ANNUAL REPORT CONTENTS CONTENTS
CORPORATE OVERVIEW 06 Chairman’s and CEO’s Statement 10 About L’azurde 12 Key Milestones 14 Profile of the Board 20 Profile of Executive Management
STRATEGIC BUSINESS REVIEW 26 L’azurde’s Principal Business Activities 28 Business Description 32 Business Model 50 L’azurde’s Ownership Structure
FINANCIAL PERFORMANCE 62 Dividend Policy 66 Risk Factors 72 Key Financial Highlights
CORPORATE GOVERNANCE 86 Board Formation 102 Policies and Code of Governance 118 Communication with Shareholders 124 Audit Committee Report
CONSOLIDATED FINANCIAL STATEMENTS 128 Consolidated Financial Statements
2 3 CORPORATE 01 OVERVIEW 01 | CORPORATE OVERVIEW CHAIRMAN AND CEO’S STATEMENT
CHAIRMAN'S AND CEO'S STATEMENT All the above-mentioned factors have contributed to reducing Looking back at the past year, 2019 was marked with major the Company’s net profit. In addition, L’azurde adopted the new actions and initiatives taken by L’azurde in both markets in Saudi accounting standard for Leases (IFRS 16) that took effect from Arabia and Egypt, putting the Group in a stronger position to January 1, 2019 and resulted in an increase of SAR 4.5 million deliver its longer-term growth ambitions. in finance costs. Egypt subsidiaries’ corporate tax expenses increased as well in 2019, due to the expiration of tax holiday. From the rise in total retail channel revenues, up to the addition Before exceptional items and sales returns, the net income was of TOUS with 26 stores in KSA, and the promising launch of equal to SAR 23.0 million. the new Miss L’ fashion jewelry line, L’azurde finds itself well- equipped for the future. MAIN ACTIVITIES AND KEY ACHIEVEMENTS IN 2019 The Company reported strong top-line performance in 2019, with the Group operating revenues for the full year amounting to SAR In 2019, L’azurde took steps to shift its business strategy in its KSA CHAIRMAN’S AND 481.2 million, an increase of 18% compared to SAR 406.4 million wholesale channel to counter the increase in gold prices. The in 2018. The Company succeeded at protecting its 60% gross Company worked on altering the product designs and reducing margin, as it generated a gross profit of SAR 287.8 million, also the average weight of its jewelry production in order to meet the 18% higher than last year. evolving taste and budget of its clients. Besides securing that CEO’S STATEMENT customers are stocked with the right low weight products and In 2019 however, L’azurde made the difficult decision to accept the latest fashion trends, those steps were largely supported by one-off sales returns of the heavier gold jewelry in its KSA celebrity endorsements. wholesale channel due to the Gold price increase and volatility. In addition, after many discussions the Board decided to scale down For instance, and as part of its multi-celebrity marketing the L’azurde own brand retail KSA business from 15 to 4 shops strategy, L’azurde has launched two campaigns in 2019 in in order to eliminate unprofitable operations. This consolidation collaboration with the newly appointed celebrity, Myriam Fares. resulted in one-time write-down of inventory and will position The first campaign featured the iconic My Path collection, the Group to start the year 2020 with a much better inventory whereas the second campaign was unveiled at the end of 2019 situation. Those two deliberate decisions had a negative impact and displayed a stunning array of 21k and 18K pieces constituting on the net profit, resulting in a net loss of SAR 17.5 million for the the new ConneXion collection. The year 2019 also marked the year compared to SAR 17.7 million of net profit for 2018. launch of the Written in the Stars collection by Lady Fozaza in Saudi Arabia; the newest line was also launched in Egypt for the 2019 NET INCOME AND BUSINESS PERFORMANCE very first time.
In 2019, L’azurde witnessed a growth in its retail channel revenues On the production level, L’azurde restored the production in the biggest markets in both KSA and Egypt. In KSA, the retail capacity in KSA swiftly and efficiently to fully produce all the revenues increased by 59% mainly due to the consolidation of KSA products in KSA instead of importing some jewelry finished TOUS franchise brand that was acquired in the fourth quarter goods from Egypt due to a change in the importation process. of 2018. In Egypt, the retail revenues also increased by 47%, on L’azurde has streamlined labor-intensive processes to drive the the back of the increase in sales in the existing shops, and the efficiency of its production processes, in its efforts to charge a Mohammed Ebrahim Juma Al Shroogi Selim Chidiac successful opening of four new outlets. premium labor service charge, meet a wide variety of consumer Chairman Chief Executive Officer tastes and create distinguished pieces of jewelry. On the wholesale level, Egypt had a great performance with a growth of 19% compared to last year, due to successful On another note, L’azurde worked on strengthening its retail advertising campaigns and strong customer uptake of new network in 2019 through the opening of four new showrooms at Looking back at the past year, 2019 was marked with major collections. top locations in Egypt, and the closure of seven non-profitable stores in Saudi Arabia. The retail network in the kingdom is now actions and initiatives taken by L’azurde in both markets in In KSA, however, wholesale revenues suffered a decrease of 19% appropriately lean and efficient with four well-located stores compared to last year, mainly because of the sharp increase in covering the major cities. Saudi Arabia and Egypt, putting the Group in a stronger position gold prices, in response to which, the Company had to go through to deliver its longer-term growth ambitions. a set of measures aimed at addressing this challenge. In fact, In 2019, the Group invested in the new franchise brand TOUS, L’azurde opted for a change in its jewelry designs, reduced the by strengthening its organization through skills training and average weight of its jewelry production while making sure that capacity building for the staff, enhancing product assortment, the new products meet the evolving consumer taste and budget. implementing product launches and gift-with-purchase offers, Moreover, the Company accepted returns of heavy gold jewelry as well as conducting many in-store activities. Furthermore, items, on a one-off basis, in a way to ensure that both customers TOUS collaborated with a large number of local influencers in and retailers have the right products at hand. The one-off costs 2019 with the objective of increasing the brand awareness, and also affected the operating profit that suffered a decline from celebrated the launch of new and exclusively designed collections SAR 69.9 million to SAR 46.7 million. This decrease of 33% was for the Saudi market, through two grand opening events that also due to an exceptional provision amounting to SAR 17.8 generated major media outcome and contributed to the growing million mainly related to the consolidation of L’azurde retail success of the brand. shops in KSA from 15 shops down to 4 shops.
7 01 | CORPORATE OVERVIEW CHAIRMAN AND CEO’S STATEMENT
OUTLOOK FOR 2020 Building on the corrective initiatives L’azurde has taken over 2019, and considering the underlying fundamentals In 2020, L’azurde Group will sustain its efforts to further supporting the jewelry industry on the long run, we believe improve its business performance, in order to better position that the Group is well positioned to continue leading the Middle itself for future growth. We will continue to focus on the East and North Africa region’s jewelry market, as the largest execution of our strategic initiatives, namely: gold and jewelry designer, manufacturer, and distributor, and as one of the highly renowned brands in the Arab world. • Pursuing the growth of our wholesale and retail businesses in Egypt. To conclude, we do look forward to a fresh and strong start in 2020, and we would like to express our thanks to our • Further driving our TOUS retail business in KSA. customers, shareholders, employees and partners for their • Growing the new Miss L’ line to its full potential and continued trust and commitment in our success. material contribution in the next three years.
• Step-changing the wholesale KSA profitability through better products and lower working capital.
• Reducing working capital through improved collections, lower priced jewelry, shorter AR and manufacturing efficiencies.
• Digitization the wholesale B2B market through RFID technology and developing the retail omni-channel strategy.
• Pursuing our M&A strategy by identifying attractive targets where we can add value, grow our profits and offer attractive return to our shareholders.
• Further protecting and improving our positive Cashflow. CHAIRMAN’S AND CEO’S Mohammed Ebrahim Juma Al Shroogi STATEMENT Chairman
As a major step forward in 2019, L’azurde launched its new high potential fashion jewelry line Miss L’. Miss L’ offers a wide variety of 18 K gold jewelry products sold by piece in KSA and Egypt, and builds on the fast growing segment of fashion affordable jewelry globally and in the region. Miss L’ is sold today at L’azurde mono- Selim Chidiac brand shops, Miss L’s own dedicated kiosks and Chief Executive Officer at key third party fashion retailers in malls. The new line represents a high potential growth opportunity for the Company where for the very first time L’azurde enters a major fast growing segment at high gross margin, very low working capital and highly attractive value proposition to consumers. Last but not least, the Company undertook in 2019 a major costs restructuring program where it reduced its headcount and fixed costs to drive more efficiency.
8 9 01 | CORPORATE OVERVIEW ABOUT L’AZURDE
ABOUT L’A Z U R D E
ABOUT L'AZURDE GOVERNANCE Founded in the Kingdom of Saudi Arabia in 1992, L’azurde Company for We are committed to maintaining the highest standards of governance as Jewelry (“L’azurde”) is the largest designer, manufacturer, wholesaler a substantial tool for protecting shareholders’ equity and achieving the and retailer of gold jewelry in the Middle East and North Africa (“MENA”) highest possible value for their long-term investments, enhancing oversight region and the fourth largest gold jewelry manufacturer in the world. mechanisms and supervision by activating the role of the Board of Directors L’azurde sells over one million pieces of jewelry every year in more than and its committees and ensuring the implementation of our Vision and Mission. 20 countries globally. L’azurde has established itself as a household name across the MENA region, thanks to its high quality jewelry, excellent STRATEGY reputation, brand ambassadors and innovative marketing strategies. The company is well recognized with its distinctive, exceptional, elegant L’azurde strives to become the leading designer, manufacturer, distributor and and intricate jewelry pieces. The year 2018 was a key milestone as the retailer of gold, diamond and affordable fashion jewelry in the MENA region. Company embarked on a new growth strategy by moving from a mono- To achieve this vision, L’azurde has adopted the following business strategy: brand organization to a House of Brands strategy, where the Company will focus on L’azurde and few top global franchise brands. The first step • Revitalize our KSA wholesale business through the launch of new premium was the acquisition in 2018 of the KSA franchisee for the global affordable collections, celebrity promotions, and digitization of our route to market jewelry brand TOUS. and revamped sales and merchandising management.
In 2019, L’azurde group had around 2,000 employees and produced more • Strengthen the L’azurde wholesale presence across all GCC markets than 4,000 different jewelry models in 21-karat, 18-karat gold as well through our own offices and team. as classic and fashion diamond jewelry. L’azurde’s international design team uses the latest CAD/CAM technology to produce the most intricate • Develop TOUS franchise brand to its full potential in KSA. jewelry designs. The pieces are manufactured at the Company’s factories • Improve the profitability of the L’azurde retail business in KSA through in Saudi Arabia and Egypt, using advanced, high-tech equipment including footprint rationalization, revamping operations at flagship stores, 3D printing, micro setting, laser cutting, electroforming, super hollow intensifying staff training and reducing slow selling stock. and other modern technologies. The jewelry is distributed to more than 1,600 retailers across the GCC and MENA regions and also exported • Grow our profitable wholesale and retail businesses in Egypt. to Europe. • Roll-out our new Haddiyati line across the region. VISION • Develop new technology and enhance manufacturing techniques to L’azurde aims to become the most trusted and inspiring house of jewelry optimize costs and differentiate L’azurde products in the market. brands in the MENA region. • Stepchange our Digital capabilities across wholesale and retail to drive MISSION B2B and B2C e-commerce. To lighten up the life of women with incomparable, elegant, fashionable and • Continue to seek acquisition opportunities which, like Tous, will add to our innovative jewelry brands through state of the art design, manufacturing, profitability and strategic position. wholesale and retail capabilities.
10 11 01 |CORPORATE OVERVIEW 12 Factory OwnedbyMr. Saudi Gold&Pearl Othaim” inRiyadh. Abdulaziz Saleh Al established under the nameof“the 1992 Company is The “L’azurde” 1994 trademark is registered. brand islaunchedin The “L’azurde” 1995 Jeddah, KSA. Oro Egypt Company factory inEgypt. by MrAbdulaziz L’azurde’s first is established 032006 2003 Al Othiamas Egypt (currently known Company for Jewelry as L’azurde Egyptfor Manufacturing in Establishment of the International 2005 Jewelry LLC). company underthename Jewelry” withacapital of “L’azurde Companyfor Legal form ischanged to aclosed jointstock SAR 200,000,000. Lebanese superstar Elissa. superstar Lebanese million to SAR 300 million million 300 SAR to million increased from SAR 200 200 SAR from increased L’azurde Group acquires through a capitalization athrough capitalization an endorsement with with an endorsement L’azurde Group signs from the company’s company’s the from L’azurde’s is capital retained earnings. retained 100% ownership ownership 100% 2007 of OroEgypt. comprising Investcorp, of 77.5%inL’azurde Opening more retail an indirect interest companies acquire showrooms inthe Kingdom ofSaudi Eastgate andThe National Investor 2009 A consortium Holding. Arabia. under L’azurde Egypt for Jewelry LLC (previously, total capacity of15tons A second factory witha is established inEgypt Company for Jewelry Manufacturing). 2012 International in themarkets ofthecountries inthe sector havingextensive experience in Egypt for thepurposeofsellingthem designing andproduction ofwedding increased to SAR430millionbyway MENA RegionwithBMA,aleading to produce GoldWedding Bandsin of issuing 13millionnew shares. Signing collaboration agreement company intheWedding Bands The capital ofthecompany is KEY MILESTONES bands inTurkey. 052017 2015 Initial PublicOffering onJune29and Arabia providing diamondjewelry at launched inCopenhagen,Denmark. Kenaz Jewelry –L’azurde’s second jewelry brand islaunchedinSaudi begins trading ontheSaudiStock L’azurde completes itssuccessful rights for ‘Amazing Jewelry’, an international franchise brand L’azurde takes thefranchise Exchange (Tadawul). affordable prices. 062018 2016 French DutyFree CompanyatRiyadh, signed to acquire aleading retailer in the affordable luxuryjewelry sector Jeddah andDammamInternational Six new L’azurde retail showrooms Memorandum ofunderstanding is Exclusive DutyFree distribution agreement issignedwithSaudi open inKSAandEgypt. Airports. in KSA. key growth enginebystepping into the office inOmanto strengthen theGold TOUS global retailer intheaffordable jewelry sector, givingtheCompanya Acquired theKSAfranchisee ofthe fast growing segmentofaffordable A new production unitinEgypthas Opened 7L’azurde retail shopsin Appointed top brand ambassador Opened itsfirst every wholesale been successfully completed. wholesale business. Myriam Fares. luxury. Egypt. 3,000 through E-Commerce, 3rd affordable fashion goldjewelry party retailers andown points fashion linesoldbypiece ata Launching promising Miss L’ price range from SAR500to KEYMILESTONES 2019 of sales. 13
THANKS TO A GOLDEN TEAM! 01 | CORPORATE OVERVIEW PROFILE OF THE BOARD
MR. MOHAMMED MR. ABDULLAH EBRAHIM JUMA AL SHROOGI ABDULAZIZ SALEH AL OTHAIM
CHAIRMAN - NON-EXECUTIVE DIRECTOR VICE CHAIRMAN - NON-EXECUTIVE DIRECTOR MEMBER OF NOMINATION AND REMUNERATION COMMITTEE The chairman of L’azurde Company for Jewelry since 12 May 2011.He has been MEMBER OF EXECUTIVE COMMITTEE re-elected for three years by General Assembly convened on 22 April 2018, for current term of the board that has been started on 26 April 2018 and ends 25 April 2021. Mr. Abdullah Al Othaim joined L’azurde Company for Jewelry on 5 September 2013. He has been re-elected for three years by General Assembly convened CURRENT POSITIONS on 22 April 2018, for current term of the board that has been started on 26 April 2018 and ends 25 April 2021. • Advisor to Investcorp Bank B.S.C. a Bahrain shareholding company, banking and financial services since August, 2018. CURRENT POSITIONS • Chairman of the Board of Gulf Cooperation Council Board Directors • CEO of Mad’a Investment Company, a Limited Liabilities Company, Institute, non-profit organization, since 2015. Specialised in construction and real estate investments since 2017. • Director at the Crown Prince’s International Scholarship Program, non- • Director at Abdulaziz Al Othaim & Sons Holding Company, a Limited profit organization, since 2000. Liabilities Company, Specialised in direct investments in various sectors • A member at the board of trustees of Bahrain Center for studies and since 2010. research, Bahraini Research Institute, since 1995. • Board member at SmartMed Medical Company, a Limited Liabilities • Director at the National US-Arab Chamber of Commerce, since 1995. Company, Specialised in private medical service since 2017. • Board member at Arkan Business Group (ABG), a Limited Liabilities PAST PROFESSIONAL EXPERIENCE Company, Specialised in services sector, since 2018. • Co-Chief Executive Officer, Investcorp Bank B. S. C., a Bahrain • Board member at Family Souk Ventures Ltd, a Limited Liabilities shareholding company, banking and financial services. Company, Specialised in manages and distributes parenting and children • President of Gulf Business, Investcorp Bank B. S. C. a Bahrain, specialised products in the Middle East and North Africa since 2018. in investing in private equity transactions in the MENA region. • Board member at Thaat Education Company, a Limited Liabilities • Board member at Bahrain Maritime & Mercantile International, a Bahrain Company, Specialised in Early Learning and Childcare since 2016. shareholding company, retail and distribution. PAST PROFESSIONAL EXPERIENCE • Founding Member of the Board of Injaz al Arab, a non-profit organization that promotes youth education and training in the Arab World. • Strategic Planning Director at Abdulaziz AI Othaim & Sons Holding • Chief Executive Officer, United Arab Emirates, Citigroup, Inc. banking and Company, a limited liability company, Specialised in investments, from financial services. 2012 to 2017. • Division Executive for the Middle East and North Africa region, • Director at Aswar United Real Estate Development Company, a limited Citigroup, Inc. liability company, Specialised in real estate development, from 2012 to 2016. • Head of Treasury and Chief Executive Officer of Bahrain and the Gulf - Citigroup, Inc. • Restructuring Committee Member for the purposes of restructuring, designing bylaws and internal procedures, Manazel Construction • A member of the Bahraini Consultative Council. Company, specialized in construction and real estate, from January 2012 to July 2013. ACADEMIC AND PROFESSIONAL QUALIFICATIONS • Business Analyst, RBC (Direct Investing), Joint Stock Company, specialized in banking and financial services, from 2011 to 201 I. • Executive Program, Harvard University, Boston, Massachusetts, United • Financial Analyst, Al-Othaim Holding Company, a Limited Liabilities PROFILE OF States of America, 1989. Company, specialized in investment sector, from 2010 to 2011. • Bachelor in Commerce, Kuwait University, Kuwait City, Kuwait, 1970. ACADEMIC AND PROFESSIONAL QUALIFICATIONS • Bachelor in Finance, Suffolk University, Boston, Massachusetts, United THE BOARD States of America, 2010.
14 15 01 | CORPORATE OVERVIEW PROFILE OF THE BOARD
MR. BRIAN NORMAN DICKIE MR. ADEL ABDULLAH AL-MAIMAN MR. ABDUL KAREEM MR. AMIN MOHAMED AKEF ASSAD ABU ALNASR AL-MAGHRABI NON-EXECUTIVE DIRECTOR NON-EXECUTIVE DIRECTOR CHAIRMAN OF EXECUTIVE COMMITTEE MEMBER OF AUDIT COMMITTEE INDEPENDENT DIRECTOR INDEPENDENT DIRECTOR MEMBER OF AUDIT COMMITTEE MEMBER OF NOMINATION AND REMUNERATION COMMITTEE CHAIRMAN OF NOMINATION AND REMUNERATION COMMITTEE MEMBER OF NOMINATION AND REMUNERATION COMMITTEE Amin Al-Maghrabi joined L’azurde Company for Jewelry since 1 March 2016 as a board member. He has been re-elected for three years by General Assembly Adel Al-Maiman joined L’azurde Company for Jewelry on 6 December 2017 as Abdul Kareem Abu Alnasr joined L’azurde Company for Jewelry on 1 March convened on 22 April 2018, for current term of the board that has been started a board member. He has been re-elected for three years by General Assembly 2016 as a board member. He has been re-elected for three years by General Brian Dickie joined L’azurde Company for Jewelry on 15 October 2015 as a on 26 April 2018 and ends 25 April 2021. convened on 22 April 2018, for current term of the board that has been started Assembly convened on 22 April 2018, for current term of the board that has board member. He has been re-elected for three years by General Assembly on 26 April 2018 and ends 25 April 2021. been started on 26 April 2018 and ends 25 April 2021. convened on 22 April 2018, for current term of the board that has been started CURRENT POSITIONS on 26 April 2018 and ends 25 April 2021. CURRENT POSITIONS CURRENT POSITIONS • President and CEO of Magrabi Retail, a Limited Liability Company operating in eyewear retail categories, position held since 2008. CURRENT POSITIONS • EVP-Head of Treasury Sales, Treasury Group, The National Commercial • Director of Yanbu National Petrochemical Company (Yansab), a Saudi Bank, KSA, since 2013. Joint Stock Company, since March 2014. • Director of Magrabi Hospitals and Centers, a Limited Liability Company • Board of Managers Chairman, Hydrasun, a Limited Liability Company, operating in medical care since, position held since January 2008. distributing and manufacturing hydraulic machines, devices and related • Heading the Sales of Treasury Group to the Private Banking, Retail, and • Director of Abdul Latif Jameel United Finance Company, a Closed Joint products for international oil industry, since 2013. Corporate segments, The National Commercial Bank, KSA. Stock Company, since April 2015. • Director of Al Amin Medical Instruments Co. (AMICO Group), a Limited Liability Company operating in medical equipment and healthcare • Director of Safanad Limited, Dubai, DIFC, UAE, a Limited Liability • Supervisory Board Chairman, X Bricks AG; Real Estate Investment products distribution, position held since January 2010. Company, Germany, since July 2018. PAST PROFESSIONAL EXPERIENCE Company, since May 2015. • Director for IKEA, Saudi and Bahrain since November 2016. • Director (non-executive), Sistema Finance, Luxembourg, the European • Head of Treasury Sales, Central & Eastern Regions, Treasury Division, • Director of Hasana, a Closed Joint Stock Company since 2017. • Director of Magrabi Foundation since January 2013. subsidiary of Sistema JSFC, a Joint Stock Company listed in Moscow The National Commercial Bank, Saudi Arabia, 2010 to 2012. • Director of Kafalah, a Government and Banking Sector Loan Guarantee and London, a top-ten investment company in the Russian Federation, • Co-Head of Wealth Management, Jadwa Investment, KSA, 2008 to 2010. Program for the SMEs, since 2016. • Director of Africa Eye Foundation. since 2016. • Co-Heading a team of Wealth Managers, Jadwa Investment, KSA, who • Director of Health Water Bottling Company, a Closed Joint Stock • Director (non-executive) NDT-CCS, an inspection company based in KSA, PAST PROFESSIONAL EXPERIENCE are responsible of managing the wealth of HNW, UHNW and Institutional Company, since September 2018. since April 2018. clients in the region. • Chairman of the board of Silah Development Company, a limited liability • Chief Finance Officer for Magrabi Retail from 2004 until 2008. • Senior Advisor, Redline Capital, Luxembourg, a venture capital fund company, since December 2017. • Head of HNW-Wealth Management, Investment Services, NCB Capital, • Regional General Manager for Magrabi Retail, from 2002 until 2004. specialized in investments in technology businesses, since 2012. KSA, 2006 to 2008. • Marketing Manager for Magrabi Retail, Cairo, Egypt from 1999 until 2002. • Senior Advisor, Investcorp International Ltd., a limited company, PAST PROFESSIONAL EXPERIENCE • Strategic Business Unit Head, Investment & Derivatives Sales, Treasury, specialized in investments in European private equity, UK, since 2010. • Mergers and Acquisitions Associate Programme, JP Morgan, New York, The National Commercial Bank, KSA , 2005 to 2006. • Director of Savola Group, a Saudi Joint Stock Company from 2013 USA; operating in financial services from 1998 until 1999. • Manager, Sales & Marketing, Treasury, Saudi American Bank (SAMBA), until 2016. PAST PROFESSIONAL EXPERIENCE • Senior Retail Broker, Flemings Investment Bank, Cairo, Egypt; KSA, 2000 to May 2003. • Director of Kinan Real Estate Development Company, a Limited Liability specializing in Investments, from 1995 until 1998. • Chairman, Icopal AS, Denmark, manufacturer of building products, Company from 2015 until 2016. 2007-2016. ACADEMIC AND PROFESSIONAL • Director of Mohammed Abdulaziz Al-Rajhi & Sons Holding Company ACADEMIC AND PROFESSIONAL • Director, Polyconcept Group, Holland, a global provider of promotional QUALIFICATIONS (MARS), a Closed Joint Stock Company, from 2013 until 2015. QUALIFICATIONS products, 2005 to 2016. • B.S. degree in Finance, King Fahad University of Petroleum & Minerals, • Director of Saudia Aerospace Engineering Industries (SAEI), a Closed • B.A. in Economics and Political Science, University of Richmond, London, • Director, Sistema JSFC, Russia, a diversified company listed in Moscow KSA, 1995 to 2000. Joint Stock Company, from March 2014 until September 2018. and London, 2012 to 2016. UK, 1996. • Advanced Management Program (AMP71), the Wharton School, • Director of Ahmed Mohammed Saleh Baeshen & Co., a Closed Joint Stock • Chairman, Moody International, United Kingdom, technical inspection Philadelphia, 2016. Company, from 2017 until July 2018. services, 2007 to 2011. • Executive Leadership Program - General Manager Leadership Program: • CEO and Director of NCB, a Saudi Joint Stock Company from 2007 • Director, Autodistribution Group, France, distributor of auto parts, 2008 The Cross-Functional Leader. Columbia Business School,New York, 2015. until 2013. to 2010. • Executive Leadership Program, Aligning Sales & Strategy, Harvard, • Chairman of the Regional Advisory Council, MasterCard Company for • Managing Director, Investcorp International Limited, investment in Boston, 2012. MENA, from 2007 until 2013. European Private Equity, London, 2003 to 2010. • Executive Leadership Program designed specifically for a group of 30 • Director of Union of Arab Banks, Lebanon, from 2006 until 2013. • President, North America, TXU Energy Corporation, electricity and gas, senior managers of NCB, INSEAD, 2007. • Member of the Board of Trustees, Arab Academy for Banking and Dallas, USA, 1999 to 2003. Financial Sciences, Jordan, from 2006 until 2013. • Chief Operating Officer, Booz, Allen & Hamilton Inc., consultancy services, New York, 1993 to 1998. ACADEMIC AND PROFESSIONAL QUALIFICATIONS ACADEMIC AND PROFESSIONAL QUALIFICATIONS • Master of Business Administration -The American University - Cairo, Egypt (1989). • Master of Business Administration, Harvard University, Boston, United • Bachelor of Business Administration - California State University, States of America, 1978. Sacramento, USA (1985). • Master of Arts in English Language and Literature, Oxford University, Oxford, England, 1976.
