Karex improves cash conversion cycle via credit control, standardised payment terms

KUALA LUMPUR: Karex Bhd has managed to improve its cash conversion cycle amid the challenges posed in managing inventories during initial stages of the Covid-19 pandemic due to improvements to credit controls and standardising payment terms.

The condom manufacturer said this helped it continue to preserve agility on its balance sheet with a sustainable cash balance of RM46.3 million and shareholders’ funds totaling RM480.1 million, translating into a gearing ratio of 0.11 times for the financial year ( FY) ended June 30, 2020.

It pointed out that global logistic disruptions resulted in an inability to deliver finished goods to certain customers during the second half of the financial year.

“This effect is registered by the build-up of inventories amounting to RM128.9 million at the end of FY20, representing an increase of approximately 7.7 per cent from the previous financial year,” chief executive officer Goh Miah Kiat said in its 2020 annual report released yesterday.

He said capital expenditures for the year amounted to RM23.1 million as the company incorporated greater degrees of automation into its production processes and invested in the expansion of the catheter and personal lubricant production capacity at its Thailand facility.

“This contributed to a total non- current asset base of RM348.2 million and a corresponding total asset base of RM621.8 million for the year,” Goh said.

He said that Karex’s sexual wellness division, mainly involved in the sale of condoms and personal lubricants, recorded an encouraging yearon-year growth of about five per cent despite the complications related to the pandemic.

Meanwhile, its medical division consolidated its impressive performance from the previous year with its facilities running at full capacity for much of the year.

Additional catheter production capacity was completed during the year that should galvanise the division looking ahead, he said.

“The medical division is expected to play a more integral role moving forward with the global emphasis on personal hygiene leading to an increase in demand for medical products worldwide,” he said.

As for the outlook, Goh said it was more critical than ever that Karex leverage on its manufacturing experience, cost competitiveness and breadth of offerings as compelling competitive advantages to enable the company to capture orders within the sexual wellness space that was poised for change.

“Although it is impossible to determine the precise course of the pandemic and its economic consequences, what we can take away is that condoms remain essential tools for family planning as well as preventing the spread of HIV and other sexually transmitted infections.

“The widespread disruption to supply chains and emphasis on social compliance has challenged manufacturers like never before and in the process caused consolidation in the industry,” he said.

On branding, Goh said the company had a strong set of brand initiatives in place to continue to excite and inspire customers while maintaining its ambitious growth trajectory.

“Creating new ways of reaching our customers, such as through e- commerce platforms or social media, will remain critical over the next few months as lockdowns gradually ease and consumers slowly regain their confidence,” he added. — Bernama