CERAMICS Q2 PROFIT SURGES FOLLOWING DIVESTMENT MOVE
▶ Chief executive attributed gains to the sale of its 50 per cent stake in RAK Warehouse Leasing
RAK Ceramics profit surged for the second quarter after divesting in its warehouse leasing business to focus on multiple acquisitions to reach larger markets.
The company, which is the world’s largest manufacturer of ceramic tiles, reported yesterday that profits increased to Dh113.2 million in the quarter ending in June, up 73 per cent from Dh65m a year earlier.
Abdallah Massaad, the chief executive of RAK Ceramics, said that the rise was attributed to the sale of its 50 per cent stake in RAK Warehouse Leasing for Dh125m, realising a profit of Dh57.9m, as well as adjusting production and lowering manufacturing and operating costs.
“We made the decision in 2014 to exit non-core assets, which was contributing more than 15 per cent [to our portfolio], and today non-core makes up 8 per cent,” he said.
While it was easy for the company to divest in non-performing assets, Mr Massaad said RAK Ceramics would hold off on dwindling down its remaining performing non-core assets. “Last quarter we exited 2 per cent of our Bangladesh business for Dh7m, which was 21 times the earning per share. While we will maintain a majority in Bangladesh, we are looking at our value of the company,” he said. Now RAK Ceramics is looking to increase stakes in other markets, including multiple acquisitions in India.
Mr Massaad said the first factory, located in the Indian state of Gujarat, had received board approval and was near close. “In India, we are growing, but we only have one factory covering the entire country and must outsource 50 per cent,” he said. “We are entering into different regions in India to optimise logistics costs and coverage.”
However, revenue for the tile and ceramic ware manufacturer dipped 4.6 per cent in the quarter owing to the drop in non-core sales .
The company said it would continue to look towards the remainder of the year with increased growth in the UAE, though Saudi Arabia’s numbers remain soft.
“We are still behind the sales of last year, but we’re steadily growing our market share in Saudi Arabia,” Mr Massaad said. “We can see that wholesale and retail is picking up. We are cautiously optimistic.”
Anoop Fernandes, a senior analyst at Bahrain’s Securities & Investment Company said RAK Ceramics beat his expectations across the board. “Revenue was higher and the margins were 2 per cent higher than my estimates, even after I adjusted from the sale [of the warehouse unit],” he said.
Mr Fernandes said the quarter was expected to be weak because of the lean season.
He said the manufacturer’s exposure to the Arabain Gulf markets may be impacted from the fallout with Qatar, which would be seen in third quarter results.
Shares for Abu Dhabi-listed RAK Ceramics moved down by 2 fils to Dh2.40 yesterday.
Last quarter we exited 2% of our Bangladesh business for Dh7m, which was 21 times the earning per share