Top Glove Corporation Bhd

Corporate presentation

Bursa Malaysia 7113 Reuters TPGC.KL Bloomberg TOPG MK ADR CUSIP 890534100

T h e W o r l d ’ s L a r g e s t R u b b e r G l o v e M a n u f a c t u r e r

To p G l o v e , To p Q u a l i t y,

To p E f f i c i e n c y,

G o o d H e a l t h , S a f e t y F i r s t ,

B e H o n e s t

Presented by : CG Lim

Prepared by: See SF

Date: 04 February 2014

At a glance

• Commenced operations in 1991.

Listed in 2001

• Comprehensive product range

with 13 major types of rubber

gloves

• 80% of production for health care

sector and 20% for non-health

care sector

• Produce 69% natural rubber glove

and 31% synthetic rubber glove

• Target balance capacity mix of

natural rubber and synthetic

rubber glove

Page 2 / 20

Product mix by volume

1QFY14 (Sep’13 to Nov’13)

Powdered latex 47%

Powder free latex

21% Nitrile 24%

Vinyl 7%

Surgical 1%

Strong growth momentum Estimate Global annual demand:

Approx. 165 bil pcs p.a for year 2013

No.

of

glo

ves

(billion p

cs)

Year

Top Glove exponential growth in capacity

(CAGR : 26%)

Expansion in global market share

Current market share Target market share by Dec 2015 Page 3 / 20

1.4 2.4 3.2 5.1

7.2 9

15

22

28.2 30

31.5 33 35.25

40 43.9 41.3

0

5

10

15

20

25

30

35

40

45

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

25%

0

50

100

150

200

'99 '01 '03 '05 '07 '09 '11 '13

No.

of

glo

ves

(billion p

cs)

Year

As at Jan’14

Global rubber glove usage (by region, 2000 – 2009)

USA EU27

Asia Ex Japan

Latin America

Japan

11%

89% 32%

% of global

glove usage

in 2009

% of world

population

in 2009

* Source from Malaysian Rubber Export Promotion Council and Company

%

Page 4 / 20

68%

• USA and EU27 with only 11% of world population consumed 68% of global glove usage.

• Other regions with 89% of world population consumed only 32% of global glove usage.

Geographically diversified

• Exports to 195 countries with

more than 2,000 customers

• Geographically diversified and

no single biggest customer

constitutes more than 4% of

revenue

• Customers are mainly

distributors in the respective

countries

• Preferred OEM manufacturer

Page 5 / 20

Europe 30%

North America

29%

Latin America

16%

Asia 15%

Middle East 7%

Rest of the World 3%

Revenue by geography

1QFY14 (Sep’13 to Nov’13)

6

1. Medical gloves is a necessity in

healthcare industry

As a barrier of protection

2. Increasing healthcare and hygiene

awareness

Especially in developing countries

3. Ageing population

As elderly are more susceptible to

higher risk diseases

4. Health regulations

Healthcare reforms, eg. US, China

Healthcare regulations eg. OSHA in US,

EU-OSHA in Europe, SESI in Brazil

5. Emergence of health threats

E.g. A(H1N1), SARS, bird flu, Bio-

terrorism threats, Anthrax

Key industry drivers

Page 6 / 20

7

25 manufacturing facilities across 3 countries (as at January 2014)

• 23 glove factories

41.3 bil capacity p.a.

from 464 production

lines

• 2 latex concentrate/

processing plants

supply 60% to 70% of

Top Glove’s

requirement

China

1 glove factory

Produce:

• Vinyl glove

• PE glove

Thailand

2 glove factories

2 latex plants

Produce:

• Latex examination

glove

• Latex concentrate

Malaysia

20 glove factories

Produce:

• Latex examination

glove

• Nitrile examination

glove

• Surgical glove

• Household glove

• Cleanroom glove

Page 7 / 20

8

Current expansion plan

No. of

production

lines

Capacity p.a. Target

completion

Current: 23 glove factories 464 lines 41.3 bil pcs p.a.

Expansion plan :

F27 (Lukut, Malaysia) Phase 2

F29 (Klang, Malaysia) New factory

Total expansion by August 2014

6 lines

14 lines

20 lines

0.6 bil pcs p.a.

