BUSINESS ACCOUNTING | BKAL1013

TABLE OF CONTENTS
CONTENTS

PAGE

1.0 INTRODUCTION
2.0 COMPANYS BACKGROUND AND STRATEGIES
2.1 ECONOMIC LANDSCAPE
2.2 DIVIDENDS
2.3 OPERATIONS REVIEW
2.4 ENVIRONMENTAL PERFORMANCE
2.5 MARKETING
2.6 HUMAN CAPITAL
2.7 OUTLOOK
2.8 ACKNOWLEDGEMENT
3.0 RATIO ANALYSIS
3.1 CURRENT RATIO
3.2 RATIO OF FIXED- ASSETS TO LONG-TERM

LIABILITIES
3.3 RATIO OF NET SALES TO ASSETS
3.4 RATE EARNED ON TOTAL ASSETS
3.5 RATE EARNED ON STOCKHOLDERS EQUITY
3.6 EARNINGS PER SHARE ON COMMON STOCK
4.0 DISCUSSION
4.1 CURRENT RATIO
4.2 RATIO OF FIXED-ASSETS TO LONG-TERM

10

LIABILITIES
4.3 RATIO OF NET SALES TO ASSETS
4.4 RATE EARNED ON TOTAL ASSETS
4.5 RATE EARNED ON STOCKHOLDERS EQUITY
4.6 EARNINGS PER SHARE ON COMMON STOCK
5.0 CONCLUSION

4
4
5
5
6
7
8
9
12
12
12
13
13
14
14
15
15
16
16
16
18
18
19

1.0

INTRODUCTION

BUSINESS ACCOUNTING | BKAL1013

Hartalega was the inventor of the worlds first lightweight Nitrile glove in 2002,
which caused a demand shift from latex to nitrile gloves all over the globe. Needless
to say, Hartalega are now the largest producer of nitrile gloves in the world, capable of
manufacturing 22 billion gloves a year and will progressively expand to 42 billion
gloves in 2020.
Hartalegas continued technological innovations help ensure gloves are manufactured
with equal emphasis on efficiency and quality; a key reason why they are trusted as
the OEM manufacturer for some of the worlds biggest brands.Their workforce of
5,500 people across 7 dedicated manufacturing facilities has also done them proud.
Hartalega has gone on to win many prestigious accolades, including recognitions from
Forbes Asia, KPMG and Asia Money.As they expand globally, Hartalega will
continue to be coveted as the preferred choice in gloves.
In this assignment, the background of the company will be discussed in general to
further illustrate the business nature of the company. This will provide the basis for
the further discussion of Hartalega's business strategies. Besides, the chairmans
report is used for reference in order to figure out some of the strategies or major
course of actions that Hartalega Holdings Berhad has taken over the financial year
period.
Furthermore, a two subsequent years ratio analysis which is in 2014 and 2015 of
Hartalega is prepared based on the information given in financial statements. The ratio
analysis includes of current ratio, ratio of fixed assets to long-term liabilities, ratio of
net sales to assets and so on. After that, these ratios are calculated and compared. The
report discusses the possible conditions or factors, supported by statements in various
sections of the companys annual reports. This helps to explain and summarizes the
results of the analysis.

Reports are used in business, finance, education, government, and manufacturing.

Why are the business reports important in any company? This is because the report
2

BUSINESS ACCOUNTING | BKAL1013

provides the interpretation and explanation of information which can be easily
understand by the readers. A report is not only the basic management tool for making
decisions but also recommend natural actions or solutions to solve problem.
Moreover, annual reports provide information on the companys mission and history
and summarize the companys achievements in the past year.

