Corporate Presentation Invest Malaysia 2016 - insage.com.my IMKL 2016... · Net margin improved from 12% in FY2005 to 21% in FY2014 but declined to 18.3% for FY15 ... Polymer coated

Growing Global

………………………………………………………………………………………………………………………………………………………………………………….. Innovation Quality

Corporate Presentation Invest Malaysia 2016

Growing Global


About Us

FOUNDED IN

1988 5800EMPLOYEES

RM 1.1

26% CAGRSales

GROWTH

BILLION

SALES

18 BPCS OF GLOVES

MARKETCAPITALIZATION

RM 7.9 B

2

Growing Global

……………………………………………………………………………………………………………………………………………………………………………….. Innovation Quality3

Market Reachand Overseas Operations

Five overseas offices

• Australia (1996)

• USA (2003)

• China (2012)

• India (2013) – Mumbai &

Chennai

Export to over 40 countries

94% OEM:6% OBM

99% export:1% local

Growing Global


USA, 47%

EU, 30%

APAC, 14%

Others, 9%

Healthcare, 76%

Laboratory, 17%

Food, 5%Industrial,

2%

Our Markets

Products are sold to quality demanding markets such as USA, Japan and Germany

93% of sales to healthcare and lab industries where demand remains robust

4

Growing Global


Sales Revenue & Profit

110 160 240 282

443 572

735 921

1,032 1,107 1,145

1,464a

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15FY16a

Revenue (RM mil)

13 19 37 40

85

146

190 201 234 234 210

260a

FY05 FY07 FY09 FY11 FY13 FY15

Profit After Tax (RM mil)

CAGR for revenue from FY2005 to FY2015 of 26%

CAGR for PAT from FY2005 to FY2015 of 32%

Net margin improved from 12% in FY2005 to 21% in FY2014 but declined to 18.3% for FY15

Sales and PAT for FY2015 of RM1145 mil and RM210 mil respectively

FY15 earnings lower than FY14 due to NGC high start up cost

FY16 annualized should see 20-30% improvement over FY15

5

Growing Global


All first mover production technology are in-house developed and proprietary to Hartalega

Highly automated production lines –

industry’s first automated glove

stripping machine

(in operation since year 1994)

Industry’s first on-line stacking

glove line

Industry’s first double former

production line

Competitive Advantage: Process Innovation

6

Growing Global


Competitive Advantage – Product Innovation

Polymer coated glove - 1993 Lightweight nitrile glove - 2005 COATS oatmeal coated glove - 2014

7

Growing Global


Global Recognition - Awards

2013 & 20142010, 2011, 2012 &

20132013, 2014 & 2015

2010, 2012, 2014 & 2015

HR Asia Best

Employers to

Work for in Asia

Forbes Asia 200

Best Under a

Billion

The Edge Billion

Ringgit Club –

Most Profitable

Company in

Industrial Products

Segment

Asiamoney - Best

Managed Company

in Malaysia &

Corporate

Governance award

2015

M100 – Malaysia‘s

100 Leading

Graduate

Employers Award:

winner in chemical

& heavy industries

category

8

Growing Global


Global Recognition - admission to MSCI Malaysia Index

Hartalega inducted into MSCI

Global Indices – the MSCI is best

known for Indices outside USA

Provides greater visibility to foreign

funds and global recognition

The only rubber glove manufacturer

listed in the Index

9

Growing Global


Global Recognition – admission to FTSE 4Good Bursa Malaysia Index

Hartalega – inducted into FTSE

4Good Bursa Malaysia Index based

on ESG criteria (Environment,

Social Responsibility & Corporate

Governance)

One of only 4 manufacturers and

the only rubber glove manufacturer

listed in the Index

Testimony to our focus beyond

profits

10

Growing Global

Market Outlook

Growing Global


Intensified competition

Market Outlook

World demand for rubber gloves grow at an average of 8% per annum

Malaysia is the largest supplier of rubber gloves to the world – 62% market share

Demand of glove is inelastic

Nitrile is the preferred choice in developed markets

Industry view that market demand could grow to 400 billion over the next decade before reaching maturity

6884 92 94 102110

122124140

150148160

171180194

210227

245

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

World’s Import of Exam Glove (billion pieces)

MARGMA forecast (billion pieces)

(source MARGMA)

12

Growing Global


Malaysia Rubber Glove Exportdominates at over 60% global share

Export Quantity grew at CAGRaverage growth rate of 12.6% in thelast seven years

2015 saw 115.8 billion pieces &RM11.8 billion revenues - asignificant 18% growth over 2014

Expect positive trend to continue dueto organic global healthcare growth

Untapped markets in emergingnations with low per capitaconsumption of rubber glove

