condom manufacturer acquisitions in Poland, China, and Brazil.^[8] While the Brazilian and Chinese purchases continued to grow into 2008, stagnate European and American markets kept sales growth at 5% during 2008.^[9]

Business Segments

Occupational products form almost half of Ansell's revenue. While contributing the most organic growth over 2003-2008, the business segment also is the most susceptible to fluctuations in business cycles. A downturn in global industrial output translates to lower demand for occupational gloves.^[5]

As highlighted above, 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.^[4] As of February 2009, management expects FY 2009 (ending June 2009) EPS to decline 2-18% compared to the prior year.^[4]

Occupational Healthcare (49% of 2008 Revenue, 64% of 2008 EBIT)^[9]

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.^[1] General purpose, chemical & liquid handling, and single use gloves each form a quarter of sales also.^[5] Due to demand stemming from industrial manufacturers, a slowing economy adversely impacts sales.^[4]

Professional Healthcare (32%, 22%)

This business segment includes gloves used by medical professionals. The two main subdivisions are examination and surgical gloves.^[1] 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.^[3] In 2007, rising raw material costs led to a contraction of margins from 14.3% to 13.0%.^[8] However, a product shift in 2008 to more surgical glove sales boosted margins and EBIT. EBIT grew 35%.^[9]

Consumer Healthcare (19%, 14%)

Consumer healthcare includes condoms, household gloves, and personal lubricants; however, condoms form over 80% of total sales.^[5] 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.^[10] While Blowtex and Jissbon have led sales growth, LifeStyle SKYN condoms have shown strong sales in the US.^[9]

Key Trends and Forces

Industrial output impacts Ansell's Occupational Healthcare Division.

Occupational healthcare formed half of Ansell's revenue during FY 2008.^[9] Sales growth was strong from 2002-2008, but as the global economy slowed during late 2008, sales volume declined sharply.^[4] In response, management lowered FY 2009 EPS expectations 5.5%.^[4] Automotives and chemical manufacturing companies form 14% of total Ansell's customers.^[5] 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.^[4]

Raw material costs directly influences EBIT margins.

Raw materials formed 35% of the cost of goods expenses during June - December 2008. Increasing input costs applies pressure to margins, especially in a good like examination gloves that is hard to distinguish between companies. Natural rubber latex and butadiene costs have fallen more than 50% six months after reaching their respective peaks in Mid-2008. Ansell began realizing the benefit of cheaper input costs in early 2009.^[5]

Raw material costs formed 35% of expenses during 2008.^[5] The price of rubber latex was 50% lower at the beginning of 2009 compared to its peak in mid-2008.^[5] Likewise, butadiene, the other key ingredient in Ansell's products, fell 80% from its high.^[5] 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.^[4] Ansell did not show a benefit in June-December 2008 figures as prices fell as it already had bought its supply at higher prices.^[5] The positive impact will be felt in the 2H of FY 2009.^[5]

Increase HIV/STD awareness/threat promotes Ansell's consumer business.

Condoms formed approximately 17% of Ansell's sales during July-December 2008.^[5] 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.^[9] 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.^[11] 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.

Increasing doctor visits supports Ansell's professional healthcare division.

As baby boomers age, there will be increasing medical visits and surgeries. Skyline foresees doctor visits increasing 53% from 2007 levels to 2020.^[12] More surgeries and doctor visits translate to more protective gloves being demanded. Similar, the World Health Organization sees cancer rates increasing 50% in 2020.^[3] With the higher rate, there will increasing number of hazardous cytostatics handled and a greater need for protection.^[3]

Fluctuations in currency relationships impact Ansell's bottom-line.

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.^[5] Also influencing Ansell's financial numbers are the relationship between developed markets and curriencies in Malaysia and Thailand.^[4] 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.

Ansell benefits when currencies in which it sells products appreciate relative to the currencies it which it produces the products. Ansells generates most of its revenue in Canada, Europe, Australia, and the US, but has large labor and raw material costs in South Asian Countries.^[5]

Competition

Competition for protective gloves and condoms is fierce.^[5] Ansell differentiates from competitors by continuously developing new products and having specialized programs in place to understand and match customer needs.^[1] 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.^[3] 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.^[1] 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.^[13]

• Top Glove (TOPGLOV-KU) is the largest manufacturer of examination gloves and ranked second in sales for all rubber gloves. Top Glove produces gloves in 18 company-owned factories located in Malaysia, Germany, Thailand, United States, and China.^[14]
• Church & Dwight Company (CHD) sells consumer products under the names Arm & Hammer, Brillo, Trojan, Nair, and other brand names. CHD's Trojan condoms compete with Ansell's Lifestyle brand in the largest condom market, the United States.^[15]
• SSL International (SLSLF) is a British-based company that produces and sells consumer products under the retail brands, Durex and Scholl. Durex condoms compete against CHD's Trojans and ANN's Lifestyle condoms.^[16]
• Medi-Flex Limited (5FF-SG) is listed on the Sinapore Exchange. The company manufacturers disposable, medical, and industrial gloves in company-owned plants located in Banting and Klang, Malaysia.^[17]

Market Share

Occupational Healthcare

Ansell has 20% market share of the US$2.4 billion dollar occupational glove industry.^[8]

Consumer Healthcare

With 14% of the global market share for condoms, Ansell is the second largest manufacturer of condoms.^[8] 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.^[8]

Professional Healthcare

Ansell is the biggest maker of surgical gloves in terms of sales volume and second largest manufacturer of examination gloves.^[18] Top Glove is number one.

References

1. ↑ ^{1.0 1.1 1.2 1.3 1.4} Ansell Corporate Video – Available through company website, 15 Mar 2009
2. ↑ Yahoo! Finance AU (ANN:ASX) Company Profile
3. ↑ ^{3.0 3.1 3.2 3.3 3.4} Ansell Company Website - Business Segments
4. ↑ ^{4.00 4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 4.10 4.11 4.12} Sydney Morning Herald - News Store “Open Briefing – Ansell CEO and CFO on H1 FY09 Results” 11 Feb 2009
5. ↑ ^{5.00 5.01 5.02 5.03 5.04 5.05 5.06 5.07 5.08 5.09 5.10 5.11 5.12 5.13 5.14 5.15 5.16 5.17} Ansell Corporate Presentation “Ansell F’09 H1 Agenda” 11 Feb 2009
6. ↑ Ansell Limited Homepage 15 Mar 2009
7. ↑ ^{7.0 7.1} WikiPedia.org "Ansell"
8. ↑ ^{8.0 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8} Ansell (ASX:ANN) 2007 Annual Review
9. ↑ ^{9.0 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9} Ansell (ASX:ANN) 2008 Annual Report [preseight
10. ↑ Bloomberg.com “Ansell Second-Half Profit Declines 18% on Higher Costs, Unimil” By Kyunghee Park 18 Aug 2008
11. ↑ “20 Million Ansell Condoms to Help Curb Spread of HIV, Unplanned Pregnancies and STI’s in New York City” 12 Mar 2009
12. ↑ Skyline News "Health Care Demand Rising, Population Aging: The Imperative to Increase Physician Supply" 23 July 2007
13. ↑ “Good news for exporters: ‘Down Under’ on top again” Austrade Media Release 15 November 2007
14. ↑ WikiPedia.org "Tog Glove" 7 November 2008
15. ↑ Wikinvest Article "CHD" By: Jonathan Sheets
16. ↑ WikiPedia.org "SSL International" 19 January 2009
17. ↑ Wright Reports - Medi-Flex Limited - Company Profile Snapshot
18. ↑ Bloomberg “Ansell First-Half Profit Rises 27% to A$72.2 Million