Presentation Results Q2 2017
Presentation Results Q2 2017
Disclaimer
Information contained in this presentation is subject to change without further notice, its accuracy is not guaranteed and it may not contain all material information concerning the company. Neither we nor our advisors make any representation regarding, and assume no responsibility or liability for, the accuracy or completeness of, or any errors or omissions in, to any information contained herein. In addition, the information contains projections and forward-looking statements that reflect the company’s current views with respect to future events and financial performance. These views are based on current assumptions which are subject to various risks and may change over time. No assurance can be given that future events will occur, that projections will be achieved, or that the company’s assumptions are correct. Actual results may differ materially from those projected. This presentation is strictly not to be distributed without the explicit consent of L’azurde for Jewelry Company management under any circumstances.
2
Agenda Pages 1. Executive Summary
4-5
2. Business Model
6-8
3. Results
9-18
4. Group Key Initiatives
19-20
5. Conclusion
21
3
Executive Summary
Core wholesale revenues impacted mainly by the EGP devaluation and lower consumer spending in GCC. We raised prices in Egypt the last 12 months and introduced new jewelry collections at lower weights and lower Karat (18K and 14K) across all markets to reach more appropriate consumer price points.
Our Retail channel sales grow rapidly at +24% in H1 2017 vs. H1 2016 and is promising. It represents 28% of our revenues in H1 2017 vs. 16% in H1 2016. L’azurde mono brand shops outperform the market and we continue investing in selective key locations at top Malls in KSA and Egypt. For the first time ever we took over the duty free business at KSA airports. We launched the new L’azurde Men collection and opened retail shops for the new Danish Global franchise ‘Amazing’ jewelry offering affordable fashion silver jewelry. We also expanded with more kiosks in top Malls for our diamonds jewelry value brand ‘Kenaz’.
We continue to reduce our operating costs (H1 2017 at -25% vs. H1 2016) to reduce pressure on profitability through production processes reengineering, reducing fixed costs, headcount reduction and rationalizing capital expenditure.
We managed to reduce our working capital in H1, 2017 by 24% compared to the same period of last year. This was done by tightening credit terms given to our wholesale customers and rationalizing our inventory. These measures reduced our finance charges by 19%. 4
Executive Summary
Net income for H1 2017 at SAR28.4 Million came at 35% below H1 2016. This was impacted by lower operating revenues partially compensated by operating cost reductions and a one-off foreign exchange gain in H1 last year amounting to SAR12.5 million. Our profitability from the Retail business is still not contributing much as we continue investing in opening new locations and launching several brands targeting different products categories, price points and usage occasions.
We are very positive about the business outlook. • We execute several growth and profit enhancing long term initiatives • We diversify revenues with retail on top of wholesale business and multi-brands leveraging our management capabilities and Global best practice from jewelry houses/retailers • Strong design capabilities, consumer understanding and market leadership position • Opportunity to acquire given the fragmented competitive scene • Solid and stable management team that drove the business since 2010 • Attractive young KSA/Regional demographics and confidence in KSA economy rebound with Government plans
5
L’azurde Business Model Evolution
L’azurde House of Brands L’azurde Jewelry L’azurde Jewelry Gold Wholesale Business
Gold Wholesale Business L’azurde Mono Brand diamond jewelry retail stores
Gold Wholesale Business L’azurde retail Kenaz Value diamonds jewelry Amazing Silver fashion jewelry Others TBD
6
L’azurde Business Model Evolution L’azurde Group: House of Brands L’AZURDE GROUP
Jewelry
Accessories
L’azurde
Wholesale
Retail
L’AZURDE - 14K - 18K
(Diamonds) 25 Locations 6 Duty Free
Men
KENAZ
AMAZING
(Value Diamonds)
(Silver Fashion)
15 Locations
4 Locations
Other L’azurde Line Extensions
Others TBD, Acquisitions JV, Franchise
- 21K 7
Wholesale Business Model Gold Jewelry Wholesale Business Model Banks Value Creation at L’azurde: Bank Facilities + Margin
Bank Facilities (Murabaha)
• Creating great Gold jewelry products (Design, technology, value offering, innovation,….)
