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

Welcome, everyone, to RAK Ceramics Q2 and H1 2026 Earnings Call and Webcast. My name is Carla, and I will be your moderator today. [Operator Instructions] I will now hand you over to Mohamed Haidar at Arqaam Capital to begin. Please go ahead.

Hello, everyone, and welcome to the RAK Ceramics Second Quarter and H1 2026 Earnings Call and Webcast. This is Mohamad Haidar from Arqaam Capital, and we are happy to be joined today by Mr. Abdallah Massaad, Group CEO from RAK Ceramics; and Mr. P.K. Chand, Group CFO. Over to you, Mr. Abdallah.

Thank you, Mohamad. Good afternoon, everyone, and welcome to RAK Ceramics Second Quarter 2026 Earnings Conference Call and Webcast. We appreciate you joining us today. Our Q2 performance demonstrated resilience despite ongoing regional disruptions. Strong demand across the UAE, Saudi Arabia and Bangladesh helped offset the impact of export restrictions and supply chain challenges. Throughout this quarter, our priority was clear, increasing our market share across the region while making every effort to support customers worldwide. Backed by strong brand, product quality and regional manufacturing footprint, we responded quickly to changing market conditions, leveraging locally sourced raw material, alternative logistic routes and other practical solutions to maintain reliable supply and service across our network. Our total revenue reached AED 822.8 million in the second quarter 2026. For the first half of 2026, revenue stood at AED 1.58 billion. In the second quarter 2026, gross profit margin improved to 41% compared to 40.6% in the second quarter 2025 -- and in the first half of 2026, it was stable at 40.2%, in line with the prior year. A higher share of project-based business supported both revenue and margin with growing demand for large-format porcelain tiles offering higher average selling price and improved profitability. Our net profit after tax increased by 2.9% year-on-year to AED 68.3 million compared to AED 66.4 million in the second quarter 2025. Now let me give you a brief overview of our key markets and business segments. The UAE continues to be our largest market with 42% contribution, delivering strong top line with a healthy margin amid the current regional conflict. This is followed by Europe, which contributes 22% of our consolidated revenue, followed by India, Saudi Arabia and Bangladesh. In terms of our segments, tiles continue to be our primary driver of revenue, followed by faucets, sanitaryware and tableware. At the bottom, you will see our production capabilities where we remain committed to continuous investment to enhance capacity and operational efficiencies. Let me now address the impact of the ongoing regional conflict of our -- on our business. and the proactive actions we implemented in response to mitigate disruptions. The crisis management measures we put in place in the first quarter remained firmly in effect through the second quarter, strict control of cost, disciplined liquidity management and logistic optimization. Regional tensions and the disruption of the Strait of Hormuz continued to affect shipment routes outside the GCC, along with inbound raw material. In response, we activated alternative shipping routes through Jeddah, Oman and Khor Fakkan to keep our supply lines running. On production, we optimized output to avoid building excess inventory once export sales paused. And we shifted our commercial focus towards high-end projects and retail in the UAE and Saudi Arabia and the GCC. A slowdown in tourism-led hospitality demand affected our tableware business in the UAE and the GCC. Looking ahead to the third quarter, we expect to continue gaining market share across the UAE, Saudi Arabia and the wider GCC supported by ongoing constraint in import availability and taking RAK Ceramics as a reliable supplier where we are able to cater to the project, a high-end product where it is satisfactory. While regional tension and tighter liquidity conditions may continue to create uncertainty and place some pressure on working capital, our strong brand, product quality and regional manufacturing footprint position us as a reliable partner for customers. The actions we have taken to strengthen our operations give us confidence in our ability to navigate the quarter ahead. Now let me walk you through our financial performance in the second quarter 2026 across our key markets and segment. In the UAE, we witnessed robust demand driven by project and retail channels, demonstrating resilience amid regional geopolitical challenges. We expect the market share to increase, supported by import disruptions. Saudi Arabia also registered strong growth of 11.6% in Q2 2026 and revenue driven by project and wholesale channels due to strategic shift from volume-based ceramics to quality of sales led by value creation. In Bangladesh, revenue rose by 20.7% in the second quarter 2026, supported by political stability and an improvement business environment following the formation of the new government earlier this year. In Europe, revenue fell down due to supply chain disruption that led significantly higher freight costs. In India, revenue fell 15.8% in the second quarter 2026 to currency headwinds and supply constraint in Morbi. From the segment standpoint, our Tiles division recorded 1.7% year-on-year growth in revenue supported by strong growth in the UAE, Saudi Arabia and Bangladesh. Sanitaryware revenue declined by 6.9% year-on-year due to lower sales in India, Europe and other export markets. Faucets revenue rose 2.5% year-on-year, driven by growth across most markets partially offsetting weaker performance in Asia and Africa. Tableware revenue declined by 13.3% year-on-year due to the ongoing regional conflict, while export demand remained resilient. Now turning to our strategic initiatives across the group. In the UAE, we remain focused on enhancing our product portfolio and integrating technology to meet rising global demand for cost-effective high-quality tiles. Our sanitaryware facility continues to be modernized with energy-efficient technology, reducing carbon emission and reinforcing our sustainability commitments. In Saudi Arabia, we are making steady progress in our greenfield production facility in Yanbu. -- which is expected to complete in the second quarter 2027. We continue to work closely to maintain our presence in giga projects while increasing our conversion rate in small- and medium-sized private sector projects. We are also focusing on premium and differentiated product offerings to strengthen our retail and project channel and enhance margins. In Europe, we are focused on an operational cost optimization strategy to strengthen margin resilience and drive cost efficiencies. We remain committed to improving KLUDI operational performance and are progressing with our cost optimization strategy. In India, we are accelerating retail and company-owned company-operated store execution in line with our expansion road map and focusing on geographical expansion by adding new dealers to strengthen our presence across more districts and grow our institutional business reach. In Bangladesh, we are implementing focused initiatives to recover lost market share while improving operational efficiency to restore and sustain profitability. I will now hand over to our Group CFO, Mr. P.K.