16 17 01 | CORPORATE OVERVIEW PROFILE OF THE BOARD
MRS. SABAH KHALIL ALMOAYYED MR. SELIM CHIDIAC, MR. KHALIFA AL JALAHMA
INDEPENDENT DIRECTOR EXECUTIVE DIRECTOR AND CHIEF EXECUTIVE OFFICER NON-EXECUTIVE DIRECTOR CHAIRWOMEN OF AUDIT COMMITTEE MEMBER OF EXECUTIVE COMMITTEE MEMBER OF AUDIT COMMITTEE
Mrs. Sabah Almoayyed joined L’azurde Company for Jewelry on Mr. Selim Chidiac is the Chief Executive Officer of L’azurde Khalifa Al Jalahma has been appointed by the Board of Directors 22 November 2016. She has been re-elected for three years by Company for Jewelry since 8 February 2010. He has been temporarily as a non-executive director on December 10, General Assembly convened on 22 April 2018, for current term appointed by the Board of Directors temporally as an executive 2019 based on the recommendation of the Nominations and of the board that has been started on 26 April 2018 and ends 25 director on December 11, 2018 based on the recommendation Remuneration Committee. This appointment is effective from April 2021. of the Nominations and Remuneration Committee. This December 10, 2019 and up to end of current Board term on 25 appointment is effective from December 11, 2018 and up to end of April 2021. This appointment will be final upon the approval at the CURRENT POSITIONS current Board term at 25 April 2021. This appointment has been first Ordinary General Assembly meeting. approved by the Ordinary General Assembly meeting on 24 April • Member of the Board of Directors, Bahrain Development Bank, 2019. development financial institutions, financial and banking services, CURRENT POSITIONS since March 2016 and Chair of the Investment and Credit Committee; • Vice President, Private Equity – MENA Region, Investcorp Financial Since 2016. CURRENT POSITIONS Services BSC, Bahrain, focusing on private equity transactions in the • Member of the Audit Committee for National Bank of Bahrain B.s.c. • Chief Executive Officer, L’azurde Company for Jewelry, Joint Stock MENA region, since October 2010. Since 2018. Company, since 2010. • Non- Executive board member, Al-Burj Company for Medical Laboratories, • Board Member of the Higher Education Council, Bahrain, • Executive Board Member, L’azurde Company for Jewelry, Joint Stock Closed Joint Stock Company, specialised in medical services, since 2018. Governmental organization, since 2012; Chair of the Finance & Company, since December 2018. Administration Committee. PAST PROFESSIONAL EXPERIENCE PAST PROFESSIONAL EXPERIENCE • Managing Partner, Intellect Resources Management Company - W.L.L., • Analyst, Middle East Investment Banking, Citigroup Global Markets Consultancy Management and Training, since 2014. • Chief Executive Officer, Red Bull North America, Inc., fast moving consumer goods, 2007–2010. Limited, Dubai, UAE, focused on M&A advisory, 2008 to 2010. • Chairman of Flat6Labs Bahrain W.L.L., Start-up Accelerator Since 2016. • Chief Executive Officer and Regional President Asia, Pacific, Middle East • Analyst, Investment Banking – Basic Industrials Group, Citigroup Global • Member of the Board of Directors, Investcorp Financial Services B.S.C. and Africa, Red Bull Japan, fast moving consumer goods, 2006 until 2007. Markets Limited, London, United Kingdom, focused on M&A advisory in since May 2019. the industrials sector, April 2010 – August 2010. • Regional President Asia Pacific, Middle East and Africa, Red Bull FZE, fast moving consumer goods, 2004 until 2005. • Analyst, Treasury and Corporate Banking departments, Bank of Bahrain PAST PROFESSIONAL EXPERIENCE and Kuwait BSC, Manama, Bahrain, focusing on in banking services for • Regional Manager Middle East, North Africa and Greece, Red Bull GmbH, clients, 2006. • General Manager and Executive Board Member at Eskan Bank Bahrain, fast moving consumer goods, 1999 until 2003. largest public sector mortgage and property development bank, from 2004 to 2013. • Marketing Manager, Switzerland Austria, Procter & Gamble AG, fast ACADEMIC AND PROFESSIONAL moving consumer goods, 1997 until 1999. • Chief Executive Officer and member of the Board of Directors of Ahli QUALIFICATIONS United Bank Bahrain, financial and banking services, 1996 - 2014. • Brand Manager, Switzerland, Procter & Gamble AG, General Partnership, fast moving consumer goods, 1995 until 1997. • Bachelor’s degree in Corporate Finance and Accounting, Bentley • Assistant General Manager, Corporate Banking/Financial Institution and University, USA , 2006). Trade Finance of Bahrain National Bank, financial and banking services, ACADEMIC AND PROFESSIONAL • M.B.A in Finance Bentley University, USA,2007. 1988 - 1996. QUALIFICATIONS • Vice President of United Gulf Bank in Bahrain, Investment Division, financial and banking services, from 1982 to 1987. • Engineering Degree, Electronic Physics Chemistry, Lyon, France, 1995. • Manager at Citibank Bahrain, the retail division, financial and banking • Executive Education at INSEAD, Harvard Business School, IMD Lausanne, services, 1981. London Business School, IMD Lausanne.
ACADEMIC AND PROFESSIONAL QUALIFICATIONS • MBA, Kelastat Business School, Finance and Management University of DePaul, Chicago, USA - 2005. • Bachelors, Economics and Business Administration, American University of Beirut, Lebanon. • Executive Leadership Program, Darden College, University of Virginia, 2001. • Advanced Management Program (AMP), Wharton Business School, 1999.
18 01 | CORPORATE OVERVIEW PROFILE OF EXECUTIVE MANAGEMENT
MR. SELIM CHIDIAC MR. AYMAN GAMIL
CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
Joined L’azurde Company for Jewelry on 8 February 2010. Joined L’azurde Company for Jewelry on 22 September 2014.
ACADEMIC AND PROFESSIONAL ACADEMIC AND PROFESSIONAL QUALIFICATIONS QUALIFICATIONS PROFILE OF EXECUTIVE MANAGEMENT • Engineering Degree, Electronic Physics Chemistry, Lyon, France, 1995. • Chartered Certified Accountant, the Association of Chartered Certified • Executive Education at INSEAD, Harvard Business School, IMD Lausanne, Accountants, United Kingdom, 1998. London Business School, IMD Lausanne. • Certified Treasury Professional, the Association for Financial Professionals, United States of America, 2002. CURRENT POSITION • Certified Internal Auditor, the Institute of Internal Auditors, United States of America, 2001. • Chief Executive Officer, L’azurde Company for Jewelry, Joint Stock Company, since 2010. • Bachelor in Commerce, Cairo University, Egypt, 1991. • Executive Board Member, L’azurde Company for Jewelry, Joint Stock Company, since December 2018. CURRENT POSITION • Chief Financial Officer, L’azurde Company for Jewelry since 2014. PROFILE OF EXECUTIVE MANAGEMENT v PAST PROFESSIONAL EXPERIENCE • Chief Executive Officer, Red Bull North America, Inc., fast moving PAST PROFESSIONAL EXPERIENCE consumer goods, 2007–2010. • Group Chief Financial Officer, National Printing Company, a Joint Stock • Chief Executive Officer and Regional President Asia, Pacific, Middle East Company, packaging and printing, 2012 to 2014. and Africa, Red Bull Japan, fast moving consumer goods, 2006 until 2007. • International Markets Controller (for Africa, Middle & Near East, CIS, • Regional President Asia Pacific, Middle East and Africa, Red Bull FZE, Turkey & Pakistan), SC Johnson Company, fast moving consumer goods, fast moving consumer goods, 2004 until 2005. 2010 to 2012. • Regional Manager Middle East, North Africa and Greece, Red Bull GmbH, • Regional Financial Manager (the Middle East and North Africa) SC fast moving consumer goods, 1999 until 2003. Johnson, operating in retail industry, specialized in consumer goods, • Marketing Manager, Switzerland Austria, Procter & Gamble AG, fast since 2006 and 2010. moving consumer goods, 1997 until 1999. • Financial Manager (Egypt) SC Johnson, operating in retail industry, • Brand Manager, Switzerland, Procter & Gamble AG, General Partnership, specialised in consumer goods, since 2004 and 2006. fast moving consumer goods, 1995 until 1997. • Finance Director, Fromageries Bel Egypt, a Joint Stock Company, fast moving consumer goods, 2001 to 2004. • Financial Controller, GlaxoSmithKline, a Joint Stock Company, pharmaceutical, 1997 to 2001. • Senior Accountant, Ernst & Young, a partnership, audit, 1994 to 1997. • Accounting Manager, CR&S Company, a partnership, information technology, 1992 to 1994. PROFILE OF EXECUTIVE MANAGEMENT
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01 | CORPORATE OVERVIEW PROFILE OF EXECUTIVE MANAGEMENT
MR. MOHAMMED MRS. MAY KANOUNJI MR. ABDULLAH OBEID MR. IHAB IBRAHIM AYMAN HAFFAR CHIEF MARKETING OFFICER, ADMINISTRATION AND LEGAL DIRECTOR, EXECUTIVE GENERAL MANAGER EGYPT EXECUTIVE GENERAL MANAGER KSA AND INTERNATIONAL Joined L’azurde Company for Jewelry Joined L’azurde Company for Jewelry on 1 Joined L’azurde Company for Jewelry on on 1 October 2018. September 1995. 1 May 2005. Joined L’azurde Company for Jewelry on 22 February 1994. ACADEMIC AND ACADEMIC AND PROFESSIONAL ACADEMIC AND PROFESSIONAL PROFESSIONAL QUALIFICATION QUALIFICATIONS QUALIFICATIONS ACADEMIC AND PROFESSIONAL • Business Administration Diploma, Al Khaleej • Bachelor in Commerce – Business Administration, QUALIFICATIONS • Master of Arts, Financial Economics, Institute, KSA, 1995. Helwan University, Cairo, Egypt, 1990. American University of Beirut, Lebanon; • Executive Program, Harvard University, • Computer Science Diploma, American University in 2003 to 2005. CURRENT POSITION Massachusetts, United States of America, 2007. Cairo, Egypt, 1990. • Bachelor of Arts, Economics (Distinction, • Driving Strategic Innovation Program, • Administration and Legal Director, L’azurde • Chartered Institute of Marketing Diploma in Marketing, Minor: Business Finance), American Massachusetts Institute of Technology (MIT), Company for Jewelry since 2006. American University in Cairo, Egypt, 2007. University of Beirut, Beirut, Lebanon; Massachusetts, United States of America, 2006. 2000 to 2003. CURRENT POSITION • Strategic Marketing diploma at Toledo PAST PROFESSIONAL University, Ohio, United States of America, 1998. CURRENT POSITION EXPERIENCE • Executive General Manager – Egypt, L’azurde Company • Bachelor in Business Administration, Aleppo • Public Relations Manager, L’azurde Company for Jewelry, since 2011. • Chief Marketing Officer, L’azurde Company University, Syria, 1991. for Jewelry, 1995 to 2000. for Jewelry, Joint Stock Company, PAST PROFESSIONAL since 2018. • Government Relations Manager, Saudi CURRENT POSITION Telecom Company, a Joint Stock Company, EXPERIENCE • Executive General Manager, L’azurde Company PAST PROFESSIONAL telecommunications, 1990 to 1994. • Commercial Manager, Oro Egypt Company for for Jewelry since January 2006. EXPERIENCE Manufacturing Precious Metals, a Joint Stock Company, working in the business of manufacturing, forging and PAST PROFESSIONAL • Marketing Director, Zohoor Alreef Group, selling of jewelries, 2009 to 2011. Fragrance manufacturing and retailing, EXPERIENCE • Marketing and Sales Manager, Oro Egypt Company for 2013–2018. Manufacturing Precious Metals, a Joint Stock Company, • Vice President - Marketing & Sales, L’azurde • Head of Marketing, Al Hokair Group, working in the business of manufacturing, forging and Company for Jewelry, 2005. Fashion Retail, 2010 until 2013. selling of jewelries, 2003 to 2009. • Marketing and Sales Director, L’azurde Company • Marketing Research project manager, • Deputy General Manager, Senior Sales Manager and for Jewelry, 2002 to 2004. Ipsos, global market research company, Regional Manager, Arab Trade & Distribution Co., Joint • Senior Marketing Manager, L’azurde Company 2008- 2010. Stock Company, 1992 to 2003. for Jewelry, 1995 to 2002. • Marketing Research manager, Integration, • Senior Sales Manager, L’azurde Company for global market research company, Jewelry, 1994 to 1995. 2005 - 2007. • Sales Manager, Matajer Al Arabia, individual institution, fashion industry, since 1990 to 1993.
22 23 STRATEGIC BUSINESS 02 REVIEW 02 | STRATEGIC BUSINESS REVIEW L’AZURDE PRINCIPAL BUSINESS ACTIVITIES
L'AZURDE GROUPS PRINCIPAL ACTIVITIES CONSIST OF THE FOLLOWING THREE KEY OPERATIONAL SEGMENTS Design and manufacturing of gold and diamond jewelry segment:
Primarily consists of design and production of gold and diamond jewelry with precious and semi-precious stones. WHOLESALE SEGMENT Primarily consists of wholesale to more than 1,600 third party independent retailers of gold and diamond jewelry in the MENA region, primarily in Saudi Arabia and Egypt. RETAIL SEGMENT Primarily consists of selling classic and fashion diamond jewelry and gold jewelry across L’azurde mono brand retail shops, TOUS global brand franchise stores, Kenaz kiosks and Travel Retail locations at KSA airports.
L’azurde Group’s core wholesale business model consists of distribution and selling of gold jewelry by weight to a large network of more than 1,600 third party retailers across the MENA region. L’azurde borrows gold from financial institutions through full Shariah compliant facilities and sells gold jewelry by weight where it requires retailers to pay it in the form of physical weight of gold sold, in addition to the labor service charge in SAR, USD or EGP . As part of its strategy of managing Gold price volatility risks and instead of buying gold and being exposed to gold price fluctuations, L’azurde Group borrows its entire gold requirements from banks with different terms and it does not own any Gold. This ensures that its gold assets, represented in accounts receivable and inventory, always equal its liabilities of gold facilities, at all times. DISTRIBUTING AND SELLING GOLD JEWELRY TO A LARGE NETWORK OF MORE THAN 1,600 THIRD PARTY RETAILERS ACROSS THE MENA REGION.
L’AZURDE PRINCIPAL BUSINESS ACTIVITIES
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INDUSTRY VALUE CHAIN
A. SOURCING Gold in the kingdom is primarily sourced from three channels: B. Casting: The process of creating a model pattern in wax that will then be used to hold hot metal (gold, silver etc.) to shape (i) Banks and commodity traders. it into uniform items based on the model. It offers higher quality than pressing and can produce high volumes from the (ii) Gold mines. same model.
(iii) Ore processing scrap recovery. C. Other advanced techniques such as 3D printing and Micro Setting: 3D printing is the process of making jewelry using a Diamonds are imported from multiple sources including Belgium, three dimensional digital model. Micro setting is a technique India and South Africa. Typically, imported diamonds are already revolving around setting small diamonds of a uniform size in polished to be used directly in the jewelry manufacturing. interlocked rows using high magnification. These techniques B. DESIGN AND FABRICATION enable manufacturers to maintain tight control over the gold content of the jewelry pieces and to increase their labor service charge due to the exclusivity of the designs. 1. DESIGN: Jewelry designs vary from one region to another, as tastes differ according to both geographic Gold and diamond jewelry in the kingdom is fabricated either location as well as motives for purchase. In rural and at small local workshops or in relatively large manufacturing more traditional areas, consumers prefer 21k jewelry facilities. The former rely on basic manufacturing techniques designs. Urban consumers, on the other hand, demand such as pressing and casting, while the latter utilize more more trendy and fashionable jewelry in 18K. advanced techniques (e.g. micro setting, laser cutting, 3D printing) that enable manufacturers to produce higher volumes 2. FABRICATION: In the gold and diamond at lower cost. jewelry industry, three major manufacturing techniques are typically adopted: A. Pressing: The use of motorized or hand operated machinery, specially designed for minting gold and silver using hydraulic force. The designs are usually basic, cheap and fast to manufacture.
APPLYING 3D PRINTING TECHNOLOGY IN MANUFACTURING, ENABLING INTRICATE, DIFFERENTIATED DESIGNS OFFERING BETTER CONSUMER VALUE AT LOWER COST
BUSINESS DESCRIPTION
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C. WHOLESALE AND DISTRIBUTION D. RETAIL There are currently several models for wholesalers’ roles in the Retail activity in the kingdom can be found across: Gold jewelry market: GOLD SOUKS PURE WHOLESALER: Bazaar like marketplaces that have a high density of shops that Primarily work with retailers that do not have direct contact with sell both low and high-end jewelry. This is the most common the manufacturers. These manufacturers can either be based retail destination in the kingdom for gold jewelry sold by weight. in the kingdom or abroad (mainly in Far East Asia). Moreover, retailers prefer to work with wholesalers, since the latter can offer discounts and accept credit payments, rather than HIGH STREETS cash payment. Standalone shops located on high streets in city centers. These retailers primarily sell diamond jewelry by piece, as retail FULLY INTEGRATED MANUFACTURER operations require higher margins. AND RETAILER: Manufacturers with established vertical integration and a SHOPPING MALLS private retail network. The aforementioned retail outlets Stores in malls selling jewelry items that are more commonly exclusively hold items produced by the managing manufacturer. sold by piece rather than by weight. Retail gold customers are Wholesalers in this category do not compete with wholesalers in typically segmented into four categories: other configurations as they are not targeting the general jewelry retail market. • Occasion driven consumption: Primarily driven by social events such as weddings, births, occasions (Valentine, MANUFACTURER/WHOLESALER: Mothers’ Day,…) and anniversaries. Manufacturers operating and managing their own private • Fashion driven consumption: Driven by increasing wholesale channels. This configuration allows for higher profit urbanization and the rising disposable income of the younger margins since gold jewelry retail outlets can drive down the population. Purchases are typically made by young female overall profitability of the manufacturer. Manufacturers in this consumers for daily use for attending social events. role focus on expanding their capacity to supply the wide network of independent jewelry retailers across the kingdom. • Savings driven consumption: Typically considers gold jewelry purchases, especially 21k jewelry, as storage of wealth. In the kingdom and Egypt, gold jewelry is traditionally considered to preserve women’s wealth after marriage and is used as a money proxy in times of hardship or high inflation.
• Investment-driven consumption: Typically in the form of coins and bars of 24k gold. Gold is used as a hedge against volatility during times of economic, political and social uncertainty.
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BUSINESS MODEL The core business model of L’azurde Group consists of designing, DISTRIBUTION OF FINISHED GOLD JEWELRY manufacturing and selling gold jewelry by weight in its wholesale PRODUCTS network. In addition to this, L’azurde has its own mono-brand network of retail showrooms where it sells mainly diamond L’azurde has two distribution channels, wholesale and retail jewelry by piece, to secure a higher gross margin and no channels. Wholesale primarily consists of wholesale to more competition with its wholesale channel. than 1,600 third party independent retailers of gold jewelry in the MENA region. L’azurde activities related to gold jewelry represent its core business that utilizes most of its resources and generates Accounts receivable originate from offering term facilities to most of its revenues while Diamond jewelry, precious and the Group’s wholesale customers to pay their commitments, semi-precious stones, are smaller in proportion compared to including the value of the gold purchased. These credit terms their activity related to gold jewelry. are in response to the demand of Group’s wholesale customers and are considered to be in compliance with Shariaa provisions L’azurde Group conducts the manufacturing operations of gold according to Shari’a opinion issued by the Shari’a Advisory jewelry through a well-established and efficient business model Committee of the Council of Saudi Chambers, a number of offering it a significant competitive edge. This model comprises Shariaa Scholars and the conclusion of the meetings between an operating cycle that consists of three main stages and value these Scholars and the Group’s management. Credit sales is added at each stage. The first stage includes the unique supply are only offered to the Group’s wholesale customers and not chain of pure gold, the second stage includes manufacturing of retail customers. gold jewelry and the third stage is the distribution of finished gold jewelry products. The Shari’a Advisor is reviewing all credit facilities agreements to finance gold purchase during the year, conducting quarterly The following is a detailed explanation of the gold operations’ Shari’a compliance review and issuing quarterly Shari’a business model: compliance review report; these reports are available on Tadawul Platform. (Please see Consolidated financial section note no. 36). UNIQUE SUPPLY CHAIN OF PURE GOLD By the end of 2019, nine banks classified L’azurde’s share as L’azurde does not take any exposure position to volatility of gold Shari’a compliant and included it in their quarterly list of Shari’a prices in global markets where total assets and liabilities of gold compliant shares. These banks are Albilad Bank, Alinma Bank, are always equal. Al Jazeera Bank, Saudi Fransi Bank, NCB Capital, Riyadh Bank, Arab Bank, SAMBA Bank and Saudi Investment Bank. Most of its Gold input comes through Shariaa compliant financial facilities agreements in form of Murabaha or Tawaruk with local Also, L’azurde’s share is included in the Sharia’a compliant banks and a small part of the Gold comes through financing shares list for all listed companies, which is issued on quarterly facilities agreements with international banks. basis by the Senior Scholar, HE Sheikh Mohamed Al Othaimi, a specialist in the jurisprudence of Islamic financial transactions.
L’azurde’s second distribution channel is retail which primarily consists of selling classic and fashion gold, diamond and silver and jewelry to end consumers across L’azurde mono-brand retail shops, TOUS stores, Kenaz kiosks and travel retail locations in KSA.
L’azurde Group maintains a balanced and diversified wholesale customers’ base and also generates revenues through sales to end consumers from L’azurde Group’s retail shops.
