Thursday August 19, 2010 Top Glove output to increase by 25% on new factories Top Glove Output to Increase by 25% on New Factories, Lim Says Aug. 19 (Bloomberg) -- Lim Cheong Guan, Executive Director of Top Glove Corp., comments on the world's biggest rubber-glove maker's expansion plans, higher latex costs and earnings outlook. Lim was responding to questions from Bloomberg by e-mail. On capacity expansion: "Our expansion plan involves the construction of three new factories in Malaysia as well as putting up 88 additional production lines in our existing plants in Malaysia and Thailand. This will raise our annual production capacity by 25 percent to 41.25 billion pieces of gloves by May 2011, from a total of 20 factories with 459 lines." On higher latex costs: "Our customers are aware of the cyclical nature of rubber prices. Due to our established business relationship with them, we are able to pass on the majority of the rising cost of raw materials to our customers. Similarly, when latex prices go down, customers will enjoy lower glove prices. "There is a time lag of about two months in passing on the higher or lower costs of raw materials to our customers. Nevertheless, the ability to pass on higher costs hinges mainly on demand. When demand for gloves is strong, we can pass close to 90 percent of the higher cost to our customers whereas in the current situation where demand is normalizing, we can only pass on about 70 percent to 80 percent of the higher cost as customers expect us to share the burden." On outlook for orders: "Demand is normalizing now as the H1N1 outbreak is no longer a concern. In view of anticipated lower prices, customers prefer to hold less stock now and increase their stock holdings when latex prices dip further. "Orders from the U.S., in particular North America, have been growing by more than 10 percent since early this year, but orders from the European and Latin American markets are temporarily slowing down mainly due to their weakening currencies. "We have seen bigger orders from the U.S. markets and expect the momentum to continue as the healthcare awareness there continues to be on the rise. This is especially following U.S. healthcare reform, which is anticipated to take effect next year." On earnings outlook: "We expect our earnings to continue growing year-on-year. No, we don't believe our earnings have peaked as we anticipate huge opportunities for our continued growth mainly in the emerging markets. "In addition, rubber-glove usage is expanding beyond healthcare to food, beauty and automotive industries. Also, the increasing wealth and life expectancy in developing countries will ensure sustainability of rubber-glove demand. Hence, we are expanding in order to keep pace with growing market demand." On foreign labor: "Foreign workers account for about 50 to 60 percent of the group's total workers. The costs of hiring foreign workers, although is higher, is not significant and this can be offset by improvements in productivity. At the moment, we are not facing any labor shortages and have sufficient workers to cope with our production. However, in the longer term, we hope to automate most of the job functions carried out by the workers to reduce our reliance on them."