Top Glove 4Q net profit falls, pays 9 sen dividend

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KUALA LUMPUR: Top Glove Corp Bhd’s net profit for the fourth financial quarter ended Aug 31, 2014 (4QFY14) fell 5.2% to RM45.9 million from RM48.4 million a year ago, mainly due to increased competition in the nitrile glove segment which resulted in margin pressure.

This was despite a 5.9% increase in revenue to RM580.23 million from RM548.16 million in 4QFY13, which Top Glove attributed to the steady rise in demand for rubber gloves and 3% year-on-year “modest” growth in total sales volume. The company said this in its filing with Bursa Malaysia yesterday.

The group also recommended a final dividend of 9 sen per share for financial year 2014 (FY14), subject to the approval of its shareholders at the forthcoming annual general meeting. This brings the total payout for the year to 16 sen per share. For the full year FY14, net profit dipped 8.4% to RM180.11 million from RM196.5 million, with revenue also falling 1.6% to RM2.28 billion from RM2.31 billion.

“The decline in profit before tax (PBT) for 4QFY14 and for FY14 was mainly attributed to the intensification of competition in the nitrile glove segment which resulted in margin pressure,” said Top Glove.

It said the increase in natural gas prices together with knock-on inflationary effects following the increases in electricity and natural gas tariffs further aggravated the situation. Notably, the PBT margin for FY14 stood at the lowest in the past three financial years, at 9.4%.

“Unrealised foreign exchange losses owing to an unexpected strengthening of the ringgit at the close of the financial year also accounted for the softer performance,” Top Glove said.

Nitrile gloves, which now accounts for 24% of total group sales volume (up from 20% in FY13), saw a substantial volume growth of 23.7% in FY14. “At the same time, the group recorded increased sales in Asia where market share expanded to 16%, in line with the general uptrend in usage for natural rubber gloves within emerging markets,” it noted.

On costs, Top Glove pointed out that raw materials continued to trend down in FY14, as natural latex fell by 17.3% to an average of RM4.77 per kg and the nitrile latex price contracted by 8.3% to an average of RM3.51/kg, but said “the positive impact from this was minimal in light of the competitive environment”.

“It has been a tough year for us. The business environment has been challenging and we also recognise there are further improvements that can be made operationally,” said its chairman Tan Sri Lim Wee Chai in a statement yesterday.

Lim, nonetheless, remains upbeat about the group’s and industry’s prospects.  “The demand for rubber gloves is still strong as evidenced by the sales volume we are seeing. There may be a temporary slowdown, but there is still overall growth ... we are optimistic about a better showing in the quarters ahead,” he said.

Top Glove added that given the present business climate, there would be more merger and acquisition opportunities, which would enable it to expand faster via the inorganic route.

In a separate filing, Top Glove said it has resolved to adopt a dividend policy to declare and pay annual dividends of not less than 50% of its profit after tax and minority interests. This is after taking into account the company’s available cash and cash equivalents, return on equity and retained earnings, and the company’s projected capital expenditure and other investment plans.

As at Aug 31, Top Glove sat on a net cash pile of RM157.6 million, after factoring in acquisitions and capital expenditure of RM226.5 million and interim dividend payment.

 

This article first appeared in The Edge Financial Daily, on October 15, 2014.