Chairman's Message

Chairman’s Statement

Dear shareholders,

The year 2016 continued to be sluggish and one of the first casualties of this was the tendency among consumers to postpone big ticket investments and defer discretionary spending.

 

The result was that the category growth of ceramic tiles and sanitary ware remained muted, with the sectorial prospects directly linked to the real estate industry.

 

This, in turn, immediately translated into an increased tendency among the trade to offer markdowns and other concessions, eroding sectorial margins on the one hand and creating a discounts-induced demand pull on the other, which is not just temporary but also unsustainable.

With margins being affected and breakeven points rising, the players in a fragmented sector found it difficult to reinvest in their businesses. To make the operating circumstances being even more challenging, the industry continued to poach from within.

I am pleased to state that these challenges notwithstanding, RAK Ceramics (Bangladesh) reported a respectable performance.

One of the most visible manifestations of our countercyclical and counter-industry performance was the fact that we reported a healthy growth in our ceramics tiles realizations as well as sales with a relatively higher proportion of premium products in the overall sales mix.

This is a clear indication of the quality of brand franchisee we have built among our consumers with our brand symbolizing a deeply inherent value that few other brands enjoy in Bangladesh.

What I would like to impress upon shareholders is that a couple of years ago, when de-growth became increasingly evident, it would have been easier to stay low and stick to the conventional. On the contrary, we perceived the slowdown as a structural opportunity to look within, manage better what was within our control and create a stronger business.

Besides, the Company could have embarked on conventional responses. So even before I describe the various initiatives that we implemented during the year under review, permit me to explain the kind of temptations we resisted.

It would have been easy to reduce our prices to fight the competition more effectively; on the contrary, we selected to resist from engaging in frequent markdowns and focused on creating a stronger business instead. It would have been alluring to create a product push that would eventually lead to an inventory pile-up at the dealers’ end; on the contrary, we emphasized on developing focused and sustained marketing campaigns instead, creating a consumer pull and helping our dealers manage their business more effectively. It would have been enticing to cater to existing needs; on the contrary, we focused on the more sustainable approach of building markets where none existed through creating innovative, stylish, aesthetic, functional and high-relevant products and solutions.

The results were encouraging even as we reported a healthy ~12% growth in revenues and an ~11% increase in gross profit; however, on the back of a sharp jump in raw material resource prices which we strategically refrained from passing on fully to our customers led to a de-growth in our net profit. I am certain that this prudent initiative will help us create value over the long-term as a calibrated approach to price increase is always more sustainable and productive than an abrupt and unequalled one that could lead to potential demand destruction, especially in a listless operating environment.

So what gives me the confidence of the times ahead?

One, the modernizing consumer. With more citizens travelling abroad and getting a taste of the developed world, there is a clear shift in the mindset to try out new and different products and experiences. Besides, with the average per capita income surging to USD~1,200 in line with a 7%-plus economic growth, a larger number of passive citizens have become active consumers with a strong co-relational growth in discretional spending.

Two, a moderating interest rate regime. The interest rates of a country are one of the most important deciding factors of real estate acquisition. With the average interest rates sharply coming down in the country, a larger number of citizens waiting at the fences will now closely look at entering the market. Besides, the expectation of realty prices sustaining at the current levels is also a trigger in home purchases.

Three, the Bangladeshi government’s increasing thrust on industrialization, urbanization and infrastructure creation (for instance, the showpiece Padma Bridge, the proposed elevated expressway between the Dhaka airport and the city centre and the focus on affordable housing projects, etc.) bode well for the sector as builders will now start to identify real estate development opportunities beyond the metros and other congested pockets.

At RAK Ceramics (Bangladesh), as usual, we will remain vigilant in controlling our costs to protect profitability while investing in attractive opportunities for profitable growth. We are confident to make significant strides in the years ahead to emerge as a lifestyle brand that our consumers are proud to own.

We are also focused on creating a more sustainable business platform that our shareholders are proud to own, on the back of reinforcing our status as a sustainable consumption proxy in a country that is poised to achieve a multi-decade economic growth that is among the highest not just in Asia but in the world.

Finally, on behalf of the Board, I would like to thank our colleagues who make our business what it is today. It is their dedication, hard work and commitment that deliver improving results year-on-year and great value for our customers, suppliers and shareholders alike.

With my best wishes,

(Abdallah Massaad)

Chairman

RAK Ceramics (Bangladesh) Limited