R.A.K. Ceramics P.J.S.C. (RAKCEC) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the RAK Ceramics Third Quarter 2021 Earnings Conference Call. This is Mohamad Haidar from Arqaam Capital. And from RAK Ceramics, we are joined by Mr. Abdallah Massaad, group CEO; and Mr. P K Chand, group CFO. Over to you, Abdallah.

Thank you, Mohamad. And good evening, everyone. I'm Abdallah Massaad, CEO of RAK Ceramics. I would like to welcome you to the RAK Ceramics Third Quarter and 9 Months of 2021 Earning Conference Call and Webcast. I sincerely hope that everyone on the call, along with families, are keeping safe and healthy. I'm pleased to report that RAK Ceramics continued to deliver strong financial performance in the third quarter of 2021, with revenue and profitability surpassing pre-pandemic level despite challenges created by the imposition of customs duty of 12% in Saudi Arabia and the significant increase in logistic costs due to the global shortage of containers. Total revenue for the third quarter increased by 9.4% year-on-year, reaching AED 684.8 million; and increasing by 9.6% compared to the third quarter 2019, driven by strong growth trajectory in core business. Our total gross profit margin for the third quarter increased by 7.1%, reaching 38.2%, driven by improved production efficiencies and the optimization of production line across all our plants. The production capacity utilization for tiles was optimized to match the demand during the quarter. We continued to reduce production costs by optimizing the production line to increase productivity and [ first choice ] of production. The UAE end market revenue in the third quarter 2021 was lower by 10.7% year-on-year and lower by 8.4% quarter-on-quarter, to reach AED 131.6 million, due to lower project and retail sales. There has been moderate growth in the construction industry since the beginning of the current year, and we believe this will continue in the fourth quarter and next year with the increase in the real estate demand. In the UAE, anti-dumping duty ranged from 23.5% to 106% on importing tiles from India and China; and has been effective from 6 of July 2021, which positively reflects the demand for our products. In Saudi Arabia, the company's strategy continued to yield results. The imposition of a 12% customs duty effective from 1st July 2021 reduced demand, impacting our sales. We have already submitted duly certified regulatory documents to comply with the requirements, like value additions in the UAE and a minimum threshold of local employment [ in ] the organization with Saudi authorities; and are awaiting for grant of exemption of duty. Our products have been approved by ministry of housing projects, and supplies have started in the third quarter 2021. We were able to strengthen our position as a premium provider with the announcement of 3 new showrooms, 2 Riyadh and 1 in Madinah, which are expected to open later this year. In 2022, there are plans to open another 3 showrooms. Saudi Arabia revenue decreased by 7.4% year-on-year and by 13.9% quarter-on-quarter, to reach AED 127.5 million, to due -- reduced demand. In the first 9 months of 2021, revenue increased by 47.1%, reaching AED 439 million. In Europe, performance was impacted by higher shipping freight rates due to global container shortage. Resulting revenue decreased by 14.4% quarter-on-quarter, while it is higher by 7.2% year-on-year at AED 98.1 million. In 9 months 2021, revenue increased by 24%, reaching AED 313 million, compared to pre pandemic. It was higher by 31.2% year-on-year. And during this year, we participated in the Cersaie fair in Italy in the last week of September and the showcased -- and showcased all our novelties. In India, operation marked a strong turnaround, with business surpassing pre-pandemic level. This was underpinned by positive business sentiments, as reflected in improved profitability despite significantly higher fuel costs. Revenue grew by 56.8% year-on-year and by 48.2% quarter-on-quarter