CEO & CFO on FY13 Outlook

Transcription

1 13 February 2013 CEO & CFO n FY13 Outlk Open Briefing interview with and CFO Rustm Jilla Ansell Limited Level Victria Street Richmnd VIC 3121 In this Open Briefing, Magnus and Rustm discuss: Active acquisitin prgram: expansin int new areas f persnal prtective equipment market (high end prtective clthing and fall prtectin) Cntinued investment in sales and marketing peple & prgrams, innvatin and integrating acquired businesses Base business expected t accelerate in H2; cnfirmatin f full year EPS guidance Recrd f interview: Ansell Limited tday reprted net prfit f US$57.1 millin fr the first half ended 31 December 2012 (H1), dwn 14 percent frm the previus crrespnding perid (pcp), and EPS f US$0.437, dwn 14 percent. Revenue was US$648.1 millin, up 6 percent, driven by acquisitins, and EBIT was US$68.8 millin, dwn 8 percent, reflecting increased SG&A spend. Yu ve maintained yur guidance fr the current year ending 30 June 2013 f US$1.07 t US$1.12, up 6 t 10 percent. This implies year-n-year prfit grwth f at least 25 percent in H2. What are the expected drivers f this turnarund? H1 rganic sales were flat in a difficult glbal envirnment, reflecting adverse frex impacts and significant distributr de-stcking but we re starting t see sme psitive signs, especially in the US in areas such as the aut industry. We als actively invested in the future thrugh spending n a number f new prduct launches, sales and marketing staff, increased R&D and advertising and prmtin f ur SKYN brand in targeted cuntries. We recgnise that the H2 challenges are significant, but are cnfident that we can achieve ur guidance. Traditinally H2 is better than H1 due t seasnality, we expect new prducts t cntribute much mre, distributrs t step up purchases after having de-stcked in H1, and sme help frm raw material csts. N questin that the ask in H2 is tugher than we wuld have wanted. Delivering ur cmmitments will mstly cme dwn t executing ur revenue grwth and cst cntrl plans. Interestingly, the level f internal cnfidence is quite high. Magnus and I went thrugh the H2 prjectins with the rest f Ansell s executive leadership team a cuple f weeks ag and there was unanimus cnfidence that the Cmpany wuld deliver EPS within the full year guidance. S what we need nw is t fcus, fcus, fcus. Ansell made three acquisitins during H1; investing US$137.9 millin, up frm US$18.8 millin in the pcp. Given these are the first substantial acquisitins Ansell has made fr sme time, t what extent did the distractin f integratin accunt fr the pr H1 earnings? ASX Annuncement: 13 February 2013/Open Briefing /Ansell Ltd 1

2 Ansell is a lean rganisatin. Many f ur team members have invested large amunts f time in evaluatin, due diligence and nw n integratin. This inevitably wuld have taken a little fcus ff the rest f the business. Nevertheless, this was nt the main reasn fr H1 s weakness. As I ve said previusly, the markets were difficult and we chse t cntinue investing in the future, seeing the lng-term benefits utweighing the shrt-term cst. And, as Rustm nted a mment ag, H2 s fcus will be n delivering results frm thse acquisitins and n delivering ur base business plans. Grss prfit after distributin expenses (GPADE) was US$238.8 millin, up frm US$225.0 millin and in line with sales grwth, but SG&A expenses were up US$19.7 millin, t US$170.0 millin, including US$13.6 millin f additinal spending n new prduct develpment, advertising and prmtin, and additinal sales and marketing staff. In an envirnment where sales, excluding acquisitins, were flat after slwing grwth last year, hw effective can this kind f spending be? We ve gne thrugh a majr prgram f reviewing brands and SKUs with the aim f fcusing n ur lng-term cre brands, lking t grw in emerging markets which are in fact the grwth engines f the wrld, and fcusing n new prduct develpment as the life bld f the Cmpany. I truly believe in making these investments t take Ansell t a higher rate f rganic grwth. We will stay the curse and cntinue t invest. Hwever, we clearly have t lk in the mirrr and ask urselves if we re getting an adequate payback frm these investments. The GBUs were set up just ver tw years ag t bring a glbal perspective, t make chices n brands, SKU ratinalisatin, and new prducts. This has happened, but, we nw need t reap the benefits frm these investments befre starting additinal initiatives. We re still planning t invest in sales and marketing in H2, but are nw asking fr ur teams t be mre selective, and hardnsed. Originally, Ansell planned t cntinue the glbal rll-ut f its new ERP system, Fusin, in While ptimisatin initiatives are underway in Nrth America (NA), where Fusin was first intrduced, yu ve nw flagged an SAP prject fr Eurpe, Middle East and Africa (EMEA). What is the ratinale fr this and will the SAP system replace the need fr Fusin in EMEA? Will the systems be cmpatible? We ve been a little frustrated with the pace f imprvement in ur ERP platfrm in NA and Latin America, Caribbean (LAC). Althugh a lt f prgress has been made and the system is fully peratinal, there is rm fr further imprvement and ptimisatin. When purchasing Cmasec we were aware that it was a reference site fr SAP and that it had implemented SAP fr a very reasnable cst and n schedule. Cmasec has a wellqualified IT team with a strng backgrund in SAP. S t speed up integratin we decided t put ur EMEA Industrial and Specialty Markets businesses nt Cmasec s SAP platfrm (a reverse integratin if yu will). This will als help deliver sme planned synergies quickly. The Medical business was Ansell s nly GBU t bk increased earnings and margins in H1, with EBIT f US$17.2 millin, up 6 percent, and EBIT margin f 10.4 percent, up frm 9.5 percent. Sales were dwn slightly in EMEA and NA thugh, s t what extent did this reflect ASX Annuncement: 13 February 2013/Open Briefing /Ansell Ltd 2

