Ansell (ANN) shares took a real whacking yesterday after it stunned the market with what was in effect a sharp downgrade of 2015-16 earnings and revenue growth.
The shares plunged more than 21% yesterday at one stage in the biggest one day fall since the big stock market crash in 1987. They ended down 15.8% at $20.84.
What made the news of the downgrade even more surprising was that it came at the end of a 2014-15 profit report which revealed a 20% surge in full year earnings, which was slightly better than analyst forecasts.
Ansell lifted final dividend to 23 US cents a share, unfranked, from 22 US cents a year ago. That left a full year dividend up 10% to 43 US cents a share from 29 US cents previously.
ANN 1Y – Ansell shares tank on uncertain outlook
But what crunched the share price was the gloomy outlook, highlighting the damage that could be done to earnings and sales from the stronger US dollar.
The company warned that adverse foreign exchange rates will hit its bottom line in the year ahead.
Ansell reports in US dollars (as do other international groups such as Rio Tinto, BHP Billiton, CSL and QBE) and it yesterday warned of “significant uncertainty” about economic conditions due to potential foreign exchange volatility.
It said it expected earnings per share of between $1.05 and $1.20 in the 2015-16 financial year, down from $1.22 in the just ended 2014-15 financial year.
“Moving into F’16, currency rates are assumed to remain similar to the average levels seen in the 4th quarter of F’15, resulting in a further expected $55m negative impact to revenue and $30m impact to EBIT including the impact of lower hedging gains,” Ansell explained in yesterday’s statement.
"An increase in the effective tax rate to 20-21% is expected with Australian income likely to incur a P&L tax charge starting during 2H F’16 as carry forward losses are fully recognized on balance sheet with no additional DTA benefit anticipated. The combined effect of these currency and tax rate changes is anticipated to reduce EPS by 22¢ – 26¢.
"Offsetting the currency and tax headwinds, is expected ongoing strong performance by growth brands, continued delivery of benefits from our productivity and restructuring initiatives and a full year contribution from F’15 acquisitions benefiting EPS by an estimated 10¢ – 20¢
“Whilst a moderate improvement in economic conditions is anticipated by most economic forecasters, it is also recognised there is significant uncertainty around these projections in both emerging and developed markets along with potential ongoing FX volatility,” the company warned.
In other words, the profit reported yesterday could very well be much better than the one to be reported in a year’s time.
Ansell told the ASX yesterday that net profit for the 12 months to June 30 rose to $US188 million, up from 2013-14’s underlying figure of $US157 million.
Analysts had expected $185.4 million according to Bloomberg.
Ansell chief executive Magnus Nicolin attributed the result to strong growth across its core brands, which include the SKYN-branded condoms.
Sales in Ansell’s sexual wellness business unit (condoms), which accounts for 13% of total revenue, grew 2%. This was mainly thanks to SKYN, which increased 16%, and “a significantly improved performance by latex brands, particularly in China”, Mr Nicolin said in yesterday’s statement to the ASX.
Overall, revenue rose 3.5% to $US1.6 billion.
Chairman Glenn Barnes said in yesterday’s statement:
"Ansell has again successfully generated strong financial results reporting increased sales and significant profit growth for the financial year, despite more challenging external economic conditions than expected in the second half including unfavorable currency movements.
"The Board is also pleased to be able to provide shareholders with a further significant dividend increase. I remain confident Ansell’s continued delivery against its strategic objectives will deliver long-term shareholder value.” Mr Barnes said.
But no news on dividends for 2015-16.