and reaching AED 104.5 million. In 9 months, revenue increased by 77% year-on-year, reaching AED 271.3 million; and higher by 30.2% compared to 9 months 2019. Our Indian operation continued to post positive results for the last 4 quarters. In Bangladesh, the government imposed intermittent lockdowns from April to August 2021, resulted in temporary suspension of production lines. However, the company demonstrated resilience and reported strong year-on-year growth. Revenue grew by 10% year-on-year and by 2.4% quarter-on-quarter, to reach AED 68.1 million. For the first 9 months of 2021, revenue increased by 43.4% year-on-year to AED 209.5 million. Our tableware performance across core markets improved, and we have increased production to meet demand. However, performance was impacted due to higher shipping freight costs on account of global shortage of container. Our tableware revenue in the third quarter 2021 increased by 21.2% quarter-on-quarter and 116% year-on-year, reaching AED 67.6 million. In 9 months of 2021, revenue is higher by 58.1% year-on-year, to reach AED 164.5 million. Our faucets revenue increased by 18.8% year-on-year in the 9 months, reaching AED 119 million, driven by all markets. Despite the continued pandemic, our liquidity positions remain at a comfortable level. We increased our cash flow from operating activities from AED 288.4 million in September 2020 to AED 388 million in September 2021. Our working capital days are slightly increased from 176 days to 179 days during the quarter. Our net debt-to-EBITDA improved from 2.04x to 1.89x during the quarter. [ Declared ] interim cash dividend of 10 fils per share amounting to AED 99.4 million have been paid on 21st October 2021. Now please allow me to take you through our financial highlights for the third quarter. Total revenue increased by 9.5% year-on-year and by 2.3% (sic) [ decreased by 2.3% ] quarter-on-quarter. Tiles revenue increased by 7% year-on-year, reaching AED 469.6 million, driven by markets such Middle East, India, Bangladesh. And quarter-on-quarter revenue remained stable. Our sanitary ware revenue is also increased by 11% year-on-year, reaching AED 134.2 million. And quarter-on-quarter revenue decreased by 3.9% due to reduced revenue from Europe and Bangladesh. Our tableware revenue improved quarter-on-quarter by 21.2% and by 116.2% year-on-year, reaching AED 67.6 million in the third quarter 2021. And the market situation across all our core market has gradually improved. Our total gross profits margin in the third quarter increased by 7.1% year-on-year and remained at the same level of 38.2% this quarter. Our tiles gross profits margin increased by 7% year-on-year, reaching 38.1%. Our sanitary ware margin in the third quarter increased by 1%, reaching 35%. Our tableware margin improved quarter-on-quarter by 7%, to reach 44.7%, and by 8.4% year-on-year due to increased revenue and profitability -- productivity. Reported net profit stands at AED 63.4 million, outperforming pre-pandemic level of net profit compared to a third quarter 2019 profit of AED 45.5 million and AED 34 million in the third quarter 2020. Our third quarter 2021 net profit margin increased by 3.8% year-on-year, reaching 9.3%. Our like-for-like net profit is also higher than pre-pandemic level, increasing 42.4% compared to the third quarter 2019, to reach AED 70 million. Like-for-like, net profit margin increased by 2.7%, reaching 10.2%. Our net profit after minority in the third quarter 2021 was AED 52.8 million compared to AED 33.1 million in the third quarter 2020. [ Their ] margin in the third quarter 2021 is 7.7% compared to a margin of 5.3% in the third quarter 2020. Our EBITDA is at AED 123.2 million compared to AED 104.4 million in the third quarter 2020. Margin is 18% compared to 16.7% in the third quarter 2020. Net debt level decreased by AED 38 million, reaching AED 979 million, compared to June 2021. Thank you for listening. I will now hand over to P K, our -- to P K Chand, our CFO.