3 pricing pressure frm the public sectr? Will the grwth pprtunities fr the business remain utside these mature markets? Medical segment EBIT grew 6 percent, with sales in ur dminant business (surgical glves) up 4 percent while sales in ur smaller exam glve business fell abut 21 percent. Pricing pressure is strng in EMEA in particular but ur teams have been able t cmpensate fr this with mix management i.e. greater fcus n mre attractive prduct ranges within surgical Our grwth pprtunities lie in bth develped and emerging markets. We cntinue t create new exciting high end prducts such as ur new plyisprene anti-micrbial technlgy surgical glve, and the new sensprene synthetic surgical glve withut any allergy causing chemical acceleratrs. These glves are utilised mre in develped markets and plyisprene surgical glve sales were up 57 percent in H1. We als have a range f glves designed fr emerging markets at a lwer price pint, s as yu can see we re driving hard in bth spheres. The Industrial business bked sales f US$265.4 millin, up 9 percent, due t the cntributin r Cmasec and grwth in Nrth America. Hwever EBIT was dwn 4 percent t US$38.1 millin, reflecting increased sales and marketing and R&D spending. T what extent will the sales and marketing and R&D spending levels f H1 be maintained? Can earnings grwth return in the current uncertain macr envirnment? Yes they can! Dn t frget Ansell is the wrld leader in this space, and we plan fr this t cntinue. Lk, H1 had a number f issues, the majr ne being the glbal cntractin. We re starting t see the glbal ecnmy settling dwn, and as I mentined earlier, the US in particular seems t be gathering a little pace. We als spent a lt in H1 n marketing, launching new prducts, creating a new R&D centre fr Industrial in Sri Lanka, and n mre sales persnnel wh take time t get up t speed and bring in revenue. Althugh sme f these csts will cntinue, we expect t get a return n ur investments in H2. The Specialty Markets business, which includes husehld and military glves, bked sales f US$102.6 millin in H1, up 19 percent, driven by acquisitins. EBIT was US$2.6 millin, dwn frm US$4.8 millin, reflecting higher sales and marketing spending. With sales f existing prducts falling, where d yu see the earnings imprvement pprtunities fr the business? SM had a difficult half. Sme f its markets, such as the military, are cntracting (as sldiers are cming hme frm Afghanistan) and many f ur new exciting prducts, such as ur flame resistant il and gas glve, have just been launched. Great prgress has been made in many areas, and we ll see higher prfits in H2. We re als very pleased with ur acquisitins APS and Hercules, and there is great pprtunity t grw glbally with their great prduct ranges. The Sexual Wellness business bked EBIT f US$14.5 millin, dwn 23 percent, n sales f US$114.8 millin, up 5 percent. The drp in EBIT reflected increased advertising and prmtin spending n the SKYN brand and csts assciated with the relcatin f the US packaging facility. Sales f branded cndms increased 7 percent. T what extent will sales grwth require cntinued A&P investment? Hw is SKYN nw psitined in the market, and what has been the cmpetitive respnse t yur mre practive advertising? SKYN is a fabulus prduct and the SKYN family is even mre pwerful. Our majr ASX Annuncement: 13 February 2013/Open Briefing /Ansell Ltd 3

