• Recurring earnings down 14% Y-o-Y, in line 1Q16 recurring earnings fell 14% Y-o-Y (in line), driven by: i) 5% Y-o-Y decrease in EBIT; ii) 40% increase in net interest expense; and iii) higher minority interest. Recurring earnings exclude: i) FX gains (loss); ii) profit on disposal of equity accounted investees; iii) profit on fair valuation for equity accounted investees; and iv) impairments, provisions and revaluation. Reported earnings came in flat Y-o-Y as booking no FX loss in 1Q16 (versus AED21mn loss in 1Q2015) offset the softening in EBIT and higher minority interest. We will likely tweak our forecast post 1Q16 results to reflect the mismatch at the EBIT level and global demand trends.
• Flattish revenue Y-o-Y, affected negatively by non-core operations Revenue was flat Y-o-Y at AED736mn (-6% vs. our estimate), as core operations revenue growth of 3% Y-o-Y to AED645mn (led by tiles) was offset by a 23% decrease in non-core revenue to AED91mn (partially due to base effect since 1Q15 included revenue from RAK logistics that was sold in 4Q15). The drop in non-core revenue would be c13%, excluding the contribution of RAK logistics in 1Q15. Growth in core operations revenue was driven mainly by: i) UAE revenue (+6% Y-o-Y), as sales in the GCC ex-KSA (+9%) offset weaker sales in KSA (-9%); ii) Bangladesh (+7%); and iii) Europe (+8%). This offset an 18% drop in India revenue.
• EBITDA margin contracts on hike in SG&A expenses, misses estimate Gross profit (excluding depreciation) was flat Y-o-Y at AED261mn (in line), while normalised EBITDA was down 10% Y-o-Y to AED115mn (-10% vs. our estimate) due to a hike in adjusted SG&A expenses (+11% Y-o-Y, excluding impairments in 1Q15), mainly on new hires in design and marketing post acquisition of RAKCEC’s UK and Germany distribution JVs. Thus, normalised EBITDA margin narrowed 150 bps Y-o-Y to 15.6%. EBIT decreased 5% only due to lower depreciation, as the company changed the useful lives of its Iranian assets and investment properties for AHCC starting 4Q15.

Tarek El-Shawarby