Thank you, Abdallah. Good evening, everyone, and thank you for joining us. Mr. Abdallah has already briefed summarized performance, financial highlights and regional performance for the third quarter of 2021. I will take you through the 9 months of 2021 results and segmental highlights with details on revenue, profitability and the balance sheet. We will start with Slide 7, which shows financial highlights for 9 months of 2021. Total revenue increased by 29.4% year-on-year to AED 2.11 billion. Revenue for 9 months of 2021 has surpassed the pre-pandemic level, increasing by 11.6% compared to 9 months of 2019. Tiles revenue increased by 30.4% year-on-year to AED 1.46 billion, driven by all core markets. Sanitary ware revenue is also increased by 30.3% year-on-year to AED 412 million, driven by all markets, except Saudi market. Tableware revenue improved year-on-year by 116.2% and by 21.2% quarter-on-quarter to reach AED 164.5 million, as the market situation across all our core markets is gradually improving. The total gross profit margin in 9 months of this year increased by 6.1% year-on-year to reach an all-time high of 37.1%. Tiles gross profit margin increased by 7.8% year-on-year to reach an all-time high of 37.7%. Last year, margins were impacted due to plant shutdowns. Sanitary ware margin in 9 months of 2021 increased by 2.8% year-on-year to 35.9%. Tableware margin also improved quarter-on-quarter by 7% to reach 44.7%, while it is lower by 6.0% year-on-year due to lower productivity. Net profit after minority was AED 201.3 million after considering gain on sale of China assets amounting to AED 50.1 million and write-off of excess lease rent recognized in earlier years for hotel amounting to AED 27.2 million. These one-off gain of AED 22.9 million were recognized during the second quarter of this year. Margin is 9.5% in 9 months of 2021 compared to 2.9% in last year. The reported net profit is AED 221 million in 9 months of this year compared to a net profit of 44.5% dirhams (sic) [ AED 44.5 million ] in last year. Margin is 10.5% in 9 months of this year compared to 2.7% in last year. Like-for-like net profit that is before impairment losses, one-off net gain increased by AED 146.9 million year-on-year to AED 216.7 million, with a margin increase of 6% year-on-year to 10.3%, mainly due to higher revenue and gross profit margins. EBITDA is at AED 379.2 million compared to AED 240.1 million in the 9 months of last year. Margin is 18% compared to 14.7% in 9 months of last year. Net debt decreased from AED 1.23 billion in December 2020 to AED 979 million in September '21 due to higher cash profits and receipt of proceeds from sale of China assets. Net debt-to-EBITDA decreased from 3.2x in December 2020 to 1.89x in September 2021. In September 2020, net debt-to-EBITDA was 3.80x. On the cash front, capital expenditure for 9 months of 2021 has been lower at AED 59.2 million compared to AED 76.4 million in the 9 months of 2020. CapEx for 2021 is expected to be in the range of AED 100 million based on the orders placed. Interim cash dividend of 10 fils have already been paid on date October 21. Now we turn on the working capital cycle. In absolute terms, overall working capital increased by AED 41 million to AED 1.33 billion quarter-on-quarter mainly due to increased inventories. In terms of number of days, it has slightly increased from 176 days in June '21 to 180 days in September. Inventory days increased from 212 days to 217 days quarter-on-quarter. Trade receivable days decreased from 106 days in second quarter '21 to 102 days in the third quarter '21. Trade payable days remain -- have also increased from 64 days to 69 days quarter-on-quarter. We continue to take measures to manage our liquidity. Now I will turn back to Mr. Abdallah for his final comments on the fourth quarter of 2021 priorities before we answer your questions.

