ISELIN, N.J.—Ansell Ltd. has changed significantly in the last year and it's likely the giant health and safety product maker will evolve more in the next two years.
It reached a deal to sell its Sexual Wellness business in May 2017 and launched an extensive four-point transformation program in July 2017 aimed at streamlining its entire operation to accelerate growth and profitability of the firm's remaining businesses.
Ansell completed the sale of the SW business—including its rubber latex and non-latex condom unit and plants in three countries—to a China-based consortium for about $600 million on Sept. 1 of last year. The company plans to spend about $100 million in cash during a three-year span to cover the transformation project.
Net cash proceeds from the sale of the SW business, after tax and costs, totaled about $523 million, a spokesman said. Sale of the operation "removed a key source of complexity in the business, providing Ansell with the opportunity to sharpen its focus on its core markets and move to enhance its leadership and engagement in workplace safety markets," he added.
Once the transaction was completed, the firm merged its three business units into two: Health Care and Industrial. The company's Single Use and Medical operations became part of the Health Care business that manages all single-use examination and surgical gloves along with its life science products. Its Industrial business makes and markets multi-use protection goods for hand, foot and body protection used in almost every industry.
The initial result from the restructuring: Sales of almost $1.5 billion from continuing operations in fiscal 2018, up 8 percent from those recorded in fiscal 2017, the company reported in late August. Profits rose to about $484.3 million, including a $345.5 million after-tax gain on the sale of the SW business, up from $147.7 million last year. Profits from the firm's continuing businesses totaled $138.8 million, up from $119.5 million in fiscal 2017.
"This year has seen significant positive changes in our company as we reshaped it to be a sharper focused enterprise following our exit from the Sexual Wellness business," Chairman Glenn Barnes said in the company's fiscal annual report.
He said Ansell's directors "have been pleased to see the maintenance of organic growth (which rose 4 percent in constant currency in fiscal 2018 compared to the year before) in a year when our people have been called upon to complete the challenges of exiting from a major business and reshaping our remaining core.
"Our structural transformation program is tracking well, with current year benefits ahead of plan, and the whole program (is) on track to deliver gains in sustainable profit and cash flow for the next two years."
Magnus Nicolin, CEO and managing director, was equally pleased, noting that the company continues to make progress in the execution of its growth strategy. He cited "innovation, emerging market expansion, brand focus and distribution partnerships" as the prime reasons for the improvement
There were hurdles Ansell—which is headquartered globally in Sydney and has its North American base in Iselin—had to overcome during the last year. Topping the list was a temporary spike in raw material costs "which affected our cost of goods sold during the early months of fiscal 2018," according to Nicolin.
Ansell's spokesman said the spike was driven partly by the carryover impact from higher cost raw materials held in inventory from fiscal 2017. "Also, pricing on other raw materials, particularly synthetic nitrile latex, increased on strong demand/supply dynamics."
However, he said, "that eased off—particularly as natural rubber latex pricing eased from its peak in late fiscal 2017—and margins were restored in the second half of the financial year."
Heading into fiscal 2019, the spokesman said raw material costs are rising again, "driven by increases in nitrile and advanced synthetic latex, offsetting the lower natural rubber raw material costs and approaching the peak levels seen in fiscal 2017."
Ansell has a multitude of strategies to leverage the macroeconomic environment and plans to offset increasing cost pressures stemming from the hike in raw materials, he said.
Another obstacle could be new tariffs on imports from the U.S. to China, the company said.
"Rising concerns about the U.S./China trade dispute and increased tariffs are expected to increase Ansell's U.S. import costs by $5 million—$10 million annualized, although the timing remains uncertain," the spokesman said.
He said that "any escalation of the dispute between the two countries could significantly increase the range of the impact as well as its effect on U.S. demand."
The potential for a trade conflict between the U.S. and the European Union "appears to be receding and currently we expect no direct impact on Ansell in fiscal 2019. Escalation of conflict to other regions—particularly Asia-Pacific—could have a significant impact, although currently this appears a remote risk," the spokesman said.
Ansell's transformation program is continuing to progress well, according to Nicolin, "and is slightly ahead of expectations at this point."
He said the company's manufacturing and supply chain components of the project "are well advanced to deliver expected benefits in fiscal 2019 and more specifically in fiscal 2020."
Changes have been made and the initial steps of the program "have been completed smoothly in line with expectations and we are on track to meet or exceed our savings targets of at least $30 million by fiscal 2020," Nicolin added.
Ansell's original goals for the project encompassed both cost reductions and growth investments, he said. "These plans are also on track. The expansion of our Vietnam facility is progressing smoothly and we are confident the site will be a cornerstone of Ansell's manufacturing leadership in advanced hand protection for years to come."
Thus far, the firm has spent about $20 million on the expansion of the Vietnam plant, the spokesman said.
"We are in the advanced stages of finalizing a $30 million multi-year investment in our differentiated stage use chemical resistance technology with a focus on industrial end markets," Nicolin said. "This new investment will allow us to retain in-house the critical process and technical know-how essential to the product range, while also allowing us to build the scale to be highly cost competitive."
In addition, the company is developing plans to invest more than $10 million in its chemical and life science manufacturing centers in Malaysia, he said.
Ansell also plans to begin a multi-year program of upgrading the operating systems used in its supply and manufacturing facilities, "a key enabler to our overall supply chain excellence, manufacturing productivity objectives and digital E-commerce deployment," Nicolin said.
Rising raw material prices and possible tariffs on U.S. imports remain concerns for the safety product manufacturer. They could be key negative factors as the fiscal year progresses.
External market conditions in fiscal 2019 are expected to support future growth, the firm said, but they are also creating tight demand/supply conditions, particularly for nitrile rubber latex products, which recently led to increases in raw material costs for those and other materials.
But overall, Ansell is targeting continued organic growth in the range of 3-5 percent. And it expects transformation cost benefits, product and product mix actions to benefit EBIT growth.
Nicolin said the company remains on the lookout for merger and acquisition possibilities, as long as they fit strategically and create value.
Ansell has passed on some possible acquisitions in the last year following thorough due diligence processes, he said. "In other cases we remain in active discussions and our pipeline remains robust."
In addition to acquisitions that fit well with the company, the spokesman said, Ansell remains focused on investing in its core businesses through continued investment in the transformation program, research and development, and manufacturing innovation and upgrades.