AmerCareRoyal - Disposable Glove Market Update August 2020

Glove Market Update August 2020

Market Commentary We expect ongoing elevated demand and new cost increases to continue to impact glove availability and prices beyond 2020

Supply Update  Factories are returning to normal utilization levels; however, they now face higher operating costs which is further impacting price – Incentive payments required to attract labor – Raw material shortages for certain materials (e.g. NBR used in Nitrile glove) represent new threat to availability – Higher distribution and logistics costs including PPE/ new safety protocols required to operate safely  Factories are rationalizing SKUs to increase efficiency / output – this will limit some offerings going forward  Increasing instances of counterfeit PPE flooding the market  Factories are continuing to communicate future price increases

Demand Update

 In April 2020, ACR estimated that global glove demand would increase by 150%-200% through September  However, we now believe the following to be true: – Current demand levels are higher than originally estimated (some are now saying 200-300% increase) – Duration of higher demand will last longer than originally predicted (at least the next 12 to 18 month)  Long-term global glove market expected to grow at 13% CAGR through 2027 (~2-3x pre-COVID estimates) 1  New glove applications and users driving higher LT growth rates Glove Market Timeline

February/March

May/June/July

Present

2020 Outlook

• Pandemic spreads globally

• Demand increases exponentially

• Preparations for 2 nd wave of the virus in Fall drive continued demand • Raw material shortages • Aggressive price increases and long lead times (12 Mo.) • Factories selling out capacity to highest bidder

• Elevated demand will continue into 2021 • Lack of new capacity being added to satisfy new normalized demand • Prices should remain above historical levels • Challenging payment terms

• First shelter in place orders result in factory shutdowns in SE Asia • U.S. customers begin stockpiling PPE drawing down domestic inventory

• Factories raise prices as demand exceeds supply • New market participants enter further driving up prices • Prepayment requirements

Glove Prices

1. Allied Market Research

Low High

2

Glove Capacity Update We believe the glove supply / demand imbalance will persist throughout 2021  Current global glove demand estimated at approximately 585 billion gloves annually compared to existing glove capacity of approximately 370 billion gloves  Given long lead times and capital requirements for new manufacturing capacity, only ~50 billion of incremental glove capacity expected to be added in 2021 (well below current 215 billion supply shortfall)  Top Glove headline adds potential supply constraint in the near to medium-term  While a vaccine will help mitigate the demand side of the equation eventually, a structural step-up in glove usage is expected to persist particularly as the gap between developed and emerging country glove consumption narrows  Lead times have extended to nearly 12 months for certain glove types compared to 1-2 months pre-COVID  These estimates lead us to believe glove prices will continue to increase for the rest of this year and into 2021

Glove Supply/Demand Imbalance Outlook

Supply

Demand

New Hygiene Protocols and Glove Applications

~585 Billion Current Glove Demand

~165 Billion Supply Shortfall

Governments & Health Systems Continue to Stockpile PPE

Glove Capacity Added in 2021

~50 Billion

Raw Material Shortages

~370 Billion Current Capacity

Limited New Capacity Being Added

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Customer Commitment Customers need to prepare themselves for longer-term supply disruptions, but ACR is here to help

 As we manage these challenges, ensuring glove supply for our customers remains the top priority  ACR will use its scale and influence in the market to maximize supply and manage costs for our customer base  Provide tailored solutions and recommendations to meet each customer’s unique needs  Highest customer service – clear communication and transparency on any future market price changes (up or down)  Always be a trusted source of quality product for our customers

ACR Glove Supply Strategy

 Customer allocations will continue until supply catches up with demand  Allocations based on historical demand profile for specific SKUs  Working on strategies to procure incremental capacity for our customers above historical levels (below)

Allocations

 Actively working with our manufacturing partners to secure incremental supply  ACR Asian sourcing office is constantly vetting new suppliers, evaluating teaming agreements to increase volume commitments  Spot market for customers looking to purchase excess glove inventory ASAP

Secure Supply

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Key Takeaways Key takeaways for our August 2020 Glove Market Update

1

The supply / demand imbalance for gloves could take years to reach equilibrium based on current capacity expansion plans

2

There has been a market reset in the overall demand outlook for gloves

3

We expect market dictated price increases to continue through 2020 and into 2021

4

Continued use of substitution as a way to manage cost increases for our customers

Beware of counterfeit products in the market – use trusted sources of supply 5

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