Italian deal sets up RAK Ceramics’ designs on luxury market

The core business is tiles and sanitary ware, but Abdallah Massaad tells Frank Kane how the company has enhanced its presence in luxury goods.

Abdallah Massaad, CEO at RAK Ceramics. Reem Mohammed / The National

A spartan industrial zone in Ras Al Khaimah is about as far as you can get from the designer chic of Turin, Italy, but both are central to the long-term strategic plans of one of the UAE’s genuine global market leaders.

The sprawling manufacturing site on the edge of the RAK free zone is the base from which Abdallah Massaad, the chief executive of RAK Ceramics, leads a company with nearly US$1 billion in global sales.

Its slogan “make sure it’s RAK” is on some upmarket baubles in restaurants and hotels from Dubai to London, but also on the sanitary and bathware products produced for mass markets in the Middle East, India and Bangladesh.

“We are a known global brand, but we are focusing more and more on our core businesses,” says Mr Massaad, chief executive since 2006 when he took over the role from his uncle, who had helped to found the firm about 25 years ago.

The core business is tiles and sanitary ware, but that has not prevented him enhancing the company’s presence in luxury goods. Just recently, he clinched a deal with Pininfarina, the Italian design firm whose name is usually on the chassis of top-of-the-range cars from Ferrari, Alfa Romeo and Maserati.

The Turin-Ras Al Khaimah collaboration will design and manufacture an upmarket line of bathroom ware to sit alongside other luxury items in the RAK Ceramics catalogue. “We are now a fashion industry,” says Mr Massaad.

In RAK, however, the focus is less on fashion and more on functionality. The huge ceramics plant there turns out tiles for every conceivable industrial and consumer purpose – tiles that look like wood, granite, marble or glass.

Mr Massaad’s greatest enthusiasm is reserved for the huge Maximus tile, measuring 1.5 x 3 metres, which he says is the largest tile made in standard production.

This simultaneous focus on tiles and tableware has coincided with the arrival of a new shareholder in the shape of Samena Capital, an Asia-orientated investment group, an event Mr Massaad calls “transformational” and ushering in a new “value creation plan” for RAK Ceramics aimed at delivering value to shareholders.

Along the way, RAK Ceramics is likely to pull out of its loss-making business in China, and reposition itself as a business-to-business supplier of sanitary ware and tiles in the booming markets of India and Bangladesh. The business in Sudan, also loss-making, has already been sold.

Other activities deemed non-core and already sold or marked for disposal include construction, hotel investment, warehousing and real estate, Mr Massaad explains. The rationale of the new strategy, under the guidance of Samena and its three representatives on the RAK Ceramics board, is to increase the customer base, notably in Mena and South Asia, increase profitability and improve shareholder returns. It will be the next phase of a history that has taken RAK Ceramics from being a small local producer, focused on the needs of the UAE and regional markets, to being a force in the world ceramics industry.

“Back in 1900, Italy and Spain were big manufacturers, but the red clay of Ras Al Khaimah was recognised for its quality and it was decided by the rulers of the emirate to build a plant here to service the region and the world,” says Mr Massaad.

In the decade after its founding in 1990, RAK Ceramics virtually doubled capacity every two years, and began an export drive that by 2008 had propelled it into the No 1 slot for worldwide ceramics manufacture.

“There have been changes since then, mergers in the United States industry and other changes, but we are still about No 3 in terms of capacity,” he says.

The crisis of 2008 and the economic slowdown that followed were in some ways an opportunity for RAK Ceramics.

“A lot of rivals, in Spain and Italy for example, went bankrupt, and we were able to exploit that. Demand fell in the UAE, but we were able to remain at full capacity because of all the other markets we supply,” Mr Massaad adds.

It is that same diversification policy – whereby products are often made and sold locally in core markets – that the company hopes will see it though the challenges posed by the strong US dollar.

Europe is still a major export market for RAK Ceramics, and Britain is a big importer of its sanitary and bathroom products.

The other big variable in global markets, the oil price, cuts both ways for the firm.

“The cost or production has been reduced, and so far we haven’t seen any impact on demand in our markets. But let’s see how it goes,” Mr Massaad says.

On the financial front, he is optimistic that the current year will reflect the first benefits of the new strategy, with the Sudan divestment out of the way and also the sale of its portion of the Laticrete building material business and a pharmaceuticals unit in Bangladesh.

In 2014, problems in some of those businesses, and in Iran, reduced growth levels, with a 3.5 per cent increase in net profits to Dh282 million. Mr Massaad called 2014 a “stabilising year”.

One feature was the new dividend policy, by which the company will pay out at least 60 per cent of consolidated net income, boosted by the income from disposals.

“The question now is how to grow the business. The plan is to double capacity in the next three years because the global market is so good,” says Mr Massaad.

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