BUSINESS MODEL
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L’azurde Group maintains a balanced and diversified wholesale MISS L' CONCEPT BELOW STRUCTURE SHOWING ALL THE BRANDS AND WHOLESALE VS. RETAIL customers’ base and also generates revenues through sales to During 2019, L’azurde launched its new high potential fashion end consumers from L’azurde Group’s retail shops. jewelry line Miss L’, by L’azurde. Miss L’ offers classic and fashion jewelry products sold by piece at Malls in KSA and Egypt. With an aim to develop its business and grow its revenues, Miss L’ is building on the fast growing segment of fashion L’azurde Group is expanding its retail segment through the affordable jewelry globally and in the region. Miss L’ is sold acquisition of top global franchise brands. This new growth L'AZURDE GROUP today at L’azurde mono-brand shops, through its own dedicated strategy was aligned in 2018 and started with the acquisition kiosks and key 3rd party fashion retailers in Malls. This is a high of the KSA franchisee for the global affordable jewelry brand potential growth opportunity for the Company where for the very TOUS. On top of TOUS, L’azurde has its own network of mono first time L’azurde enters a major fast growing segment through brand retail shops. The L’azurde mono-brand retail business is a separate sub-brand at high gross margin, very low working different from the gold jewelry wholesale business as the Group capital and highly attractive value proposition to consumers. focuses on diamond jewelry sold by piece in its own shops. In WHOLESALE RETAIL MI S S L' Miss L’ products prices range from SAR475 to 5,000. addition, almost all of the L’azurde branded retail shops are located in shopping malls whereas majority of gold wholesale Miss L’ was launched by L’azurde with a vision that reflects customers are located in gold souks. the group’s drive to enter a new market segment by producing and selling luxury jewelry pieces at affordable prices. The new L’azurde Group identified an opportunity to launch a diamond -18K L'A Z U R D E TOUS TRAVEL RETAIL KENAZ endeavour will be of great added value to L’azurde, drawing on jewelry value brand under a separate brand called ‘Kenaz’. the Company’s brand expertise as the largest gold and jewelry -21K 18 LOCATIONS 26 LOCATIONS 7 LOCATIONS 16 LOCATIONS While L’azurde is a premium high quality brand, Kenaz is a value designer, manufacturer, and distributor in the region, and its brand targeted at daily wear occasions and gifting sold at kiosks reputation spanning 40 years of perfection in the jewelry industry. and some shops in key Malls in KSA. Miss L’ has a wide variety of 18K gold collections that are stylish, effortlessly chic and produced according to the highest standards in jewelry making. Miss L’ jewelry is the best companion of the modern woman of today as it reflects her personality and allows her to express her mood at any time of the day. Through THE COMPANY'S COMPETITIVE ADVANTAGES Miss L’, fashionable women can now express their style and There are a number of factors that give L’azurde Group an C. L’azurde has solid retail capabilities with its multi brand and their positive outlook on life in creative and fun ways. Miss L’ advantage over existing and potential new competitors and multi store formats across its portfolio of brands: L’azurde, jewelry is therefore the perfect gift of every woman who has a provide a platform for sustainable and profitable growth and TOUS, Kenaz, Miss L’ and travel retail. The Group succeeds passion for style and who is constantly looking for new ways to thereby increase shareholders wealth. These include: in acquiring and fully developing retail shops across a wide express herself. network of malls and street locations. The Group plans to A. L’azurde Group’s resilient business model allows it to be expand and retail more jewelry brands to fully leverage its relatively immune to fluctuations and volatility in gold capabilities and offer different consumers an attractive wide prices. Moreover, Group’s technology and manufacturing offering of brands and products. capabilities, strong brand and design capabilities, allow it to protect its market share in case of volatile gold prices. During D. L’azurde Group’s manufacturing facilities enable it to periods of high gold prices, L’azurde has the technology efficiently design and produce a wide variety of unique and craftsmanship capabilities to produce jewelry at lower products to meet the evolving demands of consumers. weight and hence meet the right consumer price points. In L’azurde introduces over 3,500 designs each year, maintaining addition, L’azurde has very low gold loss in the manufacturing its status of a leading trend setter in the market. Also, process, which puts limited financial pressure at high gold L’azurde maintains a significant technological advantage with prices. As part of its commodity price risk management a park of more than 500 jewelry manufacturing machines. strategy, instead of buying gold and being exposed to risk of gold price fluctuations, L’azurde gets its entire gold needs E. Through its successful operational and financial directly from banks whilst matching, at all times, its gold performance, brand identity and operational and advertising assets with its gold liabilities, thus mitigating the risk of initiatives, L’azurde has achieved a competitive position in the gold price fluctuations. L’azurde intends to continue using industry in the MENA region. The market share of L’azurde gold facility agreements to mitigate its exposure to gold grew consistently during the past years to reach 20% to 25% price fluctuations. in the kingdom and Egypt, making it the leading provider of wholesale jewelry. B. L’azurde has marketed its brand to be the leading jewelry brand in the MENA region. This was achieved through major F. L’azurde Group’s senior management team comprises TV, print, outdoor and on-line advertising campaigns, as well experienced executives with a long and proven track record of as using some celebrities as brand ambassadors, such as, financial and operational success and a thorough knowledge Myriam Fares, Nelly Karim, and others. L’azurde evolved and understanding of every facet of financing, manufacturing, its marketing strategy where it diverted a majority of its marketing and retailing of gold and diamond jewelry. Over the marketing investments online. years, the senior management has been working efficiently as a team to identify, evaluate and execute L’azurde Group’s expansion plans and growth initiatives.
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RESILIENT BUSINESS CONSUMER MARKETING L'AZURDE OWN BRAND FRANCHISE BRAND TOUS L’azurde’s own brand jewelry is renowned for its fusion of Alongside L’azurde’s own brands and collections, the Group MODEL AND FINANCIAL traditional high quality craftsmanship, contemporary top has identified opportunities to leverage its well-established PERFORMANCE L'AZURDE'S HOUSE OF BRANDS design and the use of precision technologies. This positioning is expertise and capabilities across MENA to acquire or introduce underpinned by ongoing investment in marketing both through selected global franchise brands in the region. Such franchises L’azurde Group’s resilient business model allows it to be Since the L’azurde brand was launched several decades ago, it traditional means such as broadcast and print media and represent an exciting opportunity to diversify and expand the relatively immune to fluctuations in gold prices throughout the has become synonymous with exquisite jewelry which combines increasingly through digital and social media, together with a Group’s business, and it will continue to identify and evaluate manufacturing and sales process. Moreover, Group’s technology stylish beauty and outstanding craftsmanship. Underpinned variety of carefully selected celebrity brand ambassadors as additional prospects. and manufacturing capabilities, strong brands and design by this reputation, it has established a market-leading position part of its multi-celebrity marketing strategy. capabilities, allow it to protect its market share in case of volatile across the Middle East and North Africa. Today, L’azurde’s vision TOUS is an international fashion jewelry brand with a long- gold prices. is centered on building on its own strong brand to create a house In 2019, L’azurde launched two campaigns in collaboration with standing heritage of offering affordable luxury products. TOUS of jewelry brands which are trusted, endearing and inspiring. the newly appointed celebrity, Myriam Fares. The first campaign, has been present in Saudi Arabia since 2008 and today has a Despite gold price volatility in the past, L’azurde was able to “My Path, My way”, featured the iconic “My Path” collection network of 26 stores in the kingdom. The acquisition of the TOUS sustain its market leading position whilst securing a steady As consumers increasingly seek out brands which resonate with inspired by the path of life of all women. At times smooth and exclusive franchise throughout KSA, completed in October 2018, stream of revenues and profitability as it has always been able their own lives, L’azurde is dedicated to putting the customer at mostly challenging, a woman’s path is a true source of pride represented a significant milestone in the Group’s multi-brand to adapt to changing market conditions using innovative designs, the heart of everything it does. That is why it has chosen to focus and an inspiring journey, and it’s all reflected creatively in strategy, established a strong presence in the fastest growing a large variety of manufacturing techniques, a strong brand and on establishing and leveraging a range of brands, each with the precious jewelry designs of the “My Path” collection. The segment of the jewelry industry and added a new source of a large distribution and sales organization. During periods of its own unique voice and personality that will attract new and second campaign was unveiled at the end of 2019 and displayed growth and profitability. In 2019, the Group invested in marketing high gold price, L’azurde has the technology and craftsmanship existing customers. Whether buying for themselves or as a gift, a stunning collection of 21k and 18K gold rings, bracelets and TOUS, strengthening its organization and capabilities to secure a capabilities to produce jewelry at lower weight and hence meet to celebrate an occasion or to keep up with the latest fashions, necklaces, as part of the new “ConneXion” collection. Inspired strong growth potential over the coming year. the right consumer price points. Most small manufacturers have L’azurde aims to offer brands which appeal to a clientele of all by the people dear to our hearts, the “ConneXion” Collection basic manufacturing techniques which do not allow them to ages and outlooks and deliver a personalized experience to each celebrates the support networks and the amazing connections With the objective of increasing the brand awareness, TOUS produce high volume of low weight jewelry. In addition, L’azurde and every customer. By developing both own brand collections we nurture with our loved ones. collaborated with a large number of local influencers who has very low gold loss in the manufacturing process, which puts as well as brand franchise opportunities in this way, L’azurde’s endorsed TOUS products. The collaboration with the local limited financial pressure at high gold prices. Competitors with objective is to further expand its business and grow its revenues. As part of the drive to appeal to a more diverse customer base, influencers supported the brand’s Global Celebrity campaign no similar capabilities are under financial pressure during a L’azurde Group has also launched various collections in the launch with Hollywood star Emma Roberts. Celebrating period of high gold price. past years, targeting jewelry enthusiasts and fashion lovers the launch of new collections and the exclusively designed alike. The first collection, Dreams, dates back to 2014, the year collections for the Saudi market, TOUS Saudi organized two During periods of low gold prices, previously dormant players when L’azurde started collaborating with Alanoud Badr, the grand opening events that were attended by media, influencers were able to restore some of their capacity, though high capital award-winning designer behind the Lady Fozaza fashion empire. and VIP customers. The events generated major media outcome requirements and Saudization challenges make their scalability Directed towards a fashion-conscious audience, L’azurde and contributing to the growing success of the brand. Likewise, increasingly difficult and as a result, their ability to increase Lady Fozaza’s collaboration has generated three successful the premium implementation of product launches, the highly market share is limited. On the other hand, low gold prices collections since then. All three lines were equally appealing to valued gift-with-purchase offers, in addition to the many in-store helps to increase the overall market size allowing L’azurde to the newly targeted customers, each collection being the perfect activities that took place in the past year, were cornerstones in compensate any loss of market share due to more competition example of exceptional design and artistry. The year 2019 marked the enhancement of the customers’ journey of TOUS across the from small players. the launch of a new collection by Lady Fozaza Jewelry in Saudi 26 stores in the kingdom. Arabia; the newest line was also launched in Egypt for the very In all cases and at any gold price point, L’azurde maintains no first time. Inspired by the moon and the stars, the new collection, L’azurde Group continues to search for additional strong brands position in gold by ensuring that its gold assets, represented in Written in the Stars, included fashionable jewelry pieces and to run as a franchise mainly in KSA, Egypt and potentially across accounts receivable and inventories, always equal its liabilities of iconic models especially designed for the contemporary woman the region. This expansion can happen through the acquisition gold borrowed from banks. Many other competitors have limited of today. of existing franchises or through launching of new franchises in financial capabilities and creditworthiness to borrow gold from the market. banks, thus they are forced to buy gold from the open market at the spot rate and accordingly their gold assets are exposed to gold price fluctuation. L’azurde buys precious and semi-precious stones directly from the external market at the market price.
The new House of Brands strategy offers also the L‘azurde Group more resilience as the Groups diversifies its revenues streams and markets various brands with different positioning and price points. L' A Z U R D E HOUSE OF BRANDS
GOLD WHOLESALE BUSINESS
L'AZURDE JEWELRY
L'AZURDE JEWELRY
GOLD WHOLESALE BUSINESS
L'AZURDE RETAIL L'AZURDE MONO BRAND GOLD WHOLESALE BUSINESS DIAMOND JEWELRY RETAIL
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KENAZ JEWELRY L'AZURDE'S CELEBRITY ADVANCED DESIGN AND LEADERSHIP POSITION Kenaz Jewelry is one of the fastest growing diamond value COLLABORATIONS MANUFACTURING FACILITIES Through its successful operational performance, financial fashion brands in Saudi Arabia today, having only been launched As the Middle East’s largest gold and diamonds jewelry designer, L’azurde Group’s manufacturing facilities enable it to efficiently performance, brand strength and advertising initiatives, L’azurde by L’azurde as its first stand-alone brand in late 2016. The brand manufacturer and distributor, L’azurde has a focused marketing design and produce a wide variety of unique products to meet has achieved a competitive position in the industry in the MENA promises to deliver “luxury within your reach” which is attracting strategy designed to maintain and build its presence across the the evolving demands of consumers. L’azurde introduces over region. The market share of L’azurde grew consistently during the a new segment of customers to the L’azurde family as well as region. A key driver of the ongoing success of this strategy is 3,500 designs each year, enabling it to maintain its status as past years to reach approximately 20% to 25% today in the kingdom extending its scope with existing clients. There are now [16] L’azurde’s collaboration with superstars from the worlds of an influential trend setter in the market. L’azurde maintains a and Egypt, making it the leading supplier of jewelry. L’azurde Kenaz-branded retail stores and kiosks across the kingdom, fashion, film and music. significant technological advantage with a park of more than works continuously on implementing new products initiatives, new very well located in leading malls and shopping centers. 500 advanced jewelry manufacturing machines. For example, collections and innovative technologies to continue winning more This multi-celebrity approach is ideally aligned with L’azurde’s L’azurde Group was the first manufacturer in the kingdom to consumers and expanding its market share. To support higher conversion, Kenaz marketing activities clientele, which is diverse and multi-faceted. Mother, daughter, implement 3D printing as part of the design and manufacturing included mainly attractive marketing materials to support point businesswoman, celebrity – L’azurde wants to help women of all process. Furthermore, L’azurde Group’s efficient management of GEOGRAPHICAL LOCATIONS of sale with messages related to the consumption period or to ages and outlooks, from every walk of life, showcase their beauty the supply chain provides it with the flexibility to change designs. AND OPERATIONS the launch of multi-coloured stones or innovative pearl variety at its best. Therefore, it has carefully selected each celebrity for Finally, L’azurde has streamlined labor intensive processes to L’azurde Group’s head office is located in the city of Riyadh, that are offered at affordable prices to the female customer who her diversity and achievements, creating a portfolio of brand dr ive the ef ficienc y of its production processes. These advantages Kingdom of Saudi Arabia. As at 31 December 2019 , L’azurde Group wants to own diamonds but is on limited budget. ambassadors which appeals different audiences and markets enable L’azurde to charge a premium labor service charge, meet operated through 16 wholesale offices located in the kingdom, across the Arab world and beyond. a wide variety of consumer tastes and create distinguished United Arab Emirates, Egypt, and three manufacturing facilities M I S S L' pieces of jewelry. Nevertheless, the celebrities that L’azurde chooses to work with (one in the kingdom and two in Egypt), 22 retail showrooms Launched during 2019, Miss L’ has a wide variety of 18K gold all have something in common. Like the brand itself, they are L’azurde jewelry mono-brand (located across the kingdom and collections that are stylish, effortlessly chic and produced MANUFACTURING FACILITIES Middle Eastern, glamorous, confident, independent and proud. Egypt) , 16 Kiosks and showrooms for Kenaz brand in addition to according to the highest standards in jewelry making. Miss L’ AND CAPACITY That is why they represent such strong brand ambassadors for 6 travel retail outlets at Saudi airports. jewelry is the best companion of the modern woman of today as the Company – they show the variety amongst all women and how L’azurde operates more than 32,000 square meters of it reflects her personality and allows her to express her mood at The acquired company “Izdiad Commercial Company of Arabia” they all shine within the different roles in their lives. manufacturing space for gold and diamond jewelry. The factory any time of the day. Through Miss L’, fashionable women can now in the kingdom, located in Riyadh, employed 702 craftsmen and the operator of TOUS added to L’azurde’s retail network additional express their style and their positive outlook on life in creative Through distinctive collaborations and campaigns for each employees as at 31 December 2019 was established on 23 January 26 TOUS mono-brand showrooms in KSA. In addition, L’azurde and fun ways. Miss L’ jewelry is therefore the perfect gift of every celebrity, which include digital and social media as well as 1992 and manufactures gold and diamond jewelry to be sold in Group sells its products in 20 countries through a network of woman who has a passion for style and who is constantly looking traditional advertisements and appearances, L’azurde is able to both the kingdom and international markets. There are two exclusive and non-exclusive distributors, wholesalers and third for new ways to express herself. A focused digital marketing showcase its unique and exquisite jewelry to a broad range of factories in Egypt which manufacture products mainly for sale in party retailers. strategy is adopted to reach the millennials who are particularly women. Such partnerships have helped L’azurde in successfully the local Egyptian market. The first one, located in Cairo, was receptive to new technology and innovative ideas. Both macro strengthening its brand awareness and support revenue growth established on 8 January 2003 and employed 110 craftsmen and and micro-influencers are used to endorse the brand values of 18% in 2019. Taking revenues to the SAR 481 million. employees as at 31 December 2019. The second factory in Egypt, and feature the new collections launched in key consumption located in Qalyubia, was acquired on 30 July 2012 and employed period with exciting shopping experience, either at own stores 1188 craftsmen and employees as at 31 December 2019. or at 3rd parties, to infuse a spirit of fun among customers while maintaining the sense of luxury. CORE BUSINESS GOLD WHOLESALE
REACHING 1,500 3RD PARTY RETAILERS
EGYPT UAE
OMAN
KSA
L’azurde Locations KSA Egypt UAE Oman Total
Factories 1 2 - - 3
Wholesale offices 4 11 1 1 17
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RETAIL DISTRIBUTION COVERAGE GOLD JEWELRY WHOLESALE L’azurde Group designs and manufactures gold jewelry in the A. L'AZURDE MONO BRAND RETAIL SHOPS kingdom and Egypt and sells gold jewelry across more than 20 This network focuses on diamond jewelry products and Miss L’ countries mainly in the MENA region through more than 1,600 fashion jewelry sold at the Company own shops in the kingdom third party independent retailers. L’azurde operated directly and Egypt. As at 31 December 2019, L’azurde operates its own through 16 wholesale offices within the kingdom, Egypt and the portfolio of 26 L’azurde branded jewelry stores and Kiosks, 5 United Arab Emirates. shops in Saudi Arabia, 21 stores in Egypt, 13 shops and 8 Kiosks. Sales are primarily made by a well-established and professional During 2019, L’azurde expanded its retail network through the wholesale sales team which continually reinforces collaboration opening of 7 new showrooms at top locations in Egypt and closed and partnership with customers and key accounts. The sales 5 non profitable shops in Saudi Arabia. The retail business does not conflict with the wholesale business as the retail focus of EGYPT team is continuously seeking opportunities to expand jewelry distribution to new customers while preserving and developing L’azurde is on diamond jewelry sold by piece whilst the gold the brand image. L’azurde Group maintains a strong marketing jewelry wholesale business sells gold jewelry by weight. presence in the windows of third party retailers through In addition, L’azurde branded retail stores owned by L’azurde the supply of branded L’azurde displays and effective trade Group are mostly located in the shopping malls whereas the marketing strategies. The marketing team supports the retailers majority of the gold wholesale customers are in gold souks. with events in the market to help drive the sales of L’azurde Group’s jewelry. Customer knowledge and close collaboration B . T O U S is a major competitive advantage for L’azurde. L’azurde has its KSA own wholesale team in the kingdom, Egypt and the UAE whilst The Group acquired in 2018 the TOUS franchisee in KSA, providing in other markets L’azurde Group sells through exclusive and it with 26 retails shops offering the Company an entry into the non-exclusive distributors or sells directly to various retailers. fast growing segment of affordable jewelry.
R E T A I L TOUS is an international lifestyle brand focused on affordable L’azurde Group Retail locations To diversify its revenues, enhance its margins and leverage its luxury that has been in business for almost 100 years and with KSA Egypt Total management capabilities, the Group decided to expand into the more than 620 stores in over 53 countries. As a franchisor, TOUS retail business. designs, manufactures and sells jewelry, bags and accessories L’azurde 6 14 20 for women and men. Their offering covers a wide range of L’azurde has established a dedicated and experienced retail products including fine jewelry with diamond, gold and silver, its TOUS 26 - 26 management team with strong organizational support to grow core business, and handbags, fragrances and accessories. TOUS the retail business. has been present in KSA since 2008 with a network today of 26 Kenaz 12 - 12 stores across the kingdom. Through the TOUS brand L’azurde will reinforce its jewelry portfolio and grow its customer base by diversifying revenues and complementing its assortment. The Company management is proud to partner with TOUS, a world Details of L’azurde Group’s geographical presence as at 31 December 2019: leader in jewelry.
Country City Operating company Nature of presence CUSTOMER KNOWLEDGE AND CLOSE COLLABORATION WITH RETAIL L’azurde Company for Jewelry, Joint Stock Head-quarter, factory, wholesale Kingdom of Saudi Arabia Riyadh Company, listed on Tadawul offices and retail shops and kiosks PARTNERS IS A MAJOR COMPETITIVE ADVANTAGE FOR L'AZURDE GROUP
Riyadh Almujawharat Almasiah, Limited Liability Company Retail
Riyadh Kenaz, Limited Liability Company Retail kiosks
Izdiad Commercial Company of Arabia – Limited Riyadh Liability Company owned by one person Retail
ORO Egypt Company for Manufacturing Precious Egypt Cairo Metals, Closed Joint Stock Company Factory ,wholesale offices and retail shops
El-Obour L’azurde Egypt for Jewelry, Limited Liability Company Factory ,wholesale offices and retail shops
L’azurde Company for Jewelry, Limited Liability UAE Dubai Company. L’azurde Group for Gold and Jewelry Wholesale office DMCC, Limited Liability Company.
Abu Dhabi L’azurde for Jewelry, Limited Liability Company Retail shop
State of Qatar Doha L’azurde for Jewelry, Limited Liability Company Wholesale office
Sultane of Oman Muscat L’azurde for Jewelry, Limited Liability Company Wholesale office
40 41 02 | STRATEGIC BUSINESS REVIEW BUSINESS MODEL
Locations of L'azurde jewelry mono-brand retail showrooms as at 31 December 2019: List of closed showrooms in Saudi Arabia in 2019:
Country City Location Brand Opening Date Country City Location Brand Closing Date
The Kingdom Riyadh Nakheel Mall L’azurde Mono Brand 25/03/2015 The Kingdom Riyadh Taiba Market L’azurde Mono Brand 1 May 2019
Dammam Dhahran Mall L’azurde Mono Brand 02/01/2011 Riyadh Olaya Street L’azurde Mono Brand 19 December 2019
Jeddah Red Sea Mall L’azurde Mono Brand 03/01/2011 Riyadh Panorama Mall L’azurde Mono Brand 19 December 2019
Jeddah Andalus Mall L’azurde Mono Brand 02/01/2011 Dammam Al Rashid Mall L’azurde Mono Brand 13 July 2019
Jeddah Jeddah Mall L’azurde Mono Brand 29/03/2011 Jeddah Yasmin Mall L’azurde Mono Brand 7 February 2019
Egypt Cairo Cairo Festival City L’azurde Mono Brand 01/07/2014
Cairo Mall of Arabia L’azurde Mono Brand 01/07/2015 While in Egypt 7 showrooms have been opened in 2019 due to continue growing our successful retail operation to its full potential following a solid performance since few years. Cairo City Stars Mall L’azurde Mono Brand 01/04/2016
Cairo Mall of Egypt L’azurde Mono Brand 01/03/2017
Cairo Downtown Area L’azurde Mono Brand 01/12/2017
Cairo Kurba District L’azurde Mono Brand 01/12/2017
Cairo Maadi District L’azurde Mono Brand 01/08/2018
Giza Mohandseen District L’azurde Mono Brand 01/06/2018
Gharbia Al Oraba Mall L’azurde Mono Brand 01/07/2018
Alexandria City Centre L’azurde Mono Brand 01/03/2018
Gharbia Mall of Tanta L’azurde Mono Brand 01/12/2019
Mansoura Street Shop L’azurde Mono Brand 01/03/2019
Cairo Almaza City Center L’azurde Mono Brand 01/10/2019
Egypt Kiosks Cairo Point 90 Mall L’azurde Mono Brand 01/03/2019
Cairo City Stars Mall L’azurde Mono Brand 01/02/2019
Cairo City Stars Mall L’azurde Mono Brand 01/12/2019
Cairo Mall of Egypt L’azurde Mono Brand 01/12/2019
Management has a plan to improve the profitability of the L’azurde retail business in KSA by rationalizing our footprint, re-invigorating our flagship shops, leveraging our exclusive travel retail operations at airports and staff training; and drive the promising Miss L’ affordable gold jewelry fashion line through 3rd party retailers and own shops and kiosks.
As part of above mentioned plan; 5 showrooms in Saudi Arabia have been closed during 2019 due to their negative impact on company profitability which lead to the management to take this decision to improve the company performance and maximizes shareholders’ equity.