• Brand marketing • Revenues = LSC (Labor Service Charge ) + Stones Profits
L’azurde
Retailers pay L’azurde: Physical Gold + Labor Service Charge (SAR/USD)
Gold Jewelry
• Physical Gold + Labor Service Charge
L’azurde takes no position on Gold 2,000 Retailers 8
Most of the Revenues Decline Due to EGP Devaluation Revenue Variance – YTD June 2017 Million SAR 300 250 (51.0)
200 150
(21.7)
(14.5)
(8.7)
285.2
(3.6)
12.8
4.3
1.2
100 204.1
50 0
Wholesale
Net Volume and Price Impact
Retail 9
Retail Revenues at +24% in H1 2017 vs. LY Operating Revenues by Distribution Channel Million SAR
107 100
21 19%
82
300
285
250
47 16%
80
26 32%
60
40
204
200
58 28%
150 86 81% 56 68%
20
-
100
239 84% 147 72%
50 -
Q2-2016 Wholesale
Q2-2017 Retail
YTD Jun 2016 Wholesale
YTD Jun 2017 Retail
10
KSA Outperforms Other Markets thanks to Retail Operating Revenues by Country – YTD June 2017 Million SAR 160 140
134.3
120 100 80 60
46.5
40 19.0
20
4.2
KSA
Egypt
Other GCC
Other Export
% of Total
66%
23%
9%
2%
Vs. 2016
9% ▼
53% ▼
36% ▼
46% ▼ 11
Retail Gross Margin at +53% in H1 2017 vs. LY Gross Margin by Distribution Channel Million SAR 125
160
105
140
158 17 126
120
85
26
100
65
52
45
25
40 8
12
33
39
5
80 60
141 100
40 20
(15)
Q2-2016
Wholesale Gross Margin % Wholesale Retail Total
38% 36% 38%
Q2-2017
Retail 70% 47% 63%
YTD Jun 2016
Wholesale 59% 36% 55%
YTD Jun 2017
Retail 68% 45% 62%
12
Operating Expenses Decline by 25% in H1 2017 vs. LY Operating Expenses Million SAR
40 35
35
36
120 100
100
30 75
80
25
60
20 15
40
10 20
5
0
Q2-2016
Q2-2017
YTD Jun 2016
YTD Jun 2017
13
EBITDA Declines by 11% in H1 2017 vs. LY EBITDA Million SAR 20
18 22%
18 16
25% 70
20%
12
15%
63
27% 56
60 50
14
30%
22% 20%
40
10 8
6
25%
15% 8
10%
7%
10%
20
4
5%
2 -
0% Q2-2016 EBITDA
30
Q2-2017 EBITDA Margin
5%
10 0
0% YTD Jun 2016 EBITDA
YTD Jun 2017 EBITDA Margin 14
Finance Charges Decline by 19% in H1 2017 vs. LY Finance Charges Million SAR 10
25
10
9 8
8
20
20
7
16 15
6 5
10
4 3
5
2
1 0
Q2-2016
Q2-2017
YTD Jun 2016
YTD Jun 2017
15
Healthy gross margin % despite challenging market Group Consolidated Income Statements Million SAR
Q2 Revenue Cost of revenue *Inventory IFRS Adj.
2016A 106.8 100.0%
Delta -28%
-37.2%
-19%
-26.7%
-
>100%
40.5
37.9%
51.6
62.8%
28%
157.5
55.2%
125.8
61.6%
-20%
(24.9) (10.4)
-23.3%
-33.1%
9% -10.5% -17%
(75.2) (24.6)
-26.4% -8.6%
(57.7) (17.6)
-28.2%
-9.8%
(27.2) (8.7)
-8.6%
-23% -29%
5.1
4.8%
15.7
19.1%
208%
57.7
20.2%
50.5
24.8%
-12%
Other income – net Finance Charges – net
(1.1) (9.5)
-1.0%
-0.4%
-71%
-99%
-18%
-6.9%
0.1 (16.0)
0.0%
-9.5%
12.5 (19.8)
4.4%
-8.9%
(0.3) (7.8)
-7.8%
-19%
Net Profit before Zakat
(5.5)
-5.1%
7.6
9.3%
-239%
50.4
17.7%
34.6
17.0%
-31%
Zakat Income Tax
(1.3) (0.2)
-1.2%
-1.5%
-9%
2%
-108%
-0.4%
(5.7) (0.5)
-2.8%
0.0%
(5.6) (1.1)
-1.9%
-0.2%
(1.2) -
-0.3%
-52%
Net Income
(7.0)
-6.6%
6.4
7.8%
-191%
43.7
15.3%
28.4
13.9%
-35%
Earning per Share
(0.16)
-191%
1.02
Selling and marketing General and admin Operating Income
-35.4%
2016A 285.2 100.0% (98.8) -34.6% (28.9) -10.1%
(30.6) -
Gross Profit
(37.8) (28.5)
2017A Delta 82.2 100.0% -23%
YTD 2017A 204.1 100.0% (78.3) -38.4% -
0.15
(*) Inventory valuation one-off IFRS adjustment
0.66
-21% >100%
-35%
16
Q2 2017AR and Inventory less than Q2 2016 by 32% and 14% Working Capital Million SAR
1,800
1,752
1,783
1,696
1,600 1,400
795
1,200
947
825
1,318
1,358
625
644
693
715
Q1-2017
Q2-2017
1,231 425
1,000
800 600 400
957
836
870
806
Q2-2016
Q3-2016
Q4-2016
200 -
Q1-2016
Inventories
Accounts Receivable 17
Q2 2017 borrowing is less than Q2 2016 by 26% Group’s Capital Structure Million SAR 1,600
1,521
1,488
1,397
1,400 1,200
1,021
1,000
1,130
1,082
800 600
486
479
Q1-2016
Q2-2016
400
509 402
422
405
Q3-2016 Q4-2016 Loans Equity
Q1-2017
Q2-2017
200 -
18
Group Wholesale Initiatives
Balqees Celebrity Collaboration • New Collections
Campaign
First Ever Electro Forming Technology • Large volume Low
weight jewelry
Expand 18K Market Share • Raise number of models
for most profitable line
Develop Export Outside The Region
Reduce Receivables To Enhance WC
• Focus on profitability
• International Exhibitions
• Focus on collection of