Market Outlook

5.9 7.3 8.5 9.4 9.7 10.4 10.4 11.8

50.4

65.374 70.7

81.488.5

98.1

115.8

0

20

40

60

80

100

120

140

2008 2009 2010 2011 2012 2013 2014 2015

Malaysian Rubber Glove Export Trend (2008-2015)

Malaysian glove export (RM bil) Malaysian glove export (bil pcs)

13

Growing Global


NR50%

NBR, 50%

Market Outlook – Nitrile Wave Continues

NR,54%

NBR, 46%

NR,49%

NBR, 51%

NR,42%

NBR, 58%

Year 2012 Year 2013 Year 2014 Year 2015

Malaysia’s Export of Rubber Gloves

Share of nitrile gloves of Malaysia’s total glove export increased from just 46% to 58% in 4 years

14

Growing Global


NR, 24%

NBR, 76%


NR, 26%

NBR, 74%

NR, 22%

NBR, 78%

NR,20%

NBR, 80%


Malaysia’s Export of Rubber Gloves to USA

Share of nitrile gloves of Malaysia’s total glove export increased from just 74% to 80% in 4 years

15

Growing Global


NR, 46%NBR,

54%


NR,52%

NBR, 48%

NR,43%NBR,

57%

NR, 35%

NBR, 65%


Malaysia’s Export of Rubber Gloves to EU

Share of nitrile gloves of Malaysia’s total glove export increased from just 48% to over 65% in 4 years

16

Growing Global



Market outlook – Nitrile Wave Continues

All regions recorded high growth in import of nitrile glove except South America

Developed markets had improved growth in import of natural rubber gloves due to latex price collapse in 2015

Emerging markets China registered strong growth in both types of rubber gloves albeit from a low base. South

America registered low single digit growth due to tightening quality standards by authorities

Malaysia’s export ratio of natural rubber to nitrile glove has reached 49:51 for 2014 & 42:58 for 2015

US latex:nitrile import ratio for year 2015 was 20:80; USA nitrile grew 25%

EU latex:nitrile import ratio for year 2015 was 35:65, Europe nitrile grew 39%

Malaysian rubber glove export (2014) 45 million pairs & (2015) 58 million pairs or 18% higher

In 2015 nitrile glove export grew 33.5% & latex glove export grew 1.5%

2013 (mil pairs) 2014 (mil pairs) 2015 (mil pairs) % change (2014 to 2015)

Destination Latex Nitrile Latex Nitrile Latex Nitrile Latex Nitrile

USA 3,346 10,801 3,158 11,525 3,454 14,422 9.3% 25.1%

EU 6,105 7,231 6,003 8,104 6,128 11,337 2.08% 39.8%

Japan 721 1,757 773 1,750 714 2,504 (0.07%) 43.1%

South America 3,903 185 4,692 277 4,785 293 1.98% 5.7%

China 789 293 1,009 339 1,212 592 20.1% 74.6%

Table: Malaysia Export of Rubber Gloves (source: MREPC)

17

Growing Global


Market Outlook – Industry Shift towards Nitrile Capacity

Producer Current nitrile:latex ratio

Hartalega 90 nitrile:10 latex

Top Glove 32 nitrile:68 latex

Kossan 70 nitrile:30 latex

Supermax 47 nitrile:53 latex

Producer Target nitrile:latex ratio

Hartalega 90 nitrile:10 latex

Top Glove 50 nitrile:50 latex

Kossan 80 nitrile:20 latex

Supermax 60 nitrile:40 latex

Protein allergy factor – diminishing but still continuing concern

FDA proposed banning powdered medical glove & hospitals like John Hopkins banned use of latex glove

Preference for lightweight glove like nitrile medical glove

Nitrile production lines are interchangeable to latex but not vice-versa

Historically, nitrile raw material prices are not as volatile as latex prices

18

Growing Global


Market Outlook

Glove Market Catalyst Drivers

Growing Global


Buyers in USA started to switch even though nitrile gloves were 15% more expensive than natural rubber

Price of NBR glove isabout the same as NRglove

Nitrile material price is adjusted to similar conversion ratio to natural rubber

Market Outlook – Raw Material price trend

Nitrile & latex price are closely correlated as both are close substitute products for tyre industry

Demand for nitrile gloves continues to grow despite higher nitrile raw material prices compared to latex

Prices of both raw materials have fallen sharply since mid-2015 due to oversupply concerns

-

2.00

4.00

6.00

8.00

10.00

12.00

No

v-07

Feb

-08

Ma

y-0

8

Aug-0

8

No

v-08

Feb

-09

Ma

y-0

9

Aug-0

9

No

v-09

Feb

-10

Ma

y-1

0

Aug-1

0

No

v-10

Feb

-11

Ma

y-1

1

Aug-1

1

No

v-11

Feb

-12

Ma

y-1

2

Aug-1

2

No

v-12

Feb

-13

Ma

y-1

3

Aug-1

3

No

v-13

Feb

-14

Ma

y-1

4

Aug-1

4

No

v-14

Feb

-15

Ma

y-1

5

Aug-1

5

No

v-15

Feb

-16

Nitrile (RM) Latex (RM)

