I have the great pleasure of sharing with you the highlights of another year of accomplishments for Dubai Refreshment Company (‘DRC’).
The year 2017 was a year of dramatic change to our industry and our company. Given the dramatic changes in business environment in 2017 and given the tremendous impact such changes have had on our sales and profitability, we are of the view that Dubai Refreshment Company (DRC) has shown resiliency and has been successful despite the drop in sales and profit.
The year started well with DRC delivering AED 102 Million profit up to quarter three. As of October 1, 2017, the company was hit by excise taxes on carbonated soft drinks at a rate of 50% on retail sales which is approximately 60% on the company’s own sales to the trade. The company had no choice but to pass on this large tax to the consumer, which in turn has caused a significant drop in sales. During quarter four, the company lost AED 10.6 Million as a result of these changes against a profit of AED 24.9 Million in quarter four of 2016.
Faced with the above situation, and faced with the 5% VAT which started on January 1, 2018, DRC is now moving aggressively on several directions:
The Board and Management of DRC understand the magnitude of the changes facing our industry. While over the short to medium term this change will impact our revenues and profits, we believe that we have the plans to weather the change and to come out even stronger and more diversified over the longer term.
The year 2017 saw a decline in volumes and revenues in both Local and Exports markets. DRC achieved total revenues of AED 871 million, which represents a decline of 5% when compared to 2016.
The decline in local business reflects the general slowdown in the market, but above all, it highlights the significant negative impact from the application of Excise Tax in October 2017. The negative trend in exports was mainly due to a continuous downward pressure on sales in the African markets resulting from continuous strength of the US Dollar against local currencies. Some exports were also impacted by various new regulations as well as customs duties hikes in some key markets.
Despite the challenges faced in 2017 and the uncertain regional outlook for the coming year, DRC will focus on growing its share of the local market and increasing its exports to GCC and African countries by expanding the product range to include Lipton brand and other PepsiCo products.
Total Net Profits declined by 22% in 2017 to reach AED 91.7 Million or 10.5% of Net Revenues versus AED 118.1 Million or 12.8% of Net Revenues in 2016. Going forward, DRC will continue to focus on maximizing revenues and optimizing the operating costs to maintain healthy margins.
The additional depreciation and interest costs related to the new facility in DIP accounted for about 33% of the decline in net profit. On a similar note, DRC incurred a one-off expense of AED 7.8 Million in 2017 related to the relocation of its production lines from Al Quoz to DIP. The drop in sales volume has been, to a great extent, mitigated by savings in raw material prices and cost control initiatives driven by management, which resulted in a significant reduction in operating expenses.
DRC has been able to maintain a solid level of operating profitability as measured by EBITDA, which amounted to AED 157.4 Million or 18% of net revenues in 2017 versus AED 165.2 Million or 18% of net revenues in 2016.
In 2017, DRC generated AED 138.8 million (15.9% of revenues) from operations, which reflects sound financial management strategy. During the year, the company paid AED 63 million in dividends to shareholders and repaid loans of AED 43.7 million related to the DIP project. DRC held AED 165.5 million as cash and cash equivalents at the end of 2017.
We believe with the new factory being operational, many potential business opportunities will be available to DRC. The management and the Board of Directors are committed to consider these opportunities as they arise and to take advantage of the best available option.
In order to support its growth strategy and to optimise cost, DRC aims to invest in improving its sales and distribution networks in year 2017. DRC has already started developing a new warehouse in Fujairah to improve its distribution infrastructure in the North of the country. The project is expected to be completed in the first quarter of 2018. Also, the work on the extension of Sharjah Distribution Warehouse that started in 2017 to further support the distribution network in Sharjah and north of Dubai has been completed and an additional 15 distribution vehicles are now operating out of Sharjah. In addition, the company will start in quarter two 2018 a project to generate approximately 4 megawatt of power through solar energy by utilizing the rooftop of the new DIP factory. The project is expected to generate significant electricity savings.
On behalf of the Board of Directors, I would like to express my gratitude and appreciation to leaders of the UAE, His highness Sheikh Khalifa Bin Zayed Al Nahyan, President of the UAE and Sheikh Mohammed Bin Rashid Al Maktoum, Vice President, Prime Minister of the UAE and ruler of Dubai and their brothers and members of Federal National Council for providing us with the business environment and infrastructure necessary to build a strong and prosperous business. Their continuous support has been greatly valuable for our success.
Further, I would like to thank all the people who continue to provide their support and demonstrate their commitment and dedication towards achieving our objectives. Our employees, shareholders, customers, suppliers, and business partners are all equally important to us in our efforts to seek a better future for all.
On behalf of the Board of Directors,
Ahmad Bin Eisa Alserkal
Chairman of the Board