Presentation Results Q3 2017 - L'AZURDE
Presentation Results Q3 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 4. Group Key Initiatives 5. Conclusion
9-18 19-20 21
3
Executive Summary Q3 Revenues at +3.1% vs. LY. This was the first quarter since Q2 2016 where we had growth in revenues. KSA wholesale revenues were up 17.4% and retail revenues were up +37% thanks to the growth at L’azurde Mono Brand Shops and the expansion with Kenaz and the Airport Duty Free business. Egypt wholsalese revenues were at -20% vs. LY due to the EGP devaluation. 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 grows rapidly at +27% YTD September 2017 vs. YTD September 2016 and is promising. it represents 28% of our revenues in YTD September 2017 vs. 17% in YTD September 2016. L’azurde mono brand shops outperform the market and we continue investing in selective key locations at top Malls in KSA and key locations in Egypt. For the first time ever we took over the duty free business at key airports in KSA. We expanded the new L’azurde Men collection and expanded with more kiosks in top Malls for our diamonds jewelry value brand ‘Kenaz’. We continue to reduce our operating costs (YTD September 2017 at -18% vs YTD September 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 YTD September, 2017 by 20% 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 16%.
4
Executive Summary
Net income for YTD September 2017 at SAR 28.9 Million came at 60% below YTD September 2016. Net income for Q3 2017 amounted to SAR 0.5 million, an increase of SAR 0.7 million compared to the same quarter of last year before IFRS inventory adjustments. After the one-off IFRS adjustment, Net Income was lower by SAR 28.2 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. We announced on September 25, 2017 the signing of a MOU for a potential acquisition • Solid management team drove the business since 2010 to IPO is now growing the Company back to its historical profitability • 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 September 2017 Million SAR 400 350 300 (84.5)
250
200 150
(17.2)
(15.2)
13.0
(3.4)
19.6
7.2
1.7
359.1 280.3
100 50 0
Wholesale
Net Volume and Price Impact
Retail 9
First Quarter Growth in Revenues Since Q2 2016 Group’s Quarterly Revenues Changes vs. Same Quarter LY
10.0%
3.1%
0.0% -10.0% -20.0% -30.0%
-23.0%
-23.2% -31.7%
-40.0% -43.7%
-50.0%
-48.0%
-60.0% Q2-2016
Q3-2016
Q4-2016
Q1-2017
Q2-2017
Q3-2017
10
Retail Revenues at +27% in YTD September 2017 vs. LY Operating Revenues by Distribution Channel Million SAR
359 350
100
300 80
74
76
60
16 21%
21 28%
20
58 79%
55 72%
280 79 28%
250 200
150
40
62 17%
297 83% 201 72%
100 50
-
Q3-2016 Wholesale
Q3-2017 Retail
YTD Sep 2016 Wholesale
YTD Sep 2017 Retail
11
KSA Outperforms Other Markets thanks to Retail Operating Revenues by Country – YTD Sep 2017 Million SAR 200 180
171.5
160 140 120 100
79.5
80 60 40
23.4
20
5.9
KSA
Egypt
Other GCC
Other Export
% of Total
62%
28%
8%
2%
Vs. 2016
3% ▼
43% ▼
34% ▼
37% ▼ 12
Retail Gross Margin +70% in YTD September 2017 vs. LY Gross Margin by Distribution Channel Million SAR 80
250
74
22
70 60
200
29
171
50 40
45 5
37
150
11 100
30 20
232
40
34
210 134
50
10 -
Q3-2016 Wholesale
Retail
Q3-2017 IFRS Adjustment
Gross Margin % (before IFRS Adjustment) Wholesale 68% 62% Retail 33% 51% Total 61% 59%
YTD Sep 2016 Wholesale 71% 35% 65%
YTD Sep 2017 Retail 66% 47% 61%
13
Operating Expenses Decline by 18% in YTD September 2017 vs. LY
Operating Expenses Million SAR
160
40
35
34
34
140
30
120
25
100
20
80
15
60
10
40
5
20
134 109
-
Q3-2016
Q3-2017
YTD Sep 2016
YTD Sep 2017
14
EBITDA Declines by 35% in YTD September 2017 vs. LY EBITDA Million SAR 50
20% 120
19%
45
17%
43
16%
35
14%
30
12%
29
25
10%
20
8% 13
15 10
6% 4%
14
5
13
EBITDA
Q3-2017
IFRS Adjustment
100
30%
30% 25%
80
69
EBITDA Margin
25% 20%
60 15% 40
10%
20
5%
2% 0%
Q3-2016
106
18%
40
35%
0
0% YTD Sep 2016 EBITDA
YTD Sep 2017 EBITDA Margin 15
Finance Charges Decline by 16% in YTD September 2017 vs. LY
Finance Charges Million SAR 9 8
30
8 7
7
28
25
23
20
6
5
15
4
10
3 2
5
1 0
Q3-2016
Q3-2017
YTD Sep 2016
YTD Sep 2017
16
Healthy gross margin % despite challenging market Group Consolidated Income Statements Million SAR
Q3 2016A Revenue Cost of revenue Inventory IFRS Adj.*
73.9
2016A
3% 8%