20

Growing Global


Market Outlook – Raw Material Trend

1.0%

14.1%

3.7%

6.3%5.0% 3.0%

-16.8%

49.3%

35.2%

3.8%

5.1%

14.9%

7.9%

-18.2%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2009 2010 2011 2012 2013 2014 To end-Oct 2015

Global China(source: Bloomberg)

Global & China vehicle trends

Tyres and vehicle rubber parts take up almost 80% of rubber consumption

Vehicle sales trend especially in China, world’s largest vehicle manufacturer, reached a peak in 2013 & has been in gradual decline since

Global vehicle sales has also declined from 2014 onwards

Vehicle sales decline trend is the main reason for nitrile & natural rubber price decline21

Growing Global


World Butadiene Supply & Demand (million metric ton)

8.50

9.00

9.50

10.00

10.50

11.00

11.50

2010 2011 2012 2013 2014 2015

Production Demand(source IHS)

Market Outlook – Raw Material Trend

Industry capacity ramping 2010-2014 especially in Asia during high butadiene price period resulted in oversupply since 2013

Oversupply may persist due to China economic slowdown and slower uptake of butadiene, the feedstock for nitrile

22

Growing Global


Market Outlook - The Currency Factor

80.0%

90.0%

100.0%

110.0%

120.0%

130.0%

140.0%

Jan

-14

Ma

r-1

4

Ma

y-1

4

Jul-

14

Se

p-1

4

No

v-1

4

Jan

-15

Ma

r-1

5

Ma

y-1

5

Jul-

15

Se

p-1

5

No

v-1

5

Jan

-16

Ma

r-1

6

USD/MYR USD/THB USD/IDR

(source: Bloomberg)

RM to USD weakness in 2015 enabled Malaysian gloves to be more price competitive compared to international counterparts like Thailand and Indonesia

Currency volatility can create issues with selling price adjustments and currency hedging

23

Growing Global


Market Outlook – International Competition

65%

24%

9%

2%

64%

23%

11%

2%

73%

14%10%

3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Malaysia Thailand China Indonesia

USA - Top 4 suppliers of synthetic rubber glove: 2013-2015 (Quantity)

2013 2014 2015

(source: MREPC)

USA is the biggest market for rubber glove demand taking up almost 35% of global market share

Malaysia grew market share in USA due to aggressive expansion plans while international competitors grew at gradual pace or declined

The biggest competition remains local

Malaysia is capturing market share at others’ expense due to its glove quality and competitive pricing

24

Growing Global


10 11 12 15 20 2530 30 32 35 38 4211 12 13

1819

2014 14 14

1519

20

16 23 2731

3132

8190

98

115126

139

101110

123

138156

175160171

181194

210227

2012 2013 2014 2015 2016e 2017e

Global demand vs Malaysian supply growth

Hartalega Topglove

Kossan Supermax

Rest of Malaysia Actual production Msia

Total installed capacity Msia World import demand

Malaysian supply growth estimated at CAGR 9.9% vs global demand growth estimated at CAGR 8.1%

Temporary factor - past oversupply events did not last over a year as demand was resilient & grew to absorb excess supply

Announced figures vs actual performance figures discrepancy

Glove makers build on staggered basis

glove makers can be flexible and slow down commissioning

Inter-changeable production lines

global healthcare spending robust

demand resilient against low ASP backdrop

industry consolidation e.g. plant shutdowns

Market Outlook – Demand Supply Dynamics

(source: analyst consensus)

Oversupply?

25

Growing Global


Market Outlook – Industry Margins “converging”?

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16a

EBITDA margin trend comparison between Hartalega & other listed glove companies

Hartalega Industry (other listed glove companies)

Industry margins improved mainly due to adding automation & cost management

Situational margin gains from favourable raw material & currency trends

26

Growing Global


OUR STRATEGIC RESPONSE

27

Growing Global


Hartalega NGC – Our Flagship Project

An Entry Point Project (EPP) under the ETP

RM2.2 billion investment

112 acres site at Sepang

High technology and integrated

Conducive work environment

6 high tech manufacturing plants

72 efficient production lines

R&D & training centre

Sports and recreation complex

Employees’ accommodation

28

Growing Global



Hartalega Available Capacity Projection

Average per annum CAGR capacity growth of 15% for the next 5 years (FY16-FY20)

First production line at NGC started production in January 2015

Subsequent production capacity will come on-stream progressively

12,025 13,488 18,426

20,887 24,017 24,429 26,722

0

10,000

20,000

30,000

40,000

FY14 FY15 FY16 FY17 FY18 FY19 FY20

Projected output (mil pcs)