1.4 bil pcs p.a.

2.0 bil pcs p.a.

May 2014

August 2014

Total by August 2014 : 24 glove factories 484 lines 43.3 bil pcs p.a.

Page 8 / 20

New Venture : Rubber Plantation

Page 9 / 20

1. Plantation land located in Indonesia, south

of Sumatera; Land size 30,772 ha

2. Concessions land tenure for 60 years,

renewal for another 60 years.

3. Purpose :

a) Target to supply around 40% of own

requirement

b) Reduce volatility of latex price impact

4. Preparation for planting commenced in Oct

2013.

5. With progressive planting over 8 years and a

gestation period of 7 years, full development

is expected within 14 years.

6. Estimated investment cost around RM450m

over 14 years period. Positive cash flow

expected from year 10.

10

Costs breakdown

Average latex prices

2

3

4

5

6

7

8

9

10

11

12

Jun-

05

Dec-

05

Jun-

06

Dec-

06

Jun-

07

Dec-

07

Jun-

08

Dec-

08

Jun-

09

Dec-

09

Jun-

10

Dec-

10

Jun-

11

Dec-

11

Jun-

12

Dec-

12

Jun-

13

Dec-

13

RM

per

kg

FY05

RM3.28

FY07

RM4.78

FY04

RM3.14

FY08

RM5.62

FY09

RM4.34

RM7.20

(03/07/08) RM6.85

(30/06/06)

RM7.75

(23/04/10)

FY10

RM6.12

FY11

RM8.92

• Able to pass majority of latex cost increases to customers

• On-going internal cost improvement and efficiency measures offset cost increases

• Upstream production (latex concentrate plant) to provide greater control over latex supply

FY12

RM7.36

RM6.45

(10/10/12)

RM4.61

(04/02/14)

FY13

RM5.77

Latex 49%

Labour 11%

Chemical 9%

Fuel 8%

Packaging 6%

Overhead and

others 17%

Breakdown of production costs (1QFY14, Sep'13 to Nov'13)

RM10.99

(11/04/11)

FY06

RM4.94

Page 10 / 20

11

Natural rubber (NR) latex, nitrile latex &

crude oil price trend (in USD)

Page 11 / 20

1.86

1.00

2.19

1.00

2.37

3.61

2.07

2.05 2.02

1.38

2.39

1.19

2.91

2.20

1.85 1.71 1.49

74.40

140

41.68

86.15

112.79

82.92

99.74

103.02

78.4 97.53

107.76

96.56

0

20

40

60

80

100

120

140

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

Feb

-06

May

-06

Au

g-0

6

No

v-0

6

Feb

-07

May

-07

Au

g-0

7

No

v-0

7

Feb

-08

May

-08

Au

g-0

8

No

v-0

8

Feb

-09

May

-09

Au

g-0

9

No

v-0

9

Feb

-10

May

-10

Au

g-1

0

No

v-1

0

Feb

-11

May

-11

Au

g-1

1

No

v-11

Feb

-12

May

-12

Au

g-1

2

No

v-1

2

Feb

-13

May

-13

Au

g-1

3

No

v-1

3

Feb

-14

Crude Oil Price (WTI) (USD/bbl)

NR Latex & Nitrile Price (USD/KG)

Crude Oil

NR Latex

Nitrile

Note: NR Latex & Nitrile Latex based on 60% TSC

12

Challenges in glove industry

$

2

3

4

5

6

7

8

9

10

11

Aug-

03

Feb-

04

Aug-

04

Feb-

05

Aug-

05

Feb-

06

Aug-

06

Feb-

07

Aug-

07

Feb-

08

Aug-

08

Feb-

09

Aug-

09

Feb-

10

Aug-

10

Feb-

11

• Due to weather impact, crude oil

price movement, speculation,

competition with other usage

• Time lag in passing on to customers

when prices move up sharply

• Majority sales in USD,

subject to USD currency

movement

• Time lag in passing on to

customers when USD

weakens sharply

• Impact on energy cost, other

raw materials and logistic cost

• Inflation

Page 12 / 20

Currency exposure

Raw material price fluctuation Crude oil price fluctuation/

speculation

Quarterly performance comparison

1Q14

1 Sep 13 –

30 Nov 13

4Q13

1 Jun 13 –

31 Aug 13

Variance

(1Q14 vs

4Q13)

