World's largest condom maker in final stages of validating glove production lines - MIDA | Malaysian Investment Development Authority
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World’s largest condom maker in final stages of validating glove production lines

World’s largest condom maker in final stages of validating glove production lines

28 Oct 2022

Karex Bhd, the world’s largest condom maker by production capacity, has said it is in the final stages of validating its rubber glove production lines, with commercial production expected to start in the current financial year ending June 30, 2023 (FY23), following the setbacks in FY22.

“Although setbacks to the glove venture meant that there was no contribution for the year (FY22), we made strides to progress to the final stages of validating our production lines.

“Sales of gloves are expected to complement offerings in the growing medical division once commercial production of gloves commences in the upcoming financial year (FY23),” Karex chief executive officer Goh Miah Kiat said in the group’s FY22 annual report.

The planned RM40 million glove manufacturing facility was announced in August 2020, during the height of the Covid-19 pandemic. The factory is located in Hatyai, Thailand, with a planned capacity of up to 2.5 billion pieces annually.

Although net operating cash flow remained positive for the year, Goh said that the continued investment in its glove facility along with higher working capital requirements arising from increased sales and inventories resulted in a reduction to Karex’s year-end cash balance to RM21.9 million.

This represented a whopping 60% reduction from its FY20 cash and cash equivalents of RM54.13 million.

Meanwhile, the investment in the glove manufacturing facility caused the group’s gearing ratio to balloon to 0.27 times in FY22, its highest in past five financial years.

Karex’s gearing ratio stood at 0.06 times in FY18, and increased further to 0.07 times in FY19 and 0.11 times in FY20. It then jumped to 0.25 times in FY21.

Goh said the group was not spared from the inflationary pressures caused by the related disruptions to global supply chains and uncertainties stemming from the Russia-Ukraine war.

“Freight rates remained heightened and were compounded by price volatility in key raw materials such as silicone oil and packaging.

“These combined with the implementation of an increased minimum wage in Malaysia to pressure profitability and resulted in a loss after tax for FY22,” he added.

Goh shared that the challenges in managing the disruptions to the supply chain were reflected in its inventory, with a total of RM152.4 million, representing an increase of over 16% from the previous financial year.

“This total captured the higher raw material stocks that had to be kept on hand in order to avoid disruptions to our operations, as well as goods that were unable to be delivered due to closures to logistics facilities,” he explained.

On its outlook, Goh said although the business climate remains challenging with the logistics backlogs and inflationary pressures persisting around the world, the group has invested the necessary time and efforts to transform its organisation into a more robust entity.

“The investments in sustainability and innovation put us in prime position to understand the changing needs of consumers and capture opportunities as the world emerges from the Covid-19 pandemic and seeks to re-establish its foothold in the battle against HIV/AIDS,” he added.

As Covid-19 restrictions ease, Goh envisaged that opportunities will also arise from a world seeking to rekindle social interactions.

“As schools and health centres reopen, we are already observing a surge in orders intended to restock empty inventories. E-health services are another promising innovation resulting from the pandemic that have allowed younger populations to access condoms over discrete digital platforms that help to facilitate healthier choices without embarrassment or stigma,” he noted.  

For the full FY22, Karex’s net loss expanded to RM6.19 million — largest to date — from a net loss of RM1.02 million in FY21, despite revenue rising to a record RM421.64 million from RM419.82 million during the same period.

As of 3pm on Friday (Oct 28), shares in Karex were unchanged at 40.5 sen, giving it a market capitalisation of RM427 million.

Source: The Edge Markets