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The following list of opened showrooms and Kiosks in Egypt in 2019: Locations of L’azurde Group’s franchised jewelry operations as at 31 December 2019:
Country City Location Brand Opening Date
Mansoura Mall of Mansoura Showroom L’azurde Mono Brand 01/03/2019 City Location Opening Date
The kingdom Cairo Almaza City Center Showroom L’azurde Mono Brand 01/10/2019
Kenaz Kiosks Jeddah Mall of Arabia 11/17/2016 Tanta Mall of Tanta Showroom L’azurde Mono Brand 01/12/2019
Dammam Rashid Mall 9/6/2016 Cairo City Stars Mall Kiosk L’azurde Mono Brand 01/02/2019
Riyadh Panorama Mall 1/22/2017 Cairo Point 90 Mall Kiosk L’azurde Mono Brand 01/03/2019
Riyadh Hayat Mall 3/30/2017 Cairo City Stars Kiosk L’azurde Mono Brand 01/12/2019
Riyadh Hamra Mall 9/22/2017 Cairo Mall of Egypt Kiosk L’azurde Mono Brand 01/12/2019
Jeddah Andalus Mall 4/27/2017
Jeddah Yasmin Mall 8/5/2017 C. TRAVEL RETAIL AT SAUDI AIRPORTS - for the Company where for the very first time L’azurde enters a EXCLUSIVE DISTRIBUTION AGREEMENT major fast growing segment through a separate sub-brand at high Madinah Noor Mall 3/5/2017 During 2019, L’azurde renewed the exclusive distribution gross margin, very low working capital and highly attractive value agreement with the Saudi French Duty Free Operations and proposition to consumers. Miss L’ products prices range from Jubail Galleria Mall 6/20/2017 Management company (a division of Lagardère Travel Retail) SAR500 to 5,000. to be the exclusive retailer of gold and diamond jewelry at Abha Asser Mall 7/30/2017 Launched by end of 2019, Miss L’ has a wide variety of 18K gold the international airport showrooms in Riyadh, Jeddah, and collections that are stylish, effortlessly chic and produced Gizan Kadi Mall 8/22/2017 Dammam, providing new revenue streams to the Company and according to the highest standards in jewelry making. Miss L’ diversifying its revenues by expanding its retail operations and jewelry is the best companion of the modern woman of today as Dammam West Avenue 9/23/2018 targeting a new segment of customers. it reflects her personality and allows her to express her mood at any time of the day. Through Miss L’, fashionable women can now Tabook Tabook Park 10/13/2018 D. KENAZ DIAMOND JEWELRY RETAIL express their style and their positive outlook on life in creative and fun ways. Miss L’ jewelry is therefore the perfect gift of every Riyadh Riyadh Park 7/18/2018 Kenaz is a value brand targeted at daily wear occasions and woman who has a passion for style and who is constantly looking gifting and it is offered at 14 exclusive mono-brand pop-up kiosks Kenaz Shops Riyadh Hayat Shop 5/29/2019 for new ways to express herself. A focused digital marketing in major malls in Riyadh, Dammam and Jeddah and 2 shops in strategy is adopted to reach the millennials who are particularly Riyadh. L’azurde Group’s vision is to accelerate the expansion of Riyadh Panorama Shop 6/30/2019 receptive to new technology and innovative ideas. Both macro Kenaz diamond jewelry retail kiosks throughout the KSA initially and micro-influencers are used to endorse the brand values and later on in Egypt and the GCC. Travel Retail Airports Kiosks Jeddah South International Terminal 12/20/2017 and feature the new collections launched in key consumption E. MISS L' period with exciting shopping experience, either at own stores Jeddah North International Terminal 10/7/2017 or at 3rd parties, to infuse a spirit of fun among customers while Miss L’ offers classic and fashion jewelry products sold by maintaining the sense of luxury. Riyadh International - Terminal 1 8/23/2017 piece at Malls in KSA and Egypt. Miss L’ is building on the fast Riyadh International - Terminal 2 8/24/2017 growing segment of fashion affordable jewelry globally and in the region. Miss L’ is sold today at L’azurde Monom brand shops, Dammam International - Terminal 1 8/23/2017 through its own dedicated kiosks and key 3rd party fashion retailers in Malls. This is a high potential growth opportunity Dammam International - Terminal 2 10/16/2017
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City Location Opening Date DISTRIBUTION OF JEWELRY MANUFACTURING MACHINERY In addition to the wholesale and retail jewelry and diamond businesses, L’azurde Group represents various manufacturers of TOUS jewelry machinery equipment and sells their machinery in the kingdom to various local manufacturers of gold and diamond jewelry,
Jeddah Tahlia Street 1/1/2008 such as jewelry casting, laser soldering and ultrasonic machines. This small but strategic business helps L’azurde strengthen its collaboration with global jewelry equipment manufacturers and stay up to date with the latest market developments. Jeddah Khayatt Street 3/25/2008
Al Khobar Rashid Mall 9/22/2008 The following table outlines L’azurde Group’s revenue from its operations by product category: Riyadh Nakheel Mall 11/17/2009
Riyadh Panorama Mall 8/13/2010 2014 2015 2016 2017 2018 2019 Jeddah Stars Avenues 6/21/2012 Country SAR % of SAR % of SAR % of SAR % of SAR % of SAR % of Jeddah Red Sea Mall 6/5/2013 Million Revenues Million Revenues Million Revenues Million Revenues Million Revenues Million Revenues
Gold Jewelry 400.4 85% 449.3 85% 316.0 78% 266.2 75% 315.9 78% 313.2 65% Dhahran Dhahran Mall 11/17/2014
Diamond Jewelry 59.2 13% 71.6 14% 80.2 20% 77.1 22% 67.3 17% 83.5 17% Hasa Square Mall 3/7/2015
Riyadh Hayat Mall 4/17/2015 Fashion Jewelry sales 0.0 0% 0.0 0% 0.0 0% 2.0 1% 12.6 3% 74.1 15%
Madinah Noor Mall 10/7/2015 Machinery and others 8.8 2% 9.2 2% 9.2 2% 10.1 3% 10.7 3% 10.4 2%
Jeddah Arabia Mall 4/23/2016 Total 468.4 100% 530.1 100% 405.4 100% 355.4 100% 406.4 100% 481.2 100%
Jeddah Salam Mall 12/29/2016
Riyadh Hamra Mall 12/30/2016
Jeddah Yasmeen Mall 6/13/2017
Makkah Makkah Mall 6/21/2017
Jeddah Boulevard Street 7/27/2017
Jeddah Jouri Mall 10/26/2017
Al Khobar Al Shaikh Avenue 12/15/2017
Riyadh Granda Mall 12/14/2017
Riyadh Park Mall 6/11/2018
Dhahran Dhahran 2 Mall 2/1/2018
Tabuk Tabuk Park 12/26/2018
Riyadh Kingdom Center 12/31/2018
Qasim Nakheel Plaza 12/31/2018
Makkah Abraj Al Bayat Mall 12/31/2018
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ENVIRONMENT, HEALTH AND SAFETY SOCIAL RESPONSIBILITY GROWTH OPPORTUNITIES AND FUTURE PLANS L’azurde maintains strong security arrangements to thoroughly AND CONTRIBUTIONS The company continues to focus on a top execution of the • Enhance the profitability and cash contribution of its secure its production facilities, transportation of jewelry between L’azurde continuously strives to give back to its community in following strategic initiatives: restructured lean and efficient L’azurde KSA Retail network its geographically dispersed locations, including security at its its efforts to show appreciation to its customers and country with four well located locations in key cities. wholesale offices and all retail locations. L’azurde regularly and reinforcing the moral obligations of corporates towards the • Grow the TOUS franchise in KSA with much stronger collaborates with security consultants to review and upgrade its communities they serve. L’azurde is continuing its support to foundations following the year 2019 where we invested in • Expand our solid retail business in Egypt through better security procedures and standards. social and charity organizations through providing financial, kind establishing an experienced and trained sales force, better assortment, marketing support and more top locations to and moral support to different community causes. products assortment and stronger replenishment and IT reach 16 points of sales in 2020. The Company is highly interested in the safety of its production system. processes and the maintenance of safety standards. For these L’azurde has launched this year a competition during the Mother’s • Improve manufacturing productivity by reducing costs, reasons, the Company adopts the slogan and policies of “Safety Day to give children the chance to express their love for their • Drive the new Miss L’ fashion 18K jewelry line to its full leveraging technology and 3D printing capabilities. First” and “No Accidents”. mothers in the most genuine and special way. And part of its potential across the Company’s own retail locations and CSR plan, L’azurde sponsored the drawings of ten children who top third party retailers in Malls. Miss L’ will be a major • Reduce working capital through digitization of wholesale route L’azurde is continuing to implement a lot of procedures and were given the chance to have their drawings crafted into gold contributor in the next 3 years as the Company’s leverages to market, shorter inventories and account receivables . controls, aligned with both local regulation (PME, MODON) and pendants as a special gift for their mothers who are receiving its brand and manufacturing know-how to enter for the very • Keep protecting and improving our positive cash flow. international safety standards to keep its employees safe and treatment for Breast Cancer. first time the fastest growing segment of affordable fashion provide high standards for Personal Protective Equipment (PPE) jewelry in modern retail. • Step change our digital capabilities across wholesale and that fit the nature of work and surrounding risks. At an event hosted by the Zahra Breast Cancer Association in retail to drive B2B and B2C e-commerce and launch our Riyadh, supported by the leading Saudi figure and Arab media • Reinforce its wholesale Gold jewelry business, where omni-channel strategy in 2020. L’azurde is continuing to make significant efforts to offer a personality in the Middle East Muna Abusulayman and Saudi’s customers are stocked with better low weight products safe and healthy environment for its jewelry craftsmen and all with the latest fashion trends supported by celebrity own lifestyle influencer Rand Hamed, L’azurde surprised the • Pursue our M&A strategy by identifying attractive targets its employees. L’azurde has adopted an Occupational Safety endorsements. mothers with the unique pieces capturing their children’s where we can add value, grow our profits and offer attractive and Health Management System to ensure that it offers a safe gratitude and celebrating love and joy on this unique day. return to our shareholders. and healthy environment for all employees. L’azurde Group’s safety department provides training, coaching, monitoring The CSR initiative is part of L’azurde’s 2019 brand campaign, “My and controlling procedures to ensure the implementation of Path, My Choice” which encourages women to see beauty in their an effective system through an experienced health and safety reflections and have the confidence to shine in all their roles. team, equipped with up-to-date tools and systems. L’azurde maintains clinics with doctors at its factories to provide SIGNIFICANT PLANS AND DECISIONS immediate professional medical care and health surveillance for During 2019, the Company implemented some significant plans its employees. and decisions to step change its growth and secure a solid L’azurde has maintained and upgraded several certifications development of its revenues and profits over the coming for high international standards for Environment, Health and years. Some of these initiatives are highlighted below: Safety like Occupational Health and Safety Management System • Launched Miss L’ a wide variety of 18K gold collections that (ISO 45001:2018), Environmental Management Systems (ISO are stylish, effortlessly chic and produced according to the 14001:2015) and Quality management system (ISO 9001:2015) and highest standards in jewelry making. Energy Management System (ISO 50001:2011). • Invested significantly in TOUS marketing initiatives to raise brand image and awareness, development of the organization through new talent and training.
• Opened in Egypt 7 showrooms to continue growing our successful retail operation to its full potential following a solid track record.
• Step-changed the designs and weights of Gold jewelry products to ensure that new products meet the changing consumer taste and budget.
• Accepted the sales returns of heavy weight gold jewelry in wholesale channel in KSA, on a one-off basis, to ensure that our customers and retailers have the right products.
• Made exceptional provisions for L’azurde retail KSA amounting to SAR 17.8 million because of closure of five retail shops in KSA.
• Closed 5 L’azurde retail showrooms in Saudi Arabia due to their negative impact on company profitability.
48 49 02 | STRATEGIC BUSINESS REVIEW OWNERSHIP STRUCTURE
L'AZURDE GROUP STRUCTURE AND SUBSIDIARIES The Company holds ownership direct and indirect interests in nine subsidiaries, located in the Kingdom and Middle East and North Africa Region (MENA). The following chart reflects the current structure of L’azurde Group.
L’AZURDE COMPANY FOR JEWELRY Saudi Listed Company
98% 49% 99% 99.67% 99.125% 98% 100%
IZDIAD ORO EGYPT COMMERCIAL L'AZURDE FOR COMPANY OF L'AZURDE COMPANY FOR ALMUJAWHARAT JEWELRY LLC L'AZURDE FOR ARABIA LLC COMPANY FOR MANUFACTURING KENAZ ALMASIAH LLC JEWELRY LLC (L’azurde Qatar) JEWELRY LLC PRECIOUS COMPANY (Izdiad) 2% is held by (L’azurde Abu Dhabi) METALS - CJS LLC 51% is held by (L’azurde Dubai) Owned by L’azurde Abu Dhabi. Ms. Wafiqah 1% is held by 0.75% is held 2% is held by one person 0.33% is held by Sultan Alissa L’azurde Dubai. by Almujwharat L’azurde Abu Dhabi. L’azurde Abu Dhabi. 100% is held by (Qatari Nationality). Almasiah and 0.125% L’azurde Company is held by Kenaz. for Jewelry (Saudi Listed Company).
50%50% 99% 100%
L'AZURDE EGYPT L'AZURDE FOR L'AZURDE GROUP FOR JEWELRY LLC JEWELRY LLC FOR GOLD AND (L’azurde Egypt) Sultanate of Oman JEWELRY DMCC LLC 50% is held by 99% is held by (DMCC) L’azurde Abu Dhabi L’azurde Dubai 100% is held by and 50% is held by 1% is held by L’azurde Dubai. L’azurde Dubai. L’AZURDE L’azurde Abu Dhabi.
OWNERSHIP OVERVIEW OF SUBSIDIARIES L’azurde operates its business through a variety of subsidiaries across MENA. The Company maintains long term investments and exerts effective control through its full capacity to lead and direct economic performance, financial STRUCTURE policies and operational processes. L’azurde consolidates its financial operations and results as one business unit issuing Consolidated Financial Statements at Group level after the elimination of all significant inter group balances and transactions.
50 51 02 | STRATEGIC BUSINESS REVIEW OWNERSHIP STRUCTURE
OWNERSHIP STRUCTURE The following table sets out the consolidated subsidiaries, companies’ names, capital, ownership interest, business activities, country of incorporation and country of operation. Note that there are no shares or debt instruments issued to any of these entities except for L’azurde Egypt for Jewelry, Kenaz Company and Almujawharat Almasiah Company where the general assembly have approved an increase in Company’s share capital. Visit each subsidiary section for more information.
The Company subsidiaries have not issued or granted any class and number of any convertible debt instruments, contractual securities, pre-emptive rights or similar rights during the year 2019.
During 2019, the Company or its subsidiaries have not had any treasury shares retained, redeemed, purchased or cancellation of any redeemable debt instruments.
THE FOLLOWING IS NOT APPLICABLE TO ALL L'AZURDE SUBSIDIARIES AS AT 31 DECEMBER 2019
1. No class and number of any convertible debt instruments, contractual securities, pre-emptive right or similar rights issued or granted by the company during the fiscal year, as well there is no any compensation obtained by the company in this regard. 2. No conversion or subscription rights under any convertible debt instruments, contractually based securities, warrants or similar rights issued or granted by the company. 3. There is no redemption, purchase or cancellation by the company of any redeemable debt instruments and the value of such securities outstanding, listed securities purchased whether by the company and those purchased by its affiliates. 4. There is no any arrangement or agreement under which a shareholder of the company has waived any rights to dividends.
Ownership Capital Country of Capital 2019 2018 No Name of subsidiary (Foreign Business activities incorporation (SAR) currency) and operation Direct Indirect Direct Indirect interest (%) interest (%) interest (%) interest (%) ALMUJAWHARAT ALMASIAH COMPANY Almujawharat Almasiah Company (“Almujawharat Almasiah”) is a Limited Liability Company registered in Riyadh, Kingdom of Saudi Almujawharat Almasiah Trading of precious stones 1 Company (1) -- 300,000 and gold jewelry Saudi Arabia 98% 2% 98% 2% Arabia under commercial registration No. 1010236734 dated 8 August 2007. The head office of Almujawharat Almasiah is located in Riyadh City, P.O. Box 41270, Riyadh 11521- Kingdom of Saudi Arabia. The current share capital of Almujawharat Almasiah is SAR Trading of precious stones 300,000, divided into 50 shares with a fully paid nominal value of SAR 6,000 per share. 2 Kenaz Company (2) -- 3,000,000 and gold jewelry Saudi Arabia 98% 2% 98% 2% On 23 April 2017, the Partners’ approved an increase in Company’s share capital to SAR 0.3 million (Saudi Riyals three hundred L’azurde Company thousand) by paying the required amount in cash through bank transfer and issuing new shares equal to proposed increase in 3 for Jewelry AED 300,000 306,000 Wholesale office Dubai, UAE 99.67% 0.33% 99.67% 0.33% Company’s share capital. All Partners’ are obliged to pay capital increase value pro-rata to their respective current shareholding. The regulatory procedures for updating the Company’s commercial register and article of association have been completed on 24 Abu Dhabi, United 4 L’azurde for Jewelry AED 300,000 306,000 Retail showrooms Arab Emirates 99% 1% 99% 1% June 2019.
The following table summarises the ownership structure of Almujawharat Almasiah as at 31 December 2019: 5 L’azurde for Jewelry QAR 200,000 206,044 Wholesale office Qatar 49% -- 49% --
L’azurde Egypt for Manufacturing, wholesale Shareholders No. of Shares Nominal Value per Share (SAR) Value of Shares (SAR) Ownership Percentage 6 Jewelry (3) EGP 143,250,000 33,463,370 offices and retail shops Egypt -- 100% -- 100%
L’azurde Company for Jewelry - JSC 49 6,000 294,000 98% Oro Egypt Company Manufacturing, wholesale 7 for Manufacturing EGP 40,000,000 9,344,047 offices and retail shops Egypt 99.13% 0.88% 99.13% 0.88% Precious Metals L’azurde Company for Jewelry- LLC1 1 6,000 6,000 2%
L’azurde Group for Gold Trading of pearls, precious Total 50 6,000 300,000 100% 8 and Jewelry (DMCC) AED 50,000 51,000 stones and gold jewelry Dubai, UAE -- 100% -- 100%
1. L’azurde Company for Jewelry is a Limited Liability Company incorporated in Abu Dhabi, United Arab Emirates. Gold Manufacturing and 9 L’azurde for Jewelry OMR 20.000 195 wholesale offices Sultanate of Oman -- 100% -- -- The following table summarises the ownership structure of Almujawharat Almasiah before share capital increase as at 31 December Izdiad Commercial 10 Company of Arabia -- 12,000,000 Retail showrooms Saudi Arabia 100% -- 100% -- 2018: – LLC (4)
1. On 23 April 2017, the Partners’ approved an increase in Company’s share capital to SAR 0.3 million (Saudi Riyals three hundred thousand) by paying the required amount in cash through bank transfer and issuing new shares equal to proposed increase in Company’s share capital. All Partners’ are obliged to pay capital increase value pro-rata to their Shareholders No. of Shares Nominal Value per Share (SAR) Value of Shares (SAR) Ownership Percentage respective current shareholding. The regulatory procedures for updating the Company’s commercial register and article of association have been completed on 24 June 2019. 2. On 23 April 2017, the Partners’ approved an increase in Company’s share capital to SAR 3.0 million (Saudi Riyals three million) by paying the required amount through Partners’ current account in year 2017 and issuing new shares equal to proposed increase in Company’s share capital. All Partners’ are obliged to pay capital increase value pro-rata to their L’azurde Company for Jewelry - JSC 49 1,000 49,000 98% respective current shareholding. The regulatory procedures for updating the Company’s commercial register and article of association have been completed on 17 June 2019. 3. On 22 December 2019, the Partners’ approved an increase in Company’s share capital to EGP 143.25 million (Saudi Riyals 33.46 million) by paying the required amount in cash and L’azurde Company for Jewelry- LLC1 1 1,000 1,000 2% issuing new shares equal to proposed increase in Company’s share capital. All Partners’ are obliged to pay capital increase value pro-rata to their respective current shareholding. The regulatory procedures for updating the Company’s commercial register and article of association have been completed on 29 December 2019. 4. On 31 October 2018, the Company has completed the acquisition of 100% shares in Izdiad Commercial Company of Arabia in accordance with the terms and conditions of the Share Total 50 1,000 300,000 100% Purchase Agreement signed on 5 August 2018. Izdiad is the sole-franchisee and operator of TOUS international franchise in KSA. TOUS is an international lifestyle brand focused on affordable luxury that has been in business for almost 100 years and with more than 620 stores in over 53 countries. As a franchisor, TOUS designs, manufactures and sells jewelry, bags and accessories for women and men. Their offering covers a wide range of products including fine jewelry with diamond, gold and silver, its core business, and handbags, The principal activities of Almujawharat Almasiah include the trading of gold and silver products and precious stones. Almujawharat fragrances and accessories. TOUS has been present in KSA since 2008 with a network today of 26 stores across the Kingdom. Through the TOUS brand L’azurde will reinforce its jewelry portfolio and grow its customer base by diversifying revenues and complementing its assortment. The Company management is proud to partner with TOUS, a world leader Almasiah was established primarily for the purpose of holding shares in certain subsidiaries and does not have any operational in jewelry. This transaction represents a great strategic fit with the L’azurde Group vision to enter the affordable luxury jewelry segment, which provides solid margins and profits and it will help diversify the Company’s portfolio addressing a totally new product offering. activities as at 31 December 2019.
52 53 02 | STRATEGIC BUSINESS REVIEW OWNERSHIP STRUCTURE
KENAZ COMPANY L'AZURDE COMPANY FOR JEWELRY (ABU DHABI) Kenaz Company (“Kenaz”) is a Limited Liability Company registered in Riyadh, Kingdom of Saudi Arabia under commercial registration L’azurde Company for Jewelry (“L’azurde Abu Dhabi”) is a Limited Liability Company registered in Abu Dhabi, United Arab Emirates No. 1010352574 dated 6 October 2012. The head office of Kenaz is located in Riyadh City, Second Industrial Area, P.O. Box 41270, under commercial registration No. 1060233 dated 1 June 2004. The head office of L’azurde Abu Dhabi is located at Gold Center Riyadh 11521 - Kingdom of Saudi Arabia. The current share capital of Kenaz is SAR 3,000,000 divided into 50 shares with a fully paid Market, Madinat Zaid, P.O. Box 72147, Abu Dhabi, United Arab Emirates. The current share capital of L’azurde Abu Dhabi is AED nominal value of SAR 60,000 per share. 300,000 (equivalent to SAR 306,000), divided into 300 shares with a fully paid nominal value of AED 1,000 (equivalent to SAR 1,02 ) per share. On 23 April 2017, the Partners’ approved an increase in Company’s share capital to SAR 3.0 million (Saudi Riyals three million) by paying the required amount through Partners’ current account in year 2017 and issuing new shares equal to proposed increase in The following table summarises the ownership structure of L’azurde Abu Dhabi as at 31 December 2019: Company’s share capital. All Partners’ are obliged to pay capital increase value pro-rata to their respective current shareholding. The regulatory procedures for updating the Company’s commercial register and article of association have been completed on 17 June 2019. Nominal Value per Shareholders No. of Shares Share (SAR) Value of Shares (AED) Value of Shares (SAR) Ownership Percentage The following table summarises the ownership structure of Kenaz as at 31 December 2019: L’azurde Company for Jewelry - JSC 297 1,000 297,000 302,940 99%
L’azurde Company for Jewelry- LLC1 3 1,000 3,000 3,060 1%
Shareholders No. of Shares Nominal Value per Share (SAR) Value of Shares (SAR) Ownership Percentage Total 300 1,000 300,000 306,000 100%
L’azurde Company for Jewelry - JSC 49 60,000 2,940,000 98% 1 L’azurde Company for Jewelry is a limited liability company incorporated in Dubai, United Arab Emirates.
L’azurde Company for Jewelry- LLC1 1 60,000 60,000 2% The principal activities of L’azurde Abu Dhabi include the retail trade in jewelry, diamond and precious and semi-precious stone wares and watches. Total 50 60,000 300,000,000 100% As at December 31, 2019, L’azurde Abu Dhabi holds an ownership interest of EGP 71,625,500 (equivalent to SAR 16,731,685) in L’azurde 1. L’azurde Company for Jewelry is a Limited Liability Company incorporated in Abu Dhabi, United Arab Emirates. Egypt (representing 50% of its capital).
The following table summarises the ownership structure of Kenaz before share capital increase as at 31 December 2018: L'AZURDE EGYPT FOR JEWELRY L’azurde Egypt is a Limited Liability Company registered in Cairo, Egypt under commercial registration No. 14997 dated 8 June 2005. The head office of L’azurde Egypt is located in the First Industrial Zone, P.O. Box 62, El-Obour City, Egypt. The current paid up capital Shareholders No. of Shares Nominal Value per Share (SAR) Value of Shares (SAR) Ownership Percentage of L’azurde Egypt is EGP 143,250,000 divided into 143,250,00000 shares (equivalent to SAR 33,463,370 as per exchange rates as at 31 December 2019). L’azurde Company for Jewelry - JSC 49 1,000 49,000 98% On 22 December 2019, the Partners’ approved an increase in Company’s share capital to EGP 143.25 million (Saudi Riyals 33.46 L’azurde Company for Jewelry- LLC1 1 1,000 1,000 2% million) by paying the required amount in cash and issuing new shares equal to proposed increase in Company’s share capital. All Partners’ are obliged to pay capital increase value pro-rata to their respective current shareholding. The regulatory procedures for Total 50 1,000 50,000 100% updating the Company’s commercial register and article of association have been completed on 29 December 2019.
The principal activities of Kenaz include the trading of gold and silver products and precious stones. The following table summarises the ownership structure of L’azurde Egypt as at 31 December 2019: L'AZURDE COMPANY FOR JEWELRY - (UAE- DUBAI) Nominal Value per L’azurde Company for Jewelry (“L’azurde Dubai”) is a Limited Liability Company registered in Dubai, United Arab Emirates under Shareholders No. of Shares Share (SAR) Value of Shares (EGP) Value of Shares (SAR) Ownership Percentage commercial registration No. 1039193 dated 23 December 2008.The head office of L’azurde Dubai is located in Al Ras District, P.O. Box 60843, Dubai, United Arab Emirates. The current share capital of L’azurde Dubai is AED 300,000 (equivalent to SAR 306,000), divided L’azurde Company for Jewelry- LLC1 71,625,000 1 71,625,000 16,731,685 50% into 300 shares with a fully paid nominal value of AED 1,000 (equivalent to SAR 1,020 per share). L’azurde Company for Jewelry- LLC2 71,625,000 1 71,625,000 16,731,685 50%
The following table summarises the ownership structure of L’azurde Dubai as at 31 December 2019: Total 143,250,000 1 143,250,000 33,463,370 100%
1. L’azurde Company for Jewelry is a Limited Liability Company incorporated in Abu Dhabi, United Arab Emirates. Nominal Value per Shareholders No. of Shares Share (SAR) Value of Shares (AED) Value of Shares (SAR) Ownership Percentage 2. L’azurde Company for Jewelry is a Limited Liability Company incorporated in Dubai, United Arab Emirates.