1Q13

1 Sep 12 –

30 Nov 12

Variance

(1Q14 vs

1Q13)

Total sales (RM’mil) 574.0 548.2 5% 584.6 (2%)

EBITDA (RM’mil) 84.4 87.6 (4%) 89.6 (6%)

EBITDA margin 14.7% 16.0% 15.3%

PBT (RM’mil) 61.8 67.1 (8%) 70.4 (12%)

PBT margin 10.8% 12.2% 12.0%

PAT (RM’mil) 511.9 2% 58.9 (12%)

PAT margin 9.0% 9.3% 10.1%

Profit attributable to equity

(RM’mil) 50.3 48.4 4% 57.5 (13%)

EPS (sen) 8.1 7.8 4% 9.3 (13%)

51.9 51.1

Page 13 / 20

• Sales quantity up 10% 1QFY14 vs 1QFY13, up 3% 1QFY14 vs 4QFY13

• 1QFY14 performance was affected by China operation which incurred RM5.2m loss

(4QFY13: RM1.3m loss, 1QFY13: RM0.3m gain)

• Included in1QFY13 was fair value gain on forex contract of RM15.2m and loss of

RM8.4m in 4QFY13.

Financial highlights since listing in 2001 (13 years)

Incom

e s

tate

ment

Per

share

data

* Based on par value of RM0.50, adjusted for share split and bonus issue

# Restated to comply with FRS112 (deferred tax)

(in RM’mil) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CAGR 13 yrs

Avg

Sales 138.9 180.2 265.1 418.1 641.8 992.6 1,228.9 1,377.9 1,529.1 2,079.4 2,053.9 2,314.4 2,313.2 28% -

EBITDA 23.9 27.1 39.5 60.6 89.2 130.3 175.7 197.8 287.5 364.7 207.3 310.0 323.3 28% -

EBITDA margin 17.2% 15.0% 14.9% 14.5% 13.9% 13.1% 14.3% 14.4% 18.8% 17.5% 10.1% 13.4% 14.0% - 14.7%

PBT 17.2 20.2 29.3 45.2 65.7 91.8 118.6 134.6 222.0 305.0 145.5 240.7 242.2 30% -

PBT margin 12.4% 11.2% 11.0% 10.8% 10.2% 9.2% 9.7% 9.8% 14.5% 14.7% 7.1% 10.4% 10.5% - 10.9%

PAT 15.9 18.0 25.7 39.9 58.2 84.8 88.7 108.1 168.1 250.4 115.1 207.3 202.8

PAT margin 11.4% 10.0% 9.7% 9.5% 9.1% 8.5% 7.2% 7.8% 11.0% 12.0% 5.6% 9.0% 8.8% - 9.2%

# PAT Equity 15.9 18.1 25.3 39.5 58.1 84.1 89.6 110.1 169.1 245.2 113.1 202.7 196.5 29% -

ROE 17.0 16.1 17.8 24.3 26.9 27.8 14.0 15.7 19.9 22.4 10.0 16.2 14.9 - -

(in RM) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CAGR

* Net Assets 0.183 0.221 0.275 0.312 0.409 0.561 1.067 1.141 1.393 1.808 1.853 2.068 2.189 27% -

* EPS 0.03 0.04 0.05 0.08 0.11 0.16 0.16 0.19 0.29 0.40 0.18 0.33 0.32 27% -

Page 14 / 20

15

For period ending

3 Months

30 Nov 13

12 Months

31 Aug 13

Net cash flow from operating activities (RM’mil)

Capital expenditure and acquisition (RM’mil)

Free cash flow before dividend (RM’mil)

53.8

25.8

28.0

259.7

315.0

(55.3)

Strong and healthy balance sheet

* Annualised

As at

Q1FY14

30 Nov 13

FY2013

31 Aug 13

Net cash and short term investment (RM’mil)

Shareholders equity (RM’mil)

Net assets per share (RM)

