L AZURDE ANNOUNCES ITS INTERIM FINANCIAL RESULTS FOR THE NINE MONTHS PERIOD ENDED 30 SEPTEMBER

Transcription

1 L AZURDE ANNOUNCES ITS INTERIM FINANCIAL RESULTS FOR THE NINE MONTHS PERIOD ENDED 30 SEPTEMBER 2016 Reasons of increase quarter compared with same quarter last year 1. Operating Revenues for the third quarter amounted to SAR 73.9 million declined by 43.4% compared to the same quarter of last year of SAR million, mainly due to a drop in consumer spending across all markets. Segmented by geography, Operating Revenues were lower in KSA by 43.8%, Egypt by 40.3%, GCC by 50.8% and Export by 80.9%. Segmented by channel, Wholesale declined by 46.5%, while Retail declined by 27.9%. In Saudi Arabia, demand was impacted by a drop in consumer spending influenced by a slowing economy, shrinking government spend and introduction of austerity measures by the government and private sectors. In Egypt, high inflation and currency devaluation coupled with an increase in gold prices in the third quarter impacted consumption for jewelry compared to the previous quarter. Other GCC export markets also followed the same trend as the low oil price environment has impacted the region overall. 2. Operating Cost of Revenues decreased by 38.3% as the company managed to partially absorb the impact of fixed costs by reducing labor costs, overheads and by improving manufacturing productivity. 3. Gross profit for the third quarter amounted to SAR45.1 million compared to 83.8 million in the same quarter of last year, declined by 46.2% due to lower sales. 4. Wholesale gross profit declined by 48.2%, while Retail gross profit declined by 24.6% compared to the corresponding quarter of the previous year. 5. Selling and Marketing expenses decreased by 29.7% due to reduced staff costs, lower advertising spend and less direct selling costs linked to the reduction in volume. 6. General and Administration expenses decreased by 40.9% as a result of management s actions towards cutting costs, reducing headcount, employee costs and discretionary spending. 7. Depreciation of Property, Plant and Equipment grew by 13.0% due to the ongoing investment in capital expenditures. 8. Operating Income for the third quarter amounted to SAR 11.1 million, a decrease of 67.0% compared to the corresponding quarter of the previous year at SAR 33.5 million, mainly due to volume decline. 9. Finance charges were lower by 10.4% due to lower gold loans borrowing and despite a slight increase in borrowing rates. 10. Other (expenses) / income are mainly foreign exchange losses amounted to SAR -2.6 million compared to a gain of SAR 4.0 million in the

2 corresponding quarter of the previous year. 11. Zakat and income tax expenses were lower by SAR 3.5 million due to lower net income. 12. Net income for the third quarter of 2016 amounted to SAR 0.3 million, a decrease of 24.6 million or -98.6% compared to the corresponding quarter of the previous year at SAR 25.0 million. 13. Gross Profit, Operating Income and Net Income represented 61.0%, 15.0% and 0.5% of Operating Revenues for the third quarter of 2016 compared to 64.2%, 25.6% and 19.1% in the same quarter of 2015, respectively. Reasons of increase period compared with same period last year 1. Operating Revenues for the nine month period ended 30 September 2016 amounted to SAR million declined by 18.6% compared to the same period of last year at SAR million due to a drop in consumer spending across all markets. Segmented by geography, Operating Revenues were lower in KSA by 13.5%, Egypt by 23.1%, GCC by 24.8% and Export by 60.6%. Segmented by channel, wholesale declined by 20.8%, while Retail declined by 6.0%. 2. Operating Cost of Revenues decreased by 19.0%, following management efforts to reduce fixed costs despite the decrease in production levels, by negotiating lower prices of raw material, reducing labor costs, and improving manufacturing productivity. 3. Gross profit for the period amounted to SAR million declined by 18.4% compared to the same period of last year at SAR million which is in line with the decline in Operating Revenues. 4. Selling and Marketing expenses decreased by 17.3% due to reduced staff costs, lower advertising spending and less direct selling costs linked to lower sales volume. 5. General and Administration expenses decreased by 17.3% as a result of management s actions towards cutting costs. 6. Depreciation of Property, Plant and Equipment grew by 12.7% due to the ongoing investment in capital expenditures. 7. Operating Income for the period amounted to SAR 97.1 million, a decrease of 19.9% compared to the corresponding period last year at SAR million. 8. Finance charges were 0.1% higher due to a slight increase in the gold loans borrowing rates. 9. Other (expenses) / income are mainly foreign exchange gain at SAR 9.9 million compared to a gain of SAR 9.5 million in the same period last year. 10. Zakat and income tax expenses were lower by 53.3% due to lower net income.