L’azurde Company for Jewelry - JSC 299 1,000 299,000 304,980 98% The following table summarises the ownership structure of L’azurde Egypt before share capital increase as at 31 December 2018: L’azurde Company for Jewelry- LLC1 1 1,000 1,000 1,020 2%
Total 300 1,000 300,000 306,000 100% Nominal Value per Shareholders No. of Shares Share (SAR) Value of Shares (EGP) Value of Shares (SAR) Ownership Percentage 1. L’azurde Company for Jewelry is a Limited Liability Company incorporated in Abu Dhabi, United Arab Emirates. L’azurde Company for Jewelry- LLC1 46,142,500 1 46,142,500 9,714,211 50% The principal activities of L’azurde Dubai include trading in jewelry, pearls, precious and semi-precious stones, watches and their L’azurde Company for Jewelry- LLC2 46,142,500 1 46,142,500 9,714,211 50% spare parts and the forging of gold and jewelry. Total 92,285,000 1 92,285,000 19,428,422 100% As at December 31, 2019, L’azurde Dubai holds an ownership interest of EGP 71,625,500 (equivalent to SAR 16,731,685) in L’azurde Egypt (representing 50% of its share capital). L’azurde Dubai also holds 100% ownership in L’azurde Group for Gold and Jewelry (DMCC), a Limited Liability Company. The principal activities of L’azurde Egypt include the establishment and operation of a plant for the design, manufacturing, distribution and sale of gold and diamond jewelry.
54 55 02 | STRATEGIC BUSINESS REVIEW OWNERSHIP STRUCTURE
L'AZURDE FOR JEWELRY (QATAR) L'AZURDE COMPANY FOR JEWELRY L’azurde for Jewelry (“L’azurde Qatar”) is a Limited Liability Company registered in the State of Qatar under commercial registration ("L'AZURDE SULTANATE OF OMAN") No. 60716 dated 21 May 2013. The head office of L’azurde Qatar is located in Gabar Ban Mohamed Street, P.O. Box 20464, Doha, Qatar. L’azurde Company for Jewelry (“L’azurde Oman”) is a Limited Liability Company registered The current capital of L’azurde Qatar is QAR 200,000 (equivalent to SAR 206,054), divided into 200 shares with a fully paid nominal in the Sultanate of Oman under commercial registration No. 1320525 dated 30 May 2018. value of QAR 1,000 (equivalent to SAR 1,030 per share). The head office of L’azurde Sultanate of Oman is located in Al Seeb Market, Muscat P.O. Box 122, Muscat 125, Sultanate of Oman. The current capital of L’azurde Oman is OMR 20,000 The following table summarises the ownership structure of L’azurde Qatar as at 31 December 2019: (equivalent to SAR 195,000), divided into 20.000 shares with a fully paid nominal value of OMR 1 (equivalent to SAR 9.75 per share).
The following table summarises the ownership structure of L’azurde Oman as at Shareholders No. of Shares Nominal Value per Value of Shares (QAR) Value of Shares (QAR) Ownership Percentage Share (QAR) 31 December 2019:
Wafiqah Sultan Al Essa 102 1,000 102,000 105,082 51%
L’azurde Company for Shareholders No. of Shares Nominal Value Value of Shares Value of Shares Ownership Jewelry –Listed Company 98 1,000 98,000 100,962 49% per Share (OMA) (OMA) (SAR) Percentage
L’azurde Company for Total 200 1,000 200,000 206,044 100% 19,800 1 19,800 193,050 99% Jewelry - (UAE- Dubai)
L’azurde Company for The principal activities of L’azurde Qatar include trading in gold, unworked precious metals, jewelry, and gold and silver jewelry and wares; 200 1 200 1,950 1% forging of gold, precious metals and jewels; and repairing of gold, jewelry, jewels and wares, and implementing alterations thereto. Jewelry (Abu Dhabi) Total 20,000 1 20,000 195,000 100% ORO EGYPT COMPANY FOR MANUFACTURING PRECIOUS METALS Oro Egypt is a Closed Joint Stock Company registered in Cairo, Egypt under commercial registration No. 7877 dated 27 January The principal activities of L’azurde Oman include manufacturing and trading of jewelry made 2003. The head office of Oro Egypt is located in Obour Market, P.O. Box 3067, Qalyubia, Egypt. The current capital of Oro Egypt is EGP from precious metals or stones. 40,000,000 (equivalent to SAR 9,344,047) divided into 1,600,000 shares with a fully paid nominal value of EGP 25 (equivalent to SAR 5.84) Per share. IZDIAD COMMERCIAL COMPANY OF ARABIA Izdiad Commercial Company of Arabia (“Izdiad”) is a Limited Liability Company owned by one The following table summarises the ownership structure of Oro Egypt as at 31 December 2019: person registered in Riyadh, Kingdom of Saudi Arabia under commercial registration No. 1010458294dated 5 September 2015. The head office of Izdiad is located in Riyadh, P.O. Box 41270, Riyadh 11521 Kingdom of Saudi Arabia. The current capital of Izdiad is SR 12,000,000, Nominal Value per divided into 100 shares with a fully paid nominal value of SR 120,000. Shareholders No. of Shares Share (EGP) Value of Shares (EGP) Value of Shares (SAR) Ownership Percentage The following table summarises the ownership structure of Izdiad Commercial Company of L’azurde Company for Jewelry - Listed company 1,586,000 25 39,650,000 9,262,287 99.125% Arabia as at 31 December 2019:
Almujwharat Almasiah – LLC 12,000 25 300,000 70,080 0.750%
Nominal Value per Kenaz - LLC 2,000 25 50,000 11,680 0.125% Shareholders No. of Shares Share (SAR) Value of Shares (SAR) Ownership Percentage
Total 1,600,000 25 40,000,000 2,940,000 100% L’azurde Company for Jewelry 100 120,000 12,000,000 100% –Listed Company
The principal activities of Oro Egypt include the establishment and operation of a plant for the manufacturing of jewelry, gold wares The principal activities of Izdiad Commercial Company of Arabia include trading of jewelry, and precious stones of all types and the establishment of a training centre. Oro Egypt operates a manufacturing unit in Qalyubia, and perfume, men and women accessories, leather products and managing franchises six branches across Egypt. and trademarks.
L'AZURDE GROUP FOR GOLD AND JEWELRY DMCC ("L'AZURDE DMCC") On 31 October 2018, the Company has completed the acquisition of 100% shares in Izdiad L’azurde DMCC is a Limited Liability Company registered with Dubai Multi Commodities Centre Authority, U.A.E under Trade License Commercial Company of Arabia in accordance with the terms and conditions of the Share No. DMCC 108442 dated 26 February 2015. The principal activity of L’azurde DMCC is trading of pearls, precious stones and gold Purchase Agreement signed on 5 August 2018. Izdiad is the sole-franchisee and operator jewelry. As of 31 December 2019, L’azurde DMCC is fully owned by L’azurde Company for Jewelry (“L’azurde Dubai”). of TOUS international franchise in KSA. TOUS is an international lifestyle brand focused on affordable luxury that has been in business for almost 100 years and with more than 620 stores in over 53 countries. As a franchisor, TOUS designs, manufactures and sells jewelry, bags and accessories for women and men. Their offering covers a wide range of products including fine jewelry with diamond, gold and silver, its core business, and handbags, fragrances and accessories. TOUS has been present in KSA since 2008 with a network today of 26 stores across the kingdom. Through the TOUS brand L’azurde will reinforce its jewelry portfolio and grow its customer base by diversifying revenues and complementing its assortment. The Company management is proud to partner with TOUS, a world leader in jewelry. This transaction represents a great strategic fit with the L’azurde Group vision to enter the affordable luxury jewelry segment, which provides solid margins and profits and it will help diversify the Company’s portfolio addressing a totally new product offering.
56 57 FINANCIAL 03 PERFORMANCE 03 | FINANCIAL PERFORMANCE CAPITAL, INVESTORS AND SHAREHOLDERS
B. SHAREHOLDERS OWNERSHIP NOTIFICATION CAPITAL, INVESTORS AND According to Article (68) of Rules of Offering and Continuing Obligations and Article (33) of the Listing Rules issued by the Capital SHAREHOLDERS Market Authority, L’azurde have not received any new ownership notification from a shareholder to inform the company or the market about his ownership percentage that equal to or more than 5.0% of the shares issued to the Company as required by the CMA regulations. A. CAPITAL The following table is summarizing L’azurde share capital as at 31 December 2019: The following table outlines ownership of 5.0% or more of the issued shares as at 31 December 2019:
Description Value / No. of Share DIRECT OWNERSHIP OF 5% OR MORE OF THE ISSUED SHARES AND CHANGE TO SUCH INTERESTS DURING 2019
Authorized share capital SAR 430,000,000 Number of shares at the Number of shares beginning of the year at the end of the year Net change Issued shares 43,000,000 Shareholders Percentage of Percentage of % of shares % of total issued Free float shares 12,921,174 Number of shares ownership Number of shares ownership Number of shares ownership shares
Paid up capital SAR 430,000,000 L’azurde Holding Company 23,673,976 55.05% 23,673,976 55.05% ------
Par value /share SAR 10
Mr. Abdulaziz Saleh Alothaim 6,404,850 14.89% 6,404,850 14.89% ------Paid-up value/share SAR 10
MAJOR SHAREHOLDERS AND OWNERSHIP CHANGES DETAILS OF INDIRECT SHAREHOLDERS BENEFICIALLY HOLDING 5% OR MORE SHARES IN THE COMPANY By the end of 2019, L’azurde had 24,855 shareholders. Corporate investors represent 55.6% of the total share ownership whilst individual investors represent 44.4%. Number of shares at the Number of shares beginning of the year at the end of the year Net change There are two shareholder owning more than one million shares in L’azurde, representing Shareholders 69.9% of L’azurde’s issued shares. Percentage of Percentage of % of shares % of total Number of shares ownership Number of shares ownership Number of shares ownership issued shares The following tables give a description of shareholders of L’azurde: Gulf Growth Gold Holding Company W.L.L. 17,047,676 39.65% 17,047,676 39.65% ------L’AZURDE SHAREHOLDERS ACCORDING TO NATURE OF INVESTORS Eastgate MENA SPV5 Holding S.P.C. 5,301,900 12.33% 5,301,900 12.33% ------Shareholder type Number of shareholders Number of shares Percentage of ownership
Fidelity Invest Owned by The National 1,324,400 3.08% 1,324,400 3.08% ------Corporate 12 23,927,740 55.6% Investor PJS - One Man Company LLC
Individuals 24,843 19,072,260 44.4% Total 23,673,976 55.05% 23,673,976 55.05% ------
Free float shares 24,855 43,000,000 100% C. OWNERSHIP NOTIFICATION FOR BOARD MEMBERS, SENIOR EXECUTIVES AND THEIR RELATIVES L’AZURDE INVESTORS ACCORDING TO NATIONALITY During 2019, none of the board members, senior executives and their relatives had any interest, contractual securities or rights Shareholder nationality Number of shareholders Number of shares Percentage of ownership issued on shares or debt instruments of the Company or its affiliates, except for Mr. Abdullah Abdulaziz Sa leh Al Othaim, Vice- Chairman and Non-Executive director. Saudi 24,708 42,864,957 99.68% The following table illustrates shares held by members of the Board of Directors, their spouses and minors, and any changes that GCC 2 1,025 0.01% occurred during 2019.
Other nationalities 145 134,018 0.31%
Free float shares 24,855 43,000,000 100% Number of shares at the Number of shares at Member Name beginning of the year the end of the year Net change Change %
* L’azurde downloaded shareholders reports from Tadawul a total of 11 times during FY 2019 for internal compliance purposes. Mr. Abdullah Abdulaziz Saleh Al Othaim 41,000 41,000 -- --
The company has not issued or granted any class and number of any convertible debt instruments, contractual securities, pre-emptive rights or similar rights during the year 2019. The company has not had any treasury shares retained, redeemed, purchased or cancellation of any redeemable debt instruments. There were no arrangements or agreements by which any of the Board Members waived any salary or compensation. There is no any arrangement or agreement under which a shareholder of the company has waived any rights to dividends.
60 61 03 | FINANCIAL PERFORMANCE DIVIDEND POLICY
POLICY OBJECTIVES This policy is designed to ensure that the process 3. Thereafter, the remainder sall be distributed for determination, declaration and distribution amongs t the shar eholder s as a fir s t ins talment of dividend of L’azurde is clear, transparent and equal to 5% of the paid-up capital. is in the best interests of both the Company and its shareholders. 4. Without prejudice to the provisions of Article 20 of the by-laws and Article 76 of the Shareholders are entitled to receive their share Companies Law, in addition to the above, no of dividend as per the decision of the General more than 5% of the remaining profits shall be Assembly in respect of distribution of final distributed as a bonus to the members of the dividend to shareholders or the board resolution Board of Directors, provided that the bonus is for distributing interim dividend. commensurate with the number of sessions attended by each member. The resolution shall specify the record date and the distribution date provided that the resolution 5. The remainder shall be distributed to the shall be executed as per the Regulatory Rules and shareholders as an additional portion in Procedures issued pursuant to the Companies the profits, or shall be transferred to the Law related to Listed Joint Stock Companies. retained earnings, as may be determined by the Ordinary General Assembly, based on the DIVIDEND PAY-OUT recommendation of the Board of Directors. Each year, the Board will estimate a dividend 6. The Board of Directors may recommend the payment for the year, which will be subject to distribution of interim quarterly or semi- reduction or increase at the end of the year annual profits provided that they are later based on the Company’s by-laws and certain endorsed by the Ordinary General Assembly. circumstances, including changing market Such resolutions must be notified to CMA, and conditions and restrictions under laws of the disclosed to the Stock Exchange. kingdom, if applicable. 7. The General Assembly shall approve the On an annual basis and at the end of the year, the dividend and the date of distribution. This Board will recommend to the General Assembly dividend, whether in the form of cash or to distribute dividend as a percentage of share bonus shares, shall be given, as of right, to capital. The Company’s by-laws state that the net the shareholders who are listed in the records annual profits shall, after deduction of all general kept at the Securities Depository Centre expenses, be divided as follows: (currently operated by Exchange) as they 1. 10% of the annual net profits shall be set appear at the end of trading session on the day aside to form a statutory reserve. Such setting on which the General Assembly is convened. aside may be discontinued by the Ordinary 8. The dividend declared by the General General Assembly when the said reserve total Assembly or the Board (for interim dividend) has reached an amount equal to 30% of the shall be paid by L’azurde to the respective share capital of Company’s share capital. If shareholders within 15 business days from the said reserve exceeds 30% of the paid-up the issuance of the resolution. capital, the General Assembly may resolve to distribute the excess to the shareholders. Shareholders shall be entitled to their dividend within the specified period from the General 2. The Ordinary General Assembly, upon a Assembly’s approval of the percentage of share proposal by the Board of Directors, may set capital to be distributed as dividend. The Board of aside 10% of the net profits to constitute Directors shall ensure that the timeline is strictly a consensual reserve to be allocated for a adhered to and that the exact date of payment certain purpose or purposes. The consensual should be declared in advance. reserve may not be used for a purpose or DIVIDEND purposes other than the purpose or purposes for which it was established without a resolution of the Extraordinary General Assembly, upon a recommendation from the POLICY Board of Directors.
62 63 03 | FINANCIAL PERFORMANCE DIVIDEND POLICY
A. DIVIDEND DISTRIBUTIONS As per Article 47 of L’azurde by-laws, each shareholder is entitled to a share of dividend in accordance with the decision of the Board of Directors regarding the distribution of interim dividends or in accordance with the resolution of the General Assembly. The decision or resolution shall be annotated with the due date and the date of distribution. The shareholders registered in the Shareholders’ Register shall be entitled to the dividend at the end of the day on which maturity occurs.
The profits distributed to shareholders shall be paid at the locations and time determined by the Board of Directors, in compliance with Companies Law and CMA’s instructions.
L’azurde has achieved an average dividend pay-out ratio of approximately 50% of the annual net profit for the years 2012 to 2016 included. While for 2017and 2018 the general assembly approved the board of directors’ recommendation to not distribute dividends to support Company’s financial position.
Despite the fact that Company expects, as per its past dividend distribution practice, to distribute annual cash dividend, there are no guarantees for the distribution of dividend on an ongoing basis. There are no guarantees to the value and percentage of expected dividend each year.
Cash dividend is approved or recommended according to dividend policy and a number of aspects including profit achieved, future cash flows, new capital investment, taking into account the importance of maintaining a strong financial position.
There are no arrangements or agreement under which a shareholder of the company has waived his rights to dividend.
B. DIVIDEND HISTORY The following table provides details related to L’azurde Group’s dividend payments during last five years:
Dividend paid compared to net income and share capital (SAR million):
Dividend distributed Description 2013 2014 2015 2016 2017 2018
Net profit for the year 74,177,974 86,290,539 100,567,197 71,951,900 31,543,923 17,665,938
Dividend paid 37,088,987 43,145,269 55,000,000 21,500,000 -- --
% of interim dividend during the year ------
% of dividend at the end of the year 50% 50% 55% 30% -- 430,000,000
Capital 300,000,000 300,000,000 430,000,000 430,000,000 430,000,000 430,000,000
Capital Return 12% 14% 13% 5% -- --
Board of Directors reviews dividend policy on an annual basis and makes a recommendation to the General Assembly based on its assessment of the Company’s financial situation and opportunities for investment. For 2019, the Board has recommended to the General Assembly not to pay a dividend on 9 March 2020. This recommendation will be presented to the General Assembly for voting which is planned to take place on April 19, 2020.
64 65 03 | FINANCIAL PERFORMANCE RISK FACTORS AND BUSINESS CONTINUITY
A. RISK MANAGEMENT POLICY B. RISK MANAGEMENT GOVERNANCE Across the last three decades, globally a lot of legislative, The Board has delegated to the Audit Committee the responsibility economic and commercial changes especially in MENA have for reviewing the effectiveness of the Group’s systems of internal impacted businesses environment and all business activities in control and risk management methodology. different sectors exposing them to additional elements of risk. The Board of L’azurde supervises risk management process L’azurde has defined its internal control and risk management through the Audit Committee that has responsibility to review processes according to global best practices and principles. the risk management framework to satisfy itself that it continues L’azurde’s Board of Directors and senior management use these to be sound and effectively identifies all areas of potential risk. principles in the course of setting the strategy and making Further to review the adequacy of policies and processes decisions. Management then plans, organizes and directs have been designed and implemented by management to the performance of sufficient actions to provide reasonable manage identified risks; and report to the Board and Generally assurance that the Company’s objectives can be achieved while Assembly annually. ensuring that associated risks are kept within the agreed risk appetite at all times. The audit committee regularly reviews the Group’s established internal control systems, including all related functions, policies The Board is responsible for oversight the Group’s risk and procedures to ensure that they remain appropriate and management and internal controls system and reviewing its sufficient to identify and mitigate the risks. In the case of highly effectiveness. The system is designed to identify and manage, complex transactions and contracts, we work with advisers to rather than eliminate, the risk of failure to achieve the Group’s mitigate risks. strategic objectives and to provide reasonable but not absolute assurance against material misstatement or loss. The Executive Management is responsible for setting the tone of the risk management. Management at all levels is responsible The Board has overall responsibility for determining the nature for identifying and appropriately managing risks related to and extent of the principal risks it is willing to take in achieving its their business area. Group functions support and facilitate the strategic objectives (its risk appetite), and for ensuring that risks implementation of the risk process. are managed effectively. The Board has delegated to the Audit Committee the responsibility for reviewing the effectiveness of C. RISK MANAGEMENT ACTIVITIES the Group’s systems of internal control and risk management In 2019, we focused on mitigating and managing key risks reported methodology. The Internal Control processes consist of the in the year 2018. L’azurde has focused on increasing awareness following five closely-related components: of risk management across the Company and its subsidiaries and defining roles and responsibilities for identifying business risks. A. Control environment. At L’azurde, we prioritize risks to maintain a focus on the most B. Risk assessment. relevant risks. Risks are evaluated based on the potential impact C. Control activities. and likelihood analysis, and relevant actions are implemented to manage or mitigate the risk. D. Communication.
E. Continuous monitoring.
L’azurde management gives attention to risk management process as a means of identifying, assessing, prioritizing and mitigating risks across its subsidiaries and each business unit, with a coordinated and cost-effective application of resources to minimize, monitor, and control the probability and impact of adverse events to maximize the realization of opportunities.
Risks are effectively managed by L’azurde through the effective RISK FACTORS implementation of various controls, which include: • Board approved risk management framework. AND BUSINESS • Documented policies and procedures. • Maintenance of registers.
• Ongoing monitoring of regulatory obligations. CONTINUITY • Internal and external reporting.
EFFECTIVE MANAGEMENT OF RISK IS ESSENTIAL TO THE EXECUTION OF THE GROUPS STRATEGIES, THE ACHIEVEMENT OF SUSTAINABLE SHAREHOLDER VALUE, THE PROTECTION OF THE BRAND AND ENSURING GOOD GOVERNANCE. 66 67 03 | FINANCIAL PERFORMANCE RISK FACTORS AND BUSINESS CONTINUITY
D. L'AZURDE RISK FACTORS 3. IMPACT OF SEASONALITY ON 5. SECURITY, TRANSPORT AND FRAUD RISKS 7. RISKS ASSOCIATED WITH L'AZURDE GROUP'S REVENUES INTERNATIONAL OPERATIONS Managing risk appropriately is critical to the direct and future L’azurde Group operates in a business that is susceptible to success of L’azurde so the Company has developed a risk The jewelry industry is seasonal in nature and the demand for theft, and the high value of its inventory makes it even more L’azurde generates substantial revenue outside the kingdom. It management methodology aligned with the Board of Directors L’azurde Group’s products is event driven. As a result, L’azurde susceptible. The transportation of L’azurde Group’s gold and also has foreign manufacturing operations in Egypt and foreign and managed by Executive Management. This methodology is Group’s sales are subject to seasonal fluctuations. Due to these diamond jewelry products to wholesale customers and its own suppliers. As a result, L’azurde is subject to the risks of doing dynamic and constantly evolving, thereby allowing L’azurde to seasonal factors, comparison of sales and operating results retail outlets also exposes L’azurde to security risks. Moreover, business outside the kingdom, such as potentially adverse tax manage its risks effectively and efficiently, ensuring that short between different periods within a single financial year may any security breach at the Company’s factories, offices or shops consequences, including from changes in taxation policies or and long term strategic and business objectives can be met. not be meaningful and should not be relied upon as indicator of or failure in transport logistics may result in a material loss in from inconsistent enforcement; becoming subject to different, L’azurde Group’s annual performance. In addition, this seasonal inventory and may have a material adverse impact on L’azurde complex and changing laws, regulations and court systems As a publicly listed company, L’azurde operates in a highly consumption pattern may cause L’azurde Group’s operating Group’s business, financial condition, and results of operations of multiple jurisdictions and compliance with a wide variety of regulated environment, which is increasingly complex and results and financial condition to fluctuate from period to period. or prospects. foreign laws, treaties and regulations, including import and demanding. The Company is therefore required to comply with export licensing requirements and regulations, as well as a number of regulatory requirements and legal obligations. unforeseen changes in regulatory requirements, and restrictions 4. IMPACT OF GOLD PRICE 6. ABILITY TO EXECUTE THE TARGETED The key regulators of L’azurde Group’s activities are the Capital on repatriation of the foreign subsidiaries’ profits to L’azurde. In FLUCTUATIONS AND INCREASE BUSINESS PLAN AND GROWTH STRATEGY Market Authority (CMA), the Saudi Stock Exchange (Tadawul) and particular, L’azurde Group’s results of operations may be affected other Governmental bodies, mainly the Ministry of Commerce International gold prices have significantly fluctuated over the L’azurde Group’s future performance depends on the successful positively or negatively by volatility in currency exchange rates and Investment (MOCI). L’azurde is also subject to a number of past few years and more frequently this year. Periods of high execution of its business plan and growth strategy. Due to the and L’azurde Group’s ability to effectively manage its currency other GCC and regional legislative requirements. fluctuations creates uncertainty and can delay the purchase diversity of L’azurde Group’s activities and its international transaction risks, especially in relation to Egyptian Pound in light decision until gold price stabilize. High gold prices may reduce geographical spread, its ability to successfully expand to new of its fluctuation over the past couple of years. The risks set out below represent the principal risks and the quantity of gold jewelry bought by wholesalers and end- markets or expand its penetration of already existing markets uncertainties which may adversely impact the performance of consumers and in particular demand for heavier weight gold is dependent on a number of factors, some of which are outside 8. CLIENT CREDIT RISK the Group and execution of its key strategies: jewelry. If L’azurde is unable to change its product mix to the control of the Company. There can be no assurance that manufacture and offer lighter weight gold jewelry within a L’azurde will be able to execute its business plan and growth Credit risk is the risk of financial loss due to the default of 1. CHANGING END-CONSUMER PREFERENCES reasonable time, this may have a negative impact on L’azurde strategy successfully. Any failure to execute L’azurde Group’s L’azurde Group’s wholesale customers in meeting their financial Group’s sales to wholesale customers and end-consumers. In business plan and growth strategy may have a material adverse obligations towards L’azurde. L’azurde Group’s credit risk is The jewelry industry is characterized by changing fashion addition to the possible decline on gold jewelry sales when gold effect on its business, financial condition, results of operations mainly related to its accounts receivable. L’azurde may not be trends and changing or evolving end-consumer preferences. price fluctuates and increases, the increase in gold price also or prospects. able to obtain collaterals in support of all its accounts receivable. The L’azurde Group strives to anticipate, identify and capitalize increases the value of the gold facilities utilized, which L’azurde There can be no assurance that L’azurde would be able to evaluate on emerging fashion trends by designing, developing, marketing Group obtains from banks and may subsequently increases the the current financial condition of its wholesale customers and and delivering innovative, good quality, well priced classic finance charges and the cash margin requirements. If L’azurde accurately determine the ability of such counter-parties to and fashionable jewelry. Failing to achieve the above can have group is unable to reduce its working capital and gold facilities fulfil their relevant financial obligations. Some customers may significant negative impact on the consumer demand on L’azurde utilization, the finance charges and cash margin requirements be highly leveraged and subject to their own operating and products and its revenues. might increase. All the above may have a material adverse regulatory risks, which increases the risk that they may default impact on L’azurde Group’s business, financial condition, results on their obligations to L’azurde Group. The inability or failure of 2.DECREASE IN END-CONSUMER SPENDING of operations or prospects. L’azurde Group’s significant wholesale customers to meet their obligations to L’azurde Group, their insolvency or liquidation may Different economic fluctuations in the kingdom and other have a material adverse impact on L’azurde Group’s business, countries where L’azurde conducts its business can negatively financial condition, and results of operations or prospects. affect the end-user consumption and behaviour patterns towards luxury products and leisure goods, including gold and diamond jewelry sold by L’azurde. Moreover, due to decrease in end-consumer disposable income coupled with the increase in gold prices, high inflation, changes in fashion trends and many other factors, the consumers may tend to resell, return or exchange their gold jewelry. L’azurde Group’s internal policies in some countries accept some returns and exchanges of gold jewelry from its customers and consumers subject to meeting certain conditions.
