Below is an excerpt from Hartalega Holdings Bhd executive chairman Kuan Kam Hon's letter to shareholders in the rubber glove manufacturer's 2022 annual report, which was filed with Bursa Malaysia on Friday (July 29).

Dear Shareholder,

On the back of a watershed year in 2021 wherein the unprecedented Covid-19 pandemic affected the global community, our 2022 financial year continued to test our mettle in the face of ongoing global disruptions and uncertainty.

Taking place in the thick of the second year of the unfortunate pandemic, the financial year under review brought about great volatility to the world and to our group. The silver lining was the arrival of Covid-19 vaccines, which led to a gradual improvement in markets and society as a whole.

Fresh challenges undoubtedly emerged, including hurdles to the roll-out of vaccination programmes, compounded by the emergence of Covid-19 variants which resulted in new waves of cases and the subsequent return of lockdowns in several countries, including Malaysia.

While Hartalega was not spared the trials of this disruptive landscape, we remained single-minded in our commitment to continue delivering our high-quality nitrile gloves as critical personal protective equipment (PPE) for frontliners across the world.

Our paramount focus was sustaining our operations. The measures we put in place to safeguard the welfare of all Hartanians, alongside the high level of automation, advanced technologies and efficiency in our manufacturing facilities enabled us to ensure the resilience of the group within this tough environment.

On this note, I am pleased to present our annual report for the financial year ended March 31, 2022.

With the transition to the endemic phase of Covid-19 across the world and in Malaysia, the reopening of markets and lifting of travel restrictions are set to fuel economic recovery moving forward.

However, ongoing headwinds look to remain for the short to mid term. Prevailing external risks within the current environment which could have a bearing on business resilience and prospects include the Russia-Ukraine war and recent lockdowns of major cities in China arising from a spike in Covid-19 cases, which have caused further strain on global supply chains and led to higher commodity and raw material prices.

The group is also contending with the risk of increased operating cost, as the overall operating cost environment faces rising inflation, higher electricity and natural gas tariffs, coupled with the new minimum wage policy in Malaysia which came into effect on May 1, 2022.

Compounding this, the group is seeing escalating market competition exacerbated by the continued oversupply situation in the global glove industry. The normalisation of the pandemic has also led to the current unfavourable supply and demand dynamics.

Nevertheless, Hartalega remains focused on overcoming the headwinds facing the industry. We have experienced various downcycles since our establishment more than 30 years ago and braved our fair share of storms. Moving forward, the group will continue to strengthen our fundamentals by improving efficiencies and reducing wastage. In line with our drive to ensure business resilience, we will also scale up our automation as well as digitalisation initiatives.

We have the resilience, skill set and spirit of innovation to propel the group forward.

While (glove) average selling prices will continue to be a risk factor, there are bright spots such as the reopening of international borders, which is expected to relieve the current labour shortage.

The uptick in global healthcare awareness in the post-pandemic era also bodes well for the group, particularly in emerging markets where glove usage per capita is set to grow.

Building on our proven track record, we continue to take a future-focused approach. Our healthy balance sheet provides us with a sizeable war chest to drive the growth of the group over the long term.

To this end, Hartalega aims to cater to long-term demand growth via our Next Generation Integrated Glove Manufacturing Complex (NGC) 1.5 expansion.

With an investment of RM1.5 billion, once completed, the NGC 1.5 will consist of four manufacturing plants adding 19 billion pieces per annum to our total installed capacity. Construction of the NGC 1.5 is progressing in phases, and the commissioning of the plants will be aligned with prevailing market supply and demand dynamics.

Looking ahead, while challenges may persist, the group is confident that Hartalega will remain resilient as we stay true to our passion of protecting lives by delivering our high-quality nitrile gloves, leveraging our vast industry experience and innovative capabilities to serve the needs of global markets.

Kuan Kam Hon
Executive chairman