Eight questions to Riverstone’s Executive Chairman about his company and industry

Riverstone’s proprietary “RS Riverstone Resources” brand is the preferred cleanroom glove for use in high-tech manufacturing industries. Riverstone also manufactures cleanroom consumables such as finger cots and facemasks. Riverstone’s customers are global leaders in the HDD, LCD, semiconductor, consumer electronics, pharmaceutical and healthcare industries.

Consensus target price (S$) 1.32

Question 1: “What are the biggest challenges of running a glove
manufacturing company, apart from competition?”
Answer 1: “One of our key challenges is the fluctuation in US dollars as our exports are
largely denominated in that currency. We however benefit from an appreciating dollar
due to a natural hedge. In addition, we are also cautious about the increases in costs such
as raw materials and labour though we mitigate these by improving productivity through
automation, [plus] ‘lean’ and ‘six sigma’ processes.”

Question 2: “Has the key to your success thus far been a focus more on
scale/costs or on quality/product offering?”
Answer 2: “With two segments of growth driven by cleanroom and healthcare gloves, we
place great emphasis in providing customisation to our customers. By working directly
with our end-customers for cleanroom gloves, we are able to provide them with the
specific requirements. Having only entered healthcare gloves business in 2008, we have
since established a market niche in manufacturing customised premium healthcare gloves
based on usage such as hand-specific gloves for better comfort and fit. “

Question 3: “How quickly do higher/lower commodity prices get priced into
the selling price of your gloves?”

Answer 3: “While we adopt a cost-plus pricing model for our products, we typically
transfer the savings to our customers as competition increases in the industry. We adjust
the selling prices of our healthcare gloves on a monthly basis and once every six months or
one year for the cleanroom gloves.”

Question 4: “What is the split in revenue contribution from your cleanroom
and healthcare gloves?”
Answer 4: “For FY2014, the revenue contribution was even at 50-50 from both cleanroom
and healthcare segments. We expect the split in contribution to remain about the same
with growth from both segments.”

Question 5: “With increasing competition in the glove manufacturing market,
do you expect margin compression as you grow?”
Answer 5: “While we believe that margins may be affected by competition, we are
confident that our capabilities to supply to a niche market and our customisation will
allow us to maintain our profit margins as we remain well supported by growth in both
cleanroom and healthcare gloves. With our interchangeable production lines, we are able
to switch between manufacturing cleanroom and healthcare gloves. For FY2014, we have
successfully maintained a utilisation rate of 90% or almost full capacity for our plants.”

Question 6: “What are your sales distribution models for both cleanroom and
healthcare gloves?
Answer 6: “For our cleanroom gloves, we supply directly to the end-users while we work
with distributors to supply our healthcare gloves.”

Question 7: “Do you have a dividend policy?”
Answer 7: “While we do not have a fixed dividend policy, we have been issuing dividends
yearly since IPO in 2006 to reward our shareholders.”

Question 8: “What are your expansion plans going forward?”
Answer 8: “We have a five-year expansion plan that started in 2014 which [should] see us
adding 5 billion gloves in total annual production capacity to 8.2 billion by 2018. The first
phase was completed in 4Q2014 where we added one billion gloves to 4.2 billion pieces
for our total annual production capacity as at 31 December 2014. We expect to add
another one billion gloves by the end of FY2015 to 5.2 billion pieces. [Thereafter], we
[should] add 1 billion pieces of gloves yearly to our total production capacity.”

Question +1/2 : “What is the one meal that represents your childhood?”
Answer +1/2: “The dish that I like the most is egg fried rice. Egg fried rice brings back
memories of my childhood as it was a dish mostly commonly prepared for me by my
mother every morning before I went off to school. Up till today, I still love egg fried rice as
it is simple, yet delicious, and can sustain me for half a day.”