• Offer volume rebates to
• New customers
Raise Prices In Egypt
key accounts to drive volume
receivables • New volume incentive in place
19
Group Retail Initiatives
L’azurde Retail Shops Expansion
Amazing Jewelry Franchise
• Focus top locations, top
• Build brand awareness
Malls
• Leverage Global best
Kenaz Jewelry Expansion • Expand kiosks in top
malls
practice
L’azurde Men Line Extension • Marketing support for new launch • Expand distribution
Duty Free Vendor KSA Airports • New expansion in the KSA Duty Free Airports
E-Commerce and New CRM Program • Building loyalty and driving repeat purchase • E-commerce to complement the Omnichannel strategy 20
Conclusion
A Challenging H1, 2017 Many promising mid-term initiatives leveraging the brand and company capabilities Growing company market share with fragmented competition Acquisition opportunities
Stabilizing and Recovering Markets in KSA/Egypt
21
L’azurde, a great history, a greater future
Thank You
For investors relations matters please contact: [email protected]
22
Disclaimer
Information contained in this presentation is subject to change without further notice, its accuracy is not guaranteed and it may not contain all material information concerning the company. Neither we nor our advisors make any representation regarding, and assume no responsibility or liability for, the accuracy or completeness of, or any errors or omissions in, to any information contained herein. In addition, the information contains projections and forward-looking statements that reflect the company’s current views with respect to future events and financial performance. These views are based on current assumptions which are subject to various risks and may change over time. No assurance can be given that future events will occur, that projections will be achieved, or that the company’s assumptions are correct. Actual results may differ materially from those projected. This presentation is strictly not to be distributed without the explicit consent of L’azurde for Jewelry Company management under any circumstances.
2
Agenda Pages 1. Executive Summary
4-5
2. Business Model
6-8
3. Results
9-18
4. Group Key Initiatives
19-20
5. Conclusion
21
3
Executive Summary
Core wholesale revenues impacted mainly by the EGP devaluation and lower consumer spending in GCC. We raised prices in Egypt the last 12 months and introduced new jewelry collections at lower weights and lower Karat (18K and 14K) across all markets to reach more appropriate consumer price points.
Our Retail channel sales grow rapidly at +24% in H1 2017 vs. H1 2016 and is promising. It represents 28% of our revenues in H1 2017 vs. 16% in H1 2016. L’azurde mono brand shops outperform the market and we continue investing in selective key locations at top Malls in KSA and Egypt. For the first time ever we took over the duty free business at KSA airports. We launched the new L’azurde Men collection and opened retail shops for the new Danish Global franchise ‘Amazing’ jewelry offering affordable fashion silver jewelry. We also expanded with more kiosks in top Malls for our diamonds jewelry value brand ‘Kenaz’.
We continue to reduce our operating costs (H1 2017 at -25% vs. H1 2016) to reduce pressure on profitability through production processes reengineering, reducing fixed costs, headcount reduction and rationalizing capital expenditure.
We managed to reduce our working capital in H1, 2017 by 24% compared to the same period of last year. This was done by tightening credit terms given to our wholesale customers and rationalizing our inventory. These measures reduced our finance charges by 19%. 4
Executive Summary
Net income for H1 2017 at SAR28.4 Million came at 35% below H1 2016. This was impacted by lower operating revenues partially compensated by operating cost reductions and a one-off foreign exchange gain in H1 last year amounting to SAR12.5 million. Our profitability from the Retail business is still not contributing much as we continue investing in opening new locations and launching several brands targeting different products categories, price points and usage occasions.
