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Thursday, April 23, 2015

RIVERSTONE: 8 ½ Questions With Chairman & CEO (By Phillip Securities Research)

8 and a half? We posed eight questions to Riverstone’s Executive Chairman about his company and industry, plus one more question just for fun. We do not have a rating on this stock.
 
Question 1: “What are the biggest challenges of running a glove manufacturing company, apart from competition?”
 
Answer: “One of our key challenges is the fluctuation in US dollars as our exports are largely denominated in that currency. We however benefit from an appreciating dollar due to a natural hedge. In addition, we are also cautious about the increases in costs such as raw materials and labour though we mitigate these by improving productivity through automation, [plus] ‘lean’ and ‘six sigma’ processes.”

Question 2: “Has the key to your success thus far been a focus more on scale/costs or on quality/product offering?”
 
Answer: “With two segments of growth driven by cleanroom and healthcare gloves, we place great emphasis in providing customisation to our customers. By working directly with our end-customers for cleanroom gloves, we are able to provide them with the specific requirements. Having only entered healthcare gloves business in 2008, we have since established a market niche in manufacturing customised premium healthcare gloves based on usage such as hand-specific gloves for better comfort and fit.“
 
Question 3: “How quickly do higher/lower commodity prices get priced into the selling price of your gloves?”
 
Answer: “While we adopt a cost-plus pricing model for our products, we typically transfer the savings to our customers as competition increases in the industry. We adjust the selling prices of our healthcare gloves on a monthly basis and once every six months or one year for the cleanroom gloves.”
 
Question 4: “What is the split in revenue contribution from your cleanroom and healthcare gloves?”
 
Answer: “For FY2014, the revenue contribution was even at 50-50 from both cleanroom and healthcare segments. We expect the split in contribution to remain about the same with growth from both segments.”
 
Question 5: “With increasing competition in the glove manufacturing market, do you expect margin compression as you grow?”
 
Answer: “While we believe that margins may be affected by competition, we are confident that our capabilities to supply to a niche market and our customisation will allow us to maintain our profit margins as we remain well supported by growth in both
cleanroom and healthcare gloves. With our interchangeable production lines, we are able to switch between manufacturing cleanroom and healthcare gloves. For FY2014, we have successfully maintained a utilisation rate of 90% or almost full capacity for our plants.”

Question 6: “What are your sales distribution models for both cleanroom and healthcare gloves?
 
Answer: “For our cleanroom gloves, we supply directly to the end-users while we work with distributors to supply our healthcare gloves.”
 
Question 7: “Do you have a dividend policy?”
 
Answer: “While we do not have a fixed dividend policy, we have been issuing dividends yearly since IPO in 2006 to reward our shareholders.”
 
taipingplant9.14aRiverstone's new 1-billion glove capacity plant in Taiping adjacent to which Riverstone is building another 1-billion capacity plant. NextInsight file photo 
 
Question 8: “What are your expansion plans going forward?”
 
Answer: “We have a five-year expansion plan that started in 2014 which [should] see us adding 5 billion gloves in total annual production capacity to 8.2 billion by 2018. The first phase was completed in 4Q2014 where we added one billion gloves to 4.2 billion pieces for our total annual production capacity as at 31 December 2014. We expect to add another one billion gloves by the end of FY2015 to 5.2 billion pieces. [Thereafter], we [should] add 1 billion pieces of gloves yearly to our total production capacity.”
 
Question +1/2 : “What is the one meal that represents your childhood?”
 
Answer: “The dish that I like the most is egg fried rice. Egg fried rice brings back memories of my childhood as it was a dish mostly commonly prepared for me by my mother every morning before I went off to school. Up till today, I still love egg fried rice as
it is simple, yet delicious, and can sustain me for half a day.”
 
Editor’s note: Thanks, Teek Son. But, now I want fried rice and miss my mum.

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