Release Date: August 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ansell Ltd (ANSLF, Financial) reported strong cash flow results, with operating cash flow at just under $168 million, the second-highest in the last decade.
- The company achieved a record EBIT margin of 16.5% in its industrial segment, driven by sales growth, cost favorability, and APIP savings.
- Ansell Ltd (ANSLF) successfully reduced inventory by $68 million, improving cash conversion to 131% while maintaining customer service levels.
- The acquisition of Kimberly-Clark Professional PPE (KBU) is on track, with initial integration showing strong cultural fit and positive customer feedback.
- The company received recognition for its sustainability efforts, achieving a gold medal with EcoVadis and a top rating from Morningstar Sustainalytics.
Negative Points
- Ansell Ltd (ANSLF) experienced a tick up in recordable injury rates due to the consolidation of Careplus, now Ansell Seremban, which has a higher injury rate than the company average.
- The company faced challenges in reducing water withdrawals and has extended its target to FY27.
- Healthcare segment sales were down 8% due to customer destocking and lower production levels, impacting EBIT margins.
- The Red Sea shipping disruptions caused delays in fulfilling surgical orders, deferring some revenue to FY25.
- Raw material costs, particularly nitrile and natural rubber latex, are expected to increase in FY25, potentially impacting margins.
Q & A Highlights
Q: Can you clarify the expected synergies from the Kimberly-Clark acquisition in the first year?
A: Synergy delivery won't begin until FY26. The focus is on ensuring no disruption to customers during the transition from Kimberly-Clark systems to Ansell systems, which will take most of this fiscal year. Some negative synergies are expected due to reliance on the K-C professional sales team, but these are factored into the guidance.
Q: How is the Red Sea freight issue impacting the surgical range and overall business?
A: The Red Sea disruption has caused delays in shipments, particularly affecting the surgical business due to its direct ship model. The team is managing this by increasing shipping capacity and using alternative routes. The issue is expected to persist but is being mitigated.
Q: What are the in-sourcing plans for Kimberly-Clark products?
A: The in-sourcing strategy is still being developed. The focus is on achieving cost benefits and supply chain resilience. New products from Kimberly-Clark technology will be produced in-house to ensure exclusivity.
Q: What are the organic growth expectations for the combined business, including Kimberly-Clark?
A: The long-term organic growth guidance remains at 3%-5%. The Kimberly-Clark acquisition, particularly in the high-growth life sciences segment, moves Ansell up within this range.
Q: How is the pricing environment for healthcare products, particularly surgical gloves?
A: Pricing for medical exam products remains depressed, but surgical glove pricing is stable. Ansell continues to communicate the value of its synthetic portfolio and sustainability credentials, which supports stable pricing.
Q: Can you explain the significant items and one-off costs expected in FY25?
A: Significant items include $20 million for the APIP program and additional costs related to the KBU acquisition, totaling around $45 million. These include integration and transaction costs.
Q: What are the assumptions for Kimberly-Clark's contribution to FY25 guidance?
A: The KBU business is expected to be moderately lower in EBIT due to transition costs and potential sales risks. The overall impact on EPS is expected to be minimal in the first year.
Q: What are the expected raw material headwinds for FY25?
A: Raw material costs are expected to increase by a single-digit million figure, along with higher freight costs. Pricing actions will be taken if these trends persist.
Q: How are customer buying preferences changing, and how is Ansell addressing these changes?
A: Customers are increasingly focused on supply chain resilience, ethical sourcing, and sustainability. Ansell is addressing these through its differentiated product offerings, supply chain management, and sustainability initiatives.
Q: What is the expected CapEx level for FY25 and beyond?
A: CapEx is expected to be around $60 million to $70 million in FY25, trending down to $50 million to $60 million beyond the India construction phase.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
