RAK Ceramics P.S.C. (Ticker: RAKCEC: Abu Dhabi), a global hi-tech manufacturer of lifestyle ceramics solutions, today announced its results for the third quarter ended September 30th 2015.
RAK Ceramics delivered a robust performance for the period, recording strong net profit growth, increasing by 43% at AED 82.1 million (Q3 2014: AED 57.4 million). The performance was largely driven by an increased level of activity across RAK Ceramics’ core businesses in core markets and margin improvements in tiles and non-core businesses. Adjusted net profit, excluding the impact of hyperinflation from Sudan and Iran increased by 10.2%, reaching AED 90.7 million in Q3 2014 (Q3 2014: AED 82.3 million).
Overall net profit for Q3 2015 increased by 43% at AED 82.1 million (Q3 2014: AED 57.4 million), supported by controlled operating costs and procurement savings, which reached AED 15.2 million in Q3 2015, allowing the company therefore, to increase blended gross margins to 30.7% from 26.9% in Q3 2014.
Results exceeded analysts’ estimates and came in line with management expectations despite an ongoing dampening economic environment, a weaker Euro, higher natural gas prices and falling oil prices. This reflects the success of RAK Ceramics’ refocused strategy and the continued execution of the ‘Value Creation Plan’ to invest in and expand core businesses and divest non-core businesses.
Tiles sales witnessed strong growth with a 3.5% increase in the UAE at AED 122.3 million and a whopping 32.1% increase in Saudi at AED 114.7 million.
Changes in India’s management put downward pressure on Q3 2015 performance but plans are in place to quickly revamp business activity and deliver on strategy.
Strong Margin Growth
Non-core performance was very solid in Q3 2015, underscoring management’s commitment to unlock hidden value by turning around non-core businesses and substantially profiting from them ahead of exiting.
In Q3 2015, non-core revenues decreased by 18.6%, reflecting our scale down of these operations with a focus on improving their profitability towards an eventual exit.
Disposal of assets in China and Sudan are underway, with expectations of full exit from these non-strategic businesses in the next few months. This will have an impact on near term revenue growth but will improve margins in the long term.
Growth Outlook Optimistic; Consolidating Interests in Strategic Markets to Drive Growth
Strengthening core businesses is on track. In 2015, RAK Ceramics announced plans to revamp its business in Saudi Arabia and set a proactive strategy to strengthen its distribution network, energise B2B sales and expand its footprint through renting a 93,000 sqm warehouse in Riyadh. The company expects a gradual recovery in Saudi sales back to the historical run rate of 25 million sqm annually.
Iran and India hold substantial growth upside. In October 2015, RAK Ceramics announced the full acquisition of the remaining 7.57% minority share of its Indian subsidiary, RAK India. The announcement followed the company’s acquisition of the 20% minority stake of its Iranian facility, RAK Iran in August. With 100% ownership of its Iran and India operations, the management has long term plans for full management and control of its facilities. Potential is big in both markets, with the company planning to ramp up capacity to 9 million in Iran, capitalizing on the export potential out of this market once sanctions are lifted.
Additional capacity expansions in Sanitaryware are planned in the remaining core markets of the UAE by 22% and Bangladesh by 25% in line with the refocused strategy.
Continued Investments in-line with Growth Plans; Capacity Expansions Being Implemented across Core Markets. AED 100 million CAPEX spend in Q3 2015
2015 marked a great year for capital investments in technology and strategic ventures. In Q3 2015, RAK Ceramics spent AED 107 million in CAPEX, the most amount that has ever been spent in a given quarter. The company is on track to spend around AED 300 million by the end of 2015 in expanding capacities, technology and strategic ventures that improve margins.
Seeking New Growth Markets
Abdallah Massaad, Chief Executive Officer of RAK Ceramics, said: “RAK Ceramics has delivered a strong performance in Q3 2015, demonstrating the core strength of our business. Over the past year, we focused on core business and growth opportunities in core markets and succeeded in delivering results. We invested, we grew, and we are on track to satisfy all elements of our value creation strategy. Additionally, RAK Ceramics made significant efforts this year to expand in new global markets. The company opened a representative office in Singapore during the year to expand its presence in Asian markets, which has already borne fruit, and is looking to expand its presence in the Americas towards the end of 2016 as the company leverages its international capabilities.”
Key highlights for the period