Thank you, Mr. Abdallah. Mr. Abdallah has already covered the strategic and operational highlights of the second quarter of 2026. I will now walk you through the financial performance for the second quarter and first half of 2026, focusing on revenue, gross profit margins and key balance sheet highlights. We will begin with Slide 11. We are pleased to share that our second quarter 2026 results reconfirm the group's resilience. Robust demand in the UAE, KSA and Bangladesh helped offset the impact of lower export sales and supply chain disruptions caused by ongoing regional conflicts. In addition, a central crisis management team and disciplined cost actions continue to protect service levels and mitigate margin pressure. Total revenue remained resilient in the second quarter of 2026 with a marginal year-on-year decline of 0.5% to AED 822.8 million. However, quarter-on-quarter revenue increased by 8.2%. In the first half of 2026, revenue declined by 1.2% year-on-year to AED 1.58 billion. In the Tiles and sanitaryware segment, revenue remained broadly stable year-on-year at AED 595.6 million in the second quarter of 2026 despite ongoing regional conflicts and supply chain disruptions supported by better performance in UAE, Saudi Arabia and Bangladesh markets. In the first half of 2026, revenue declined by 1.4% to AED 1.13 billion. Tiles revenue grew by 1.7% year-on-year to AED 482.5 million in the second quarter of 2026, driven by strong growth in UAE, Saudi Arabia and Bangladesh markets, while other export markets were impacted by ongoing regional conflicts. In the first half of 2026, revenue declined by 3% to AED 913.8 million. Sanitaryware recorded a year-on-year revenue decline of 6.9% to AED 113.1 million in the second quarter of 2026 and by 2.9% to AED 220.4 million in the first half of 2026, primarily due to lower sales in India, Europe and other export markets. Tableware recorded a year-on-year revenue decline of 13.3% to AED 73.6 million in the second quarter and by 10.8% to AED 152.3 million in the first half of 2026. While export demand remained resilient, the regional market continued to face weaker hospitality demand amidst lower tourism impacting UAE and rest of GCC revenue by 44.4% year-on-year. Faucets revenue grew by 2.5% year-on-year to AED 125.4 million in the second quarter and by 6.2% to AED 248.4 million in the first half of 2026, primarily driven by growth across most markets partially offset by weaker performance in Asia and Africa due to ongoing regional conflicts. We continue to progress with our cost optimization strategy. Other revenues remained stable year-on-year to AED 48.6 million in the first half of 2026. We will now turn to Slide 14. Overall gross profit margin for the second quarter of 2026 increased by 40 basis points year-on-year to 41.0% and remained stable in the first half of 2026 at 40.2% despite underutilization of manufacturing facilities in the UAE and India due to supply chain disruptions and natural gas shortages in India linked to ongoing geopolitical issues. Tiles margin in the second quarter of 2026 increased by 30 basis points year-on-year to an all-time high of 42.9%. In the first half of 2026, it also increased by 30 basis points to 42.1%, driven by improved margins across key markets and supported by a favorable product mix. In sanitaryware, the gross profit margin increased by 230 basis points year-on-year to 34.9% in the second quarter. In the first half of 2026, it increased by 130 basis points to 34.5%, supported by higher sales in the UAE market. In Tableware, gross profit margin in the second quarter decreased by 210 basis points year-on-year to 53.9%, mainly due to lower regional sales and higher freight costs. In the