The Ansell Limited (ASX: ANN) share price is down almost 9% after reporting its FY21 result, which included a lot of profit growth.
Ansell is a world leader in providing protective clothing, particularly gloves, in healthcare and industrial environments.
Ansell’s FY21 result
The global glovemaker revealed that total sales increased by 25.6% to US$2 billion.
It achieved healthcare organic growth of 34.8% with volume growth for surgical and life sciences and favourable pricing/mix benefit for exam/SU. COVID-19 has caused a big increase in demand. Other businesses in the healthcare area have also seen big demand growth, like Sonic Healthcare Ltd (ASX: SHL).
The Ansell industrial segment saw organic growth of 7.1%, with a recovery from ‘mechanical’ and continued growth in ‘chemical’.
Ansell’s EBIT (EBIT explained) went up 56% to US$338 million. The EBIT margin improved by 330 basis points (3.30%) to 16.7%.
The business said that pricing was a very important driver for the business as it successfully passed through cost increases arising from a demand and supply imbalance in the healthcare industry. Healthcare EBIT increased 75.5% and the EBIT margin went up 420 basis points to 20.1%. Higher volumes also drove operating leverage.
Getting to the bottom line, Ansell net profit soared 57.5% to US$246.7 million, whilst profit / earnings per share (EPS) jumped 59.9% to US$1.92.
Operating cashflow dropped 74.3% to US$49.2 million. Ansell explained that cashflow was temporarily weaker, reflecting the increased investment in working capital to support sales growth and higher capital expenditure to expand capacity while achieving a return on capital employed (ROCE) of 19.8%. That means Ansell made a profit of 20% of the money it invested in its business.
However, investors will be keeping an eye on future cashflow returning to normal – it’s perhaps an even more important sign of profitability.
Dividend
Ansell decided to pay an annual dividend of US$0.768 per share, an increase of 53.6%. At the current Ansell share price, it has a cash dividend yield of 2.1%.
What’s the outlook for the Ansell share price and profit?
Share prices have the habit of following earnings.
Ansell expects continued demand for all of its business units. It’s also expecting that COVID-19 will continue to feature throughout FY22. Pricing is expected to feature through FY22, “positively and negatively”.
From a supply perspective, management expect recent capacity investments to support sustained demand.
But the company warned that increased COVID-19 cases in South East Asia may disrupt supply. A number of Ansell’s factories and suppliers in the region have had short term closures or reduced operations. This may impact sales during the first half. Increased freight costs and shipping delays are also expected to persist throughout FY22.
The company also noted it plans to invest more in software in FY22, where a portion will now be immediately expensed rather than capitalised and amortised. This is expected to result in a 5 cent to 6 cent negative impact on EPS.
It’s only expecting FY22 EPS to be between US$1.75 to US$1.95. That means Ansell will be lucky to achieve profit growth in FY22.
The Ansell share price has fallen over the past year. It may have seen the peak of demand. Ansell is a robust business, but I don’t see a lot of growth in the shorter-term.
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