RAK Ceramics’ profit hit amid building activity slowdown

The Northern Emirates-based multinational has suffered a tough time, with negative impacts from a slowdown in Saudi spending and the Brexit vote cited, among other things.

RAK Ceramics said its results were affected by India's demonitisation move, among other things. Pawan Singh / The National

RAK Ceramics expects to complete an acquisition in India this year as it focuses on its core markets to shore up income hit by “exceptional challenges” in 2016.

The company expects to close a deal to acquire an unnamed ceramics manufacturer in India in the second quarter as it ramps up its sales efforts there and in the UAE, Bangladesh and Europe to help offset the soft business environment in Saudi Arabia.

Yesterday, the tile and ceramic ware manufacturer reported it had swung to a loss in 2016 as a result of slower construction activity in Saudi Arabia, demonetisation in India and provisions and write-offs of Dh185 million.

“It is still a good performance in this environment,” said Abdullah Massaad, the RAK Cer­amics group chief executive. “We are optimistic for this year based on divestments of our non-core businesses, focus on core markets and acquisitions.”

Sales in Saudi Arabia dropped by 41 per cent last year amid low oil prices, lack of liquidity in the market during the second half and a slowdown in imports, Mr Massaad said.

About 48 per cent of last year’s provisions and writeoffs was “the impact of lower market prices for ceramic tiles sold in the [Arabian Gulf], as a result of the build-up of excess inventory at the local producer level”, RAK Ceramics said in a statement to the ADX, where it is listed.

Its net loss attributable to owners of the company was Dh4.9m compared to a profit of Dh281.3m in 2015.

The group’s total revenues dropped by 9.3 per cent last year to Dh2.79 billion from Dh3.07bn a year earlier. Fourth-quarter revenues were Dh650m, up from Dh645.7m in the third quarter.

The decision by India’s government in November to remove the largest banknotes from circulation as part of its crackdown on “black money” led to a sales drop of 25 per cent for RAK Ceramics.

“The scale and speed of government spending in Saudi Arabia, the UK vote to leave the European Union, the drive by the Modi government in India to remove larger bills from circulation are all significant in the arc of history and have impacted the company unfavourably to various degrees,” the company said.

The Ras Al Khaimah-based company consolidated its Germany, UK, Italy and Australia businesses last year. At the same time it increased its tiles capacity in Bangladesh by 42 per cent and sanitary ware capacity in the UAE by 20 per cent.

Last month, it sold its majority share in the electromechanical and plumbing company Electro RAK, which is based in the UAE, for Dh45m.

Its shares closed at Dh2.15, down by 5.3 per cent from Tuesday’s close. The share price is down from a peak of Dh3.76 in March 2015.

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