first half of 2026, it increased by 70 basis points year-on-year to 55.6%. Faucets gross profit margin decreased by 390 basis points year-on-year to 23% in the second quarter of 2026 and by 320 basis points in the first half of 2026 to 22.5%, driven by lower revenue and capacity underutilization. Profit before tax for the second quarter of 2026 amounted to AED 85.7 million, a decrease of 1.1% from AED 86.7 million in the same quarter last year. In the first half of 2026, profit before tax decreased by 8.3% year-on-year to AED 138.7 million. The decrease was primarily driven by softer export revenue in tiles and sanitaryware as well as weaker hospitality demand amidst lower tourism, which impacted the tableware business in the UAE and rest of GCC markets. The profit margin for the first half of 2026 decreased to 8.8% compared to 9.4% in the last year. Net profit after tax in the second quarter of this year increased by 2.9% year-on-year to AED 68.3 million. Net profit margin increased to 8.3% compared with 8% last year. In the first half of 2026, net profit after tax decreased by 7.6% year-on-year to AED 106.5 million. The EBITDA for the second quarter of this year decreased by 2.1% year-on-year to AED 157.5 million. EBITDA margin decreased to 19.1% compared with 19.5% last year. In the first half of 2026, EBITDA decreased by 3.9% year-on-year to AED 284.5 million, while the margin decreased to 18% compared with 18.5% in the last year. Overall working capital increased by AED 29 million to AED 1.43 billion in June 2026 compared with March 2026 due to higher trade receivables following an 8.2% quarter-on-quarter increase in sales. Trade receivable days increased from 86 days in March 2026 to 89 days in June 2026 due to higher UAE sales where credit terms are longer compared to export sales. Inventory days decreased from 261 days in March 2026 to 260 days in June 2026 quarter-on-quarter as sales were supported by inventory buffers in Europe and India. The trade payable decreased from 64 days in March 2026 to 61 days in June 2026. Other payable days increased from 137 days in March 2026 to 141 days in June 2026 due to increase in provisions. Net debt decreased by AED 41 million to AED 1.52 billion compared with March 2026. Net debt to EBITDA also decreased from 2.53x in March 2026 to 2.48x in June 2026. As far as CapEx spending is concerned, we spent AED 100.1 million in the first half of 2026, of which AED 19 million related to upgrade of large format tiles and sanitaryware plants and AED 22 million was spent on ongoing greenfield tiles project in Saudi Arabia. CapEx guidance for 2026 is AED 250 million to AED 275 million, including AED 100 million to AED 125 million for the greenfield project in Saudi Arabia. The total estimated CapEx for Saudi Arabia greenfield project, excluding working capital, is AED 250 million. We continue to maintain comfortable liquidity and remain well positioned to meet our financial obligations. Now we will move to Slide 19. Over the past 12 months, the company's share price has remained stable -- the stock is currently trading at a P/E multiple of 10.2x, reflecting investors' confidence and long-term value. The Board proposed to distribute an interim cash dividend of AED 10 fils per share, representing AED 99 million to be paid to shareholders. The current dividend policy as approved by the shareholders is to place a minimum dividend payout of AED 20 fils per share for the financial year 2026 to be paid on a semiannual basis. This concludes the overview of financial performance for the quarter. Now I will hand back the call to Mr. Abdallah for his closing remarks, including our priorities for the coming quarters of 2026 before we open for questions.

