This article first appeared in The Edge Financial Daily on November 28, 2017

KUALA LUMPUR: Karex Bhd, the world’s largest condom maker, will spend RM30 million in capital expenditure (capex) each year in the next three years, compared with an average of RM25 million in the last two years, mostly on facilitating its move towards automation in manufacturing.

Group chief executive officer Goh Miah Kiat said Karex is currently undertaking a five-year plan towards automation to reduce labour cost by 50%. Labour cost currently makes up 20% of its cost of goods sold.

Speaking to reporters after Karex’s annual general meeting yesterday, Goh said the group is generating enough cash from its profits to finance the capex.

Noting that the condom industry is labour-intensive, he said the move towards automation is to address the rising cost that had resulted in Karex’s net profit plunging to RM4.21 million for the first financial quarter ended Sept 30, 2017 from RM8.14 million a year earlier.

On top of that, Goh said Karex also plans to raise the prices of its products, and promote its premium products, to address the inflated-cost issue.

“We have no choice but to increase the price in the market. We are fortunate because condoms are a consumer product, so we can transfer the cost to the customers. However this (the price increase) may not be reflected as fast because there is a whole supply chain that we need to deal with, which creates layers in the industry,” he said.

Moving forward, Goh said that Karex will be focusing more on commercial sales under its own brand manufacturing and original equipment manufacturing segments as opposed to relying on the government tender segment.

He said many governments have of late cut their budgets on tenders for government-supplied condoms, which has made it difficult for Karex to secure tenders.

“I feel that we are moving towards the right direction because the world, especially in Asia, is starting to rely less on government-supplied condoms,” he said, adding that Karex is eyeing the ever-growing China and India markets.

However, in the long term, Karex plans to have all three of its business segments contributing equally to its revenue, he said.