Thank you, P K. We have reported strong financial and operational results in the third quarter 2021 despite the impact of global supply chain disruptions resulting in significantly increased freight costs. Our ability to navigate these challenges has helped us to deliver sustained growth. Further, we are validating our commitments to deliver shareholders value. We are positive about the next quarter, although much would depend on the demand picking up along with global economic recovery. We are monitoring the disruption to the global supply chain too. And we are hopeful that with the vaccination program the recovery of the world economy will continue. Looking ahead for the remainder of 2021, we will continue to focus on improving operations efficiencies across our markets, optimize the production lines to sustain margins, protect our market share and increase export profitability. With construction projects being put on hold in the UAE, we are focusing on retail renovation market. Thank you for your time. Now I would like to hand over the call to the operator and open the line to questions.

[Operator Instructions] Our first question today comes from Sameer Kattiparambil of EFG Hermes.

I have a couple of questions. First, on your -- you mentioned that there's AED 21 million of additional freight costs, but I just wanted to understand. What percentage of the total has come from increased freight rate?

Sameer, thank you for your question. Actually if you see -- the total freight costs increased more, but the impact of increase in freight costs is AED 21 million.

So on account of -- Sameer, on account of higher activity, additional quantity which has been handled, that, we have eliminated only on account of higher freight rates. That has costed at AED 21 million.

Okay, understood. And my second question is like what was the total customs duty you paid in the third quarter with respect to the Saudi customs duty.

Sameer, what we paid is AED 5.6 million as additional customs duties. Correct, P K?

Which has been charged to the P&L account because -- let us take a scenario that we paid some custom duty on some stock which remained in inventory as on 30th September. So obviously that has been [ inventorized ], so the amount which has been charged to the P&L account of the third quarter is AED 5.6 million.

Okay, got it. And did you get any chance to pass this additional expense to the customers? Or you just put it as an additional expense.

You got it, Sameer, that our margin continued to improve. As you know, it's a blending. Today, the market worldwide prices are increasing. Commodities are increasing. Freight is increasing, our raw materials, so wherever we have a chance, if the market is ready for, we are passing. And some, we are also investing in the long term. We cannot only charge it all as short-term increase.

Yes, got you. And one final question from my side. How is the construction activities in kingdom? Is it back to normal post the slowdown due to the new building code?

Look. Sameer, let me -- I forgot to tell you that on the end we are hopeful that, this custom, we will be able to get the exemption because, according to the requirement of the authorities, we already did all what we have to do. And we submitted our attested documents to get the waiver. So we are hopeful that this will not remain as extra additional expenses. So this is related to the previous question. In term of activities, there are -- activity is picking up again. As I said, it was a bit slower from the available of manpower to execute on the building permit, as well as also season of traveling at that time. Things are improving. I do believe that, by the start of next year, things will come back to normal.

The next question today comes from Anoop Fernandes.

Congrats on another great quarter. My first question is on the volumes. So if I look at the UAE tiles and sanitary ware volumes, both are substantially higher than the pre-2020 run rate, especially the UAE [ tile where ] I think the volume run rate in the first and the second quarter was almost 57% higher than what it used to be. So what is driving these higher operating rates? I mean, is it inventory liquidation? Or are you like actually producing more tiles? Or is it because you are producing slightly lower-grade tiles which require lesser machine time, so you have more output there? Because there's also a decline in the average price per square meter in the UAE market. So any color on that will be appreciated.

I believe here P K will give us more color here, but look. If we look at the UAE end market, we are down, if you look at the UAE operation, where mainly it is coming from increased sales in Saudi, from an increased sales in Europe, from an increased sales in Middle East where it is showing an increase in volume.

[ But are you ] producing much overcapacity, almost 120% of capacity? I mean that's what the numbers show from your...

That's -- no, no, no. I don't think -- we cannot go more than 100% of capacity. So the maximum we went is 97%, but I'm trying to say -- in which page you are looking, in which report?

No, no. It is from your quarterly release. So if I look at the historical run rate of volumes from UAE, it used to be in the range of 15 million to 16 million square meters. And that has gone up to something like 23 million to 24 million. So I think starting...

Yes, yes. This is mainly the sales which grew in Saudi Arabia. So if you see our sales, which today in term of volume, the sales to Saudi, it happened to be the biggest market in term of volume for us. And in 2019 and -- it was not at the same level. So if you see from a volume perspective, out of the UAE, it has grew in Saudi Arabia, as well Europe and the export, not the UAE end market, yes.

So this level of volume will continue. Should we assume that this 24 million, 23 million, 24 million square meters per quarter in UAE?

24 million. I did not see the 24 million, where it's coming. We did not reach 24 million square meter in the quarter in UAE...

Okay. Maybe there's -- yes. Maybe we can take this offline then.

Yes. [indiscernible].

