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Will Riverstone Holdings Limited Be Able To Grow In 2018?

Riverstone Holdings Limited (SGX: AP4) is a Singapore-listed but Malaysia-based company that produces rubber gloves. Its gloves are used in both the cleanroom as well as healthcare industries.

In early April this year, Riverstone published its 2017 annual report. Given that reading an annual report is one of the best ways to keep up with a company’s developments, I decided to go through Riverstone’s latest annual report to understand the company’s prospects, and how it had performed in 2017.

Generally, when reading an annual report, I will pay close attention to the letter to shareholders that the company’s chairman and/or CEO writes. In this article, I want to discuss an area that I found interesting: Riverstone management’s summary of the company’s 2017 performance, and their outlook for 2018.

2017 performance

Riverstone managed to grow its revenue by 24.8% to RM 817.4 million in 2017, mainly due to higher demand for its gloves. Yet, its gross profit margin declined from 18.4% in 2016 to 15.6%, as there were unfavourable fluctuations in its raw material prices, and a weakening of the US dollar. As a result, its net profit had increased by just 6.0% to RM127.6 million.

The company also managed to generate a healthy RMB 145.7 million in operating cash flow in 2017 and ended the year with a strong balance sheet that had a net cash position of RM 114.3 million. Riverstone hiked its dividend too, from 6.5 sen per share in 2016 to 7 sen in 2017.

In his 2017 shareholder letter, Wong Teek Son, the executive chairman and CEO of Riverstone, shared the following comments on the company’s performance during the year:

“On the back of the expansion plans, we are pleased to report another year of record financial results. The robust demand for both our cleanroom and healthcare gloves witnessed growth in both segments, as we continue to differentiate by value adding our customers with customised solutions. More importantly, we continue to gain traction among existing and new customers across all geographies, notably in Europe, United States and Asia Pacific with double digit growth rates.

Against the challenging macroeconomic environment and operating business conditions, we continue to report a 24.8% year-on-year (yoy) growth in revenue to RM817.4 million. Despite the topline growth, our gross profit margin was affected by fluctuation in raw material prices and the weakening of the US Dollar towards the end of the year. Our efforts to grow our mainstay cleanroom gloves business gained momentum, supported by an uplift in demand for semi-conductors, mobiles, tablets and LCD-panels globally. This resulted for a 20.0% growth in the sales quantity of our cleanroom gloves as compared to 10.0% growth for our healthcare gloves in 2017.”

What awaits the company in 2018

For 2018, Wong expects Riverstone’s operating environment to be challenging:

“Looking ahead, we expect the operating environment to remain trying for 2018. Apart from the continued weakening of the US Dollar seen in the early months of the year, we are vigilant towards fluctuation in raw material prices and competition within the industry. Further to these macroeconomic conditions that are beyond our control, we remain mindful of overall operating costs such as the latest 23.0% hike in gas tariff introduced in January. Due to government policy change, the Group are required to absorb the levy imposed on foreign workers.

While these are considerations that may affect us in the near to mid-term, our emphasis on improved operational efficiencies such as greater automation and more lean in production processes will enhance overall productivity.”

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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 Lawrence Nga doesn’t own shares in any companies mentioned. Motley Fool has a recommendation for Riverstone Group Ltd.