If these returns and exchanges abnormally exceed the usual levels due to the above-mentioned factors, this may have a material adverse effect on L’azurde Group’s business, financial condition, results of operations or prospects.
7. OPERATIONAL AND MARKET
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9. TAX AND ZAKAT LIABILITY 10. CHANGES IN GOVERNMENT LEGISLATES, LABOUR LAWS AND TAXATION REGULATIONS Oro Egypt Co. has exempted from corporate tax from 1 January 2005 to 31 December 2014 while L’azurde Egypt has exempted With effect from 3 December 2017, the Ministry of Labor and from corporate tax from 1 January 2009 to 31 December 2018. Social Development in the kingdom has started to implement its Therefore, Oro Egypt and L’azurde Egypt will have to start decision to limit jobs at gold and jewelry stores to Saudi nationals paying corporate tax starting from 2015 and 2019, respectively. only. There is a risk that the Company may face difficulties in However, there is no guarantee that the tax laws and regulations finding the right resources or at an increased cost. L’azurde is in Egypt will not change without prior notice or the tax authorities doing its best efforts to attract, retain and develop its Saudi may challenge the exemptions status of the Egyptian entities and sales force. subject them to tax which may have a material adverse impact on L’azurde Group’s business, financial condition, and results of Also, L’azurde Group’s customers may face the same risk as operations or prospects. mentioned above and this could impact their business size and growth which potentially can impact L’azurde Group’s sales The Company also pays zakat on behalf of its shareholders and to them. it has submitted and paid zakat returns on due dates. However, there is still a risk that the General Authority of Zakat and Tax, On 1 January 2018, Value Added Tax (VAT) has become effective in Saudi Arabia may go back to any historical year and challenge the kingdom. VAT is an indirect tax imposed at each stage of the the submitted zakat returns and impose an assessment on the supply chain from the production and distribution to the final sale Company and request it to pay additional zakat, which may have a of the good or service. Saudi Arabia imposed VAT at a standard material adverse impact on L’azurde Group’s business, financial rate of 5% on all gold and diamond jewelry products. condition, results of operations or prospects. There is a risk that the implementation of VAT, in general to all sectors of the economy and particularly on jewelry and luxury products sector may impact consumer demand in the kingdom.
F. GENERAL RISK CATEGORIES The following are some of the general risks that affect L’azurde Group’s business environment:
Business Risks Market Risks Economic and Regulatory Risks
Unexpected business interruption Gold prices fluctuations Economic and political risk
Gold facility agreements General slowdown in economy Regulatory risk
Adequacy of insurance coverage Foreign exchange rates Labor force regulation
Protection of intellectual property Competitive environment
Dependence on “L’azurde” brand Fall in demand of jewelry
Lease agreements not renewed Expansion strategy
G. BUSINESS CONTINUITY The nature of our business demands that we are able to provide rapid recovery of key products, models, designs and after-sale- services in the event of business interruptions. L’azurde is efficiently using a methodology of Business Continuity Management to counter interruptions to business activities and to protect critical business processes from the effects of major failures or disasters. Therefore, there are no significant doubts concerning L’azurde and its subsidiaries’ ability to continue their operations. There are no plans or decisions related to restructuring or discontinuance of operations of the Company or its subsidiaries.
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KEY FINANCIAL HIGHLIGHTS
GROUPS OPERATING GROUPS OPERATING GROUPS GROSS REVENUE BY REVENUE BY PROFIT REVENUE BY REGION (M SAR) DISTRIBUTION REGION (M SAR) CHANNEL (M SAR)
600 600 400 530 530 481 500 500 350 339 55 13 84 481 406 300 288 405 10 405 400 37 355 400 406 209 83 250 245 244 222 26 355 214 194 217 152 166 138 200 142 300 100 300 113 121 85 117 446 150 200 200 323 100 252 217 230 230 260 243 269 267 146 100 100 50 145 124 132 127 - - - 2015G 2016G 2017G 2018G 2019G 2015G 2016G 2017G 2018G 2019G 2015G 2016G 2017G 2018G 2019G
Saudi Arabia Egypt Other GCC Wholesale Retail Saudi Arabia Outside Saudi Arabia
CURRENT ASSETS CURRENT LIABILITIES E Q U I T Y DIVIDENDS (SAR M) (SAR M) (SAR M) (SAR M)
1,800 1,600 1,417 600 60 55
1,750 1,737
1,400 1,244 1,203 491 1,691 1,700 500 426 50 418 43 406 1,179 1,200 402 1,650 1,104 1,000 400 40 1,600 1,569
1,550 1,548 800 300 30 22 1,500 1,469 600 1,450 200 20 400 1,400 100 10 1,350 200 2 2 1,300 - - - 2015G 2016G 2017G 2018G 2019G 2016G 2017G 2018G 2019G 2016G 2017G 2018G 2019G 2016G 2017G 2018G 2019G 2015G 2015G KEY FINANCIAL 2015G HIGHLIGHTS
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L'AZURDE KEY FINANCIAL HIGHLIGHTS (SAR MILLION) 2015 2016 2017 2018 2019
Statements of Income and financial position for the last five years: CASH FLOW STATEMENT:
Cash flow generated from/(used in) operating activities 192 (8) (12) (20) 30
Cash flow in investing activities (21) (24) (20) (144) (12) 2015 2016 2017 2018 2019
STATEMENT OF INCOME: Cash flow used in/generated from financing activities (excluding dividends paid) - (37) (72) (156) (14)
Gold Revenues 2,284 1,613 1,397 1,506 1,495 Dividends paid (43) (55) (22) (2) (2) Operation Revenues 530 405 355 406 481 KEY INDICATORS: Cost of Revenues (2,475) (1,774) (1,535) (1,668) (1,689) Return to operating revenue 19.0% 17.8% 8.9% 4.3% -3.6% Gross Profit 339 245 218 244 288
EBITDA to operating revenue 30.1% 19.1% 24.0% 20.1% 19.0% Selling and marketing expenses (137) (134) (105) (132) (180)
EBIT to operating revenue 28.2% 16.5% 21.2% 17.2% 9.7% General and administrative expenses (52) (43) (38) (42) (43)
Return on operating assets 5.7% 4.7% 1.9% 1.0% -0.9% Impairment and Inventories (18) Return on equity 20.5% 17.9% 7.8% 4.1% -4.2% Operating Profit 149 68 75 70 47 Current ratio 1.4 1.3 1.3 1.3 1.2 Finance costs - net (35) (36) (31) (36) (51) Operating revenue growth 13.2% -23.5% -12.3% 14.4% 18.4% Other income/(expenses) - net 4 58 (1) (4) 1 Earnings/(Loss) per share 2.3 1.7 0.7 0.4 (0.41) Zakat and income tax (18) (19) (12) (12) (14)
Net profit/(loss) 101 72 32 18 (18)
STATEMENT OF FINANCIAL POSITION
Inventories 976 806 915 789 859
Accounts receivable 390 425 460 570 665
Other current assets 36 29 27 39 59
Cash Margins 117 171 110 102 100
Cash and cash equivalents 173 39 57 48 54
Total current assets 1,691 1,469 1,569 1,548 1,737
Non-current assets 76 70 79 236 278
Total assets 1,767 1,539 1,648 1,783 2,015
Short-term murabaha facilities 1,115 1,021 1,134 1,106 1,137
Other current liabilities 129 83 69 73 280
Total current liabilities 1,244 1,104 1,203 1,179 1,417
Non-current liabilities 32 33 38 178 180
Total liabilities 1,276 1,137 1,241 1,357 1,597
Equity 530 578 582 602 584
Foreign currency translation reserve (39) (176) (175) (176) (166)
Total shareholders equity 491 402 406 426 418
Total liabilities and shareholders equity 1,767 1,539 1,648 1,783 2,015
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REVENUES Retail channel revenues were higher than last year in our biggest impacted by the sharp increase in gold price. In response to that Revenue includes revenue from gold and revenue from operations. Revenue from gold relates to the value of gold weight used in markets in KSA and Egypt. In KSA, retail revenues increased by the Company had to change the designs and reduce the average generating the operating revenues from wholesale channels. The presentation of revenue from gold serves as statistical information 59% mainly due to consolidation of TOUS franchisee operation weight of its new jewelry production to ensure that new products only as the Group does not generate any profit or loss from selling gold through wholesale channels. While revenue from operations which was acquired in the fourth quarter of 2018. In Egypt retail meet the changing consumer taste and budget. The Company relates to the value-added component of the jewelry piece, namely labor service charge revenue, value of additions and other sources revenues increased by 47% compared to the last year due to the also accepted returns of heavy gold jewelry items from its of revenue generated through wholesale channels and gold and diamond jewelry sold in retail channels, which represent the real increase in sales in existing shops and successful opening of customers, on a one-off basis, to ensure that our customers and revenue of the Group. four new outlets. retailers have the right products. Excluding the impact of these one-off sales returns, KSA wholesale operating revenues were Wholesales channel performed very well in Egypt with a growth 28% higher than last year. of 19% compared to last year due to successful advertising Analysis for the Group’s gold revenues: campaigns and strong customer uptake of new collections. In KSA, wholesale revenues were below last year by 19%, negatively
Groups gold revenues: Revenue from operations can be analyzed as follows:
SAR million 2019 2018 Variance %
31 December 2019 31 December 2018 31 December 2019 31 December 2018 Accounts receivables Gold SAR SAR revenues 1,495 1,506 -0.7%
SAR % of total SAR % of total Accounts receivables - Gross 684,580,488 582,677,816 Group gold revenues for the year ended 31 December 2019 were SAR 1,495 million, a decrease of 0.7% compared to SAR 1,506 million On cash basis 223,989,004 46.6% 153,080,665 37.7% Provision for expected last year. credit losses (19,323,187) (12,189,152)
On credit 257,215,707 53.4% 253,364,658 62.3% Analysis for the group’s operating revenue by region: basis Accounts Receivable - Net 665,257,301 570,488,664 Total revenues from 481,204,711 100.0% 406,445,323 100.0% operations Groups operating revenue by region:
SAR million 2019 % of revenue 2018 % of revenue Variance %
Accounts receivable originate from offering term facilities to conclusion of the meetings between these Scholars and the Saudi 260 54% 230 57% 12.9% Arabia the Group’s wholesale customers to pay their commitments, Group’s management. Credit sales are only offered to the Group’s including the value of the gold purchased. These credit terms wholesale customers and not retail customers. Egypt 209 43% 166 41% 25.6% are in response to the demand of Group’s wholesale customers During 2019, the Company accepted returns of heavy gold jewelry Other GCC 13 3% 10 3% 24.8% and are considered to be in compliance with Shari’a provisions according to Shari’a opinion issued by the Shari’a Advisory items from its customers, on a one-off basis, to ensure that our customers and retailers have the right products. Total 481 100% 406 100% 18.4% Committee of the Council of Saudi Chambers on 7 Ramadan 1440H (12 May 2019) and a number of Shari’a Scholars and the
Group operating revenues for the year ended 31 December 2019 amounted SAR 481.2 million which represents the real revenues of Summary of major changes in Group’s financial results during 2019 compared with 2018: the Group after excluding gold metal value, achieved, an increase of 18% compared to last year of SAR 406 million.
Below is the Group’s operating revenue analysis by distribution channel: 2019 2018 SAR million Variance % SAR % of revenue SAR % of revenue
Operating revenue 481 100.0% 406 100.0% 18.4% Groups operating revenue analysis by distribution channel: Cost of operating revenues (193) -40.2% (162) -39.9% 19.1% SAR million 2019 % of revenue 2018 % of revenue Variance % Gross profit 288 59.8% 244 60.1% 17.9%
Wholesale gold and 267 55% 269 66% -0.7% Operating expenses (223) -46.6% (174) -42.9% 28.2% diamond
Impairment of (18) -3.7% - - 100.0% Retail 214 45% 138 34% 55.7% inventories
Operating profit 47 9.7% 70 17.2% -33.1% Total 481 100% 406 100% 18.4% Net profit/(loss) (18) -3.6% 18 4.3% -199.3%
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Group operating revenues for the year ended 31 December 2019, Operating profit of SAR 47 million for the year was lower by 33% Movement in short-term facilities during the year was as follows: amounted to SAR 481 million, increased by 18% compared to compared to SAR 70 million in the last year due to the one off SAR 406 million last year. costs of accepting the sales returns of heavy weight gold jewelry
in Wholesale channel in KSA and an exceptional provision 2019 2018 Operating cost of revenues increased by 19% compared to last amounting to SAR 18 million mainly related to the closure of five SAR SAR year due to higher operating revenues. retail shops in KSA to rationalize and optimize the retail network. At the beginning Gross profit of SAR 288 million for the year was 18% higher Net loss for the year amounted to SAR 18 million compared to of the year 1,091,731,614 1,134,172,386 than last year of SAR 244 million mainly due to higher operating SAR 18 million of net profit for the last year. The current year was revenues. impacted by several one-off items as follows: Facilities taken during year 14,746,524,188 10,677,976,532 Operating expenses of SAR 223 million for the year were 28% 1. accepted sales returns of the heavy weight gold jewelry with higher than the last year balance of SAR 174 million mainly less demand due to high gold price, with an impact of SAR 19 Facilities taken (14,720,265,154) (10,720,417,304) due to higher marketing expenses, higher variable expenses million. during the year related to higher revenues, consolidating operating expenses of TOUS, operating costs of new retail shops in Egypt and 2. increase in gold prices increased the financing costs of the At the end of the year 1,117,990,648 1,091,731,614 restructuring of the work force and associated training costs existing gold facilities by SAR 2.6 million. to meet the Saudization / Feminization requirements. Excluding TOUS business, the operating expenses have increased by 9% 3. additional inventory provision of SAR 18 million, as stated compared to the last year. above. All the short-term murabaha facilities of the Group have been taken by the parent company, L’azurde Company for Jewelry, and no banking facilities have been taken by the subsidiaries. In the current year, the Company also made an exceptional 4. adoption of new accounting standard for Leases (IFRS 16) impairment for melting and slow-moving inventory items with effect from 1 January 2019 which resulted in an increase amounting to SAR 18 million mainly related to the inventory of SAR 4.5 million in finance costs. items of the closed shops in Kingdom of Saudi Arabia. Group net profit before the above exceptional items and sales returns was net income of SAR 26.1 million an increase of 44% over last year.
GOLD PROCUREMENT, SHORT-TERM GOLD AND CASH FACILITIES As at 31 December, the details are as follows:
31 December 2019 31 December 2018 Notes SAR SAR
Murabaha facilities (Gold) a 1,024,049,730 1,024,731,614
Cash facilities (Tawaruq) b 93,940,918 67,000,000
1,117,990,648 1,091,731,614
Total gold procurement facilities of the company at 31 December Notes: 2019 amounted to SAR 1,024 million compared to SAR 1,025 million at 31 December 2018. All outstanding financial facilities A. The Group has Islamic Murabaha facilities to obtain gold from agreements are in the form of Murabaha and Tawaruq various banks to finance gold working capital requirements, agreements to finance the supply of pure gold. with maturity periods ranging from 1 to 3 months (2018: 1 to 3 months) with agreed profit rates. All of these financial The cash margins against gold procurement facilities of the facilities are compliant with Shari’a principles as per Shari’a Company as at 31 December 2019 amounted to SAR 100 million certificates issued by banks’ internal Shari’a Committees compared with SAR 102 million as at 31 December 2018. including Murabaha facilities (Tawaruq) to finance the purchase of gold, as banks buy commodities other than gold Total cash facilities (Tawaruq) of the company at 31 December or silver and then sell them to the Group on a credit basis. 2019 amounted to SAR 94 million compared to SAR 67 million at The Group then sells the goods to a third party, and the bank 31 December 2018. immediately buys the gold using cash sales proceeds of the commodity. All the outstanding financial facilities agreements are in the form of Murabaha and Tawaruq agreements. B. Represents Islamic Tawaruq cash facilities from various banks solely to finance working capital requirements of the Group, with agreed profit rates and maturity periods ranging from 1 to 9 months.
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COMPLIANCE WITH SHARI'A RULES SUMMARY OF THE MAIN POINTS DISCUSSED IN THE SHARI'A REVIEW REPORT: To comply with Islamic rules “Shari’a” related to gold transactions, the Company uses Islamic gold facilities to procure pure gold. 1. The Company’s main activity in the manufacturing and trading All these facilities are in the form of Murabaha and Tawaruq of gold and diamonds jewelry is considered fundamentally facilities all facilities are compliant with Shari’a principles as per compliant with the Shari’a requirements and there are no Shari’a certificates issued by banks’ internal Shari’a Committees significant notes that can affect its classification according to to finance the purchase of gold, as banks buy commodities other the Shari’a standard. than gold or silver and then sell them to the Group on a credit basis. The Group then sells the goods to a third party, and the 2. The consolidated interim/annual financial statements have bank immediately buys the gold using cash sales proceeds of the been reviewed and the results of the examination did not commodity. show any prohibited proceeds from the cash balances at banks. The Shari’a Advisor was appointed to examine and certify L’azurde’s full alignment with Shari’a provisions in all of its 3. All credit facilities and financing availed by the Group from transactions and compliance with all Shari’a Committees’ banks during the audit period are in compliance with Islamic requirements of local banks for Shari’a classification purposes. Shari’a provisions, except for obtaining gold through an agreement from an international bank by the end of the The Shari’a Advisor is reviewing all credit facilities agreements fourth quarter. After examination of this agreement and its to finance gold purchase during the year, conducting quarterly implementation procedure, it was concluded that it is not Shari’a compliance reviews and issuing quarterly Shari’a compliant with the Shari’a provisions due to the fact that the compliance review report; these reports are available on Group is going to use the obtained gold and pay at a future Tadawul Platform.. date in gold and an additional fee for delayed payment, which will be considered as paying interest. The Group is currently According to Shari’a Advisor’s reports issued up to 30 September working on regularizing its current position to achieve full 2019, the opinion of the Sharia’a advisor as follows: compliance with Shari’a.
Based on our Shari’a review works, no significant remarks 4. Cash sales through the company’s retail outlets, as well have been noted to impact the alignment of the Company’s as the wholesale cash sales are compliant with the Shari’a operation with Shari’a and its classification according to the requirements. Shari’a Standards no. (21) Financial Paper (Shares and Bonds), (57) Gold and its Trading and (59) Shari’a Standards issued by 5. Regarding the credit wholesale for jewelry, L’azurde Company the Accounting & Auditing Organization for Islamic Financial for jewelry has adopted the view of that gold jewelry can be Institution (AAOIFI) and pursuant to Shari’a opinion issued by traded on credit basis without compromising the compliance the consultancy Shari’a Committee for the Council of Saudi of the Company with neither the Shari’a provisions nor its Chambers. classification according to the Shari’a provisions. Worthy to mention that this Shari’a approach that allows dealing in gold While The Group’s Shari’a Advisor, AlSayari Law Firm “AlSayari”, jewelry on credit has been confirmed through issued Shari’a issued the Shari’a review report dated 11 March 2020 for the opinion on 12 May 2019 by Shari’a committee that has been year 2019, which included the review of the Group’s banks appointed by the Council of Saudi Chambers for consideration facilities and transactions, revenues generated from sale of gold of a number of inquiries made by the Committee of Precious and investments made by the Group, where their conclusion, Metals and Precious Stones regarding the dealing in gold within the scope of the review, was that it did not reasonably jewlery through credit transactions. show significant observations affecting compliance of Group’s activities, except for one gold transaction during December During 2019, nine banks classified L’azurde’s share as Shari’a 2019 where the Group obtained gold from an international bank compliant and included it in their quarterly list of Shari’a through an agreement that is inconsistent with the Shari’a compliant shares. These banks are Albilad Bank, Alinma Bank, provisions. As a result, account payable for gold amounted Al Jazeera Bank, Saudi Fransi Bank, NCB Capital, Riyadh Bank, to (9.6%) of the Group’s total assets as of 31 December 2019. Arab Bank, SAMBA Bank and Saudi Investment Bank. Even though, this transaction does not comply with the Shari’a provisions, this percentage does not affect the permissibility of investing in the Group in accordance with Shari’a Standard no. 21 “Financial Paper (Shares and Bonds)” issued by the Shari’a Committee of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Following are the conclusions of the Shari’a Advisor:
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EMPLOYEES' END OF SERVICE BENEFITS PREPARATION OF THE CONSOLIDATED RESPONSIBILITIES OF MANAGEMENT The following is the movement in employees’ end of service benefits: FINANCIAL STATEMENTS AND THOSE CHARGED WITH The Company has applied, without any exception, all the GOVERNANCE FOR THE CONSOLIDATED IFRSs endorsed by SOCPA, which were effective as at 31 FINANCIAL STATEMENTS December 2019. Management is responsible for the preparation and fair 2019 2018 presentation of the consolidated financial statements in SAR SAR The interim consolidated financial statements are issued accordance with IFRSs, as endorsed in the Kingdom of Saudi with a limited review report and annual consolidated Arabia and other standards and pronouncements issued by At the beginning fi n a n c i a l s t a t e m e n t s a r e i s s u e d w i t h a n a u d i t r e p o r t b y t h e of the year 32,645,186 37,637,949 SOCPA, applicable requirements of Regulation for Companies external auditor. and by-laws of the Group and for such internal control as management determines is necessary to enable the preparation Aldar Audit Bureau, Abdullah Al Basri & Co., a member firm Charge for the year 3,243,699 4,507,767 of consolidated financial statements that are free from material of Grant Thornton International Ltd. was appointed as external misstatement, whether due to fraud or error. auditor for the year 2019, after the Audit Committee submitted Payments during the year (4,991,328) (5,737,518) its recommendation to the Board of Directors. The Board of In preparing the consolidated financial statements, management Directors requested the approval for appointment of Aldar is responsible for assessing the Group’s ability to continue as Audit Bureau and their audit fee at the General Assembly Actuarial gains (1,705,537) (4,311,996) a going concern, disclosing, as applicable, matters related to meeting held on 24 April 2019. The General Assembly approved going concern and using the going concern basis of accounting this appointment. unless management either intends to liquidate the Group or to Foreign exchange cease operations, or has no realistic alternative but to do so. differences 142,838 (8,030) After auditing the consolidated financial statements for the year ended 31 December 2019 and the first quarter of 2020, Aldar Acquisition of a Those charged with governance, being the “Audit Committee”, Subsidiary during - 557,014 Audit Bureau issued an unqualified audit report, expressing an a r e r e s p o n s i b l e f o r o v e r s e e i n g t h e G r o u p ’ s fi n a n c i a l the year audit opinion that the consolidated financial statements as a reporting process. whole present fairly, in all material aspects, the financial position At the end of the year 29,334,858 32,645,186 of the Group and its financial performance and its cash flows, MANAGEMENT'S ANNUAL REPORT in accordance with IFRSs, as endorsed in the Kingdom of Saudi ON INTERNAL CONTROL OVER Arabia by SOCPA and other standards and pronouncements FINANCIAL REPORTING endorsed by SOCPA. Moreover, the audit opinion stated that the The Group provides end of service benefits to all its employees in compliance with the Labor laws. The Group has not yet established consolidated financial statements, taken as a whole, comply with L’azurde’s management is responsible for establishing and a scheme for granting its shares or a percentage of the profits to its employees, except for employees of Egypt subsidiaries who the applicable requirements of the Regulations for Companies maintaining effective internal control over financial reporting. are entitled to 10% of distributed profit pursuant to Companies’ Law of Egypt. However, the General Assembly has proposed an and by-laws of the Group in so far as they affect the preparation Internal control over financial reporting is a process designed amendment in the Bye-laws to empower the Company to buy-back its shares for the purposes of allocating them to the employees of and presentation of the consolidated financial statements. to provide reasonable assurance regarding the reliability of the Company as part of Employees Share Plan. The Group has not yet established any pension program for employees or set up an financial reporting and the preparation of financial statements independent fund for such program, other than Governmental obligatory social insurance programs. EXTERNAL AUDITORS' AUDIT REPORT for external purposes in accordance with IFRSs, as endorsed by SOCPA. L’azurde’s internal control over financial reporting The external auditor’s report for the year ended 31 December includes those policies and procedures that: STATUTORY CHARGES, PENALTIES AND SANCTIONS 2019 contained other matters as follows: A. Payments during 2019: 1. pertain to the maintenance of records that are in reasonable OTHER INFORMATION INCLUDED IN detail and accurately and fairly reflect the transactions and L’azurde is committed to paying certain taxes, fees and any other expenses to the Saudi Arabian Government as per applicable THE GROUP'S ANNUAL REPORT dispositions of L’azurde’s assets. laws and regulations. These expenses are charged as a result of the Company’s operations. The following table shows the statutory charge paid during year 2019 with a brief description and reason for each charge. Other information consists of the information included in the 2. provide reasonable assurance that transactions are recorded Group’s 2019 annual report, other than the financial statements to permit preparation of consolidated financial statements and our auditor’s report thereon. Management is responsible for 2019 2018 in accordance with IFRSs, and that L’azurde’s receipts Type of payment Statutory organization Description Reason (SAR’m) (SAR’m) the other information in its annual report. and expenditures are being made only in accordance with authorizations of L’azurde’s management and directors. Our opinion on the consolidated financial statements does cover Zakat expense and Government requirement Zakat and Value General Authority of 18.6 34.2 Value Added Tax paid in / Zakat and Value Added the other information and we do not and will not express any form 3. provide reasonable assurance regarding prevention or timely Added Tax Zakat and Income Tax accordance with laws Tax laws and regulations and regulations of assurance or conclusion thereon. detection of unauthorized acquisition, use, or disposition of L’azurde’s assets that could have a material effect on the In connection with our audit of the consolidated financial Visa’s and passports Ministry of Interior 0.7 0.7 Amounts paid or charged as Government requirement consolidated financial statements. visa and passport expenses statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other Due to its inherent limitations, internal control over financial Amounts paid or charged information is materially inconsistent with the consolidated Iqama expenses Ministry of Labor 3.3 5.0 as iqama expenses Government requirement reporting may not prevent or detect misstatements. Also, financial statements or our knowledge obtained in the audit, or projections of any evaluation of effectiveness to future periods are otherwise appears to be materially misstated. Amounts paid or charged as Government requirement/ subject to the risk that controls may become inadequate because Social Insurance General Organization 3.6 2.5 social insurance expense Labor and Social Insurance of changes in conditions, or that the degree of compliance with for Social Insurance according to Labor and laws and regulations Social Insurance Laws If, based on the work we have performed, we conclude that the policies or procedures may deteriorate. there is a material misstatement of this other information; we Total 26.2 42.4 are required to report that fact. We have nothing to report in L’azurde’s management conducted an evaluation of the this regard. effectiveness of internal control over financial reporting and B. Penalties and Sanctions based on this evaluation, management concluded that L’azurde’s internal control over financial reporting was effective as at 31 L’azurde was not exposed to any material amount of penalty, or any sanction or any precaution by any supervisory regulatory or December 2019. judicial unit.