Return on equity *

Inventory turnover days

Receivable turnover days

Payable turnover days

187.8

1,431.2

2.31

14.5

34

46

35

158.4

1,357.8

2.19

14.9

37

49

39

Page 15 / 20

Dividend – sustainable and steady growth

* Dividend per share has been adjusted for share split and bonus issue

Target dividend payout ratio is around 50% of profit

attributable to equity

Dividend payout ratio : FY13 at 50%

: FY12 at 50%

: FY11 at 60%

: FY10 at 40%

: FY09 at 40% Page 16 / 20

Financial

year

Dividend per share

(sen)

Total

dividend

(RM’000)

2013 9.00 (proposed – final)

7.00 (Interim)

55,838

43,404

2012 16.00 99,038

2011 11.00 68,035

2010 16.00 98,877

2009 11.00 65,873

2008 5.50 32,389

2007 4.61 27,435

2006 3.67 21,173

2005 2.66 14,110

2004 2.36 12,295

2003 1.85 9,550

2002 0.56 2,808

2001 0.80 4,000

Total payout since listing 554,825

0.80 0.56

1.85 2.36

2.66 3.67

4.61 5.50

11.00

16.00

11.00

16.00 16.00

-

2

4

6

8

10

12

14

16

18

20

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Div

ide

nd

per

sh

are

(se

n)

Financial Year

Dividend (sen) (Financial year ended 31 August)

17

Date Closing share

price (RM)

Number of

shares held

Total market

value (RM)

Accumulated

dividend

received (RM)

Cost of

investment

(RM)

Capital

appreciation

(RM)

Total

s/holders

return %

27-Mar-01 2.70 (IPO) 1,000 2,700 - 2,700 - -

02-Jan-04 4.90 1,820 * 8,918 209 2,700 6,427 238%

03-Jan-05 8.65 1,820 * 15,743 415 2,700 13,458 498%

03-Jan-06 6.80 3,640 * 24,752 673 2,700 22,725 842%

03-Jan-07 13.80 3,640 * 50,232 962 2,700 48,494 1796%

03-Jan-08 6.50 5,096 * 33,124 1,412 2,700 31,836 1179%

02-Jan-09 3.64 5,096 * 18,549 1,933 2,700 17,782 659%

04-Jan-10 10.06 5,096 * 51,266 2,595 2,700 51,161 1895%

03-Jan-11 5.05 10,192 * 51,470 4,073 2,700 52,842 1957%

03-Jan-12 5.12 10,192 * 52,183 5,500 2,700 54,983 2036%

03-Jan-13 5.68 10,192 * 57,891 6,830 2,700 62,021 2297%

03-Jan-14 5.73 10,192 * 58,400 8,460 2,700 64,160 2376%

04-Feb-14 5.41 10,192 * 55,139 9,378 2,700 61,817 2290%

Return on investment

2290% since IPO in Mar’01, assuming initial investment of 1,000 shares was made

during initial public offering price of RM2.70 on 27/03/01

* Adjusted for bonus issue and share split

If the bonus issues and share split are not taken into consideration, the share price should be

RM5.41 x 1.3 x 1.4 x 1.4 x 2 x 2 = RM55.14 per share

Page 17 / 20

Corporate culture

Must know, Must do, Must teach

Business direction 1. To produce consistently high quality gloves at efficient low cost.

Investment direction 1. To earn 2 healthy dollars and invest 1 efficient dollar.

Business rules 1. Do not lose our shareholders’ money; 2. Do not lose our health; 3. Do not lose our temper; 4. Do not lose our customers.

Business philosophies 1. We work for our customers; 2. We take care of the interest of our

shareholders; 3. We ensure that our employees continue

to contribute positively to the company and we care for their well-being; and

4. We work closely with our bankers, suppliers, business associates and friends.

Business ethics 1. Honesty 2. Integrity 3. Transparency

Page 18 / 20

Business Direction, Ethics, Rules & Philosophies

19

Management focus going forward

Page 19 / 20

• Further automate production line to reduce

workers & improve the efficiency

• Target balance capacity mix of natural

rubber and synthetic rubber glove

• Move upstream to rubber plantation

• Capture growth in emerging market demand

• Target 30% global market share

Thank you Q & A Session

Top Glove Corporation Berhad

www.topglove.com.my

invest@topglove.com.my

+603 5022 2110

Page 20 / 20