Yes. The second question is on your gross margins. So this is -- 38% is probably one of the highest ever, but as it trickles down to the EBITDA level, your EBITDA margins haven't really moved much in the past 3 quarters. They're broadly similar, close to 16%. And a lot of it is eaten up because of higher freight costs. So now, a, freight costs have fallen substantially in the recent past, so are you all seeing that sort of that impact trickle down to your business as well? Because in the Chinese and -- China-U.S. route, I think there has been a substantial fall. And the next part of this question is that if freight rates fall substantially. And say you all have this impact. Will it trickle down to your gross margins as well? In the sense that I am assuming that some of your revenue gets [ marked ] up by the costs of freight as well. So is this 38% of gross margin sustainable? Or yes -- or do we see this margin sort of normalizing towards the 35% level when freight -- sort of when this whole container issue normalizes in future?

It -- look. First, let me answer on a part. And P K maybe will support me on the others, but in what you said, that the logistic cost or the freight substantially gone down, honestly speaking, we did not see it yet, at least on the route which is the most important for us, which is from here to Europe. So we did not see a substantial reduction yet. Though we can see more availability earlier. It was not, even in the third quarter, as a matter of only the freight. It's the availability. In term of what if the freight will come down -- and make sure the freight is not affecting us only in the material cost but also is affecting us on the raw material which we are importing. So where the gross profit will lead, it's a function of costs and also as a market. We can see a lot of development. Also during this quarter, we saw a support from an increase in energy costs for our European peers, from our -- from India and China, which also supported the increase in prices. So it is premature for us to say if this margin will remain. As we said, with these challenges and the changes every day and parameters, we are doing our best, focusing on what we have to do and how to adapt according to any changes and we're acting. So what we can promise is not a percentage. It's that we will do our best in order to maintain our margin and create value for shareholders, which is always in our mind. I don't know, P K, if you want to add anything...

So just to add. See, as far as the EBITDA is concerned, it is a mixture of the selling price, the cost of production and the freight cost. So take a hypothetical scenario. If the freight cost comes down while the sale price and the cost doesn't change, obviously the EBITDA is going to increase, but is -- what is going to happen is very difficult to guess, what is going to happen. If the freight cost comes down, it is possible that the selling price will also come down slightly. So it's a mix of all these elements.

The next question today comes from [ Albert Monjien ].

Congratulations again on a stellar performance. I think you've been doing pretty well in your refocusing and restructuring, which is very, very positive, so well done on this. 2 questions that is on the mind of a lot of [ leaders ] these days is obviously -- you mentioned one of them, which is freight costs. What is your view? Because we are hearing different views from different people across different industries. Some of them are stating that, by Q1 next year, things will ease and we're going to go back to normal. And what do you think has led to the situation? Because obviously this is impacting everyone, not only your industry. And second question: You've touched upon it, which is very interesting, which is the refurbishing of existing properties in the UAE. And obviously we're seeing a lot of that happening with [ a totally new number ] of foreign expats coming to the UAE from Europe. Are you benefiting from this or not? Because we're seeing on the real estate side a major uptick. And the prices of real estate have gone up significantly.

Thank you for your question. If you allow me: I believe, on the second quarter this year, we came and we said that the freight to Saudi has increased due to a decision of stopping the trucks which are more than 20 years to go to Saudi. And it was the rate which was average of 3,000 gone to 5,500. I can tell you that, this quarter and now, the rate came back to at the same level of what it was in the beginning of the year. So we couldn't have a view of how long it will take, but we thought, for sure, it's a matter of demand and supply. And the price gone up 60%, 70% because of this reason, and in 3 months, it was stabilized. Going to the -- it's a global disruption today. It is not only a sector. And I believe personally that this will not continue forever, no doubt. And I cannot say that it will be on the first quarter or the second quarter, but no doubt we'll start to see -- today, we started to see availability; as you said, slight improvements in some sectors. And probably -- we can see that next year it will improve. What will be the ratio and the time frame of this improvement? Honestly, let us more -- let us keep it to more professional views. And refurbishments in the UAE -- [ and we said it very straight ] that, all of us, we heard that the government direction is to hold all new projects in order to reduce the inventory of real estate available. And this, for sure, will affect the demand on the project side. That's why we invested in our retail. We are investing in e-commerce. We are targeting the products, what we have [ at ], to -- able to benefit from the refurbishing. And the refurbishing, yes, we can see a demand coming from refurbishing business which is going on, yes.

