Following a drive to focus solely on its core businesses, internationally-renowned RAK Ceramics is on the right track. CFO Pramod Kumar Chand has played a key role in devising the firm’s 19-point value creation plan, to ensure he gets the best from the company through smart financial decisions.
For a company founded in 1991, the numbers on RAK Ceramics are impressive by most measures. The firm has a global annual production capacity of 117 million m2 of ceramic and porcelain tiles, 4.6 million pieces of sanitaryware and 24 million pieces of tableware, with a turnover of $1 billion and a distribution network that spans over 160 countries. The company has its headquarters in Ras Al Khaimah in the United Arab Emirates, where 12 production plants occupy a site of 2.5 million m2 and employ over 8,000 people. With additional plants in Bangladesh and India, the firm has approximately 15,000 employees worldwide.
In the hot seat for the company’s finances sits CFO Pramod Kumar Chand, who has been at RAK Ceramics since the start of 2014. Prior to joining, he was CFO of RAK Investment Authority, having joined from Indian cement firm Birla Corporation, where he spent the vast majority of his career. He has since relished the challenge of working for an internationally-renowned firm, where his experience in the cement industry – a market in which RAK Ceramics has an imposing presence – has served him well,. “Joining the company has given me fantastic global experience,” he says. “Our main advantages are the broad range of products we offer and the fact we operate in such a strong range of markets.”
The company started out with just one plant which initially produced 903,000 m2 of tiles per year, but the firm’s expansion over the next 20 years created challenges from the finance department, as it faced huge volume growth leading to greater receivables.
More pressing still is the “slight downturn” in the ceramics market in the GCC. “When Expo 2020 was announced things certainly looked to be very exciting for us,” Chand says. “Unfortunately things have been moving down in the UAE and Saudi Arabia, and problems have been occurring. That being said, we have not yet been affected as most customer projects are around 70-80 percent complete, and only if there are many cancellations will the market hamper.”
Exporting to more than 160 countries has allowed the firm to “change its market and product mix”. For instance, against the backdrop of the fall in value of the Euro, RAK Ceramics faced increased competition from European firms, spurring a greater focus on performance in the UAE and KSA. Nonetheless, with currency fluctuations in mind, the firm is continuing to import raw materials from Europe, only to export its porcelain products back to the continent.
In spite of this local obstacle the firm faces, its transformation into a global player has largely been due to the role of the GCC over the last decade. “The construction sector has seen dynamic growth in the region, which has obviously spelt success for us,” Chand says. The vertical has seen an average growth rate of 17 percent from 2005-2015, with the value of construction projects in the region in 2015 estimated to have been $395 billion, but there remains room for improvement.
Chand concedes the firm has not grown over the last four years – particularly in its tiles range – but a range of promising initiatives are on the horizon. “We need to explore our possibilities in sanitaryware,” he says. “We’re expanding our Bangladesh operations as that is set to be a great growth area for us.” He is conscious of the effect that a sales drive will have on the finance department. “The increase in receivables that is expected, which presented it with a big challenge,” Chand says. The firm’s strategy of operating largely through its distributors presented further difficulties, particularly if they exceed their credit limit, which is often the case.
Determined to drive the growth that has been lacking in recent years, and to reaffirm RAK Ceramics’ status as a global player, the company is now in the midst of a major strategy shift. In June 2014, Samena Capital acquired a 30.6 percent stake in the firm, and together, throughout the course of 2014 and 2015, they have taken a range of decisions that has set the company on this path. “We had to think about how we would deal with our growth in sanitaryware, whilst working on our procurement process and corporate governance,” Chand says. A key aspect of the firm’s new strategy was the decision to dispose of its non-performing assets. The firm is now concentrating solely on its four core verticals – tiles, sanitaryware, tableware, taps and faucets. RAK Ceramics has subsequently focused its production operations – despite the higher costs – in the UAE, India and Bangladesh.
The company ceased its operations in Sudan in 2014, and also signalled the end of a 10-year presence in the Chinese market. “We exited Sudan because although the firm was performing well by the standards of the Sudanese market, it did not contribute enough to justify our presence there,” Chand says. “Currency issues compounded the matter, and we felt it was too big a risk to continue. Meanwhile, China was not profitable for us and exported 95 percent of what it produced, so we were not being competitive. The market was not quality-conscious and was driven by volume, which is against the ethos of our brand.”
In line with the cull, RAK Ceramics also ceased its interest in Bangladesh-based RAK Pharmaceuticals, its involvement in the civil and MEP divisions of construction companies, and has also sold its controlling stake in Laticrete Inc.
The firm’s executive committee at HQ now meets every 15 days, and has devised a value creation plan consisting of 19 initiatives to accelerate RAK Ceramics’ progress in its core markets. “The plan was designed so that we could target the low-hanging fruit of the organisation,” Chand says. “A lot of the initiatives are intuitive but were all measures that we have needed to take for a while. Each item is being discussed in terms of the steps we need to take. “For example we need to consider ways to reduce the cost of production whilst sustaining the quality of our product, and also looking to remove any non-core assets.”
Chand is bullish about the plan’s future success, his enduring faith in the firm driven by the quality and breadth of the firm’s products. “We’re a premium brand, and that will always set us apart from our competition,” he says. “Our product range and diversity of markets in which we operate will always ensure the stability of the firm. We always have the potential to shift our focus to other markets if things don’t go as planned.”