Managing Director's Message

My dear fellow stakeholders,

The year 2014 was one during which we continued to remain cautiously optimistic, engaging our levers to protect and preserve organizational sustenance on the one hand and growing our capacities and capabilities on the other to capitalize the most as soon as the economy turns the corner.

We are quite disappointed as far as the prospects of the Bangladesh economy is concerned on account of the continued feud between the political parties that is hampering policy and growth prospects. An overall weak environment has not only impacted asset and infrastructure creation but has also affected consumption in a big way. Though our country is projected to report a GDP growth of 6.2-6.5% in the 2014- ’15 period, we believe that this is a wasted opportunity as our fundamentals can easily support a much higher growth rate. As far as our Company is concerned, we came out of 2014 assured of the robustness of our business model and operating practices. As far as the financials are concerned, this is what we have to report:

  • A 7% growth in our topline with an increase of Taka 339 mio in turnover.
  •  A 9% rise in our operating expenses mainly on account of a 21% rise in our marketing expenses; operating expenses as a percentage of turnover stood at 83% in 2014 vis-à-vis 81% in 2013.
  •  An impairment loss of Taka 155 mio on divestment of our pharmaceutical investment.
  •  A 9% decline in our EBIDTA due to increase of operating expenses.
  •  A flat EBIDTA margin of 24%, a considerable achievement in an inflationary environment.
  •  A 18% decline in our net profit to Taka 120 mio.
  •  Healthy return on capital employed of 17.47%. So, our 2014 performance can best be described as a picture of resilience in the face of political unrest.

In an environment characterized by cost and competitive pressures (the latter was especially true for volume products), we mitigated the accompanying risks by ramping up the production and sales of value added products with the result that though the overall capacity utilization moved down to 73% in the tiles business, we could drive higher contribution of premium products. Moreover, we prudently calibrated cost

increases with price increases with the result that we achieved an overall 3% growth in realizations during the year under report.

Hence, a larger output of value added products matched with selective price increases ensured that we sustain our operations despite tight pressures exerted by external factors which were beyond our control.

We invested Taka 144 mio as capex towards establishing nano polishing machine, striping machine, glaze tank, forklift and digital printing machines. These investments enabled us to yield a better quality of product as well as optimized resource consumption, allowing us to derive a higher spread between realizations and costs.

Despite the best of our efforts, the operations of the subsidiary was loss making since inception. Shareholders will appreciate the fact that we have remained proactive in identifying a loss making asset and divesting it, rather than waiting for the operations to turn around and, in the interim, weigh down our

Balance Sheet.

Some might argue that the expansion may be coming in a bit late.

Quite on the contrary, we believe that this is the best possible time to get additional capacity generating assets on stream, especially when one considers the following:

  •  A political and economic cycle that has reached its lowest point and, over time, can only improve from hereon.
  •  Robust demand on account of a reasonably vibrant real estate industry.
  • Growing equity of the RAK brand among our consumers.
  •  Supply-side constraints, especially for premium tiles and sanitaryware products, which we can effectively plug with our fresh assets.
  •  A robust operational hedge in terms of locking in gas both in terms of value and costs.
  •  Availability of a vibrant distribution network that stands as a powerful advantage for a consumer driven company like ours.

We must also note that the USD around 39.12 mio capex is being funded out of a debt equity ratio that is most suitable for our shareholders. The 70% debt mobilization comes at a clear interest arbitrage of between 800-900 bps and with a 1 year moratorium.

Roadmap for 2015

We will continue to remain focused on balancing the various levers that drive our business in terms of process, quality, people, brand and network. We also look forward to explore the markets beyond Bangladesh by venturing into exports to neighbouring countries to begin with. With a focus on our core business of tiles and sanitaryware and new capacities coming up, the year 2015 will remain an exciting time for us as we widen our growth spectrum and reach for the next level of opportunities.

With my very best wishes,

S.A.K. Ekramuzzaman

   Managing Director