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UAE's RAK Ceramics reports Q1 2015 results

Adjusted net profit for the quarter increased 22% YoY to AED 75.8 million.

RAK Ceramics, a global hi-tech manufacturer of lifestyle ceramics solutions, today announced its results for the first quarter ended 31 March 2015.

The period has seen stable growth in RAK Ceramics’ performance with net profit increasing to AED 60.4 million from AED 58.7 million in Q1 2014, despite challenging global financial conditions and downward pressures from increased gas prices, foreign exchange fluctuations and hyperinflation in countries where RAK Ceramics operates.

Total losses from hyperinflation reached AED 15.4 million in Q1 2015, therefore adjusted net profit (excluding impact of hyperinflation) was AED 75.8 million, an increase of 22% compared to Q1 2014. EBITDA was AED 130.5 million compared to AED 134.2 million in Q1 2014. During the quarter the company concluded the sale of RAK Pharmaceuticals and Moshfly in Bangladesh and Laticrete RAK LLC in UAE, which resulted in an AED 39.1 million profit. Additionally, it signed a Share Purchase Agreement to sell RAK Sudan and during Q1 took an AED 48.4 million impairment charge on this investment. The sale of Sudan will decrease the impact of hyperinflation in the long run.

Several initiatives have been implemented in the first quarter to manage growth and improve operational efficiencies. On the cost side, initiatives to save on raw materials resulted in cost savings of AED 7.8 million in the first quarter. Growth initiatives included, launching 25 new formats of tiles at international exhibitions and appointing 5 new senior executives to strengthen corporate governance structures in line with our re-focused strategy to support growth and create value.

Notwithstanding irregular growth across several markets, Saudi Arabia recorded an 18% QoQ increase in revenues resulting from a proactive strategy set up last year to strengthen and consolidate the distribution network and ramp-up B2B capabilities.

Total consolidated reported revenue increased by 0.4% to AED 744.1 million.

Sanitaryware revenue increased by 0.7% to AED 110.9 million in line with the company’s focus on expansions in sanitaryware business across the UAE, India and Bangladesh. Sanitaryware sales in the UAE increased by 9% to AED 83.4 million compared to Q1 2014.

Abdallah Massaad, Chief Executive Officer of RAK Ceramics, said: “We are pleased to announce our Q1 2015 results which demonstrate continued stability against a backdrop of very challenging conditions and market volatility. As we continue implementing our re-focused strategy, we will proceed with our mission to divest from ‘non-core businesses’ and divest ‘non-strategic assets’ in line with our Value Creation Initiatives.”

“Another major part of our focus will be on investing in strategic business activities across our Focus Markets with a highly disciplined approach. Like the rest of the markets, we feel the headwinds from oil and gas prices and currency fluctuations, but we’ve taken contingency measures against expected distress in 2015. We are flexible and agile, but must also ensure a relentless focus on our plan to invest in revenue generating tiles, sanitaryware, tableware and taps and faucets ‘core-businesses,” he added.

RAK Ceramics is taking stringent measures to exit ‘non-core businesses’. It announced last year the intention to sell RAK Sudan and to reduce activities in China, the latter of which resulted in an AED 4.9 million reduction in losses in Q1 2015.

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 slightly increased to AED 60.4 million from AED 58.7 million in Q1 2014.

· Adjusted net profit (excluding impact of hyperinflation of AED 15.4 million) was AED 75.8 million, an increase of 22% compared to Q1 2014.

· Profit from the sale of businesses totalled AED 39.1 million (37.6 from sale of RAK Laticrete and AED 1.5 million from RAK Pharma and Moshfly in Bangladesh) offsetting the impairment of AED 48.4 million on Sudan exit agreement.

· Cost savings from raw material and freight procurement reached AED 7.8 million

· Net debt was reduced to AED1.37 billion from AED 1.41 billion.

· Tile revenues decreased 13% to AED 510.2 million from AED 586.8 million in Q1 2014.

· Forex losses reached 21.2 million caused by depreciation of the Euro by nearly 10.5% from Q4 2014, mostly a translation loss.