2.0

COMPANYS BACKGROUND AND STRATEGIES

BUSINESS ACCOUNTING | BKAL1013

2.1

ECONOMIC LANDSCAPE
Global economic growth was moderate in 2014. Although the
US was on the road to recovery, the European Union was still
gripped by the effects of the financial crisis, while emerging
markets, including Asian economies, saw subdued growth.
Malaysias glove manufacturing sector bore the brunt of
external market factors which affected all industry players.
This included softening raw material costs due to global
rubber supply surplus, which drove down average selling
prices, as well as higher operating costs due to increased
electricity and gas tariffs. Despite the tough economic climate,
global demand for rubber gloves saw robust growth during the
year. Demand growth was consistent in both developed and
emerging markets, buoyed by increasing healthcare standards
as well as healthcare reforms, particularly in developing
countries. Malaysia commanded approximately 62% of the
global export market in 2014, with total exports of rubber
gloves expanding 8.6% year-on-year to 48.9 billion pairs.
Nitrile rubber gloves took the lead once again, amounting to
51% of Malaysias total rubber glove exports. Exports of
synthetic rubber gloves rose by 9.7% to 24.9 billion pairs in
2014 compared with 22.7 billion pairs in the previous year,
and increased by 7.2% in value terms. In comparison, total
exports of natural rubber gloveshad a growth rate of 7.4% in
quantity terms and a 1.5% decline in value terms.
The US was the chief export region for Malaysian nitrile rubber
gloves, commanding over 30% of exports. The southern
regions of Europe and other emerging markets including China
and Brazil also registered growth in exports of nitrile rubber
gloves. Clearly, the industry is ripe with potential, and

BUSINESS ACCOUNTING | BKAL1013

Hartalega is well-positioned to tap into these prospects over
the long-term.
For the financial year ended 31 March 2015, the Group
registered a profit after tax of RM210.21 million, compared
with RM233.29 million in the previous fiscal year. Profit before
tax came in at RM276.9 million. This drop was primarily
attributable to higher start-up costs for the NGC. Other factors
which also had an impact were lower average selling prices as
a result of declining raw material costs and more competitive
selling prices, as well as higher electricity and natural gas
tariffs driving up operational costs, which put pressure on
operating profit margins. However, due to the Groups high
level of productivity and manufacturing efficiency, Hartalega
profit margins remained well above the industry average.
Furthermore, the Group continued to record solid topline
growth on a year-on-year basis. Revenue for the year grew by
3.5% to RM1.145 billion compared with RM1.107 billion last
year due to higher sales volume. In line with Hartalega
commitment to sustaining profitability and strengthening
balance sheet,

Hartalega

earnings

before

interest,

tax,

depreciation and amortisation (EBITDA) came in at RM323

million. The cash balance for the Group was RM70.5 million.
Meanwhile, earnings per share for the year stood at 27.01 sen,
and net assets per share attributable to the owners of the
company was 158 sen. Although market conditions remain
challenging, what is important is that Hartalega are a resilient
Group, with an agile and capable talent pool leading us
forward.
2.2

DIVIDENDS

BUSINESS ACCOUNTING | BKAL1013

The Group is firmly dedicated to enhancing value for
Hartalega shareholders Via consistent dividend yields. This is
demonstrated by Hartalega dividend policy, which commits a
minimum payout of 45% of the Groups annual net profit.
Towards this end, they have successfully paid out a total
dividend of 9 sen per share to date. The Board expects to
announce a final dividend at the Ninth Annual General
Meeting.
2.3

OPERATIONS REVIEW
Research and Development:Passion for innovation has always

been the driving

force behind Hartalega growth and success. As they move
forward, Hartalega
research and development (R&D) efforts are a key pillar of the
Group. A clear
reflection of this is Hartalega state-of-the-art Next Generation
Integrated Glove Manufacturing Complex (NGC). The NGC is
set to raise the bar even higher for the industry, as an iconic
glove

complex

that

incorporates

the

most

advanced

production technologies, attractive workplace design, and a

Centre of Excellence comprising Research and Development
and Learning Centres to inspire more innovation. Hartalega
commissioned the first three production lines of Plant 1 and 2
of the NGC during the year under review, with a production
line speed of 45,000 piecesper hour, the highest in the
industry

due

to

Hartalega

superior

manufacturing

technologies and automation.

All production technologies within the Group are inhouse
engineered and proprietary to Hartalega, giving their an edge
over our competitors in terms of quality and productivity. In
6

BUSINESS ACCOUNTING | BKAL1013

fact, the NGC production lines are even outperforming some of
their existing plants. As a result of this, they decommissioned
Plant 1 of their Bestari Jaya operations due to lower efficiency.
With the onset of the NGC, they have been able to set new
industry benchmarks as they improve overall efficiency and
workflow, boosting their total installed capacity to 16 billion
pieces of gloves per annum to date. Along with productivity
improvements, they also cognisant of the importance of
keeping abreast with ever-evolving markets.
2.4

ENVIRONMENTAL PERFORMANCE
In tandem with Hartalega growth over the years, they have
always taken conscious steps to protect the environment in
the areas in which they have a presence. Towards this end,
they have implemented various sustainable measures with a
view towards actively preserving and safeguarding their ecosystem.

