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Business

Hartelega optimizes costs through headcount reduction

Hartalega Executive Chairman Kuan Kam Hon, second from left, expects pricing pressure in the rubber glove market to ease off going forward.

KUALA LUMPUR -- Hartalega Holdings, the world's largest producer of synthetic rubber gloves said Tuesday it has mitigated rising expenditures through cost management, which include reducing raw material wastage and headcounts.

Contracts of some 600 foreign labors or nearly 10% of its total workforce in the first quarter were not renewed as the group looked for ways to improve productivity.

"It helped us to mitigate the cost increase due to the minimum wage hike," Managing Director Kuan Mun Leong told reporters attending the company's annual general meeting.

The company has also reduced costs by optimizing energy consumption and redesigning its production line, but did not reveal savings. Earlier this month, the company announced a 10.4% year-on-year decline in net profit in the second quarter due to stiffer competition and higher costs.

The government set the new minimum wage at 1,000 ringgit for Peninsular Malaysia and 920 ringgit for Borneo Malaysia from July 1. The natural gas tariff also rose by 5.95% from July 15, following a 17.1% increase in gas prices on Jan. 1

"The market has bottomed out," said Executive Chairman Kuan Kam Hon. "The pricing pressure will lighten." Kuan said the medical examination business has seen average growth of 8% to 8.5% over the past 15 years.

The company said that talk of oversupply in the market is unfounded and it is "perceived intensified competition" that has driven glove prices down.

Hartalega's main products are nitrile gloves for the health care and industrial sectors. The company expects stronger demand in health care as nitrile gloves replace natural latex ones. Nitrile is a synthetic rubber and more resilient.

Global demand for rubber gloves is growing at 8% annually, according to the Malaysian Rubber Glove Manufacturers Association (MARGMA). Hartalega's largest markets are North America (56%), Europe (28%), and Asia Pacific (15%).

Hartalega has invested 2.2 billion ringgit in its Next Generation Integrated Glove Manufacturing Complex (NGC) in Sepang, which has more automated manufacturing. It has already completed two plants but delayed commissioning two other plants that should now open by October. The new plants can each produce some 3.8 billion pieces annually.

"We delayed plant three and four to better regulate the expansion to the market," said Kuan. "We do not want to put out a huge capacity and have it turn against us by driving glove prices down."

Hartalega's shares remained untraded at 4.3 ringgit on Tuesday.

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