Growing Global
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Hartalega Holdings BerhadMSWG Q&A2020
Growing Global
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MSWG Q&A – Strategic & Financial Matters
Existing customers are put on fixed volume
allocation based on pre-Covid purchase trend. For
additional allocation, customer are offered
Pandemic allocation or spot orders, mainly arising
from new capacity built. And this allocation are
fully booked for the next 12 months.
Utilisation rate is currently above 95%
Due to the strong order flow, we are expecting
further upward revisions of average selling price
in the coming quarters.
1. The Covid 19 pandemic has resulted in
incessant demand for gloves. The Company
has benefited from strong sales and demand
for gloves does not seem to be waning as the
pandemic continues to spread globally.
a) What is the sales lead time for the
Company’s products?
b) What is the current plant utilisation rate of
the Company?
c) What is the current order backlog of the
Company?
d) What is the expected trend of average
selling prices (ASPs) for the next 12
months?
Growing Global
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MSWG Q&A – Strategic & Financial Matters
We believe there is a structural step up in demand
for gloves due to new usage and heightened hand
hygiene compliance in developed market and
doubling of glove usage as a result of new policy
requiring caregivers to don up before attending to
patients in developing countries.
We are of the opinion that the discovery of a
vaccine will not affect the abovementioned factors.
2. Does the demand for gloves expected to
recede drastically if a vaccine is discovered
for the virus?
Growing Global
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MSWG Q&A – Strategic & Financial Matters
In line with our strong business ethics and core values, we have put in various initiatives
and comprehensive policies in place to safeguard our Hartanians as detailed in the
following slide:
3. The issue of unfair treatment of migrant labour employed in glove companies had been in the
spotlight after a major producer of gloves was sanctioned for these practices by the United States.
What measures has the company taken to ensure that its migrant labour is treated equitably?
Growing Global
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MSWG Q&A – Strategic & Financial Matters
Our social compliance policies are aligned with international benchmarks against child labour and young
workers, workplace discrimination, as well as forced labour
We have a RM95mil workers’ accommodation which meets ILO requirements
Social compliance audits in accordance with internationally recognized standards are carried out regularly
Gained membership with the Supplier Ethical Data Exchange (SEDEX)
Implemented Zero Recruitment Cost Policy since April 2019 and committed to remediate past recruitment fees
amounting to RM40m for existing workers.
All workers keep their own passports at their personal lockable cabinets in their respective dorms
We strictly regulate working hours and overtime to ensure overtime remain far below the monthly limit of 104
hours set by Malaysian laws.
Worker representatives are elected in each dorm via a formalized and transparent nomination and election
process, whereby all dorms and nationalities are represented
Grievance channel available handled by global audit firm, Deloitte, via the whistle blower program.
Social Responsibility
Growing Global
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MSWG Q&A – Strategic & Financial Matters
The planned CAPEX for FYE21 is estimated to
be RM997 million
This will be largely utilized for ongoing capacity
expansion at Plant 6 & 7 and acquisition of
land for NGC 1.5 & NGC 2.0
4. The Company allocated RM251 million in
capex for FYE 2020. What is the planned
capex for FYE 21 and what would it be
utilised for? (Page 28, AR 2020)
Growing Global
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MSWG Q&A – Strategic & Financial Matters
The AMG glove contribution as a percentage of
total sales expected to remain small until
relevant FDA and EN approvals are obtained.
As part of ongoing innovation process, the
company is currently leveraging on our R&D
expertise to look into various product innovation
and glove feature enhancements.
5. The Company had launched the world’s non-
leaching antimicrobial glove (AMG) in 2018.
(Page 28, AR 2020)
a) What has been the response to this
product since its inception in terms of
sales demand?
b) What are the other products that the
company has in its pipeline?
Growing Global
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MSWG Q&A – Strategic & Financial Matters
6. What is the status of the construction of
Plant 7 of the NGC which was slated to
commence production by late 2020?
(Page 30, AR 2020)
We intend to commission the first production line
towards Q4 of CY2020.
Plant 7 will consist of 6 examination gloves
production lines and 4 surgical glove lines.
The 6 examination gloves lines is expected to be
completed by Q1 of CY2021.
Growing Global
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MSWG Q&A – Strategic & Financial Matters
7. What was the cost of acquiring the land for the
Company’s next phase of expansion, NGC 2.0
in Banting? (Page 31, AR 2020)
a) What is the cost of development of NGC
2.0? How much is the total capex
expected to be?
b) When is the development expected to be
completed?
The land acquisition cost is RM 263 million
The expected total capex for NGC 2.0 amounts to
RM3.0 billion
The development is expected to be completed by
2027
Growing Global
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MSWG Q&A – Strategic & Financial Matters
8. Operating Expenses have increased
substantially to RM39.6 million in FYE 2020
from RM20.9 million in FYE 2019. (Page 83,
AR 2020). What were the reasons for the
sharp increase?
Hartalega entered into forward hedging contract to
mitigate the risk of foreign currency fluctuation.
The increase in other operating expenses by RM
18.7 million is due to unrealized marked-to-market
fair value losses arising from forward currency
hedging entered amounting to RM 37.2 million
(FY2019 : RM 11.1 million).
This unrealized losses is attributed to the
weakened Malaysia Ringgit after announcement of
MCO on 16th Mar’2020. On 31st Mar’20, the
Malaysia Ringgit and US Dollar pair closed at 4.30,
dropped by 3% vs. Feb’20 average.