This

includes

their

biomass

and

waste

water

treatment plants, to preserve water supply and air quality by

ensuring effluent water discharge and air emission levels are
in compliance with the standards of Jabatan Alam Sekitar
(JAS).

Moreover, Hartalega was one of only four manufacturing

companies and the only rubber glove manufacturer listed in
the Index. This clearly demonstrates the Groups unwavering
commitment

towards

establishing

throughout our operations.

2.5

MARKETING

sustainable

practices

BUSINESS ACCOUNTING | BKAL1013

Their marketing strategy is a fundamental component of their
growth plans, as they strive to expand their brand presence in
key markets. Their efforts have certainly borne fruit, as
Hartalega is the only glove company with sustained sales
growth on a year-on-year basis, due to their strong client base
coupled with their reputation as an industry pioneer and our
top-of the-line products. The Groups total sales volume forthe
year increased to 12.5 billion pieces, compared with 11.5
billion pieces in the previous year. The US remained their
primary market with 48% of their nitrile glove exports,
followed by Europe which rose to 30%. Meanwhile, sales to the
Asia-Pacific region grew to 14%, largely attributable to
increased sales to Japan and China.
Additionally, in another milestone for the Group, they officially
launched their new global distribution arm, MUN, integrating
their operations throughout Australia, China, India and the US.
With the tagline, From the heart of many for many, MUN
epitomizes a mind-set of products from the heart, which
stems from Hartalegas passion for caring and innovation,
creating a global company that will touch live with our
innovative, high quality gloves. Complementing our long-term
expansion strategy, the establishment of MUN will allow us to
enhance our distribution channels in an integrated manner
and

standardise

operations,

building

an

even

stronger

foundation to extend our current reach. This will also open up

opportunities for the Group to tap into new markets in the
future. In conjunction with the launch of MUN, they also
unveiled GloveOn, a new umbrella brand representing their
existing glove business. The GloveOn brand will enable to
standardise their glove products worldwide.

BUSINESS ACCOUNTING | BKAL1013

2.6

HUMAN CAPITAL
The calibre of their human capital is integral to their success,
as their workforce is the backbone of the Group. As part of
their aim to enhance efficiencies across the board, they are
focused on creating a highly productive organisational culture
that incorporates lean management principles. As a result of
this, they were able to reduce their manual labour workforce
by 12% during the year. They are also actively engaged in
promoting

development

of skills

in

order

to scale

up

capabilities. Towards this end, they have established a number

of talent development programmes, workshops and other
initiatives. Along with their Human Resources Development
Programme, in the year under review we embarked on the
Aon-Hewitt

Leadership

management
addition,

they

team
have

to

Programme
enhance

for

core

implemented

the

the

Groups

competencies.
proven

In

Japanese

methodologies of 5S and Kaizen on a Group-wide basis. This

facilitates

organisational

environment,

encourages

efficiency
teamwork

within
and

the

workplace

discipline,

and

utilises a structured approach forcontinuous improvement.

They also rolled out a campaign to inculcate their core values
in thei employees, which are known as SHIELD: Synergy,
Honesty, Innovativeness, Excellence in Quality, Learning and
Dedication. Moreover, in order to attract and retain a highly
skilled workforce, they have introduced a second Executive
Share Option Scheme. This is in line with their objectives to
instil a sense of ownership as well as to incentivise and drive
performance in their employees. Further to this, their highperforming employees also had the opportunity to experience
international trade exhibitions in Europe, the Middle-East and

BUSINESS ACCOUNTING | BKAL1013

Asia. This provided them with valuable industry exposure and
enabled them to gain keen insights on global markets.

