RAK Ceramics Announces 2016 Financial Results
Ras Al Khaimah, United Arab Emirates, 15 February 2017
- Revenue lower in 2016 by 9.3% YoY at AED 2.8 billion, amidst challenging environment
- Gross margin strong at 30.5%, up 230 basis points YoY, reflecting an 80bps improvement in tile margins and growing contribution of higher margin sanitaryware and tableware towards the overall sales mix.
- On a like for like basis, net profit for the year decreased 37.1% YoY to AED 216.0 million. Reported net profit of AED 30.8 million includes AED 185 million of provisions and other adjustments
- Board committed to dividend payment of 15 fills cash dividend per share
- Refinement of original Value Creation Plan introduced, adding operational initiatives towards its vision to becoming a global ceramic lifestyle solutions provider
Ras Al Khaimah, United Arab Emirates, 15 February 2017 – RAK Ceramics PJSC (Ticker: RAKCEC: Abu Dhabi), one of the largest ceramics’ brands in the world, announced its results for the year ended 31 December 2016.
RAK Ceramics reported total revenue of AED2.8 billion for 2016, decreasing by 9.3% YoY. Core revenues fell 6.1% YoY to AED2.4 billion while non-core revenues fell 26.1% YoY.
Lower core revenues principally resulted from decreased sales in Saudi Arabia and India which were 41.0% and 25.6% lower YoY respectively. The decrease in Saudi reflects the significant decline in government project spending and business sentiment. Lower sales in India reflect the company’s early stages in the process of rebuilding its senior leadership team and the impact of demonetisation on the economy in the fourth quarter of 2016. Lower non-core revenues reflect the sale of RAK Logistics and reduced construction activity in the UAE.
Offsetting these factors was continued growth in the UAE, the company’s largest market, where tiles and sanitaryware sales rose by 1.5% YoY despite weakness seen in Q3/2016. Sales in Bangladesh grew 10.5% YoY as the company benefited from increased tile capacity which came online mid-year. The tableware business had a robust performance with revenues increasing by 20.1% YoY to AED175 million on new product introductions including a successful line of cutlery.
Like for like net profit declines 37.1% YoY
Despite challenging global market and trade conditions, overall profitability improved with the consolidated gross profit margin increasing to 30.5% from 28.2% YoY; core margins rose 120bps to 30.5% while non-core margins rose 770bps YoY. Higher profitability however could not offset the decline in sales. On a like for like basis, i.e. excluding provisions and write offs, net profit for the year was AED 216 million a 37.1% decline versus 2015 levels.
Extraordinary Provisions in 2016
During 2016, the company recorded extraordinary provisions of AED 185 million at both a local and international level. About 48% or AED 88.7milion of the extraordinary provisions reflects the impact of lower market prices for ceramic tiles sold in the GCC, as a result of the build-up of excess inventory at the local producer levels. The remaining 52% relates to the provisions for trade and other receivables and related expenses in international markets and other miscellaneous items.
These provisions are non-cash and do not impact the company’s ability to finance itself or pay dividends to its shareholders. In 2016, the board approved the distribution of 15 fills cash dividend per share, representing a pay-out ratio of 15%.
“Prudent” in 2016, “Cautiously Optimistic” in 2017
Overall 2016 sentiment was characterised with “prudence” as the main markets in which RAK Ceramics operates were impacted by major macro events such as project spending cuts in KSA, Brexit uncertainty in Europe and the impact of demonetisation on the Indian ceramic tile sector and consumer demand.
Abdallah Massaad, Group CEO, RAK Ceramics, said: “We enter 2017 with much optimism. We expect sustained growth in the UAE and Europe and a turnaround in Saudi by the second half of the year. Our performance wasn’t unexpected and we were prepared for it. We closely monitored the global trade environment in 2016 and weighed it up against our performance. We had to take exceptional measures, including cost reduction initiatives in the UAE, to ensure long term profitability and to deliver on our promise of unlocking value to shareholders. At the same time during 2016, we continued to make investments that will help propel the business forward in 2017, including expanding tile capacity in Bangladesh as well as sanitaryware capacity in the UAE, investments in product development and our corporate rebranding.”
Upgrading to VCP 2.0
From an operational perspective, a lot was achieved since the Value Creation Plan was introduced in June 2014. More specifically, the Group was successful in achieving these major objectives:
- Strengthening the firm: we strengthened our organisational structure, hired key managers in core operations and strengthened corporate governance.
- Investing in core businesses to sustain growth and exiting non-core: we acquired minority shareholdings of strategic businesses such as in India and Iran, we started divesting non-core and non-strategic assets such as the Sudan business; we acquired full control of our European and Australian distribution joint ventures and invested in strengthening the global corporate brand identity.
- Preparing the ground for long term VCP 2.0: reviving India, revamping Iran, leveraging investments in European distribution, expanding the GCC manufacturing footprint and better integrating the taps and faucets business are all major initiatives where work is still ongoing.
Divestment of stake in Electro RAK LLC a subsidiary of the Company
In January 2017, the Company sold its entire stake in Electro RAK LLC (an MEP contracting company) for proceeds of AED 45 million
Key highlights for the year ending 31 December 2016
- Overall revenue decreased by 9.3% YoY to AED 2.8 billion.
- Core revenue decreased 6.1% YoY to 2.43 billion impacted by lower sales in Saudi and India and in Europe as a result of logistics issues in Q3/16.
- Non-core revenue decreased by 26.1% to AED 363.7 million from AED 492.4 million; revenues in 2015 included AED 55.5 million contribution from RAK Logistics.
- Consolidated gross margin for 2016 increased to 30.5% from 28.2% YoY.
- Core gross margin increased to 30.5% from 29.3%; noncore gross margin increased to 30.3% from 22.6% YoY.
- EBITDA margin decreased to 17.4% from 19.3%.
- Extraordinary provisions totalling AED 185 million were incurred in 2016 as against AED 53 million in 2015.
- On a like for like basis, adding back the AED 185 million provisions and other adjustments, net profit decreased 37.1% YoY to AED 216 million. Reported net profit was AED 30.8 million.
- Revenue by segment (year end 2016):
- Tiles decreased by 9.9% YoY to 1.8 billion
- Sanitaryware increased by 2.7% YoY to AED 456 million
- Revenue by end market (year end 2016):
- UAE tile and sanitaryware revenue rose 1.5% YoY to AED 628.4 million.
- Bangladesh increased by 10.5% YoY to AED 261.5 million.
- India fell by 25.6% YoY to AED 291.1 million.
- Europe grew by 25.4% YoY to AED 401.3 million, including the impact of consolidation at AED 63.4 million.