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Riverstone Holdings Limited Starts the Year on a Poor Note

Riverstone Holdings Limited (SGX: AP4) is a manufacturer of nitrile and natural rubber cleanroom gloves as well as premium nitrile gloves used in the healthcare sector. On Monday, the company announced its financial results for the 2019 first quarter, which ended on 31 March 2019. Let’s look at the key highlights from that announcement.

1) Revenue for the reporting quarter grew 14.6% year on year to RM 240.5 million due to higher sales volume for both its healthcare and cleanroom gloves.

2) However, gross profit slipped by 0.5% from RM 46.9 a year ago to RM 46.6 million.

3) Gross profit margin was 19.4% for the reporting quarter, down from 22.3% one year ago. The decline came on the back of a change in product mix and a decrease in average selling prices of healthcare gloves.

4) Profit attributable to shareholders fell 2.8% to RM 30.2 million. Diluted earnings per share (EPS) was 4.08 sen, down 2.6% from the previous year’s diluted EPS of 4.19 sen.

5) As of 31 March 2019, Riverstone had RM 128.1 million in cash balance and fixed deposits and RM 17.5 million in total debt, giving rise to a net cash position of RM 110.6 million. In comparison, at the end of March 2018, the balance sheet carried RM 135.1 million in cash balance and fixed deposits and RM 23.5 million in debt, translating to RM 111.6 million in net cash.

6) Despite the lower profitability, operating cash flow rose 16.5% from RM 43.5 million a  year ago to RM 50.6 million in the latest quarter. With capital expenditures falling from RM 19.5 million to RM 17.0 million, Riverstone’s free cash flow climbed 40% from RM 24.0 million to RM 33.6 million.

7) Riverstone completed phase 5 of its expansion recently, increasing its total production capacity to 9.0 billion pieces of gloves per year. On the back of the capacity increase, the company is ramping up its sales efforts to secure orders and capture growth.

8) The market for healthcare gloves is expected to grow at around 8.0% per year. To take advantage of demand, Riverstone is pushing ahead with phase 6 of its capacity expansion plan and is expected to add 1.4 billion pieces to its production capacity, increasing it to 10.4 billion gloves per year. Phase 6 is expected to be completed by the end of 2019.

9) Beyond 2019, Riverstone is looking to further raise capacity with its acquisition of a 14.64-acre land bank in Taiping, Malaysia, which will accommodate its new production plants.

10) Executive chairman and chief executive Wong Teek Son said:

“While we remain in growth mode, we do acknowledge that macroeconomic uncertainties and a highly competitive landscape has translated to downward pressure on our margins and profitability. To mitigate the impact of these external headwinds, we will raise our efforts in tightening cost controls and invest in automation to enhance our operational efficiency. Furthermore, we continue to leverage on our ability to provide highly customised solutions and maintain close relationships with our end-customers to differentiate ourselves against our peers. Supported by a resilient balance sheet and strong generation of operating cash flows, we are confident that these strategic initiatives will allow us to build a sustainable business model for the long-term.

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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 recommends shares of Riverstone Holdings. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.