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Ansell Limited sells condom business: Here’s what you need to know

Ansell Limited (ASX: ANN) made a big splash this morning when it announced it would sell its Sexual Wellness business, whilst also announcing a major share-buyback program. As a result, the Ansell share price rose a little over 3% shortly after the market opened.

Ansell describes itself as a global leader in protection solutions, saying that its vision is “to create a world where people can enjoy optimal protection against the risk they are exposed to”. Thus, they sell products such as industrial gloves and body protection, rubber gloves and medical solutions, as well as condoms and other personal products in various regions around the world.

Sexual Wellness Divestiture

The company announced this morning that it has already executed a binding agreement to sell the Sexual Wellness division for US$600 million ($800 million) to Humanwell Healthcare Group and CITIC Capital China Partners. Ansell said that the sale includes all of Ansell’s condom and lubricant business and manufacturing sites, although it will retain its Medical and Sexual Wellness joint venture in India.

It’s worth taking a look at how the division stacked up against the company’s other segments in 2016:

Sales (US$ million) EBIT (US$ million) EBIT Margin %
Industrial 654.8 89.0 13.6%
Medical 396.3 52.3 13.2%
Single Use 301.7 64.6 21.4%
Sexual Wellness 220.0 31.0 14.1%
Total 1,572.8 236.9 15.1%

Sexual Wellness is the group’s smallest division. In 2016, the division generated US$220 million in sales, representing 14% of the group’s sales, up 1.4% on 2015 or 8.2% on a constant currency basis. That compares to sales of US$229.7 million achieved back in 2013.

It also generated $31 million in earnings before interest and tax (EBIT), up 41% on a constant currency basis, representing 13% of the group’s operating earnings and an EBIT margin of 14.1%. That makes it the group’s second-most profitable business division, behind ‘Single Use’.

Indeed, Ansell first highlighted the potential for a divestiture of the segment in August last year as part of an existing portfolio review. At the time, it also noted it would consider opportunities to enhance its position in the Industrial and Medical businesses with value-enhancing acquisitions.

Share Buyback Program

In the announcement this morning, Ansell also flagged a new on-market buyback program which could see the company repurchase up to 10% of the group’s issued capital over the next 12 months. That would imply a buyback of up to $356 million in shares.

However, investors need to keep in mind that Ansell is under no obligation to actually fulfil that buyback program. Whether it does largely depends on the share price at the time (it’s unlikely to buy them if it believes they’re too expensive) and on market conditions. Meanwhile, it could also elect to spend the money on other strategic acquisitions, as flagged above.

With today’s gain, the Ansell share price has now risen around 33% over the past 12 months. The company has guided for earnings per share in the range of US$1.00 to US$1.12 ($1.33 to $1.49, or an average of $1.41), putting the shares on a forward price-earnings ratio of around 17.6x.

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