Ansell CEO has $1.9b to spend but private equity a thorn

Safety gloves and surgical supplies group Ansell has a war chest of $1.9 billion for acquisitions but chief executive Magnus Nicolin says the company will only make a move if the investment returns stack up as competition from cashed-up private equity funds accelerates in a marketplace where business sellers are eyeing “top dollar”.

“We are not going to be spending money just because we have it,” Mr Nicolin said on Monday.

“There’s a lot of money in the marketplace with hedge funds and private equity,” he said. This had pushed up price tags and vendors had raised their expectations. “I think it’s indicated to some families and others that they can get top dollar,” he said.

But Ansell was remaining very disciplined. It had five potential acquisitions it was currently scrutinising.

Ansell shares tumbled more than 8 per cent on Monday after investors were disappointed with more of a subdued outlook than they expected because of a potential $US10 million handbrake from the fall-out of the United States and China trade dispute and tariffs on products imported into the US.

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But Mr Nicolin said Ansell wouldn’t be hit as hard by those extra tariffs as some of its rivals.

“That will be less hurtful to Ansell than some of our competitors,” he said.

Higher dividend

But Ansell shares were 8.5 per cent lower in late morning trade to $25.39 after the softer outlook was revealed. 

Ansell unveiled a bottomline net after tax of $US484.3 million for 2017-18, more than double the previous year. There was a one-off after-tax gain of US$345 million stemming from the sale of its condom business for US$600 million, which settled on September 1. It was acquired by China’s Humanwell Healthcare Group and CITIC Capital China Partners.

This left Ansell to focus on expansion of its core operations of supplying safety equipment and gloves to the industrial sector and the healthcare industry. Ansell lifted its final dividend by 5 per cent to US$0.25 as profit margins recovered in the second half of 2017-18 after a sharp rise in rubber prices caused headaches in the first half. 

Total revenue from continuing operations was up 8.4 per cent to US$1.49 billion. The dividend will be paid on September 13.  Ansell shares had been sitting at $29.09 on July 30 after a steady rise from $21.42 a year ago.

Ansell makes brands including Microflex, Gammex, Hyflex, AlphaTec and TouchNTuff. Mr Nicolin said there had been increases in raw materials such as rubber of between 30 to 40 per cent in the first half as some Chinese manufacturers bought up extra volumes and two large refineries which made some “sub-components” in the supply chain were temporarily offline for refurbishments. But those raw materials jumps had abated.

The company is eyeing the faster growth rates in emerging markets countries including India, Mexico, and Brazil and also expects to benefit from the increasing amount of safety regulations happening across the industrialised world.

“The world is going through tremendous regulatory reform,” Mr Nicolin said.

One of the best performing geographic regions for Ansell in the past couple of years had been Mexico. Ansell had a bias toward businesses with higher exposure to emerging markets when it comes to scouring for acquisitions. “Obviously that’s where we see faster growth,” he said.

Ansell had balance sheet capacity of between US$1 billion to US$1.4 billion for acquisitions. But if it couldn’t find value-enhancing acquisitions then it would accelerate share buybacks. “In all likelihood it’s going to end up being a combination of both,” Mr Nicolin said.

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