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Saturday, December 8, 2018

Top Glove’s Latest Annual Report: 3 Things Management Wants You To Know - Jeremy Chia

Jeremy Chia | December 6, 2018

Rubber gloves maker Top Glove (SGX: BVA) recently released its annual report for its financial year ended August 2018 (FY2018).

There were interesting points about the rubber gloves industry and Top Glove’s business brought up by the company’s management in the annual report that current shareholders and prospective investors might be interested to know.
Industry trends

The rubber glove industry saw rapid growth across both developed and developing economies around the world. However, the bulk of the industry’s growth is still coming from developing economies. Higher consumption by developing economies was also the main driver of sales growth for Top Glove. The company provided the illustration below, showing the patterns of its sales volume growth by regions around the world:

Source: Top Glove FY2018 annual report

As you can see, there was sales volume growth across all regions of the world, with Asia, Eastern Europe, and the Middle East leading the way.

Developing economies accounted for 72% of Top Glove’s sales volume growth in FY2018, and will continue to be the main driver of growth as rubber gloves usage in these regions are still relatively low but are increasing due to increased healthcare spending and awareness.
Internal improvement initiatives reaping benefits for Top Glove

Besides increasing its glove production capacity, Top Glove has also been making efforts to improve its operating efficiency. In FY2018, the company made big strides in reducing its utility bills through cost-saving initiatives such as investing in higher efficiency heating elements and special thermal insulation. Top Glove is also continuing its efforts to reduce water consumption through rainwater harvesting, water recycling, and the automation of water and supply controls.

In addition, Top Glove said that it is in the process of automating parts of its operations to reduce manpower-dependency and labour costs. Automation will also decrease downtime and improve production line speed. These initiatives, along with lower raw material prices, helped Top Glove to widen its net profit margin in FY2018.
The rubber glove industry is resilient to economic cycles

Finally, while the ongoing trade war between the US and China may represent an area of concern for many industries, Top Glove’s management is confident that the economic squabbles between the two powerful nations will have minimal impact on its business. Management said that the rubber glove industry is relatively resilient to both political and economic cycles.

Top Glove expects that demand for rubber gloves will continue to expand at a healthy 10% per annum.

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