2.7

OUTLOOK
Despite contending with challenging market forces during the
year, Hartalega was able to weather through this by
leveraging on our solid foundation, established track record
and strong margins. The inherent prospects of the glove
industry bode well for your Group over the long-term,
particularly given the resilient demand growth for nitrile
gloves. They are poised to capture this growth with the NGC,
which is proceeding on track. Once completed, the NGC will
comprise a total of six state-ofthe- art manufacturing plants
housing 72 technologically advanced production lines. This will
significantly expand their installed capacity to over 42 billion
per annum and increase productivity by 33% compared to
their existing facilities. As the first production lines of the NGC
were commissioned in the fourth quarter of the year under
review, this did not contribute substantially to profitability.
However, with new lines being commissioned progressively,
the significant boost in capacity will certainly have a positive
impact in the coming years ahead. The NGC also has an
improved

structured

maintenance

schedule

to

ensure

optimum efficiency. In the long-run, they are confident that

the NGC will enable they to defend their margins and maintain
their dominance in the nitrile glove market. Although some
10

BUSINESS ACCOUNTING | BKAL1013

industry analysts cite concerns of oversupply, they firmly
believe that this is unlikely given robust demand. As
testament to this, Hartalega is operating at full capacity, with
a high utilisation rate of 80% to 90% for their production lines,
in order to meet the heightened demand for our quality
gloves. Glove makers are also building capacities at a
moderate pace on a staggered basis, which should cater to
steady demand growth year-on-year.
At this juncture, they do not anticipate a significant upsurge in
demand for gloves due to this, as these diseases have not had
a substantial overall impact; however they are wellprepared
with the new capacities set to come on-stream. As they
pursue opportunities for growth, their distribution platform
MUN is set to see greater penetration in emerging markets.
Particularly in countries such as China, where per capita
consumption of gloves is significantly lower than developed
markets such as Europe and theUS, there lies much untapped
potential that they can capitalise on. Moving forward, market
conditions are expected to ease as raw material costs
stabilise, with concerted efforts by the member countries of
the International Tripartite Rubber Council, including Malaysia,
to stem the fall of rubber prices.
In 2015, Malaysia also rolled out the Goods and Services Tax
which was a cause for concern for many industries. However,
this is expected to have negligible impact on the glove
industry which is predominantly export-driven. They are
cognisant of the importance of building a strong talent pool to
ensure

the

long-term

success

of

the

Group.

Talent

development continues to be a key focus area as they strive

to uphold a sustainable competitive advantage. In a rapidly
growing

market

and

increasingly
11

competitive

business

BUSINESS ACCOUNTING | BKAL1013

environment, Hartalega continues to maintain our leading
edge at the forefront of the industry, leveraging on their
passion for innovation and first-mover advantage in the nitrile
segment.
2.8

ACKNOWLEDGEMENT
Hartalega sincere appreciation to their Board members, as
well as their management team and employees, for their
steadfast dedication in guiding the Group forward. On a
personal note, Kuan Kam Hon @ Kwan Kam Onn would like
to thank Chuah Phaik Sim, who has decided to leave their
Board. Having been with they since their IPO, she has played a
vital role on the Board and her contributions have been
invaluable. On behalf of the Group, he would like to extend a
warm welcome to their newest Board member, Razman Hafidz
bin Abu Zarim, who was appointed as an Independent and
Non- Executive Director on 2 March 2015. Their gratitude also
goes

to

shareholders,

financiers,

business

partners,

consultants and relevant approving authorities for their

support.

The year under review certainly had its share of challenges, as

various pressures weighed down the glove manufacturing
sector. As a result of our forward-thinking strategy to sustain
our pole position in the nitrile glove segment, during the
financial year we officially commissioned the first production
lines of the Next Generation Integrated Glove Manufacturing
Complex (NGC). This is indeed a significant milestone for the
Group, in line with our drive to forge ahead and set new
benchmarks as a leader in the industry. We will continue to
12

BUSINESS ACCOUNTING | BKAL1013

shape the growth of the Group by leveraging on and
accelerating our strengths.
Over the long-term, we are confident of bright prospects
ahead.