We received questions via the chat from Yawar Saeed. And the first question is, which market has resulted in revenue growth in the Middle East, except UAE and KSA segment? Secondly, where do you expect your gross operating margins to normalize? Can you update us on the possible factory setup in KSA? And lastly, can you please provide information about gas connection in KSA?

Sorry. If you -- I couldn't follow one by one, but in term of market, the Middle East, is the overall market. So there is no one-market improvement. So it is the whole market because we do focused when the freight issue came into picture, when the nonavailability of containers was there. So as a reaction, we put more focus and more direction to increase our sales on the market which was not impacted much in the freight costs, which the Middle East was a sector where it was not impacted. So we put more focus and we gave more allocation to these markets, which improved. If you don't -- if you allow me the second question...

Do you expect your gross, [ I believe ], operating margin to normalize? [indiscernible].

Look. As a number, we already said. It's a factor of costs of market, of competition, of logistic costs. What we are trying to do, and you see the improvement which has happened, we are working very hard to control our costs, to improve our efficiency, to differentiate our products, to do whatever possible in order to obtain the maximum margin, where it is very difficult to give a number, where we cannot estimate at exactly what is the percentage. But we are improving, and you can see the improvement quarter-on-quarter with a sustainable view on this.

And third question is on the Saudi new project.

The Saudi new project, we are in the later stage. We can say that we are on the later stage. We are assessing the location and the products. I hope that soon we will give an update with a positive development.

[ He's ] asking about the gas connection...

So I wish I answered the questions.

Our next question is back on the phone lines, from Adil Rashid. Okay, unfortunately, we're not receiving any audio from their line. [Operator Instructions] We've had a follow-up question from Sameer Kattiparambil of EFG Hermes.

One final question from my side. So how do you see the gas price scenario in the international market or the oil prices also increasing? So how is it going to impact your gas prices in the -- in your India and Bangladesh market and also in the UAE?

Sameer, look. If you look at the last week, the market was stabilizing a bit. It was going down. Honestly, it's too difficult to give a view on what will be the oil price or the gas price. Yes, you are right, that the gas price -- in India, we saw that it increased. In UAE and -- in UAE, as you said, we have entered a contract where partially we have a fixed price and partially it's floated. It's affected us but not as bad as others. And we remain at the same level of last year. So we were fortunate actually to have -- part of our gas consumption, it is at a fixed price which -- much lower than the average of today. And we can see it stable. And hopefully, in the next 1.5 years, 2 years, we will see a stabilization at a lower price from a gas coming from UAE which will be fixed at a lower price than what we are paying today. In Bangladesh, it is still fixed. We did not get an impact, but we can see a lot of increase in price cost -- in gas prices for our peers in India and in Europe.

Okay, got you, Abdallah. And one final question that is -- did you notice any price changes in the UAE market post the ADD implementation?

Look. We are -- yes. So honestly, we -- as we said in the beginning, the market was flooded with material. We can see that improvement in prices, especially in the wholesale, which we began -- we start to see improvement in selling prices.

Our next question comes from [ Jagadishwar Pasunoori of NBK Capital ].

I'm not sure if you have addressed this one, but let me ask it, anyway. Is there any anti-dumping duty imposed in the UAE, and did it help you and the industry? And also in terms of how did the pricing of the end products have been impacted...

So if I heard you properly, that -- yes. We mentioned that there was an implementation, starting the 6th of July, in UAE anti-dumping on products coming from China and India, starting from 23.5% to 106%, and in order to reduce the dumping. Not only in UAE, but it started earlier in Saudi and GCC. So I'm not sure if this is what you were asking.