Thank you, PK. As we look ahead, our priorities remain clear. strengthening market leadership, enhancing profitability and creating long-term value for shareholders. We continue to see opportunities to expand our presence across our core markets, supported by our strong brand, product quality and manufacturing capability. We remain focused on operational excellency, accelerating KLUDI transformation into a globally recognized premium faucets brand and investing in growth through retail expansion, digital transformation and sustainability initiatives while remaining disciplined capital allocation and a strong balance sheet. We are also strengthening our position in the premium and luxury segments through our international design hubs in key design capitals, including London, Frankfurt, Dubai and Milano, alongside strategic designer collaboration. Building on the success of our Elie Saab partnership, the launch of the Roberto Cavalli collaboration further enhances our multi-brand luxury offerings and reinforces our appeal to architects, designers and discerning customers globally. As we move forward, we remain focused on capturing growth opportunities across our regional market. while continuing to support customers internationally. We are closely monitoring the evolving geopolitical environment and responding with agility through local sourcing, alternative logistic routes and operational flexibility. Together with our regional manufacturing footprint, these actions position us to maintain reliable supply and navigate uncertainty with confidence. Thank you for your continued trust and support. We look forward to updating you on our progress in the quarters ahead. I will now hand over the call back to operator.

[Operator Instructions] And our first question is the audio question from Mohamad Haidar.

Thank you Carla, Thank you Abdallah and PK Chand for the presentation. what you did in the UAE was really impressive, the higher sales, the higher margins. And if you wanted to understand this, was it because of the lower imports into the UAE that vacated some market share for you? Or was it a strategy that you are adopting and these levels will maintain even after things settle down?

Mohamad, thank you for the question. Honestly speaking, we -- in the UAE, we have 11 showrooms, and we have a design hub. We appointed a specification team. We have a strong project team and retail and the wholesale. But yes, for sure, with what happened, put a lot of pressure on us on exporting. And really, it was tough for us, some containers in the beginning, we are forced to pay more than $13,000, $14,000 per container. So we put all our effort to sell locally because it is not viable for us to sell or to support the sales with the higher transportation costs. No doubt that also the difficulties of importing goods also supported us. So together with our focus pressure as well as all the contractors, which they don't want the projects to delay neither by paying extra cost because also importing is becoming very costly and the containers were suffered everywhere. And the uncertainty also drove them to work with us. Now it is very difficult to say this will continue or not because already we have built a good depot. We supported -- we absorbed some of the cost. We did not pass it to the contractors. whoever was not working for us for any reason, -- now we are working. He's happy. We are delivering. We are a reliable supplier. So it's very difficult to say that this will continue or will not continue. Probably part will not part, yes, mostly will be there. So it's something where we are doing our best in order to maintain it for the long term, the positioning of the market share we have.

That's very clear, Abdallah. One follow-up. Have you adopted any change in the pricing strategy during this conflict? Because the margins doesn't show any price discounts. whereas costs are going up, not specifically, I mean, for RAK Ceramics across the board, we're seeing higher insurance costs, higher war premiums, but we can't really see it in your margins. Is it there and the UAE is offsetting it? Or you -- was it the case?

Exactly you pushed where it is. Actually, we -- by selling directly to projects and by selling directly to customers, we have a higher margin than selling in export market. So by lowering the export sales, yes, the cost increased, but selling more, we sold almost 40% more to the projects. I believe in the UAE, we are 26% overall increase in revenue. The increase of cost get offset by the increase in sales in a direct B2C, which we are doing directly. Now what we did, we could have even increased our prices. But to be honest, we took a stand that we will not increase the prices for the UAE projects to gain more market share and to also show to not the community we say, but to see that we are supporting and we have enough margin to cover it.