82 83 CORPORATE 04 GOVERNANCE 04 | CORPORATE GOVERNANCE BOARD FORMATION
GENERAL ASSEMBLY OF SHAREHOLDERS
BOARD OF DIRECTORS AUDIT COMMITTEE BOARD SECRETARY CHAIRMAN
REMUNERATION AND EXECUTIVE COMMITTEE NOMINATION COMMITTEE
HEAD OF INTERNAL CHIEF EXECUTIVE AUDIT OFFICER
EXECUTIVE MANAGEMENT
A. CORPORATE GOVERNANCE CODE The purpose of this code is to set out L’azurde approach to The Board’s actions are subject to laws, regulations and corporate governance. L’azurde is committed to maintaining shareholders in the General Assembly Meeting. high standards of corporate governance and considers good corporate governance as an essential tool for maximizing long L’azurde Corporate Governance Manual has been prepared term shareholders’ value and consistent with its commitment to according to CGR issued by CMA and international principles quality in all of its processes. The rules set out in the Company’s of corporate governance and should be viewed as setting the Corporate Governance Manual are mandatory for all directors framework for corporate governance within the Company. It and staff of L’azurde and can only be amended by a resolution of should also be viewed within the context of the broader legislative the Board of Directors or General Assembly, as appropriate, and framework of Saudi Arabia. In particular, the stipulation of the as required by the CGR. following requirements which have not all been incorporated in this manual, need to be borne in mind when considering Corporate governance is defined as “the system by which corporate governance issues: business corporates are directed and controlled”. The corporate governance structure specifies the distribution of - The requirements of CMA and Saudi Stock Market “Tadawul”. authorities and responsibilities among different participants in the Company, such as the Board, managers, shareholders - The Companies’ Law of Saudi Arabia and associated and others and spells out the rules and procedures for making ministerial directives of the Ministry of Commerce and decisions on corporate affairs. By doing this, it also provides a Investment. structure through which Company’s objectives and the means - L’azurde by-laws. of attaining these objectives and monitoring performance are set. The Board of Directors is responsible for L’azurde Corporate The Board of Directors will approve amendments to the Corporate Governance Manual. Governance framework from time to time or invite the General Assembly to approve any amendment that requires shareholders’ The shareholders role in governance is to appoint the directors, approval to comply with changing legal environment, thus audit committee and independent auditors and to satisfy ensuring sound application of governance practices. BOARD themselves that an appropriate governance structure is in place. The responsibilities of the Board include setting Company’s strategic aims, providing the leadership to put them into effect, supervising management of the business and reporting FORMATION to shareholders on their stewardship, in accordance with Companies’ Law and CGR.
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B. THE BOARD OF DIRECTORS 2. BOARD OF DIRECTORS' ROLE In addition to the relevant Committee members and the AND RESPONSIBILITIES Company Secretary, external advisers on occasion, other directors and members of the senior management team attend It is responsibility of the Board to support management in its Committee meetings, but only at the invitation of the Chair of the 1. BOARD OF DIRECTORS FORMATION strategic aims to enable the Company to continue to perform relevant Committee. The Board is appointed by the shareholders with primary responsibility for operating the Company in their long term best interests. successfully and sustainably for our shareholders and L’azurde General Assembly provides for a Board of Directors structure of nine (9) members using accumulated voting method based wider stakeholders. The Board of Directors has the power to form any number of on pre recommendation of Nomination and Remuneration Committee for term of three years renewable. The majority of Board committees it considers necessary for effective governance, The Board is ultimately responsible for promoting the long- members are non-executive, one (1) executive member and three (3) of them are independent directors. oversight and operations of the Company or to delegate some of term success of the Group. The Board leads and provides its powers to third parties. The Chairman and the Vice-Chairman shall be elected by the Board members for three (3) years. All Board members, the Chairman direction for management by setting strategy and overseeing its and the Vice Chairman can be re-elected. If a Board seat becomes vacant, the Board may appoint a temporary director, provided that implementation by management. The Board is also responsible Specific key decisions and matters have been reserved for such appointment shall be approved by the next Ordinary General Assembly Meeting. for oversight of the Group’s systems of governance, internal approval by the Board. These include decisions on the Group’s control and risk management. strategy, the annual budget and operating plans, major capital The Extraordinary General Assembly held on 22/4/2018 re-elected the existing Board of Directors via accumulated voting for three expenditure and transactions, financial results, the dividend and The Board represents all shareholders and performs its duties years effective 25/04/2018. other capital returns, the approval of the Group’s risk appetite of care and loyalty in managing the Company’s affairs and and other governance issues. The following table illustrates current board members’ names, position, membership status and nationality: undertakes all actions in the general interest of the Company and develops it and maximizes its value. 4. BOARD EFFECTIVENESS The responsibility of the Board is to protect and maximize the The Board has operated very effectively during the year, Name Nationality Position Membership Status Appointment Date interests of the shareholders in the long term. For this purpose particularly to support the important changes taking place and the Board bears the full responsibility of corporate governance, to manage the significant changes in legislative, economic and including setting up the strategy of the Company, setting up business environment. Mohammed Ebrahim Shroogi Bahraini Chairman Non-Independent Non-Executive 22 April 2018 the goals of the Executive Management and overseeing the implementation to achieve such goals. The Chairman works collaboratively with the Chief Executive Abdullah Abdulaziz Al Othaim Saudi Vice-chairman Non-Independent Non-Executive 22 April 2018 Officer in setting the Board agenda and ensuring that any actions The Board sets the Company’s strategic goals, as well as agreed by the Board are effectively implemented. oversees the Executive Management of the Company. The day- Brian Norman Dickie Irish Board Member Non-Independent Non-Executive 22 April 2018 to-day operation of the Company is the responsibility of Executive During the year, the Chairman maintained regular contact and met Management, but the Board as a whole ensures and certifies that with the independent directors and other non-executive directors.
Adel Abdullah Al-Maiman Saudi Board Member Non-Independent Non-Executive 22 April 2018 the Company’s internal control systems are effective and that Company’s activities comply with the strategy, frameworks and 5. BOARD SECRETARY policies and procedures approved by the Board and as required The Board Secretary’s main responsibilities are to provide Abdul Kareem Abu Alnaar Saudi Board Member Independent Non-Executive 22 April 2018 by laws and regulations. secretarial services to the Board of Directors. This includes assisting with Board calendar, notices and agendas of meetings, 3. BOARD OF DIRECTORS' AUTHORITIES Amin Mohamed Al-Maghrabi Saudi Board Member Independent Non-Executive 22 April 2018 board packs, minutes of meetings and follow-up on resolutions The Company is supervised by Board of Directors consisting and action items originated through board meetings, such of professional and highly experienced persons. The Board is powers include all duties stipulated article (37) paragraph (a) of Sabah Khalil Almoayyed Bahraini Board Member Independent Non-Executive 22 April 2018 vested with full powers to manage the business of the Company corporate governance regulation. and supervise its affairs. The Board delegates responsibility for The Secretary of the Board may not be dismissed except pursuant Selim Chidiac Swiss Board Member Non-Independent Executive 11 December 2018 overall day to day management of the Company to Company’s senior management. to a decision of the Board.
Khalifa Hassan Al Jalahma (1) Bahraini Board Member Non-Independent Non-Executive 10 December 2019 The Board of Directors has delegated certain powers to two Committees which consist of board members and both of them report to the Board. These two committees are the Executive 1. The Board of Directors accepted on December 10, 2019, the recommendation of the NRC to appoint Mr. Khalifa Hassan Al Jalahma as a non-executive Board Member. This Committee and the Nominations and Remuneration Committee appointment is effective from 10 December 2019. Board Approval May not be Deemed Final, this Appointment Shall Be Put before the First General Assembly Meeting for Approval. (collectively, the “Board Committees”).
During the first meeting for the board of directors in current term after re-election at 26 April 2018, the members elected both The Committees can engage third-party consultants and Mr. Mohammed Ebrahim Shroogi and Mr. Abdullah Abdulaziz Al Othaim as board chairman and vice president respectively. In addition independent professional advisers and can call upon other to appoint a board secretary. resources of the Group to assist them in discharging their respective responsibilities.
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6.EVALUATING PERFORMANCE MEMBERSHIP IN OTHERS COMPANIES' BOARD OF DIRECTORS The Board shall evaluate, on an annual basis, its own performance The businesses and contracts with the board member to meet The following tables include Directors’ names, positions, membership status in other joint stock companies, and attendance at the of its committees and the Executive Management against his/her personal needs shall not be deemed as an interest that Board meetings held during 2019, noting that these meetings were planned and the Chairman did not receive any request by two or the predefined financial and non-financial key performance require an authorisation from the ordinary general assembly, more of the Board Members to hold emergency meetings during 2019. indicators (KPIs). The performance assessment should be led provided that such businesses and contracts are carried out by the Nominations and Remuneration Committee, and may in the same conditions and settings followed by the company Some of L’azurde board members hold a Board membership or executive positions in other companies whether in or outside consider the need for any external facilitators. with all contractors and dealers, and that such businesses KSA as follows: and contracts must be within the normal course of the The Nominations and Remuneration Committee (NRC) ran a Company’s activities. Board self-assessment for the year 2019 through an external consulting firm specialist in corporate governance best practices The Chairman of the Board of Directors shall inform the Ordinary and board performance evaluation. The overall outcome from General Assembly, upon convening, of the transactions and this review came as follows: contracts in which any director has a direct or indirect interest. Members Name Company Name Position Legal Form Location Current / Past Such notification shall be accompanied by a special report from 1. The Board and its Committees had operated effectively the Company’s external auditor. Investcorp Bank Advisor Bahraini Joint Stock Company Bahrain Current during the year, particularly to mitigate the changes that have taken place in the economic, regulatory and 8. TERMINATION OF A Gulf Cooperation Council legislative environments. BOARD MEMBERSHIP Board Directors Institute Chairman Non-profit organization Bahrain Current 2. The Board consisted of high quality non-executive and Membership of the Board of Directors shall be terminated upon the Crown Prince’s International Board Member Non-profit organization Bahrain Current independent directors with the right mix of skills and expiration of the board term. Termination of membership shall also Scholarship Program Director experiences, and the right focus on the business and occur if the member becomes unsuitable for membership under any law or regulations prevailing in the kingdom by a resolution Mr. Mohammed Board of trustees of Bahrain corporate governance. The directors unanimously felt that Center for studies and research Board Member Non-profit organization Bahrain Current the interactions among board members and between the adopted by the Board of Directors, preceded by a written request Ebrahim Shroogi from a Board member to the Chairman of the Board. Board and Management were very positive. National US-Arab Chamber of Commerce Board Member Non-profit organization Bahrain Current 3. During the coming year the Board should ensure that it At all times, the General Assembly may dismiss all or any of the members of the Board of Directors even though the by- continues to focus on important strategic matters and Bahrain Maritime & Board Member Joint Stock Company Bahrain Past continues to track the Group’s progress in-line with its key laws provide otherwise, without prejudice to the dismissed Mercantile International strategic priorities. member’s right for compensation if the dismissal was on due to an unacceptable reason or at inappropriate time. The General Co-Chief Executive Investcorp Bank B. S. C Officer Bahraini Joint Stock Company Bahrain Past In addition to the external assessment, the Nominations and Assembly may also, as per a recommendation of the Board, Remuneration Committee (NRC) held a meeting to discuss the terminate the membership of the member who missed three Gulf Business, Investcorp Board members performance and its Committees effectiveness consecutive meetings without a legitimate excuse. Bank B. S. C President Bahraini Joint Stock Company Bahrain Past during 2019 for the purpose of raising any key issues in relation to the Board and Committees effectiveness. The feedback was 9. RE-ELECTION OF DIRECTORS Mad’a Investment Company Chief Executive Officer Limited Liability Company Current positive. The board members had done a solid job in leading the The Extraordinary General Assembly that was held on 22 April Company during this time of significant changes for the jewelry 2018, appointed the existing Board of Directors via accumulated industry in Saudi Arabia. voting for three years ending 25 April 2021. The process of re- SmartMed Medical Company Board Member Limited Liability Company Current election for the upcoming board term will start in January 2021. The Nominations and Remuneration Committee and the Board On 26 April 2018 during first board meeting after election the discussed also the Chairman’s performance. They expressed Arkan Business Group (ABG) Board Member Limited Liability Company Current board members have elected the chairman and vice president the view that the Chairman performs strongly and provides very Mr. Abdulla Abulaziz Kingdom of and form its committees for current term. Saleh Al Othaim Saudi Arabia effective leadership and motivation. Eventually, the Chairman’s Thaat Education Company Board Member Limited Liability Company Current leadership provided an important stability in the context of economic changes. Abdulaziz Al Othaim & Sons Holding Company Board Member Limited Liability Company Current 7. MANAGING CONFLICTS OF INTEREST Aswar United Real Estate All directors have a duty under the internal conflict of interest Development Company Board Member Limited Liability Company Past policy to avoid a situation in which they have, or could have a direct or indirect conflict of interest or possible conflict of interest with the Company and the Group, except with a prior authorization from the Ordinary General Assembly, which is to be renewed annually.
A director may not have any interest, whether directly or indirectly, in the transactions or contracts concluded for the company, unless through prior authorization from the Ordinary General Assembly, to be renewed annually.
A director must declare to the Board of Directors any direct or indirect interest that he may have in the transactions or contracts concluded for the Company and this member shall not participate in voting for the resolution to be adopted in this respect in the Board of Directors and the shareholders’ meetings.
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Members Name Company Name Position Legal Form Location Current / Past Members Name Company Name Position Legal Form Location Current / Past
Non-Executive Director Saudi Joint Stock Kingdom of Hydrasun Group Holding Ltd Chairman Limited Liability Company United Kingdom Current Yanbu National Petrochemical Company Current Audit Committee Chairman Company Saudi Arabia
Private Company - Abdul Latif Jameel United Finance Company Non-Executive Director Closed Saudi Joint Kingdom of Current X Bricks AG Chairman of Supervisory Board Limited Liability Germany Current Stock Company Saudi Arabia
Non-Executive Director Limited Liability SCP Group Holding Non-Executive Director Private Company - Luxembourg Current Safanad Limited UAE Current Limited Liability Audit Committee Chairman Company
NDT Corrosion Control Services Hasana, the Investment Arm Company of the Non-Executive Director Closed Saudi Joint Kingdom of Non-Executive Director Private Company - Kingdom of Saudi Arabia Current Current Co. Ltd Limited Liability General Organization for Social Insurance NRC Committee Member Stock Company Saudi Arabia
Kafalah Government and Banking Kingdom of Redline Capital Investment Committee Member Limited Liability Company Luxembourg Current Sector Loan Guarantee Program Non-Executive Director Government Saudi Arabia Current
Non-Executive Director Closed Saudi Joint Kingdom of Sistema Finance company Non-Executive Director Limited Liability Company Luxembourg Past Health Water Bottling Company Current NRC Committee Member Stock Company Saudi Arabia
Limited Liability Kingdom of Icopal AS Chairman Limited Liability Company Denmark Past Silah Development Company Chairman Company Saudi Arabia Current Mr Brian Norman Dickie Kingdom of Polyconcept Group Non-Executive Director Limited Liability Company Holland Past Mr. Abdul Kareem Savola Group Non-Executive Director Joint Stock Company Saudi Arabia Past Assad Abu Alnasr
Limited Liability Kingdom of Sistema JSFC, Non-Executive Director Listed Joint Stocks Russia Past Kinan Real Estate Development Company Non-Executive Director Company Saudi Arabia Past
Mohammed Abdulaziz Al-Rajhi Closed Saudi Joint Kingdom of Moody International Chairman Limited Liability Company United Kingdom Past & Sons Holding Company Non-Executive Director Stock Company Saudi Arabia Past
Closed Saudi Joint Kingdom of Autodistribution Group Non-Executive Director Limited Liability Company France Past Saudia Aerospace Engineering Industries Non-Executive Director Stock Company Saudi Arabia Past
Closed Saudi Joint Kingdom of Investcorp International Ltd Managing Director Limited Liability Company United Kingdom Past Ahmed Mohammed Saleh Baeshen & Co. Non-Executive Director Stock Company Saudi Arabia Past
Kingdom of Booz, Allen & Hamilton In Executive Director Limited Liability Company USA Past The National Commercial Bank Non-Executive Director Joint Stock Company Saudi Arabia Past
North America, TXU Energy Chairman of the Regional Kingdom of Chairman Limited Liability Company USA Past MasterCard Company Branch Past Corporation Advisory Council Saudi Arabia
Mr. Abdel Abdullah Under the umbrella Al-Maiman Mr. Adel Abdullah Al-Maiman does not occupied board membership position in any others Companies whether in or out of Saudi Arabia. of the Arab Union of Arab Banks Non-Executive Director Administrative Lebanon Past Development Organization (AADO)
Limited Liability Kingdom of Magrabi Retail Company President and CEO Company Saudi Arabia Current
Limited Liability Kingdom of Magrabi Hospitals & Centers Non-Executive Director Company Saudi Arabia Current
Al Amin Medical Instruments Co. Non-Executive Director Limited Liability Kingdom of Current Mr. Amin Mohamed Company Saudi Arabia Akef Al-Maghrabi Limited Liability Kingdom of IKEA Non-Executive Director Company Saudi Arabia Current
Non-profit Kingdom of Magrabi Foundation Non-Executive Director Organization Saudi Arabia Current
Limited Liability Kingdom of Magrabi Optical Non-Executive Director Company Saudi Arabia Current
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The board of directors convenes monthly conference calls or when required to follow up the business Members Name Company Name Position Legal Form Location Current / Past operations, financial results and supervise executive management performance:
Kingdom of Bahrain Development Bank Non-Executive Bahraini Joint Current Director Stock Company Bahrain Conference Calls Attendance Register During 2019 Kingdom of Membership Attendance Investcorp Financial Services B.S.C Director Bahraini Joint Current Members Name Stock Company Bahrain Status Rate February March May June July August September 26, 2019 26, 2019 21, 2019 25, 2019 30, 2019 22, 2019 18, 2019 National Bank of Bahrain Audit Committee Bahraini Joint Kingdom of Current Member Stock Company Bahrain Mr. Mohammed Ebrahim Non-Executive Attended Attended Attended Absent Attended Attended Attended 86% Al Shroogi Mrs. Sabah Khalil Almoayyed Higher Education Council, Non-Executive Governmental Kingdom of Current Kingdom of Bahrain Director Organization Bahrain Mr. Abdullah Abdulaziz Non-Executive Absent Attended Absent Attended Attended Attended Attended 71% Al Othaim Intellect Resources Limited Liability Kingdom of Management Company Managing Partner Company Bahrain Current Mr. Brian Norman Dickie Non-Executive Attended Attended Attended Attended Attended Attended Attended 100% Bahraini Joint Kingdom of Eskan Bank in Bahrain Executive Director Stock Company Bahrain Past Mr. Adel Abdullah Al-Maiman Non-Executive Attended Attended Attended Attended Attended Attended Attended 100% Non-Executive Bahraini Joint Kingdom of Ahli United Bank in Bahrain Director Stock Company Bahrain Past Mr. Sunil Bhilotra, Non-Executive Attended Attended Attended Attended Attended Attended Attended 100% Al-Burj Company for Non-Executive Joint Stock Kingdom of Khalifa Hassan Al Jalahma Medical Laboratories Director Company Saudi Arabia Current Mr. Abdul Kareem Abu Alnasr Independent Attended Attended Attended Absent Attended Attended Attended 86%
Mr. Amin Akef Al-Maghrabi Independent Attended Absent Absent Attended Absent Attended Attended 86% BOARD MEETINGS REGISTER
During 2019, the Board held four meetings and several conference calls, whenever required, based on Chairman’s invitation. Mrs. Sabah Khalil Almoayyed Independent Attended Attended Attended Attended Attended Attended Attended 100% The details of attendance and dates of the meetings of the Board of Directors during 2019 are as follows:
Mr. Selim Chidiac Executive Attended Attended Attended Attended Attended Attended Attended 100%
Meetings Attendance Register During 2019 Membership Mr. Khalifa Hassan Al Jalahma Non-Executive Temporary board members, have been appointed by the board on December 10, 2019 N/A Members Name Status Attendance Rate February 6, 2019 April 24, 2019 September 18, 2019 December 10, 2019
Mr. Mohammed Ebrahim Al Shroogi Non-Executive Attended Attended Attended Attended 100%
Mr. Abdullah Abdulaziz Al Othaim Non-Executive Absent Attended Attended Attended 75%
Mr. Brian Norman Dickie Non-Executive Attended Attended Attended Attended 100%
Mr. Adel Abdullah Al-Maiman Non-Executive Attended Attended Attended Attended 100%
Mr. Sunil Bhilotra, (2) Non-Executive Attended Attended Attended Attended 100%
Mr. Abdul Kareem Abu Alnasr Independent Attended Attended Attended Attended 100%
Mr. Amin Akef Al-Maghrabi Independent Attended Attended Attended Attended 100%
Mrs. Sabah Khalil Almoayyed Independent Attended Attended Attended Attended 100%
Mr. Selim Chidiac Executive Attended Attended Attended Attended 100%
Mr. Khalifa Hassan Temporary board members, have been appointed Al Jalahma (3) Non-Executive by the board on December 10, 2019 Attended 25%
2. The Board of Directors has accepted the resignation letters dated October 31, 2019, from Mr. Sunil Bhilotra (a non-executive Director) for purpose of resign from the Board membership and all Board committees for personal reasons. 3. The Board of Directors accepted on 10 December 2019, the recommendation of the NRC to appoint Mr. Khalifa Hassan Al Jalahma as a non-executive Board Member and member of the Audit Committees. This appointment is effective from 10 December 2019. Board Approval May not be Deemed Final, this Appointment Shall Be Put before the First General Assembly Meeting for Approval.