We are very positive about the business outlook. • We execute several growth and profit enhancing long term initiatives • We diversify revenues with retail on top of wholesale business and multi-brands leveraging our management capabilities and Global best practice from jewelry houses/retailers • Strong design capabilities, consumer understanding and market leadership position • Opportunity to acquire given the fragmented competitive scene • Solid and stable management team that drove the business since 2010 • Attractive young KSA/Regional demographics and confidence in KSA economy rebound with Government plans
5
L’azurde Business Model Evolution
L’azurde House of Brands L’azurde Jewelry L’azurde Jewelry Gold Wholesale Business
Gold Wholesale Business L’azurde Mono Brand diamond jewelry retail stores
Gold Wholesale Business L’azurde retail Kenaz Value diamonds jewelry Amazing Silver fashion jewelry Others TBD
6
L’azurde Business Model Evolution L’azurde Group: House of Brands L’AZURDE GROUP
Jewelry
Accessories
L’azurde
Wholesale
Retail
L’AZURDE - 14K - 18K
(Diamonds) 25 Locations 6 Duty Free
Men
KENAZ
AMAZING
(Value Diamonds)
(Silver Fashion)
15 Locations
4 Locations
Other L’azurde Line Extensions
Others TBD, Acquisitions JV, Franchise
- 21K 7
Wholesale Business Model Gold Jewelry Wholesale Business Model Banks Value Creation at L’azurde: Bank Facilities + Margin
Bank Facilities (Murabaha)
• Creating great Gold jewelry products (Design, technology, value offering, innovation,….)
• Brand marketing • Revenues = LSC (Labor Service Charge ) + Stones Profits
L’azurde
Retailers pay L’azurde: Physical Gold + Labor Service Charge (SAR/USD)
Gold Jewelry
• Physical Gold + Labor Service Charge
L’azurde takes no position on Gold 2,000 Retailers 8
Most of the Revenues Decline Due to EGP Devaluation Revenue Variance – YTD June 2017 Million SAR 300 250 (51.0)
200 150
(21.7)
(14.5)
(8.7)
285.2
(3.6)
12.8
4.3
1.2
100 204.1
50 0
Wholesale
Net Volume and Price Impact
Retail 9
Retail Revenues at +24% in H1 2017 vs. LY Operating Revenues by Distribution Channel Million SAR
107 100
21 19%
82
300
285
250
47 16%
80
26 32%
60
40
204
200
58 28%
150 86 81% 56 68%
20
-
100
239 84% 147 72%
50 -
Q2-2016 Wholesale
Q2-2017 Retail
YTD Jun 2016 Wholesale
YTD Jun 2017 Retail
10
KSA Outperforms Other Markets thanks to Retail Operating Revenues by Country – YTD June 2017 Million SAR 160 140
134.3
120 100 80 60
46.5
40 19.0
20
4.2
KSA
Egypt
Other GCC
Other Export
% of Total
66%
23%
9%
2%
Vs. 2016
9% ▼
53% ▼
36% ▼
46% ▼ 11
Retail Gross Margin at +53% in H1 2017 vs. LY Gross Margin by Distribution Channel Million SAR 125
160
105
140
158 17 126
120
85
26
100
65
52
45
25
40 8
12
33
39
5
80 60
141 100
40 20
(15)
Q2-2016
Wholesale Gross Margin % Wholesale Retail Total
38% 36% 38%
Q2-2017
Retail 70% 47% 63%
YTD Jun 2016
Wholesale 59% 36% 55%
YTD Jun 2017
Retail 68% 45% 62%
12
Operating Expenses Decline by 25% in H1 2017 vs. LY Operating Expenses Million SAR
40 35
35
36
120 100
100
30 75
80
25
60
20 15
40
10 20
5
0
Q2-2016
Q2-2017
YTD Jun 2016
YTD Jun 2017
13
EBITDA Declines by 11% in H1 2017 vs. LY EBITDA Million SAR 20
18 22%
18 16
25% 70
20%
12
15%
63
27% 56
60 50
14
30%
22% 20%
40
10 8
6
25%
15% 8
10%
7%
10%
20
4
5%
2 -
0% Q2-2016 EBITDA
30
Q2-2017 EBITDA Margin
5%
10 0
0% YTD Jun 2016 EBITDA
YTD Jun 2017 EBITDA Margin 14
Finance Charges Decline by 19% in H1 2017 vs. LY Finance Charges Million SAR 10
25
10
9 8
8
20
20
7
16 15
6 5
10
4 3
5
2
1 0
Q2-2016
Q2-2017
YTD Jun 2016
YTD Jun 2017
15
Healthy gross margin % despite challenging market Group Consolidated Income Statements Million SAR
Q2 Revenue Cost of revenue *Inventory IFRS Adj.