So how did the realization went up for you in the UAE, [ I mean, given the volumes ]? The realizations went up because -- [ for these countries ].

We -- this is what -- look. This is what we discussed in our last call and also my last answer to the question -- previous question. It's that we said that in UAE a lot of material were dumped earlier. And we do think that, till end of the year, these material will be liquidating. For us, we started now seeing improvement in selling prices, which will support our margin and volume going forward.

So full impact will be felt in the [ first ] quarter of this year. Is my understanding correct then?

Look. We are hopeful. In these days, we have to follow month on month, quarter by quarter, but a positive impact will come and this is what we are expecting.

Adil Rashid has registered a question from Daman Invests.

A couple of questions from my end. Could you talk about, a, first, the competitive landscape in Saudi? And what are you seeing there? Secondly, could you talk about the 12% customs duty? And what's the update? Do you see that being reversed? Can you provide some more sort of clarity on that? And lastly, you had guided for CapEx of AED 150 million to AED 170 million for the year. Do you still see that guidance being met?

[ Fine ]. If -- I will start answering. As you said, Saudi is a big market consuming. There are also factories in place. And we as RAK Ceramics, historically it is one of our biggest markets. We are well positioned. And we differentiated ourselves with different products and positioning in order to differentiate ourselves from the [ price game ]. The market normally in Saudi passes through some stages. The stage which we had during the last quarter was, from COVID closing, it was that we are all facing availability of manpower, also in the real estate or in the construction activities, and where I believe this will improve and already started improving from the lockdown which happened especially in Bangladesh, India and Asia. The second is the building permit changing requirements, which also impacted initially the construction. I do believe that, starting the next year, the demand will pick up. It's a very promising market linked to the vision of 2030 and construction activities which is expecting to grow further. On the 12% which we mentioned: Starting the 1st of July 2021, 12% was implemented as a custom, but also the requirement was to have any manufacturing facility in the UAE to have at least 65% mix of 45%, minimum, value added; as well as 20% localization -- or it means local employment. We -- as RAK Ceramics, we have as value added around 65% [ alone ], which reduces the requirement of local workers to 10%, which both we comply and we submitted our file to the authorities in Saudi. And we are waiting, hopefully, the waiver. So I believe these are the question. Any...

Third was CapEx.

P K got it.

So as far as CapEx is concerned, based on -- see, what has really happened is, because of the shortage of containers and all this, the delivery is also much delayed. And therefore, our current guidance will be that we will spend about AED 100 million in this year. So that is the scenario.

[Operator Instructions] We have no further questions in the queue, so I'll hand back to the management team.

Abdallah, I have one final question. So hypothetically speaking, let's say, next year, RAK Ceramics sells roughly AED 600 million in Saudi and you don't get the exemption of the duties. So the impact on net profits would be roughly AED 70 million. So it's a simple math, 12% multiplied by the revenues, and the impact will be felt on bottom line.

Look, no, because what we show is our sales in UAE. And the custom is on the import, so it will not be charged, the 12%, on the AED 600 million. We are showing end-to-end market, so it will be -- I don't know. How much is -- we have to deduct the gross profit margin which is in Saudi, so the 12% will be less than the amount you mentioned. Second, it will not be charged to the P&L because also we will then have to play with the product mix and the realization. As you mentioned and the previous question on the refurbishing, also we are trying. We launched now a collaboration with Elie Saab, which we had our first show last week in design week. So all what we are trying to launch -- we launched in Cersaie what we mentioned, a collaboration with Patrick Norguet, yes, on having new sets of sanitary ware. So all our effort is also in differentiating and be able to adapt and to upgrade the positioning where we are.

Abdallah, very clear. Back to you for any final remarks.

Thank you very much. Thank you. As you see, that we are doing our best. We'll continue to do our best, and hopefully, we will be able to give better results going forward. Thank you...

Thanks, [ Abdallah and P K Chand ]. And thank you, everyone, for joining.