4 advertising and prmtins prgram has been mst successful and we remain the nly glbal player with a plyisprene cndm. Certainly it has stirred up the cmpetitin we expected it wuld but at the same time ur market share has grwn and that was the aim f the exercise. The Sexual Wellness business perfrmed better than the numbers seem t indicate. Firstly, frex mvements reduced sales grwth frm arund 10 percent t arund 5 percent (the eur, the Brazilian real and the Indian rupee). Secndly, the relcatin f ur US cndm packing peratin cst us management time and mney but is nw peratinal. Finally, the investment in SKYN in H1 will help H2 sales, and there s n reasn that prfits shuld nt bunce back strngly in H2. Free cash flw was US$48.1 millin in H1, up frm US$6.3 millin in the pcp. As at 31 December, wrking capital was US$305.8 millin, up US$53.2 millin frm 30 June, with US$48.8 millin f the increase cming with the acquisitins. Is there scpe fr near term imprvement in free cash flw as yu integrate recent acquisitins and expand in new verticals? In H1, ur teams delivered the srt f wrking capital management that Ansell expects. In fact, this was ne f ur best H1 perfrmances, even thugh there was still nt enugh prgress in inventry management, which is nw mre cmplex than befre with the range f prducts the acquisitins have brught t ur prtfli. Yes, there is scpe t imprve wrking capital metrics at the acquired businesses and f curse t generate mre cash. We cntinue t expect at least US$100 millin f free cash flw fr F 13, with higher EBITDA in H2 partly ffset by higher interest and cash taxes. And, in F 14, the acquisitins will be cntributing, and free cash flw shuld increase even further. We ve bught gd businesses, but the wrking capital turns f Cmasec were well belw Ansell, s with slid integratin utcmes we expect F 14 will be a strng free cash flw year. As at the end f December, Ansell had net debt f US$202.2 millin, up frm US$56.1 millin six mnths earlier. Gearing was 20.6 percent, up frm 7.2 percent. Since the end f H1 yu ve acquired Brazilian prtective equipment cmpany Hercules fr US$77 millin and annunced a 2 millin t 3 millin share buyback. Des the buyback signal an end t the recent acquisitin activity? What is the utlk fr gearing at the end f the current year? N it isn t the end f acquisitin activity. We cntinue t evaluate attractive acquisitin pprtunities and t build the pipeline. Realistically hwever, we need sme time t integrate the five businesses we ve bught in the current year. S it s just a pause fr a few mnths. Our gearing (net interest bearing debt/net interest bearing debt + equity), was just under 27 percent right after the Hercules acquisitin. We expect t be strng cash generatrs in H2 as well. What gearing ends up at by June 30 depends nt just n ur free cash flw but als n hw many shares we buy. This is a fairly small buyback and it will prbably be best fr sharehlder value creatin if we end up buying back just the bttm end f the range ver 12 mnths. Incidentally, we ve had better accretin in H1 frm the acquisitins (runding t US$0.01) than we had prjected and we ll prbably d a bit better in H2. Of curse, this is after ASX Annuncement: 13 February 2013/Open Briefing /Ansell Ltd 4

5 cunting transactin and integratin csts. We play in fragmented industries with plenty f rm t make gd, value adding acquisitins s M&A shuld cntinue t play a key rle in grwing sales and earnings. But, we must als keep ROA/ROI and risk in mind when we acquire nt just EPS accretin. Ansell annunced an unfranked interim dividend f A$0.16 per share, up frm A$0.15 per share last year. Given EPS fell 14 percent in H1, what was the ratinale fr increasing the dividend? What is the utlk fr the full-year dividend? The ratinale fr increasing the dividend is that we have cnfidence in H2 and have generated and are generating plenty f cash. Dividends are a Bard call but there is n reasn that the full-year dividend shuld nt be increased as well. Thank yu Magnus and Rustm. Fr mre infrmatin abut Ansell, visit r call David Graham n (+61 3) Fr previus Open Briefings by Ansell, r t receive future Open Briefings by , visit DISCLAIMER: Orient Capital Pty Ltd has taken all reasnable care in publishing the infrmatin cntained in this Open Briefing ; furthermre, the entirety f this Open Briefing has been apprved fr release t the market by the participating cmpany. It is infrmatin given in a summary frm and des nt purprt t be cmplete. The infrmatin cntained is nt intended t be used as the basis fr making any investment decisin and yu are slely respnsible fr any use yu chse t make f the infrmatin. We strngly advise that yu seek independent prfessinal advice befre making any investment decisins. Orient Capital Pty Ltd is nt respnsible fr any cnsequences f the use yu make f the infrmatin, including any lss r damage yu r a third party might suffer as a result f that use. ASX Annuncement: 13 February 2013/Open Briefing /Ansell Ltd 5