29

Growing Global


Hartalega NGC Timeline

Phase PlantCapacity

(gloves pa)No of Lines

No of Lines commissioned

Commissioning Timeline

Phase 1Plant 1

Plant 2

4.7 bn

4.7 bn

12

12

12

12

Jan 15-Mar 16

Jan 15-Mar 16

Phase 2Plant 3

Plant 4

4.7 bn

4.7bn

12

12

3Q2016-3Q2017

3Q2016-3Q2017

Phase 3Plant 5

Plant 6

4.7bn

4.7bn

12

12

2019-2020

2019-2020

Total 6 Plants 28.2 bn 72 24 2020

30

Growing Global


Engineering Strategy - Reduction in Workers per Output

*unit measurement used is worker per million pieces of gloves produced per month

33% jump in productivity at NGC compared to Hartalega’s existing set-up

Sets a new benchmark for the sector

Further automation and lean manufacturing practices will improve productivity at NGC by another 23%

Hartalega NGC

Hartalega’s existing set-up 3.9

2.6

Hartalega NGC with further automation and lean manufacturing practices

2.0

31

Growing Global


Engineering Strategy - Hartalega NGC Productivity Gains

Hartalega BatangBerjuntai

Hartalega NGC

Projected EBITDA 7% point improvement For FY2017, NGC is projected to register

EBITDA margin 7 percentage point improvement compared to Hartalega Batang Berjuntai due to productivity gains

Despite high start-up cost & employing ahead of time with excess workers

Room for further productivity gains

32

Growing Global


Engineering Strategy – Integrating Manufacturing Processes

Integration of business processes

Integration of both locations BB & NGC

Adoption of best practices across two locations

Continuous development in product & process

innovation

Proprietary automation in production line & business

processes

Cost management

ERP & supply chain management

Widen product range

33

Growing Global


Engineering Strategy – Proprietary Innovation

Two inventive automation technologies

Three new inventive gloves

R&D in progress

reduction in manual labour

Innovative and differentiated products that are less susceptible to price competition

Expected results

34

Growing Global


Sales Strategy – OBM Sales Potential in emerging markets

Sales in China grew by an average of 2.5 times over

the past 3 years (FY14-FY16)

Expect further significant sales in China

Per capita consumption of gloves is still low in China,

about 5.3 pieces per capita compared to USA’s 166

pieces and Europe’s 100 pieces per capita

959,516

4,783,371 6,343,441

11,169,413

16,000,000

FY12 FY13 FY14 FY15 FY16e

782,089 1,347,839

1,685,928

6,700,000

FY13 FY14 FY15 FY16e

Sales in India grew by an average of almost 5 times over

the past 3 years (FY14-FY16)

India has great potential – opened 2 offices in Mumbai &

Chennai

Per capita consumption of gloves is still low in India, about

4 pieces per capita even lower than China’s 5.3 per capita

35

Growing Global



Sales Strategy - Own Brand Product Potential in China & India

Asia’s per capita consumption of gloves is significantly lower than US and EU

China & India’s ongoing healthcare reforms are expected to drive up glove demand substantially

If China’s per capita glove consumption equaled that of EU, demand would be 135 billion pieces per

annum, almost equivalent to two-thirds of the current global consumption

4.8

4

5.3

100

166

0 20 40 60 80 100 120 140 160 180

Asia

India

China

EU

USA

per capita glove usage (pcs) (source:MREPC)

36

Growing Global


Sales Strategy - China & India Healthcare Budget Growth

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

(US$ per Capita)

Total Healthcare Expenditure

Public Healthcare Expenditure

Private Healthcare Expenditure

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

(US$ per Capita)

Total Healthcare Expenditure

Public Healthcare Expenditure

Private Healthcare Expenditure

China India

(source: IHH Healthcare)

China, India & other emerging markets continue to increase healthcare expenditure

Rubber gloves, albeit a small segment of hospital budgets, are beneficiary of positive global healthcare trends

Glove companies are proxy to healthcare sector as 90% of their gloves are sold to that growth sector

37

Growing Global


Sales Strategy: OEM Sales Potential in developed markets

20% 23% 22%

57% 59%55%

80% 77% 78%

43% 41%45%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

USA Germany Japan France Italy Spain

Latex Gloves Nitrile Gloves

(source: MREPC)

Developed markets continue to exhibit growth with pockets of potential

Sales strategy to widen geographic outreach to more countries

Sales strategy to widen customer base38

Growing Global


Do You Have Any Question?

39

Documents

Corporate Presentation Invest Malaysia 2016 - insage.com.my IMKL 2016... · Net margin improved from 12% in FY2005 to 21% in FY2014 but declined to 18.3% for FY15 ... Polymer coated