As expected, the decline of the Covid-19 boom has continued to adversely affect the performance of the protective wear group, Ansell (ASX:ANN), during the 2022-23 period. However, the management is optimistic about improving conditions on the horizon.
Nonetheless, the upcoming fiscal year, 2023-24, appears to be marked by an extensive and ambitious transformation program, which could potentially result in a significant impact on earnings, potentially leading to a halving of profits.
In the meantime, shareholders will experience a 17.2% reduction in total dividends, amounting to 45.90 US cents for the year (with the final dividend at 25.80 US cents), compared to the 55.42 US cents declared in the previous year.
As the Covid protection surge waned, reported sales plummeted by 15.2%, or 11% on a constant currency basis, reaching $US1.6551 billion. The growth in industrial protection sales partially offset the decline in healthcare sector sales.
Earnings before interest and tax (EBIT) experienced a nearly 16% decrease over the year, amounting to $US206.3 million. Net profit declined by 6.6% to $US148 million (approximately $A228 million).
On a constant currency basis, EBIT decreased by 6.7% due to destocking in the Healthcare sector. On a reported basis, EBIT was down by 15.8% once the exit from Russia in the previous fiscal year (2021-22) and unfavorable foreign exchange changes were considered.
According to CEO Neil Salmon, the 2022-23 financial year "presented a unique range of challenges as we continued to experience the lingering effects of pandemic-related changes to customer behavior, in addition to evolving global economic conditions."
"With the subsiding of pandemic-related supply chain risks, our channel partners and end-users opted to reduce inventory, which had a significant impact on Healthcare GBU sales. Towards the end of the year, there was also a softening in certain industrial end markets due to rising global interest rates affecting manufacturing activity.
"Despite these challenges, we were able to deliver FY23 EPS (US115.3¢) within the original guidance range provided to the market alongside our FY22 results release in August 2022."
"Our Industrial GBU experienced positive top-line growth on an organic constant currency basis. Mechanical segment performed well, with growth in emerging markets and success with new products contributing to a strong outcome. The Chemical segment returned to growth as the effects of pandemic-induced demand for limited-use chemical protective clothing subsided, and strong growth was achieved in our premium hand and body protection range.
"Our Healthcare GBU faced significant customer destocking throughout FY23, as channel partners and end-users reduced inventory. Notably, we observed volume improvement in Exam/SU in H2, with sequential double-digit volume growth compared to FY23 H1. This was driven by strong improvement in volumes of our distinctive industrial Exam/SU products produced in-house.
"Sales in our Surgical business, which experienced significant growth in H1, declined in H2 as channel partners began to decrease inventory. The most substantial destocking took place in Life Sciences, where conservative inventory positions held during the pandemic translated to a prolonged inventory unwind that affected sales for most of FY23.
"The Healthcare destocking led to lower overall earnings than FY22 on an organic constant currency basis. However, we managed to achieve robust organic constant currency earnings growth in the Industrial segment, benefiting from a robust program of innovation, especially in Mechanical, and success with pricing.
"The earnings for FY23 were supported by incentive outcomes below target. Coupled with anticipated challenges from foreign exchange and taxation, these factors are expected to result in increased costs as we enter FY24. We are addressing these issues through our recently announced Accelerated Productivity Improvement Plan, which will better position Ansell for improved growth and returns. The plan involves changes to our organizational structure, enabling us to execute customer growth strategies more effectively, enhance manufacturing productivity, and accelerate our successful digitization strategy."
As revealed in July, the 2023-24 financial year is expected to be relatively stable or slightly weaker, as the company initiates a significant cost-cutting and investment program aimed at preparing for the post-Covid landscape.
"As previously communicated in our market update on July 18, we anticipate FY24 Adjusted EPS, excluding investment program costs, to be in the range of US92¢ to US112¢ (lower than the 115.3 US cents per share reported for 2023).
"FY24 Statutory EPS, including investment program costs, is expected to be in the range of US57¢ to US77¢,” Mr. Salmon explained.
This suggests that statutory earnings could potentially halve in the current fiscal year. This is the reason why the $US50 million buyback will be implemented over the course of the financial year.