3 Reasons of increase quarter compared with previous quarter Reclassifications in quarterly financial results Other notes 11. Net income for the nine month period ended 30 September 2016 amounted to SAR 73.0million, a decrease of 15.8 million or 17.8% compared to the same period last year at SAR 88.7 million. 12. Gross Profit, Operating Income and Net Income for the period represented 64.4%, 27.0% and 20.3% of Operating Revenues compared to 64.2%, 27.5% and 20.1% in the same period last year, respectively. - Net Income for the third quarter was lower by 98.4% compared to the second quarter of 2016 (SAR 21.4 million), due to seasonality factors and the drop in consumer spending in the third quarter. - Certain prior year comparatives have been regrouped to conform to the current period classification. These classifications did neither affect the Net Profit nor Shareholders Equity of the period of comparison. A summary of Interim Consolidated Cash Flows Statement, during the nine months period ended 30 September 2016 is as follows: - Cash used in Operating Activities ( OCF ) for the period ended 30 September 2016 amounted to negative SAR 40.4 million, a decrease of SAR 94.7 million compared to SAR 54.3 million in the corresponding period of 2015, mainly as a result of the increase of SAR 48.0 million in margin deposit as a security for gold loans and higher accounts receivable due to the increase in gold prices and longer credit terms to some key customers. - During the nine month period ended 30 September 2016, SAR 16.4 million was used in Investing Activities principally due to the continuation of capital investments and purchasing new machinery and equipment. - The Cash used in Financing Activities during the period reached negative SAR 55.0 million compared to negative SAR 10.0 million used in the corresponding period of 2015 mainly due to an increase of SR 45.0 million from dividends paid. A summary of the Interim Consolidated Balance Sheet as at 30 September 2016 is as follows: - Total Assets, amounted to SAR 2,019.8 million compared to SAR 1,899.8 million as at September 2015, an increase of 6.3% mainly due to the increase in accounts receivable. - Net Working Capital, amounted to SAR million compared to SAR million as at 30 September 2015, a decrease of 1.7%. Total Liabilities amounted to SAR 1,506.4 million compared to SAR 1,388.9 million as at 30 September 2015, an increase of 8.5% mainly due to an

4 increase in short term loans due to higher gold prices. - Short-term loans amounted to SAR 1,397.4 million compared to SAR 1,226.8 million as at 30 September 2015, an increase of 13.9%. - Total Shareholders Equity amounted to SAR million compared to SAR million as at 30 September 2015, an increase of 0.5%. The book value per share as at 30 September 2016 was SAR compared to SAR as at 30 September Overall, and as mentioned above, the gold jewelry market in KSA, Egypt and GCC was impacted by a significant reduction in consumer spending and generally sluggish economy. The company responded to these macroeconomics and market challenges by: 1. Leveraging its technology and manufacturing capabilities to launch new fashionable and classic jewelry at lower weights across all markets to target affordable consumer price points. 2. Launching 14 Karat Gold jewelry lines in Egypt and for the first time in the Middle East, offering consumers unique designs at more affordable prices. The 14 Karat gold jewelry collections have so far been well received in Egypt by both retailers and consumers. 3. Launching a second jewelry brand in Saudi Arabia called Kenaz, a value jewelry brand offering a wide range of top diamond jewelry designs at more affordable prices for consumers. 4. Expanding the Retail division by signing five lease agreements for opening new four showrooms in KSA and one in Egypt 5. Improving efficiency and cost optimization through production process reengineering, headcount and other cost reductions, and delaying capital expenditure which enabled the Company to support its margins despite the reduction in volumes and revenues. Considering all the above initiatives and the underlying fundamentals supporting the jewelry industry in the long term, we believe that L azurde remains in a strong position to adapt to a challenging market and continue its longer term growth ambitions. We would like to draw the attention of the shareholders that the Company s management is going to elaborate on the financial results for the Third Quarter through a conference call on October 20 at 9:30 AM for duration of 20 minutes. Attendees should send their questions by to: investors@lazurde.com before or during the conference call. To access the conference call, dial-in the following toll free telephone numbers KSA toll free: (KSA Land line and STC mobile lines) Bahrain: (For users on mobile lines other than STC) Confirmation Code

5 The Interim Consolidated Financial Statements for the period ended 30 September 2016 will be available through the following link on Company s website. formation.html