The Good And The Bad: What Investors Should Know About Riverstone Holdings Limited’s Latest 2016 Results

Riverstone Holdings Limited (SGX: AP4) is a Malaysia-based company that produces both cleanroom and healthcare rubber gloves.

In late February, Riverstone reported its 2016 full year results. There are both positive as well as negative takeaways from the company’s latest earnings that investors may want to learn about. Let’s take a look, starting with an overview of the numbers:

1. The overview

Here’s a table showing some of the important numbers from Riverstone’s income statement for 2015 and 2016:

Riverstone income statement 2016
Source: Riverstone 2016 full year earnings release

As you can see, Riverstone’s performance in 2016 was mixed. There was strong double-digit growth in revenue, but gross profit and net profit all saw low single-digit declines.

2. The positives

Firstly, Riverstone’s revenue grew due to an increase in sales volume as a result of its expansion in production capacity by 1 billion gloves in 2016. According to management, the increase in capacity was mostly consumed by demand; this may reflect the market’s ongoing appetite for Riverstone’s rubber gloves.

Secondly, the company continues to maintain a strong balance sheet despite investing heavily in expanding its capacity. As of 31 December 2016, Riverstone has RM 103.2 million in cash and zero debt. Having a strong balance sheet allows Riverstone to invest in its business and continue paying a dividend without straining its financial health.

3. The negatives

Firstly, the company warned in its latest earnings release that increases in raw material prices and production costs would continue to post significant challenges. This could result in margin pressures in the near future.

Secondly, the favourable currency tailwind the company has enjoyed in the past few years (the company reports in the ringgit but conducts business in other currencies) became a headwind in 2016. If the currency headwind persists in the near future, there could be further compression of the company’s margins.

Lastly, Riverstone expects to face heightened competition from other glove makers. That’s especially so considering that the company is expanding into the medical gloves market, which is currently dominated by other players such as Top Glove (SGX: BVA)(KLSE: 7113.KL).

In all, 2016 was a mixed year for Riverstone. There was continued growth in revenue, but the company also had to grapple with challenges such as rising production costs.

It would be important for investors to keep an eye on whether the company can improve its operational efficiencies to counter the increase in production costs.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Riverstone Holdings. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.