Semperit reaps synergies
It may consider up to Rm240mil investment to expand Latexx ops
KNOCKING on the competition’s door is just what Austrian Semperit AG is doing with the sudden RM603mil all cash takeover of Latexx Partners Bhd, and more is already planned for the expansion of Latexx, assuming if it succeeds in its attempt to control the company.
Jetting in recently from Thailand, Semperit chairman and chief executive officer Thomas Fahnemann expressed his excitement for the prospects of the Malaysian glove industry which accounts for 50% of the rubber gloves circulated globally.
“We intend to invest further into Latexx. There is a lot of potential to grow, and we can increase the capacity all the way 15 billion to 16 billion gloves from the existing infrastructure and land. It is a little difficult to say right now the kind of investments to put in, but it will be major investments and capacity could be ramped up on a step-up basis,” he says.
Currently, the sixth largest global glove manufacturer, Latexx has an annual production capacity of about 9 billion pieces of gloves.
Having Latexx under its wings will boost Semperit’s annual capacity to 21.5 billion gloves, making it the second largest glovemaker in the world in terms of capacity, after Top Glove Corp Bhd. “The important thing to us is to capture synergies between the two companies, and we are not financial investors but strategic investors who aim to build Latexx and keep it,” he says.
Putting a rough ballpark figure, he told StarBizWeek Semperit might consider investments of about US$60mil (RM183mil) to US$80mil (RM244mil) to expand the operations of Latexx, and probably will take 12 to 15 months just to add another 3 billion in capacity.
The takeover is pending the approval of European anti-trust regulators, and according to Fahnemann, the approvals are done as a formality and would not pose any issue that would derail the takeover, and he expects things to be concluded in three to four weeks.
“Now about 50% of our total revenue is derived from the glove business, another 50% is from black rubber derived industrial products like hoses. If we look at our strategy, medical gloves is certainly a growth area we would expand. Previously, we have invested money in new plants in Thailand, and now we are excited to be in Malaysia,” he says.
He says the focus is to grow Malaysia’s business, and the acquisition of Latexx was not to keep it at its current state but to grow it further by leveraging on Semperit’s global distribution and marketing network.
“Like I mentioned, this (Malaysia) is a good place to produce gloves, and we are always competing with our peers. Our business model with our own brand is different compared with the others. The brand name give us a lot of stability from a volume standpoint, and also gives us a little premium in prices,” he says.
Currently, the company has three warehouses across the United States, and another in Brazil to manage its inventory, and more facilities are planned to be located in Asia.
For its first half ended June 30, the group recorded a lower net profit of 25.5 million euros from 23.9 million euros recorded previously. Its revenue climbed to 409.8 million euros with its second quarter generating revenue of more than 200 million euros, the third strongest quarter in terms of revenue in the group’s history.
Despite the company being relatively unknown in Malaysia, Semperit is not alien to the region with its presence in Thailand.
Back in 2010, it attracted the attention of prominent financial analyst and columnist, the late Choong Khuat Hock.
The company is linked to Thai’s Sri Trang via a 60:40 joint venture in Hatyai, Thailand with a capacity of 12.5 billion gloves a year, making it the fourth largest examination glove producer.
Sri Trang is the world’s largest rubber processor and exporter, with rubber processing plants in Thailand and Indonesia.
“Our focus now is to expand into Asia, and our aim is to integrate the new unit (Latexx) with our Thailand operations. From our standpoint, we are already integrated from rubber tree to glove, and we feel comfortable based on the security of supply with our JV partner,” he says.
Fahnemann also discounted the possibility of introducing any private equity players to expand the business.
“We don’t need to opt for that option as we are financially strong enough to do that on own. We have a running credit line of 180 million euro, and another 100 million euro in cash, and we will fund the acquisition via part of our credit line and equity.
Flexing its financial muscle, he says Semperit is debt free and is adaptable to more expansion with more room to take on special project financing if the need arises.
Describing the acquisition as Semperit’s biggest move yet, he says the company’s industrial business is cyclical, and it is comfortable with its current portfolio that derives about 55% to 58% of its revenue from its glove business, post the purchase of Latexx.
It currently has 22 production sites around the world, including facilities in Austria, Czech Republic, Thailand and China.
“We took a big step, and one big part of the move is to optimise our product portfolio and benefit from the economies of scale. We might focus certain products in Thailand and some in Malaysia,” he says, adding that the current acquisition will bump its 7.5% global market share to the double-digit range around 13%.
Despite buying out major shareholder Low Bok Tek from the company he founded, Fahnemann assures that Low will continue to remain as the stalwart to chart more growth for Latexx.
“Our plan is not to change anything in the organisation. The big plus is for us to learn from each other, and from the technology standpoint, Latexx has a lot to offer, and Semperit could also offer its expertise as far as automation is concerned,” he says.
While there are concerns that the 150 billion-a-year medical glove market would experienced some overcapacity in the future, Fahnemann says there might a period of overcapacity but based on the growth projections, supply will still be absorbed by demand.
“Last year the per capita consumption in the US was 165 gloves, 70 in Europe and 30 in China. The potential is in Asia and is driven by the higher need for hygiene and that would demand a lot more volume. The overall market is still growing by 5% to 7% per annum, and even mature markets are still growing by 2%. It is still exciting market to participate in the growth. There might be overcapacity during certain times, as our peers are investing, and we are investing but it is a small issue to grow in tandem with the market,” he says.
Currently, Semperit has already secured 57% equity interest in Latexx, and now the rest is to be seen whether rest of the shareholders will bite at the takeover offer of RM2.30 per share and RM1.77 per warrant.