100.0%
44.9
59.0%
-39%
(26.5) (7.6)
-35.9%
-32.5%
-10.3%
(24.8) (9.4)
Operating Income
39.8
53.8%
10.7
14.1%
-73%
97.8
27.2%
61.3
21.9% -37.3%
Other income – net Finance Charges – net
(2.6) (8.1)
-3.5%
-0.4%
9.9 (27.9)
-7.8%
(0.2) (23.4)
-0.1% -102%
-9.7%
-87% -9%
2.8%
-11.0%
(0.3) (7.4)
Net Profit before Zakat
29.1
39.4%
3.1
4.0%
-90%
79.8
22.2%
Zakat Income Tax
(2.3) 1.9
-3.1%
(2.5) (0.1)
-3.3%
9% -0.1% -103%
(7.9) 0.8
-2.2%
Net Income
28.7
38.9%
0.5
0.7%
-98%
72.7
Earning per Share
0.67
-98%
1.69
39.2%
2.6%
0.01
(*) Inventory valuation one-off IFRS adjustment
-7% -12.4% 24%
359.1 100.0% (127.4) -35.5% - 0.0%
Delta
100.0% -41.0%
Selling and marketing General and admin
100.0% -39.2%
Delta
76.2 (31.2) -
Gross Profit
73.9 (28.9) 28.9
2017A
YTD 2017A
231.7
64.5%
(101.7) -28.3% (32.2) -9.0%
280.3 100.0% -22.0% (109.6) -39.1% -14.0%
170.7
60.9% -26.3%
(82.4) -29.4% -19% (27.0) -9.6% -16%
-8.3%
-16%
37.7
13.4%
-53%
-2.9%
0.2%
(8.1) (0.6)
20.2%
28.9
10.3% -60.2%
0.67
4% -0.2% -175%
-60% 17
Q3 2017AR and Inventory less than Q3 2016 by 31% and 10% Working Capital Million SAR
1,800
1,752
1,783
1,696
1,600 1,400
795
1,200
947
825
1,231 425
1,000
1,318
1,358
1,354
625
644
570
693
715
784
Q1-2017
Q2-2017
Q3-2017
800 600 400
957
836
870
806
Q2-2016
Q3-2016
Q4-2016
200 Q1-2016
Inventories
Accounts Receivable 18
Q3 2017 borrowing is less than Q3 2016 by 19% 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
1,121
800 600
486
479
Q1-2016
Q2-2016
400
509 402
422
405
405
Q3-2016 Q4-2016 Loans Equity
Q1-2017
Q2-2017
Q3-2017
200 -
19
Group Wholesale Initiatives
Celebrities Collaboration • New Collections
Campaign • Partnership with celebrities and opinion leaders
Raise Prices In Egypt • Focus on profitability • Offer volume rebates to
First Ever Electro Forming Technology • Large volume Low
weight jewelry
Expand 18K Market Share • Raise number of models
for most profitable line
• Premium pricing • Distinctive high value designs
Develop Exports Outside The Region
Reduce Receivables To Enhance WC
• First time ever L’azurde
• Focus on collection of
stands at Vicenza Oror
key accounts to drive
and Istanbul Fair
volume
International Exhibitions
receivables • New volume incentive in place
• New customers 20
Group Retail Initiatives
Selective 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 • Shops at 50/60m2 to enhance profitability
L’azurde Men Line Extension • Expand products
Duty Free Vendor KSA Airports • Fully leverage the new
assortment and
expansion at KSA Duty
distribution
Free Airports
E-Commerce and New CRM Program • Building loyalty and driving repeat purchase • E-commerce to complement the Omnichannel strategy 21
Conclusion
A Challenging YTD September, 2017
A lot of good initiatives Signing of MOU for potential acquisition An upbeat management team with a solid track record Stabilizing and Recovering Markets
22
L’azurde, a great history, a greater future
Thank You
For investors relations matters please contact: [email protected]
23
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 4. Group Key Initiatives 5. Conclusion
9-18 19-20 21
3
Executive Summary Q3 Revenues at +3.1% vs. LY. This was the first quarter since Q2 2016 where we had growth in revenues. KSA wholesale revenues were up 17.4% and retail revenues were up +37% thanks to the growth at L’azurde Mono Brand Shops and the expansion with Kenaz and the Airport Duty Free business. Egypt wholsalese revenues were at -20% vs. LY due to the EGP devaluation. 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 grows rapidly at +27% YTD September 2017 vs. YTD September 2016 and is promising. it represents 28% of our revenues in YTD September 2017 vs. 17% in YTD September 2016. L’azurde mono brand shops outperform the market and we continue investing in selective key locations at top Malls in KSA and key locations in Egypt. For the first time ever we took over the duty free business at key airports in KSA. We expanded the new L’azurde Men collection and expanded with more kiosks in top Malls for our diamonds jewelry value brand ‘Kenaz’. We continue to reduce our operating costs (YTD September 2017 at -18% vs YTD September 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 YTD September, 2017 by 20% 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 16%.
