Ansell: Productivity Gains Are on Track

We maintain our AUD 30 fair value estimate for narrow-moat Ansell ANN following a brief trading update. Our fiscal 2024 EPS forecast of USD 1.01 remains within management’s reiterated guidance of USD 0.92 to USD 1.12. Customer destocking in surgical and life science businesses is expected to persist until the second half of fiscal 2024, but the worst appears to be behind Ansell with end-user demand largely back to normal.

Ansell’s productivity program is still guided to deliver at least USD 45 million in annualized cost savings by fiscal 2026, representing over a fifth of current group EBIT. We still forecast EBIT margin to better prepandemic levels and expand to 15% by fiscal 2028 from 13% in fiscal 2023. Design and implementation of a new organizational structure was completed by the end of September 2023 with selling, general, and administrative savings being realized from October 2023 onward. This mainly relates to Ansell streamlining its leadership roles to reduce duplication of responsibilities.

Ansell is also in the process of reducing headcount at its manufacturing facilities and making investments to improve manufacturing efficiencies and automate key production steps, principally in packaging. It is also optimizing its overall sourcing network and continuing its strategy of insourcing key styles and outsourcing or exiting product categories with limited differentiation. Implementation of the latter is expected in fiscal 2025.

In addition to its USD 45 million savings target, the company is improving its systems and digital capabilities. Building on its recent success of transitioning two of its largest manufacturing entities to modern cloud-based enterprise resource planning systems, the firm plans to transition the entire business to a consolidated global system.