3.0

RATIO ANALYSIS
3.1

CURRENT RATIO

13

BUSINESS ACCOUNTING | BKAL1013

Current Assets
Current Liabilities
2015

2016

388,443,301
126,983,875
3.06

539,060,2
70
190,654,1
02
2.85

The current ratio of Hartalega in 2015 is 3.06 but in 2016 is only 2.85.
This means that a company has a amount of time in order to raise the funds to
pay for these liabilities.
3.2

RATIO OF FIXED- ASSETS TO LONG-TERM LIABILITIES

Fixed Assets(Net)
Long-Term Liabilities
2015

1,069,008,575
59,806,949
17.87

2016
1,422,039,
277
266,420,11
3
5.38

The Ratio of fixed- assets to long term in 2015 is 17.87 and its very different
in 2016 is only 5.38

3.3

RATIO OF NET SALES TO ASSETS

14

BUSINESS ACCOUNTING | BKAL1013

Net
Sales
Average Total Assets(Exclude long-term
investment)
2015

2016

276,990,069
1,961,099,54
7

317,254,565
1,457,451,87
6

0.14

0.21

Ratio of net sales to assets in 2015 is 0.14 and in 2016 is 0.21.

This ratio measures how efficiently a firm uses its assets to generate sales.
3.4

RATE EARNED ON TOTAL ASSETS

Net Income + Interest

Expense
Average Total Stockholder Equity
2015

2016

209,498,202 + 108,544
1,457,451,876

0.14

258,259,393 +
376,585
1,961,099,
547

0.13

The total asset turnover ratio calculates net sales as a percentage of assets to
show how many sales are generated from each dollar of company assets.
In 2015 it is 0.14 but in 2016 is 0.13

3.5

RATE EARNED ON STOCKHOLDERS EQUITY

15

BUSINESS ACCOUNTING | BKAL1013

Net
Income
Average Total Stockholder's
Equity
2015

2016

209,498,202
1,268,999,503
0.16

258,259,39
3
1,501,942,
273
0.17

Rate earned on stockholder's equity on 2015 is 0.16 and 2016 is 0.17.

Depending on the economy, this can be a healthy return rate no matter what
the investment is.
3.6

EARNINGS PER SHARE ON COMMON STOCK

Net income- Preffered Dividens

Shares of Common Stock
Outstanding
2015

2016

209498202-0
400,779,017

258,259,393-0
820,514,607

0.52

0.31

Earning per share on common stock in 2015 is 0.52 but in 2016 earning
decerease to 0.31.
Higher earnings per share is always better than a lower ratio because this
means shareholders.
The company is more profitable and the company has more profits to
distribute to its.

16

BUSINESS ACCOUNTING | BKAL1013

4.0

DISCUSSION

4.1

CURRENT RATIO
Current ratio function in this case is used to indicate the ability to meet
currently mature obligations. In other words, its used to measure companys
ability to pay short-term and long-term obligations. From the analysis
provided, the current ratio shows a decrease trends from 3.06 in 2015 to 2.85
in 2016. In this case, it shows that Hartalega Bhd has a amount of time in
order to raise the funds to pay for its debt.
This current ratio helps investors and creditors understand the liquidity of a
company and how easily that Hartalega will be able to pay off its current
liabilities. They have RM 388,443,301 in 2015 and RM 539,060,270 in 2016
for their current assets. Their current liabilities in 2015 is RM 126,983,875 and
2016 is RM 190,654,102. To find working capital current assets must be
subtract with current liabilities. When subtracted, Hartalega Bhd working
capital is RM 261,459,426 for 2015 and RM 348,406,168 for 2016.
This ratio expresses a firm's current debt in terms of current assets. So a
current ratio of 4 would mean that the company has 4 times more current
assets than current liabilities. A higher current ratio is always more favorable
than a lower current ratio because it shows that Hartalega Bhd can more easily
make current debt payments.
If a company has to sell of fixed assets to pay for its current liabilities, this
usually means the company isn't making enough from operations to support
activities. In other words, the company is losing money. If a company is
weighted down with a current debt, its cash flow will suffer.

17

BUSINESS ACCOUNTING | BKAL1013

4.2

RATIO OF FIXED-ASSETS TO LONG-TERM LIABILITIES

Ratio of fixed assets to long-term liabilities is a solvency measures that
indicates the margin of safety of the noteholders or bondholders. Based on
analysis, the ratio of fixed- assets to long term in 2015 is 17.87 and its very
different in 2016 is only 5.3.
The major decrease in this ratio at the end of 2015 is mainly due to liquidating
three-half of Hartalega Bhds long-term liabilities. If the company needs to
borrow additional funds on a long-term basis in the future, it is not in safe
position to make any debt or liabilities.

