Ansell has come down firmly on the side of shareholders by deciding to extend its year old share buyback after finding no yummy takeovers.
Usually there’s tension between investors (usually big, aggressive shareholders) and the company and its board and management what to do with surplus cash or a strong earnings position – do they invest in the business, buy a rival or extend the business in a different acquisition, or do they engage in what is termed ‘capital management’ and return it to shareholders via higher or special dividends or buybacks?
These days with weak demand across most areas of the economy, low revenue growth, franking credits, a lacklustre outlook and not to mention low-interest rates, companies tend to capital management (such as BlueScope Steel, Qantas, BHP and Rio Tinto for example).
But companies do need to invest and expand their activities otherwise they fall back, become inward-looking and stultify.
Ansell has been looking to avoid that while keeping shareholders happy in the past year with Its 26.4 million or $700 million buyback, while it sought new acquisitions.
Eleven months on from the November 2018 AGM, there’s nothing on the menu, so the buyback will continue.
Ansell will ask shareholders at its November 14 annual general meeting for approval to extend the on-market buyback.
“In the absence of sufficient appropriate opportunities, and with excess cash on the balance sheet, the board believes that continuing our buyback program provides the most beneficial use of this capital for shareholders,” Ansell said in a statement to the ASX.
Ansell made a $US345 million gain when it sold its Sexual Wellness condom business to a Chinese consortium in 2017.
It has since bought protective glove manufacturer Ringers Gloves for $US70 million, and earlier this year announced plans to shut three production facilities in Mexico and South Korea while expanding operations in Vietnam, Sri Lanka and Malaysia.
Excluding $US45.5 million in “transformation costs”, Ansell’s profit for the 12 months to June 30 rose 4.7% on a constant currency basis to $US150.9 million ($A222 million).
Sales rose 3.2% to $US1.5 billion ($A2.2 billion) on a constant currency basis.
With that modest performance, it’s no wonder Ansell is continuing to cast around for new partners or acquisitions. It needs to juice itself up for the longer term and buybacks and higher dividends won’t deliver that future.
Ansell shares rose 0.9% to $26.77 and are 21% year to date, so the buyback has helped – that’s well ahead the 16.7% rise in the ASX 200 year to date.