And the next audio question comes from [indiscernible]

[indiscernible] from S&P Capital. Just a quick question on Saudi. So we know that your local competition is trying to uplift their brand. How do you think about the competition in Saudi? And given the new facility in Yanbu, how are we foreseeing this heightened competition stance?

Yes. Thank you for the question. As you know, Saudi today is different than Saudi. I don't want to say it like 5 years back, yes. So it was like the demand is much higher than the capacity today with the installed capacity in Saudi is even more than the demand in Saudi. So therefore, you have 2 directions, and this is where we're facing and we faced it during our journey as RAK Ceramics when the supply will be more than the demand, prices will go down and depends if you position your product as a commodity or as a premium. And therefore, as a competition is very tough in Saudi. The prices decreased a lot, especially with the 4 groups, foreign groups producing cheap and selling cheap, even affected, I believe, the whole local factories in Saudi. For us, we look at it differently. We are a branded product. We work on differentiation, on quality, on -- and that's why even in our factory in Yanbu, we are the first company in Saudi, which we are investing in the biggest press with a continuous. So there is no we are coming with a different technology, not focusing on having the lowest cost, but having the differentiated products where we can balance between a good cost and a differentiated product. So it is a tough market, but we will do whatever possible in order to cater to the premium and differentiated projects.

Clear. And just a follow-on question on this point. We know that the local competition, the largest market share Saudi Ceramics is trying to uplift the brand and try to compete with RAK Ceramics rather than the foreign local players. How can we see the competition in a year or 2, given that this large local player is trying to gain market share from us?

Look, if you look at us today, and this is what I mentioned, we're already having our design center in Dubai and design hub in Dubai and London in Milano in Frankfurt, now we're doing in India. We are also doing one in Saudi Arabia, working as a global specification. We supply to airports, hotels, wherever you go today traveling, if you turn a plate, you will see RAK Porcelain definitely in any of the travel, including Saudi Airlines or now lately, we won also Delta Air Lines Worldwide. So what I can say is it's an established brand internationally seen and already tested with reliability plus our expertise and design diversification, collaboration with Elie Saab with Roberto Cavalli now. All of these gives us enough tools for us to be positioned as a premium. Then competition is always healthy, whenever -- we're very happy that brands are uplifting. It's good to compete with others, then whoever works better, the result will be in his favor.

So we're confident about maintaining our market share and hopefully...

I'm absolutely right. And also what I didn't -- this is in Tiles. In sanitaryware, we are seeing a big hike in our sanitaryware and faucets KLUDI branded. We acquired, I believe, 4, 5 years back, the KLUDI brand was established since 100 years. And with our expertise in sanitaryware, we launched the KLUDI sanitaryware under KLUDI brand. And today, we are very, very, very happy to see many, many hotels and the highest and the branded developers are using KLUDI, and this will support us, as I said, with our multi-brand strategy and the diversification with a full solution provider, we are confident that we will be able to get our market share.

[Operator Instructions] And our next question comes from [indiscernible] it's a text question from. What were the utilization levels for Q2 '26 product-wise?

If you want -- if I will take the whole installed capacity, so between all the factories, if we take the -- we are around about 60% of the installed capacity. But again, here, it's not accurate because what we are producing is the high end and high large sizes. So by number of square meters is 61. -- if I take it, it will go up to 80% capacity utilization if we take into consideration the kind of product which we are producing.

And the next question is also a written question from [indiscernible]. Could you give us some color on the large hospitality and tourism developments underway in Ras Al Khaimah? And what's your level of participation on those so far?

Look, we are seeing -- and yesterday, it was an announcement of the Wynn project to be finished or opened in September 2027. And your question is very clear. We have a lot of projects coming in. So we are supplying to the majority, I believe, if we took the outlet of Wynn, probably most of the tableware used inside hopefully will be our porcelain products in tiles we are supplying. And we are actively following and actively working on all projects, not only at Ras Al Khaimah and the UAE, but on the region.

And we have a couple from Krishna Kumari. The first one is, given the ongoing supply chain disruption, are you seeing any increase in the Yanbu CapEx plan? Or have you already locked in pricing to keep it at AED 250 million?

For us till now, we already

100 million we have spent