We have recently revamped our hedging
framework to mitigate actual financial losses.
9. Derivatives financial liabilities increased
significantly to RM39 million in FYE 2020
compared to RM1.8 million in FYE 2019.
(Page 86, AR 2020). In view of the sharp rise
in these liabilities, has the Company taken
adequate measures to hedge its derivative
exposure?
Growing Global
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MSWG Q&A – Corporate Governance Matters
The Company takes notes of MSWG’s comment and will review the Company’s readiness to
adopt integrated reporting based on globally recognized framework within 3 years.
The Company has indicated on Page 38 of its CG Report that it has not adopted integrated reporting
for its latest financial year.
Please note that Practice 11.2 encourages large companies to adopt integrated reporting which
enhance the quality of reporting. Is there a specific timeline for the adoption of integrated reporting.
Growing Global
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Questions from
shareholders
via email AQ
Growing Global
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Questions from shareholders
We have received 22 questions via email from various shareholders
before the AGM
Similar questions will be grouped together in some of our responses
Growing Global
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Questions from shareholders
New entrants may not be able to compete with
the major glove makers which has various
competitive advantage such as economies of
scale and technical know-hows.
It is very unlikely for ASPs to revert back to
levels seen before the pandemic
The management views that there will be a
structural step up in demand for gloves post
pandemic due to new usage and heightened
hand hygiene compliance in developed market
and doubling of glove usage as a result of new
policy requiring caregivers to don up before
attending to patients in developing countries.
The step up in demand is expected to outstrip
supply in the next 2-3 years
1. Due to the increased demand for gloves to
cope with the Covid-19 pandemic, many
glove manufacturers are increasing their
production capacity. There are also
announcements of new entrants coming into
the market. The increased capacity will
likely lead to a reduction of ASPs from
current levels. What is the likelihood that
the ASPs will revert back to the levels seen
before the pandemic? How long will it take
for this to happen?
Growing Global
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Questions from shareholders
From time to time, we have studied the
feasibility of starting a glove manufacturing
facility outside Malaysia, including US.
From our perspective, it is more cost
competitive to start a facility in Malaysia
compared to US as Malaysia has built a
conducive ecosystem for the glove industry
over the past 30 years
Factors such as competitive input costs &
availability of production technology in
Malaysia allows Malaysian glove makers to
compete effectively on a global scale
2. The US can break their dependence on the
Malaysian glove supply chain by starting
their own domestic glove manufacturing. I
understand that SHOWA will be building a
glove manufacturing facility in Alabama.
Your customers could shift to purchase from
US domestic manufacturers instead. Can
Hartalega use its profits this year for
expansion in the US? Would building a NGC
plant in the US to be closer to your customer
base make business sense?
Growing Global
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Questions from shareholders
The company currently has OBM presence in
China, India & Australia and committed to grow
them
Once relevant approvals are obtained for our
AMG, we could leverage on it to grow these
subsidiaries in the future
3. The OBM business model has shown to
have superior profit margins especially
during this period. Can the management
share the plans to grow the OBM segment,
especially with the AMG gloves coming in?
Growing Global
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Questions from shareholders
The company does not enter into long term
contracts with the existing customers
Existing customers are put on fixed volume
allocation based on precovid purchase trend
Pandemic allocation/spot orders, mainly arising
from new capacity built, are offered to customers
who like to purchase additional allocation
Prices for this allocation are determined on case-
to-case basis, typically 2x of base glove prices.
Base pricing has also been increasing. Both
contributes to an increasing ASP trend.
Pandemic allocation will make up approximately
7% of FY21 sales volume
4. What is the breakdown between the long
term contracted customers vs spot
pricing currently? How frequent are spot
price revised in the industry?
5. Indication of spot pricing?
Growing Global
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Questions from shareholders
Covid-19 has caused a critical shortage of
gloves globally due to demand surge from
various countries
In this critical shortage scenario, customers are
desperately buying any available glove capacity
in the market and are indifferent towards
products with better features such as AMG
While the company continues to sell AMG to
existing customers which have AMG as part of
their product line, our focus is to continue to
manufacture and sell the core product range
Currently, AMG are contributing approximately
2% of overall revenue
6. The company launched the world's first
non-leaching antimicrobial gloves (AMG) in
2018. Can the Board share with us the
response of the market to these gloves,
especially in light of the Covid-19 outbreak?
What is the contribution of these gloves to
the overall revenue?
Antimicrobial glove (AMG) related
Growing Global
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Questions from shareholders
Gloves are generally considered clinical waste
in the medical sector and are mostly
incinerated after usage
In a landfill, the degradation period of AMG is
expected to be similar to that of a normal nitrile
glove as the photosensitizer on the outer glove
surface is unlikely to be activated
The degradation period is unlikely to be a factor
for approval consideration
7. I wish to know, after the AMG has been used,
if this type of medical waste is sent for
landfilling, would the nature of AMG hinder the
microbes in landfill to bio-degrade the AMG ?
(i.e. will the degradation period of AMG longer
than a normal nitrile glove ?)
8. If the degradation period of AMG is longer than
a normal nitrile glove, would it be the reason
for AMG to take longer time in obtaining FDA
approval ?
Antimicrobial glove (AMG) related
Growing Global
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Questions from shareholders
Currently, due to the sharp increase in base
prices of gloves, the incremental profit margin
% from AMG is insignificant to the overall
profit margin.
9. When switching nitrile glove to AMG, what will
be the increment % to profit margin ?
Antimicrobial glove (AMG) related