Riverstone Holdings Limited’s Latest Earnings: Revenue Grows, but Profits Are Held Back

Riverstone Holdings Limited (SGX: AP4) reported its second-quarter earnings yesterday. The reporting period was for 1 April 2016 to 30 June 2016.

As a quick background, the company is primarily a manufacturer of disposable nitrile gloves for clean rooms and the healthcare industry. You can read more about Riverstone in here and here or catch up with the results from its previous quarter here.

Financial highlights

The following’s a rundown on some of the latest financial figures for Riverstone:

  1. Revenue for the reporting quarter was RM156.7 million, up 21.5% compared to the same quarter a year before.
  2. But, profit attributable to shareholders was up by only 1.2%, ending the quarter at RM27.3 million. Earnings per share (EPS) was 3.84 sen for the reporting quarter.
  3. Cash flow from operations for the second-quarter came in at RM40.7 million with capital expenditure clocking in around RM28.0 million. This puts the glove maker in positive free cash flow territory to the tune of RM12.7 million, down from the RM16.1 million seen a year ago (RM27.4 million in cash flow from operations and RM11.3 million in capex).
  4. As of 30 June 2016, Riverstone had cash and equivalents of RM98.9 million with no debt. This is an improvement from the RM96.8 million in cash and equivalents and no debt recorded a year ago.

In all, Riverstone submitted another set of healthy growth numbers. Top-line growth exceeded 20%, after posting a “slower” 16.1% growth rate in the previous quarter.  The glove-maker’s profit, though, was hampered by foreign exchange losses and higher raw material prices.

Nevertheless, Riverstone remained free cash flow positive with a strong, clean balance sheet.

The board of directors recommended an interim dividend of 1.30 sen, up from a split-adjusted 1.20 sen a year ago.

Operational highlights

Wong Teek Son, executive chairman and chief executive officer for Riverstone, added the following commentary for reporting quarter:

“During 2QFY2016, we have continued to identify new segments within US and Japan to consistently grow demand for our niche healthcare gloves. As a result, our third phase of expansion is on track and we have begun commissioning the lines so as to add one billion pieces of glove annually to total production capacity by the end of FY2016.

That being said, we continue to face challenges posed by economic uncertainties such as raw material and foreign exchange fluctuations, gas and wage hikes in Malaysia weighed on our gross profit margins.

“In addition to the above, we remain in a competitive environment. As such, the emphasis lies on controlling expenses and boosting operational efficiencies such as maintaining our high utilisation rate.

Committed to bolstering our innovative capabilities, we work closely with our customers to consistently introduce new products that would value-add their offerings, be it for cleanroom or healthcare gloves.”

Looking ahead

The company is in the midst of rolling out its Phase 3 expansion plan in Taiping, Perak. Riverstone expects to have a total annual capacity of 6.2 billion gloves by the end of this year, up from 5.2 billion at end-2015. Here’s Wong with some thoughts around the company’s outlook for the future:

“In our push for sustainable growth in this challenging environment, we remain dedicated to locating pockets of opportunity for our healthcare and cleanroom gloves. It is imperative for us to remain mindful of the fast-changing dynamics of our operating environment in order to stay responsive to changes accordingly.

Supported by a resilient balance sheet and our ability to consistently generate positive cash flow, we are cautiously optimistic going forward.”

Riverstone’s shares closed at S$0.90 each yesterday.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.