4
Executive Summary
Net income for YTD September 2017 at SAR 28.9 Million came at 60% below YTD September 2016. Net income for Q3 2017 amounted to SAR 0.5 million, an increase of SAR 0.7 million compared to the same quarter of last year before IFRS inventory adjustments. After the one-off IFRS adjustment, Net Income was lower by SAR 28.2 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. We announced on September 25, 2017 the signing of a MOU for a potential acquisition • Solid management team drove the business since 2010 to IPO is now growing the Company back to its historical profitability • 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 September 2017 Million SAR 400 350 300 (84.5)
250
200 150
(17.2)
(15.2)
13.0
(3.4)
19.6
7.2
1.7
359.1 280.3
100 50 0
Wholesale
Net Volume and Price Impact
Retail 9
First Quarter Growth in Revenues Since Q2 2016 Group’s Quarterly Revenues Changes vs. Same Quarter LY
10.0%
3.1%
0.0% -10.0% -20.0% -30.0%
-23.0%
-23.2% -31.7%
-40.0% -43.7%
-50.0%
-48.0%
-60.0% Q2-2016
Q3-2016
Q4-2016
Q1-2017
Q2-2017
Q3-2017
10
Retail Revenues at +27% in YTD September 2017 vs. LY Operating Revenues by Distribution Channel Million SAR
359 350
100
300 80
74
76
60
16 21%
21 28%
20
58 79%
55 72%
280 79 28%
250 200
150
40
62 17%
297 83% 201 72%
100 50
-
Q3-2016 Wholesale
Q3-2017 Retail
YTD Sep 2016 Wholesale
YTD Sep 2017 Retail
11
KSA Outperforms Other Markets thanks to Retail Operating Revenues by Country – YTD Sep 2017 Million SAR 200 180
171.5
160 140 120 100
79.5
80 60 40
23.4
20
5.9
KSA
Egypt
Other GCC
Other Export
% of Total
62%
28%
8%
2%
Vs. 2016
3% ▼
43% ▼
34% ▼
37% ▼ 12
Retail Gross Margin +70% in YTD September 2017 vs. LY Gross Margin by Distribution Channel Million SAR 80
250
74
22
70 60
200
29
171
50 40
45 5
37
150
11 100
30 20
232
40
34
210 134
50
10 -
Q3-2016 Wholesale
Retail
Q3-2017 IFRS Adjustment
Gross Margin % (before IFRS Adjustment) Wholesale 68% 62% Retail 33% 51% Total 61% 59%
YTD Sep 2016 Wholesale 71% 35% 65%
YTD Sep 2017 Retail 66% 47% 61%
13
Operating Expenses Decline by 18% in YTD September 2017 vs. LY
Operating Expenses Million SAR
160
40
35
34
34
140
30
120
25
100
20
80
15
60
10
40
5
20
134 109
-
Q3-2016
Q3-2017
YTD Sep 2016
YTD Sep 2017
14
EBITDA Declines by 35% in YTD September 2017 vs. LY EBITDA Million SAR 50
20% 120
19%
45
17%
43
16%
35
14%
30
12%
29
25
10%
20
8% 13
15 10
6% 4%
14
5
13
EBITDA
Q3-2017
IFRS Adjustment
100
30%
30% 25%
80
69
EBITDA Margin
25% 20%
60 15% 40
10%
20
5%
2% 0%
Q3-2016
106
18%
40
35%
0
0% YTD Sep 2016 EBITDA
YTD Sep 2017 EBITDA Margin 15
Finance Charges Decline by 16% in YTD September 2017 vs. LY
Finance Charges Million SAR 9 8
30
8 7
7
28
25
23
20
6
5
15
4
10
3 2
5
1 0
Q3-2016
Q3-2017
YTD Sep 2016
YTD Sep 2017
16
Healthy gross margin % despite challenging market Group Consolidated Income Statements Million SAR
Q3 2016A Revenue Cost of revenue Inventory IFRS Adj.*
73.9
2016A
3% 8%
100.0%
44.9
59.0%
-39%
(26.5) (7.6)