4.3

RATIO OF NET SALES TO ASSETS

The ratio of net sales to assets is a profitability measure that shows how
effectively a firm utilizes its assets. From the analysis, Hartalega Bhds ratio of
net sales to assets in 2015 is 0.14 and it raise up to 0.21 in 2016. If the sales of
one are twice the sales of the other, the business with the higher sales is
making better use of its assets. A comparison with similar company averages
would be helpful in assessting the effectiveness of Hartalega Bhds use of its
assets.
The total asset turnover ratio is an indicator of a companys profitability. A
company that has a high profit margin generally has high asset turnover. This
means Hartalega Bhd is able to make more sales with fewer assets than others
in the industry.

4.4

RATE EARNED ON TOTAL ASSETS

The rate earned on total assets are uses to measure the profritability of total
assets, without considering how the assets are financed. The total asset
turnover ratio calculates net sales as a percentage of assets to show how many
sales are generated from each dollar of company assets. Based on analysis,
18

BUSINESS ACCOUNTING | BKAL1013

Hartalega Bhd, rate earned in 2015 is 0.14 but in 2016 is 0.13. This shows that
this rate are not affected by whether the assets are financed primarily by
creditors or stockholders.
The rate earned on total assets of Hartalega Bhd during 2015 improved over
that of 2016. A comparison with similar companies and industry averages
would be useful in evaluating Hartalega Bhds profitability on total assets.
4.5

RATE EARNED ON STOCKHOLDERS EQUITY

Rate earned on stockholders equity or return on equity (ROE) are used to
assess the profitability of the investment by stockholders. Return on equity
measures how efficiently a firm can use the money from shareholders to
generate profits and grow the company. Unlike other return on investment
ratios, ROE is a profitability ratio from the investor's point of view this does
not the company. In other words, this ratio calculates how much money is
made based on the investors' investment in the company, not the company's
investment in assets or something else. In this analysis, the rate earned on
stockholder's equity that Hartalega Bhd gain on 2015 is 0.16 and 2016 is 0.17.
Investors want to see a high return on equity ratio because this indicates that
Hartalega Bhd

is using its investors' funds effectively. Higher ratios are

almost always better than lower ratios, but have to be compared to other
companies' ratios in the industry. Since every industry has different levels of
investors and income, ROE can't be used to compare companies outside of
their industries very effectively.
Many investors also choose to calculate the return on equity at the beginning
of a period and the end of a period to see the change in return. This helps track
a company's progress and ability to maintain a positive earnings trend.

19

BUSINESS ACCOUNTING | BKAL1013

4.6

EARNINGS PER SHARE ON COMMON STOCK

Earnings per share on common stock are used to assess the profitability of the
investment by common stockholders. Earning per share is the same as any
profitability or market prospect ratio. In analysis provided, Hartalega Bhds
earning per share on common stock in 2015 is 0.52 but in 2016 earning
decrease to 0.31.
Higher earnings per share is always better than a lower ratio because this
means the company is more profitable and the company has more profits to
distribute to its shareholders. But in this case Hartalega Bhd does not have an
ability to distribute to its shareholders.

20

BUSINESS ACCOUNTING | BKAL1013

21

BUSINESS ACCOUNTING | BKAL1013

5.0

CONCLUSION
From our eveluation of the performance of Hartalega Holding Berhad, we has found
that this company show a good performance in year 2015 and 2016. The ratio analysis
also showed that this company perform very well and almost all ratio analysis is
positive. However compare to previous year that is 2015, the company performance is
decreasing in several aspects but still acceptable because the economic pressure is
very high in current year.
Last but not least, we suggest that company to take several defensive strategies to
make sure their performance is not effected too much with the enviromental pressure.
They should make sure they can survive and maintain their performance.
We think that Hartalega Holding Berhad has high potential business in Malaysia
however the economic may give negative effect and investor should hold their
investment as we think they can overcome the pressure and increase their
performance in the future.

22