VIP Gloves to boost annual output 60% with four new nitrile glove production lines

VIP Gloves Ltd (ASX:VIP) plans to boost production capacity by up to 60% with the installation of four additional new production lines over the next 18 months to meet the strong demand for nitrile gloves on the back of the prolonged global COVID-19 pandemic. As part of its plans, the company raised $2.3 million to part-finance the installation of the initial two new nitrile glove production lines at its factory premises in Selangor, Malaysia. All outstanding engineering works on the new lines have been completed and the two lines are fully commissioned, with maximum production capacity expected over the next two months. These two new lines will increase annual glove production by around 40% to 620 million pieces when operating at full capacity. Sales order VIP Gloves said sales orders had been filled through to the second quarter of 2021, with recent orders at higher sale prices which vary, depending on the specifications and volume. At present, the company’s products are mostly supplied to third-party distributors on an original equipment manufacturer (OEM) basis, which in turn are sold locally in Malaysia and to overseas markets in Asia and the Middle East. Expansion plans Given the strong demand for nitrile gloves on the back of the pandemic, the company believes the demand for its gloves will continue in the foreseeable future. It, therefore, plans to install up to four additional new glove production lines, boosting production to an estimated 1 billion pieces per annum, at full capacity. The expansion plan is estimated to cost a total of $6.5 million. Fundraising The company has placed 76.5 million new ordinary shares to raise $2.3 million. The shares were allotted on June 24, 2020, but will not be traded until a Cleansing Prospectus has been issued. It will also issue 13,690,475 new ordinary shares to settle RM1.150 million ($410,714) owed to a creditor by its wholly-owned subsidiary company. All the shares are issued at 3 cents per share, representing around a 16% discount over the past 30-day volume-weighted average price of VIP shares. Equity Incentive Plan In addition, the board has adopted an Equity Incentive Plan involving the issue of a total of 38 million options and 80 million performance rights (options and rights). These options and rights will be issued to directors and qualified employees as recognition of past performance and to help retain staff during a time of critical progress. Individual entitlements will be based on, amongst others, eligibility, seniority, role and length of service. Each option can be converted to a fully paid share at an exercise price of 4.5 cents share, which is a 25% premium over the past 30-day volume-weighted average price of VIP shares. Each right issued can be converted to a fully paid share on satisfying both performance targets and vesting conditions. Shareholder approval will be sought for the options and rights plan at an Extraordinary General Meeting to be convened within the next few months. Nitrile rubber gloves Nitrile is a synthetic rubber compound (Nitrile Butadiene Rubber), used as a disposable glove material. Nitrile has been around for a while and has been popular in the medical, food and cleaning industries. Its qualities include: ➢ Higher puncture resistance than any other glove material and hence more durable; ➢ Better chemical resistance than latex or vinyl gloves; ➢ Hypoallergenic attribute, making it standard medical supply for hospitals and emergency personnel; and ➢ Powder-free and hence more comfortable to remove from the box. ➢ Withstand exposure to oils, solvents, and chemicals which typically degrades regular latex gloves. VIP Gloves’ products comply with International AQL Standards and conform to the ASTM D6319 and EN455 Standards.