VIP Gloves Ltd (ASX:VIP) saw earnings before interest, tax, depreciation and amortisation (EBITDA) surge 340% in the September quarter, boosted by a sharp rise in average selling price and the addition of two production lines.
The nitrile gloves manufacturer’s Malaysian plants are operating at more than 90% capacity, with a 21% increase in quarter-on-quarter output and it is fast-tracking the installation of four additional production lines.
Shares have been as much as 20% higher this morning to 9.2 cents and the company has a market cap of approximately $57.4 million.
Net cash from operations rose by 36.6% to $1.4 million due to the company’s continued cost savings efforts, which saw a 48.9% drop in key operating expenses.
Interest cost was also lower during the quarter as VIP paid down debt.
It also had net cash from investing activities from additional disposal proceeds of land & building of $2.3 million.
Cash and cash equivalent improved by 129% quarter-on-quarter to $2.2 million as at 30 September 2020, against total outstanding term loans of $1.9 million.
Average selling price up
VIP has seen a sharp increase in its average selling prices (ASP) for its products over the September 2020 quarter by an average quarter-on-quarter of 70%.
VIP, together with other nitrile glovemakers, have seen an upward pressure for nitrile latex (NBR) raw material prices.
NBR is the major raw material component for the production of nitrile gloves, accounting for more than 50% of total cost of goods sold.
Despite this, VIP remains upbeat that profit margins will continue to rise as the increase in raw material costs are passed onto customers.
During the quarter, VIP recorded significant quarter-on-quarter improvement in EBITDA and EBITDA margins.
First-quarter production capacity
Two new production lines were fully commissioned in July 2020, increasing VIP’s total production capacity by around 40% to 620 million pieces per annum.
Its nitrile glove manufacturing operations were running at better than 90% of capacity utilisation during the quarter, thanks to strong demand for product.
During the quarter, production rose from 111 million pieces in the fourth quarter of financial year 2020 to 134 million pieces in the first quarter of financial year 2021.
VIP has committed sales out to the fourth quarter of financial year 2021 from its existing production operations.
VIP has brought forward its capacity expansion plan and commenced preliminary works for the installation of an additional four new nitrile glove production lines over the next 12 months at its current factory premises.
Once completed, VIP will boast a further 60% increase in its total production capacity to more than 1 billion pieces of nitrile gloves per annum.
The total capital expenditure budget for this expansion is around $6.5million, which will be financed through existing cash reserves and from operational cashflow.