RAK Ceramics P.S.C. (Ticker: RAKCEC: Abu Dhabi), a global hi-tech manufacturer of lifestyle ceramics solutions, today announced its results for the second quarter ended 30 June 2015.

Results in Q2 2015 reflect the success of RAK Ceramics’ re-focused strategy and continued growth in its performance across core businesses in focus markets. Overall revenues declined by 1.1% reaching AED 803.8 million in Q2 2015, same level as in H1 2015 of AED 1.55 billion. Non-core revenues increased in Q2 2015 by 11% to AED 137.3 million (20.9% increase in H1 2015 to AED 255.2 million) and core tiles and sanitary activities in the core focus markets also witnessed strong growth. UAE local market tiles sales recorded a 9.5% increase and reached AED 121.8 million in Q2 2015 (9.5% increase in H1 2015 to AED 242.1 million) and sanitaryware local UAE sales increased by 6.7% to AED 36.4 million (5.2% increase in H1 2015 to AED 69.0 million). Sales in Saudi Arabia have also rebounded as Tiles sales increased by 5.0% to AED 88.9 million compared to the first quarter of 2015.

Overall net profit for the period declined by 5.7% to AED 85.9 million (2.4% decline in H1 2015 to AED 146.4 million), after considering a total net losses of AED 13.7 million from restructuring activities such as the divestments of stakes in RAK Pharma and Moshfly in Bangladesh, RAK Laticrete in the UAE, in addition to impairment provision in Sudan, Al Hamra Aluminium and RAK Gypsum.

During the period, RAK Ceramics strengthened operational efficiencies through controlling operating costs and enhancing technology. Savings from non-core operations turn-around and raw material, procurement and freight savings allowed the company to increase blended gross margins to 27.7% in Q2 2015 (28.3% in H1 2015) and core gross margins to 30.6% in Q2 2015 (30.4% in H1 2015).

Continued Focus on Divesting Non-Core Businesses to Unlock Value

In Q2 2015, RAK Ceramics sold RAK Gypsum and Al Hamra Aluminium and 15 townhouses in Al Hamra Village for AED 25.2 million, underscoring the management’s commitment to unlock hidden value and focus on core activities.

RAK Ceramics continue to execute the exits from the markets in Sudan and China, in line with the announced restructuring strategy, and expect to complete the transactions in the second half of 2015.

Expansion Strategy

Strengthening core businesses is on track, where RAK Ceramics is seeking to gain greater control of the companies it invests in. RAK Ceramics announced acquiring the remaining 20% of RAK Iran last week, gaining full operational and financial control over the Iranian facility, which is ready to fully integrate into RAK Ceramics’ overall operations.

Global sanitaryware expansions have been planned with an increase in production of 22% in the UAE, 52% in India and 25% in Bangladesh; in line with refocused strategy to support revenue growth by expanding high margin core businesses.

A proactive strategy to restructure distribution capabilities in Saudi Arabia is underway; focusing on high end products and B2B sales. RAK Ceramics aims to broaden its footprint in the Kingdom and expects a gradual recovery in sales back to historical run rates.

Abdallah Massaad, Chief Executive Officer of RAK Ceramics, said: “We promised last year to continue creating long-term value for our stakeholders by sustaining growth and executing a solid restructuring strategy. Our results come in line with our refocused strategy which aims at expanding high-margin core businesses to unlock hidden value and improve shareholder profitability. Growth in 2016 is expected to be driven by planned expansions and higher demand in the Middle East and Asia.”

“We are on track to implement our Value Creation Plan with a highly disciplined approach. We are launching new products in line with robust demand in focus markets and are hiring the best talent across the globe to support the growth trajectory. We are also following a rigorous risk management scheme to mitigate headwinds from uncertainties arising from the impact of lower oil prices, currency fluctuations and slower-than-expected overall economic recovery,” he added.

From the start of 2015, RAK Ceramics made 8 new senior appointments in the UAE and Asia, aimed at strengthening the implementation of its corporate strategy and driving growth across core businesses of tiles, sanitaryware, tableware and taps and faucets.

In March 2015, the Board of Directors committed to returning capital to shareholders via a sustainable dividend policy, aimed at a pay-out ratio of at least 60% of consolidated net income subject to consideration of the business outlook and growth opportunities.

Key highlights for the period

• Net profit decreased by 5.7% to AED 85.9 million (Q2 2014: AED 91.2 million).
• Adjusted net profit, excluding hyperinflation reached AED 94.5 million, decreasing by 17.8% (Q2 2014: AED 115.1 million). Total losses from hyperinflation reached AED 8.6 million in Q2 2015 compared to the same period in Q2 2014.
• Cost savings from raw material and freight procurement reached AED 10 million in Q2 2015. Total savings in H1 2015 reached AED 17.5 million.
• Net debt increased to AED 1.6 billion from AED 1.36 billion mainly on account of dividend payments of AED 319.4 million (UAE AED 286 million and Bangladesh 33.4 million).
• Overall sanitaryware revenues increased by 1% to AED 116.2 million from AED 115.0 million in Q2 2014.
• Forex losses reached 18.9 million in H1 2015 caused by forex losses of AED 15.8 million and losses on derivatives of AED 3.1 million.
• One-off total net losses of AED 13.7 million from restructuring activities.