• Recurring earnings flat despite EBITDA margin expansion RAK Ceramics’ recurring earnings were flat Y-o-Y in 4Q2015 at AED63 million (-35% versus our estimate), as a drop in other income was offset by lower loss from discontinued operations (AED2.0 million in 4Q2015 versus AED27.0 million in 4Q14). At the operational level, revenue softened, but clean EBITDA margin improved 140 bps Y-o-Y to 19% due to operational efficiencies, savings on raw materials and lower SG&A. We will likely tweak our forecasts post 4Q15 results, and to reflect global demand trends.
• Core business revenue drops on slowdown in most markets Revenue inched down 5% Y-o-Y in 4Q2015 to AED748 million (-4% Q-o-Q, -8% versus estimate). Revenue from core business fell 8% on lower tiles revenue (-10%) in most markets (offsetting growth in UAE, KSA and Bangladesh) and sanitary ware (-3%). The softening in core business revenue was due to: i) currency weakness in several markets; ii) instability in some markets due to geopolitical issues; iii) weak market performance in India on issues of product quality that negatively affected its brand name; and iv) a drop in combined revenue from China and Iran on cut in production. The strong growth witnessed in KSA was driven by restructure in distribution arms and increase in direct project sales. Non-core business revenue (17% of total) was up 10%.
• Cash and stock dividends proposed by RAKCEC BoD RAK Ceramics’ board of directors (BoD) proposed 5% stock dividend for 2015 and AED0.30 cash dividend per share, implying 87% payout and 9% yield. Dividend policy is a minimum of 60% payout ratio going forward.

Tarek El-Shawarby