2016A 106.8 100.0%
Delta -28%
-37.2%
-19%
-26.7%
-
>100%
40.5
37.9%
51.6
62.8%
28%
157.5
55.2%
125.8
61.6%
-20%
(24.9) (10.4)
-23.3%
-33.1%
9% -10.5% -17%
(75.2) (24.6)
-26.4% -8.6%
(57.7) (17.6)
-28.2%
-9.8%
(27.2) (8.7)
-8.6%
-23% -29%
5.1
4.8%
15.7
19.1%
208%
57.7
20.2%
50.5
24.8%
-12%
Other income – net Finance Charges – net
(1.1) (9.5)
-1.0%
-0.4%
-71%
-99%
-18%
-6.9%
0.1 (16.0)
0.0%
-9.5%
12.5 (19.8)
4.4%
-8.9%
(0.3) (7.8)
-7.8%
-19%
Net Profit before Zakat
(5.5)
-5.1%
7.6
9.3%
-239%
50.4
17.7%
34.6
17.0%
-31%
Zakat Income Tax
(1.3) (0.2)
-1.2%
-1.5%
-9%
2%
-108%
-0.4%
(5.7) (0.5)
-2.8%
0.0%
(5.6) (1.1)
-1.9%
-0.2%
(1.2) -
-0.3%
-52%
Net Income
(7.0)
-6.6%
6.4
7.8%
-191%
43.7
15.3%
28.4
13.9%
-35%
Earning per Share
(0.16)
-191%
1.02
Selling and marketing General and admin Operating Income
-35.4%
2016A 285.2 100.0% (98.8) -34.6% (28.9) -10.1%
(30.6) -
Gross Profit
(37.8) (28.5)
2017A Delta 82.2 100.0% -23%
YTD 2017A 204.1 100.0% (78.3) -38.4% -
0.15
(*) Inventory valuation one-off IFRS adjustment
0.66
-21% >100%
-35%
16
Q2 2017AR and Inventory less than Q2 2016 by 32% and 14% Working Capital Million SAR
1,800
1,752
1,783
1,696
1,600 1,400
795
1,200
947
825
1,318
1,358
625
644
693
715
Q1-2017
Q2-2017
1,231 425
1,000
800 600 400
957
836
870
806
Q2-2016
Q3-2016
Q4-2016
200 -
Q1-2016
Inventories
Accounts Receivable 17
Q2 2017 borrowing is less than Q2 2016 by 26% Group’s Capital Structure Million SAR 1,600
1,521
1,488
1,397
1,400 1,200
1,021
1,000
1,130
1,082
800 600
486
479
Q1-2016
Q2-2016
400
509 402
422
405
Q3-2016 Q4-2016 Loans Equity
Q1-2017
Q2-2017
200 -
18
Group Wholesale Initiatives
Balqees Celebrity Collaboration • New Collections
Campaign
First Ever Electro Forming Technology • Large volume Low
weight jewelry
Expand 18K Market Share • Raise number of models
for most profitable line
Develop Export Outside The Region
Reduce Receivables To Enhance WC
• Focus on profitability
• International Exhibitions
• Focus on collection of
• Offer volume rebates to
• New customers
Raise Prices In Egypt
key accounts to drive volume
receivables • New volume incentive in place
19
Group Retail Initiatives
L’azurde Retail Shops Expansion
Amazing Jewelry Franchise
• Focus top locations, top
• Build brand awareness
Malls
• Leverage Global best
Kenaz Jewelry Expansion • Expand kiosks in top
malls
practice
L’azurde Men Line Extension • Marketing support for new launch • Expand distribution
Duty Free Vendor KSA Airports • New expansion in the KSA Duty Free Airports
E-Commerce and New CRM Program • Building loyalty and driving repeat purchase • E-commerce to complement the Omnichannel strategy 20
Conclusion
A Challenging H1, 2017 Many promising mid-term initiatives leveraging the brand and company capabilities Growing company market share with fragmented competition Acquisition opportunities
Stabilizing and Recovering Markets in KSA/Egypt
21
L’azurde, a great history, a greater future
Thank You
For investors relations matters please contact: [email protected]
22