-35.9%
-32.5%
-10.3%
(24.8) (9.4)
Operating Income
39.8
53.8%
10.7
14.1%
-73%
97.8
27.2%
61.3
21.9% -37.3%
Other income – net Finance Charges – net
(2.6) (8.1)
-3.5%
-0.4%
9.9 (27.9)
-7.8%
(0.2) (23.4)
-0.1% -102%
-9.7%
-87% -9%
2.8%
-11.0%
(0.3) (7.4)
Net Profit before Zakat
29.1
39.4%
3.1
4.0%
-90%
79.8
22.2%
Zakat Income Tax
(2.3) 1.9
-3.1%
(2.5) (0.1)
-3.3%
9% -0.1% -103%
(7.9) 0.8
-2.2%
Net Income
28.7
38.9%
0.5
0.7%
-98%
72.7
Earning per Share
0.67
-98%
1.69
39.2%
2.6%
0.01
(*) Inventory valuation one-off IFRS adjustment
-7% -12.4% 24%
359.1 100.0% (127.4) -35.5% - 0.0%
Delta
100.0% -41.0%
Selling and marketing General and admin
100.0% -39.2%
Delta
76.2 (31.2) -
Gross Profit
73.9 (28.9) 28.9
2017A
YTD 2017A
231.7
64.5%
(101.7) -28.3% (32.2) -9.0%
280.3 100.0% -22.0% (109.6) -39.1% -14.0%
170.7
60.9% -26.3%
(82.4) -29.4% -19% (27.0) -9.6% -16%
-8.3%
-16%
37.7
13.4%
-53%
-2.9%
0.2%
(8.1) (0.6)
20.2%
28.9
10.3% -60.2%
0.67
4% -0.2% -175%
-60% 17
Q3 2017AR and Inventory less than Q3 2016 by 31% and 10% Working Capital Million SAR
1,800
1,752
1,783
1,696
1,600 1,400
795
1,200
947
825
1,231 425
1,000
1,318
1,358
1,354
625
644
570
693
715
784
Q1-2017
Q2-2017
Q3-2017
800 600 400
957
836
870
806
Q2-2016
Q3-2016
Q4-2016
200 Q1-2016
Inventories
Accounts Receivable 18
Q3 2017 borrowing is less than Q3 2016 by 19% 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
1,121
800 600
486
479
Q1-2016
Q2-2016
400
509 402
422
405
405
Q3-2016 Q4-2016 Loans Equity
Q1-2017
Q2-2017
Q3-2017
200 -
19
Group Wholesale Initiatives
Celebrities Collaboration • New Collections
Campaign • Partnership with celebrities and opinion leaders
Raise Prices In Egypt • Focus on profitability • Offer volume rebates to
First Ever Electro Forming Technology • Large volume Low
weight jewelry
Expand 18K Market Share • Raise number of models
for most profitable line
• Premium pricing • Distinctive high value designs
Develop Exports Outside The Region
Reduce Receivables To Enhance WC
• First time ever L’azurde
• Focus on collection of
stands at Vicenza Oror
key accounts to drive
and Istanbul Fair
volume
International Exhibitions
receivables • New volume incentive in place
• New customers 20
Group Retail Initiatives
Selective 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 • Shops at 50/60m2 to enhance profitability
L’azurde Men Line Extension • Expand products
Duty Free Vendor KSA Airports • Fully leverage the new
assortment and
expansion at KSA Duty
distribution
Free Airports
E-Commerce and New CRM Program • Building loyalty and driving repeat purchase • E-commerce to complement the Omnichannel strategy 21
Conclusion
A Challenging YTD September, 2017
A lot of good initiatives Signing of MOU for potential acquisition An upbeat management team with a solid track record Stabilizing and Recovering Markets
22
L’azurde, a great history, a greater future
Thank You
For investors relations matters please contact: [email protected]
23