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C. BOARD COMMITTEES If a position in the Committee becomes vacant, the Board In general, the Committee has the authority to investigate any 1. AUDIT COMMITTEE shall assign a temporary member to the AC within 40 days of activity within its terms of reference or any matters specifically The Board is responsible for the conduct of L’azurde’s the vacancy, upon recommendation of the NRC. A permanent requested by the Board. The Committee has unrestricted access affairs. For greater efficiency, the Board is supported in its The Audit Committee (“AC”, or “the Committee”) is appointed by member shall be subsequently appointed by the shareholders in to all records and staff of L’azurde (including internal audit) activities by a number of committees including the following the Ordinary General Assembly to monitor Company’s internal the first General Assembly after the position becomes vacant. and the external auditors. The Committee is authorized by the principal committees: control system, financial reports, internal audit, external audit Board of Directors to obtain external legal or other independent and ensure Company’s compliance with laws and regulations. The primary objective of the Audit Committee is to ensure that professional advice as necessary to assist the Committee. 1. Audit Committee (AC). Furthermore, the Committee has been delegated by the an audit oversight mechanism is in place to support the accuracy General Assembly to undertake responsibilities for oversight of and fairness of the Company reports, financial statements To ensure the independence of the work of the AC, the Internal 2. Executive Committee (ExCom). Company’s risk management as mentioned in approved charter and data; ensure integrity and effectiveness of Company’s Auditors and the external auditors can communicate directly dated 8 January 2018. internal control and risk management systems; ensure with the AC, without any intermediary. 3. Nominations and Remuneration Committee (NRC). Company’s compliance with regulations; and to oversee the These Committees have been established by the Board except FORMATION OF AC AND ITS OBJECTIVES Company’s transactions. for the AC which has been elected by the General Assembly on The Committee will comprise a minimum of three (3) members 24 April 2019. including a specialist in finance and accounting matters. The The following table illustrates the names, positions and attendance of Committee members: members of AC shall be appointed by a resolution of the General The number of members in each of the Committees is between Assembly of shareholders for a period coinciding with each three and five. The General Assembly approved the charter of AC member’s term as director and may be removed or replaced by Members Position Membership Appointment Date and NRC on 8 January 2018. the General Assembly at any time. Status
The Board has the power to form any number of Committees Committee members should be selected to ensure a range of Mrs. Sabah Khalil Almoayyed (4) Chairman of the Audit Committee Independent 22 April 2018 it considers necessary for effective governance, oversight and different backgrounds, skills and experiences and a sound operations of L’azurde and specify the authorities, objectives understanding of the industry in which L’azurde operates. Mr. Brian Norman Dickie Member of the Audit Committee Non-Executive 22 April 2018 and reporting lines of such committees. On an annual basis At least one member should have sound accounting or the Board will review and either ratify or modify the authorities financial experience. of its subcommittees to ensure that their delegations Mr. Sunil Bhilotra (5) Member of the Audit Committee Non-Executive 22 April 2018 remain appropriate. Executive Directors and the Board Chairman are not eligible for Committee membership. Any person who works or has worked in The Board Committees inform the Board of their findings or the Company’s finance department, the Executive Management Mr. Adel Al-Maiman Member of the Audit Committee Non-Executive 22 April 2018 decisions with complete transparency. The Board regularly or for Company’s external auditor during the preceding two years follows up the activities of its Committees to ensure the is also not eligible for Committee membership. At least one of Mr. Khalifa Hassan Member of the Audit Committee Non-Executive 10 December 2019 performance of the duties delegated to them. the Committee members shall be an Independent Director. Al Jalahma (6) The Committees can engage third-party consultants and independent professional advisers and can call upon other AUDIT COMMITTEE MEETINGS DURING 2019 resources of the Group to assist them in discharging their respective responsibilities. In addition to the relevant committee During 2019, the Audit Committee held four meetings. The following table illustrates the attendance for each member: members and the Company Secretary, external advisers and, on occasion, other directors and members of the senior management team can attend committee meetings, but only at Attendance Register during 2018 the invitation of the Chair of the relevant Committee. Members Attendance Rate February 5, 2019 April 24, 2019 September 18, 2019 December 9, 2019 Each Board Committee is responsible before the Board for its activities; however this does not relieve the Board of its Mrs. Sabah Khalil Almoayyed Attended Attended Attended Attended 100% responsibility for such activities, duties and powers that it has delegated to its Committees. Mr. Brian Norman Dickie Attended Attended Attended Attended 100% AC is responsible before the Ordinary General Assembly for performance of its roles and responsibilities, and shall Mr. Sunil Bhilotra Attended Attended Attended Attended 100% prepare an AC’s report, summary of which shall be read at the General Assembly. Mr. Adel Al-Maiman Attended Attended Attended Attended 100% The board committees contain sufficient number of Executives, Non-Executives and Independent Directors. The Chairman of the Mr. Khalifa Hassan Al Jalahma Temporary board members, have been appointed by the board on December 10, 2019 25% Board can be a member of Board Committees but not the Audit Committee and is not eligible to be a Chairman of NRC.
The Committees have full access to all employees, office The Audit Committee convenes quarterly conference calls or when required to follow up its activities and review the interim financial premises, records, systems, legal consultants, etc. in order to statements and other related topics. discharge their responsibilities.
4. Mrs. Sabah Khalil Almouyyed, is an independent board member, the chairwoman of the Audit Committee and specialist in finance and accounting matters. 5. The Board of Directors issued its acceptance of the resignation letter of Mr. Sunil Bhilotra (a non-executive director) from the Board and its committees for personal reasons. The resignation is effective as of the Board acceptance on 10 December 2019. 6. The Board of Directors accepted on December 10, 2019, the recommendation of the NRC to appoint Mr. Khalifa Hassan Al Jalahma as a non-executive Board Member and member of the AC. This appointment is effective from 10 December 2019. Board Approval May not be Deemed Final, this Appointment Shall Be Put before the First General Assembly Meeting for Approval.
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Conference Call Attendance Register During 2019 AUDIT COMMITTEE DUTIES 2. Review disclosures required to be included in financial Membership AND RESPONSIBILITIES statements in accordance with all regulatory requirements. Members Status Attendance Rate February 27, 2 019 July 25, 2 019 October 29, 2 019 The AC undertakes the full roles and responsibilities of an 3. Provide its technical opinion, at the request of the Board, Audit Committee as recommended by CGR as well as oversight regarding whether the Board’s report and the Company’s Mrs. Sabah Khalil Almoayyed Independent Attended Attended Attended 100% of the management of risk within the Company. The AC makes financial statements are fair, balanced, understandable and recommendations for approval to the Board of Directors or contain information that allows shareholders and investors Mr. Brian Norman Dickie Non-Executive Attended Attended Absent 71% shareholders, as appropriate. to assess the Company’s financial position, performance, business model and strategy. The AC oversees the financial reporting, risk management Mr. Sunil Bhilotra Non-Executive Attended Attended Attended 100% and the internal control systems of the Company to fulfil its 4. Accurately investigate any issues raised by the Company’s responsibilities and duties. The Committee shall: CFO or any person assuming his/her duties or the Company’s Mr. Adel Al-Maiman Non-Executive Attended Attended Attended 100% Compliance Officer or external auditor. WITH RESPECT TO THE EXTERNAL 5. Review with management, the external statutory auditor Mr. Khalifa Hassan Temporary board members, have been STATUTORY AUDITORS Al Jalahma Non-Executive appointed by the board on December 10, 2019 Attended N/A and the Company’s legal department, as appropriate, any 1. Provide recommendations to the Board to nominate legal, regulatory or compliance matters that could have a independent auditor, dismiss them, determine their significant impact on the Company’s financial statements, remunerations, and assess their performance after verifying i n c l u d i n g s i g n i fi c a n t c h a n g e s i n a c c o u n t i n g s t a n d a r d s On 19 February 2020, the Board of Directors has reviewed and approved the Audit Committee activities report 2019. their independence and review the scope of their work and or rules. the terms of their contracts. 6. Examine the accounting estimates and policies in respect of 2. Verify the independence of the external statutory auditor, its significant matters that are contained in the financial reports. objectivity, fairness, and effectiveness of the audit activities, taking into account the relevant rules and standards. 7. Obtain explanations from management for unusual variances in the Company’s annual financial statements 3. Supervise and be directly responsible for oversight of the from year to year, and annually review the external statutory work of the external statutory auditor (including resolving auditor’s letter of recommendations to management and disagreements between management and the external management’s response. statutory auditor regarding financial reporting) for the purpose of preparing its audit report or related work. WITH RESPECT TO THE INTERNAL AUDIT 4. Review with the external statutory auditor the audit plan, FUNCTION AND INTERNAL CONTROLS scope of work and approach and ensuring that it does not 1. Supervise Company’s internal audit function to ensure its provide any technical or administrative works that are beyond effectiveness in executing the activities and duties. its scope of work and providing its opinion thereon. 2. Recommend to the Board, the appointment and replacement 5. Have the sole authority to review in advance and recommend of the Chief Internal Auditor (“CIA”), and suggest his/ to the Board all auditing services to be provided by the her remuneration. The Committee shall also review the external statutory auditor (final approvals of such services qualifications of the CIA. rests with the Board). 3. Review the performance and effectiveness of the internal 6. Review and approve all non-auditing services to be provided audit function internally on an ongoing basis and externally by the external statutory auditor (which should be disclosed once every five (5) years. in the periodic reports). 4. Ensure the internal audit function is independent from 7. Review the external statutory auditor’s reports and its Executive Management; the internal auditor shall report comments on the financial statements, and following up the functionally to the Committee and administratively to the CEO. procedures taken in connection therewith. 5. On a regular basis, meet separately with the internal auditor WITH RESPECT TO FINANCIAL STATEMENTS to discuss any matters that the Committee or internal audit believes should be discussed privately. 1. Review and discuss with management and the external statutory auditor, the Company’s interim financial 6. Review and approve the internal audit plan and all major statements, and annual audited financial statements prior to changes to the plan. such statements being presented to the Board for approval. The Committee will give its opinion and recommendations to 7. Review the internal audit reports and pursue the the Board with respect to such statements to ensure their implementation of the corrective measures in respect of the integrity, fairness and transparency. comments included in such reports.
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WITH RESPECT TO RISK MANAGEMENT 1. Develop a strategy and comprehensive policies for risk 4. Pursuant to the CMA recommendation and listing rules, the management that are consistent with the nature and volume Committee obtained a written assurance letter from Grant of Company’s activities, monitoring their implementation and Thornton as External Auditor confirming their independence. reviewing and updating them based on Company’s internal The Committee agreed that the External Auditor is and have and external changing factors. been independent throughout the conduct of their audit engagement in accordance with the terms of all relevant 2. Ensure the feasibility of Company continuation, the professional and regulatory requirements and they have met successful continuity of its activities and determining the criteria of suitability. the risks that threaten its existence during the following twelve (12) months. 5. During the year, the AC reviewed GT’s consolidated audit scope and non-audit services and approved its fees. 3. Oversee Company’s risk management system and assess the effectiveness of the systems and mechanisms for determining 6. According to the Companies Law and Company’s by-laws, the and monitoring the risks that threaten the Company in order external auditor shall be appointed annually, provided that to determine areas of inadequacy therein. total appointment shall not exceed five consecutive years. Further to Article no. 81 of CGR that relates to appointment of 4. Provide recommendations to the Board on matters related to the external auditor, the number of nominees shall not be less risk management. than t wo audit firms. Accordingly, the AC requested proposals from other audit firms and received offers. After discussing 5. Receive bi-annual reports on incidents and complaints and and meeting with other audit firms, the AC nominated the ensure that any corrective actions taken following such following three audit firms to the General Assembly based incidents and complaints are adequate. on their experience, capabilities and reasonableness of their quoted fees: 6. Consider and agree any necessary action identified in the reviews following serious incidents or from reviews A. PKF -Ibrahim Ahmed Al-Bassam & Co. Certified Public undertaken by internal or external audits. Accountants
WITH RESPECT TO COMPLIANCE B. Baker Tilly MKM & Co. Certified Public Accountants 1. Review the effectiveness of the system for monitoring C. Grant Thornton - Aldar Audit Bureau Certified Public compliance with laws and regulations and the results of Accountants any management investigation and follow-up (including disciplinary action) of any instances of non-compliance. The Board approved this recommendation and recommended to the General Assembly to elect one of nominated audit firms 2. Obtain regular updates from management and Company’s and determine the remuneration of external auditor. legal counsel regarding compliance matters. 7. There is no conflict between the AC’s recommendations and 3. Review the contracts and proposed related party Board resolutions during 2019. transactions and provide its recommendations to the Board in connection therewith. THE FOLLOWING IS SUMMARY OF AC'S ACTIVITIES DURING 2019 1. Reviewed the consolidated interim financial statements and recommended to the Board to approve.
2. The AC reviewed the 2019 Consolidated Financial Statements in conjunction with the external auditor, Grant Thornton (“GT”). Based on this review and discussions with management, the AC was satisfied that the Consolidated Financial Statements were prepared in accordance with applicable accounting standards in KSA (International Financial Reporting Standards approved by SOCPA) and fairly present the Group’s financial position and results of its operations for the year ended 31 December 2019. The AC therefore recommended the Consolidated Financial Statements for the year ended 31 December 2019, to be approved by the Board and General Assembly.
3. Reviewed and approved the annual Board of Directors’ report prior to presentation to the Board for approval and subsequent dispatch to the shareholders.
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RESULTS OF ANNUAL INTERNAL The following are the results of the annual review of the AUDIT PROCEDURES effectiveness of the internal control systems and procedures of the Company and the opinion of the AC with respect to the INTERNAL CONTROL SYSTEM adequacy of Company’s internal control system for the year ended 31 December 2019: The Board shall approve an internal control system for the Company in order to assess the policies and procedures relating 1. The Group’s risk management and internal control systems to risk management, implementation of the provisions of the were effective. Company’s governance rules approved by the Company and compliance with the relevant laws and regulations. Such system 2. The Group had adopted the necessary control mechanisms to shall ensure compliance with clear accountability standards monitor and correct non-compliance. at all executive levels in the Company, and that Related Party transactions are implemented in accordance with the relevant 3. The Group had satisfactorily complied with the requirements provisions and controls. of the CGR in respect of risk management and internal control systems. The management’s confirmation was endorsed by the Committee and submitted to the Board. BOARD OF DIRECTORS' ROLE RELATED TO INTERNAL CONTROL SYSTEMS BOARD OF DIRECTORS CONFIRMATION The Board of Directors is committed to ensure that the internal audit which is functionally linked to the AC is one of the necessary The Board of Directors, based on the reports and tools to control, improve, and supervise performance in order to recommendations of the AC, confirms the following in respect improve internal policies, practices and corporate governance. of the year 2019: The basic functions of the Board of Directors in internal audit matters include: • That no matters were brought to the Board’s attention that would lead the Board to believe that there was a fundamental 1. To ensure the safety of financial and accounting lack of safety in financial and accounting systems. systems including systems related to the preparation of financial reports. • That the control systems are effectively functioning and facilitating the mitigation of potential risks that L’azurde and 2. To ensure the application of a transparent control system for its subsidiaries may face; and that no matters relating to the risk management by selecting the general perception of risks functioning of internal controls were brought to the Board’s that may face L’azurde and its subsidiaries. attention that would require disclosure.
3. To conduct annual audit of the effectiveness of internal • That all necessary arrangements and corrective actions control systems and procedures within L’azurde and have been taken on all notes and recommendations raised by its subsidiaries. internal and external audit to the AC.
EFFECTIVENESS OF INTERNAL CONTROL INTERNAL AUDIT ACTIVITIES SYSTEMS AND PROCEDURES All internal audit activities are conducted by the internal The Board, through the AC, has conducted a robust assessment audit team or outsourced under the leadership of the Chief of of the Group’s principal risks and the Group’s internal control Internal Audit, who reports to the Chief Executive Officer but framework and has considered the effectiveness of internal has an independent reporting line to the Chairman of the Audit control across the Group for the year covered by the Annual Committee. Internal audit adopts a risk-based approach to Report and Accounts and up to the date of its approval by developing the annual audit plan which involves undertaking the Board. a ‘mapping’ exercise between the principal risks, the potential impact on the achievement of the Group’s strategic objectives. This covered the material controls including financial, operational and compliance controls and risk management arrangements. An internal audit function assesses and monitors the The system of internal controls is designed to manage rather implementation of the internal control system and verifies that than eliminate the risk of not achieving business objectives and the Company and its employees comply with the applicable can only provide reasonable and not absolute assurance against laws, regulations and instructions and the Company’s policies material misstatement or loss. and procedures.
There are a range of responsibilities and reporting lines involved in the efficient running of risk management system at L’azurde. POLICIES The AC directly supervises the internal audit at L’azurde. The internal audit department regularly examines and assesses the AND CODE OF efficiency and effectiveness of the internal control systems. GOVERNANCE
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FINANCIAL REPORTING ACTIVITIES 2. EXECUTIVE COMMITTEE Excom meetings during 2019:
Management is responsible for establishing and maintaining The CGR issued by the CMA recommend that the Board of adequate internal controls over financial reporting. These Directors may form specialized committees to address business Conference Call Attendance Register During 2019 controls are designed to provide reasonable assurance regarding needs as appropriate. The Board of Directors of L’azurde has the reliability of financial reporting and the preparation of Members Attendance Rate formed an Executive Committee (“Excom” or the “Committee”) February 6, 2 019 April 24, 2 019 September 18, 2019 December 10, 2 019 financial statements for external reporting purposes. with the following objectives:
The Group has comprehensive planning, budgeting, forecasting 1. To recommend and monitor implementation of Company’s Mr. Brian Norman Dickie Attended Attended Attended Attended 100% and monthly reporting processes in place. A summary of the strategies, future plans, policies and internal regulations. Group’s financial results is provided to the Board each month. Mr. Abdullah Al Othaim Attended Attended Absent Attended 75% 2. To recommend and monitor implementation of Company’s The reporting process is supported by transactional and investment projects and objectives. consolidation finance systems. Reviews of controls are carried Mr. Selim Chidiac Attended Attended Attended Attended 100% out by senior finance management. The results of these reviews 3. To monitor Company’s budgets and performance. are considered by the Board as part of its monitoring of the performance of controls around financial reporting. 4. To approve certain matters on behalf of the Board up to the Mr. Sunil Bhilotra Attended Attended Attended Attended 100% level of delegation of authority provided to the Committee by The Audit Committee reviews the application of financial the Board. reporting standards and any significant accounting judgments made by management. These matters are also discussed with 5. To address specific tasks delegated to the Committee by the the external auditor. Board where further detailed study and analysis is needed. The Executive Committee convenes quarterly conference calls 7. Review Company’s performance at each Executive or when required to follow up its activities, business operations Committee meeting and assess performance against The Annual Financial Statements, taken as a whole, are required Excom is considered as a Board Committee and reports directly and other related topics. targets; analyse and make enquiries about underlying to be fair, balanced and understandable and provide the to the Board of Directors through its Chairman. The Committee’s factors, trends and major developments and advise information necessary for shareholders to assess the Group’s Chairman brings to the attention of the Board any matters On 19 February 2020, the Board of Directors has reviewed and management accordingly. position and performance, business model and strategy. The requiring Board approval and/or action in the earliest scheduled approved the annual activities report for the Executive Committee Board is satisfied that it has met this requirement. board meeting. In performing its duties, the Committee shall and its recommendations during 2019. 8. Review Company’s performance on a monthly basis against have direct access to the resources of the Company as it may agreed objectives and budgets, based on an agreed set of reasonably require and shall seek to maintain effective working RESPONSIBILITIES AND DUTIES reports to be supplied monthly by Company management relationships with management. and alert management and the board of any significant Without prejudice to the powers reserved to the Board, the developments observed. If necessary, request the Company’s Executive Committee shall have all the necessary powers and management to convene an additional committee meeting. authorities to undertake the following tasks: 9. Review and assess the Company’s business plan and The following table illustrates the names, positions and attendance of Excom members: 1. Prepare and recommend to the Board the strategies, future annual budget and submit recommendations to the Board in plans, policies, and internal regulations of the Company and connection therewith. its subsidiaries and supervise implementation thereof. 10. Provide advice to the Board on the setting of dividends, Members Position Board Membership Status 2. Submit recommendations to the Board in connection with taking into account any recommendations made by the Audit adopting the Company’s investment projects and objectives Committee in this regard. Mr. Brian Dickie Chairman of the Executive Committee Non-Executive and supervise implementation thereof. 11. Review policies and procedures developed by Executive 3. Appoint external parties to provide consultancy services Management but do not approve anything requiring Mr. Sunil Bhilotra (7) Member of the Executive Committee Non-Executive to L’azurde. Board approval.
Mr. Abdullah Al Othaim Member of the Executive Committee Non-Executive 4. Approve the opening and closure of new retail shops. 12. Carry out other specific requests from the Board of Directors. 5. Approve the set-up of new subsidiaries. Mr. Selim Chidiac Member of the Executive Committee Executive 6. Approve capital expenditures not adopted in Company’s annual budget with a value not exceeding five hundred 7. The Board of Directors issued its acceptance of the resignation letter of Mr. Sunil Bhilotra (a non-executive director) from the Board and its committees for personal reasons. The thousand Saudi Riyals (SAR 500,000) for each case and resignation is effective as of the Board acceptance on 10 December 2019. which total value do not exceed two million Saudi Riyals (SAR 2,000,000) during each financial year.
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3. NOMINATIONS AND NRC meetings during 2019: REMUNERATION COMMITTEE WITH RESPECT TO NOMINATION The Nominations and Remuneration Committee (“NRC” or the “Committee”) has been established by the Board for the primary • To suggest policy and criteria for membership of the Board. Attendance Register During 2019 objective to assist with recommending candidates for nomination Members Attendance Rate February 6, 2 019 April 24, 2 019 September 19, 2019 December 9, 2 019 or re-nomination to the Board; recommending remuneration • To recommend to the Board on candidates for nomination or policy and individual remuneration packages for Board re-nomination to the Board and Company’s Committees. members, Committee members and Executive Management; Mr. Abdul Kareem Abu Al Nasr Attended Attended Attended Attended 100% and various matters related to performance evaluation of the • To assess various matters related to nomination and performance of the Board, it’s Committees and Executive Board, Company’s Committees and Executive Management. Mr. Brian Dickie Attended Attended Attended Attended 100% Management and provides recommendations to the Board. NRC is considered a Board Committee and reports directly to the Board of Directors through its Chairman. The Committee’s • Review Board of Directors succession plans. Mr. Abdullah Al-Othaim Attended Attended Attended Attended 100% Chairman brings to the attention of the Board any matters requiring Board approval and/or action in the earliest scheduled • Recruitment, retention, and termination policies for the board meeting. Executive Management. Mr. Adel Al-Maiman Attended Attended Attended Attended 100%
The Committee shall be comprised of not less than three WITH RESPECT TO REMUNERATION (3) members, two (2) of non-executive Directors and one (1) • To recommend to the Board, the remuneration policy The NRC convenes quarterly conference calls or when required to follow up its activities and other related topics. During 2018 the Independent Board member. The Chairman shall be from committee held four conference calls: Independent Directors. Executive Directors are not eligible for for the Board members and its Committees and the Committee membership. Executive Management.
Members of the Committee shall be appointed by the Board • To recommend individual remuneration packages for Board Conference Call Attendance Register During 2019 of Directors for a term coinciding with the term of the members and its Committees and the Executive Management Members Attendance Rate Board of Directors. in accordance with the established policy. February 5, 2 019 February 18, 2 019 March 3, 2019 October 29, 2 019
In performing its duties, the Committee shall have direct access • To highlight any material deviations from the established Mr. Abdul Kareem Abu Al Nasr Attended Attended Attended Attended 100% to the resources of the company as it may reasonably require policy and periodically reviewing the policy. and shall seek to maintain effective working relationships with management. The following are key objectives: • Incentive schemes. Mr. Brian Dickie Attended Attended Attended Attended 100% • Retirement arrangements. Mr. Abdullah Al-Othaim Attended Attended Attended Attended 100%
Mr. Adel Al-Maiman Attended Attended Attended Attended 100% During 2019, the NRC held (3) meetings and (4) conference calls. The below tables illustrate the names, positions and attendance of the Committee members:
On 19 February 2020, the Board of Directors has reviewed and approved the annual activities report for the NRC and its recommendations during 2019.
Members Board Membership Status Position
Member of the Nominations Mr. Abdul Kareem Abu Al Nasr Independent and Remunerations Committee
Member of the Nominations Mr. Brian Dickie Non-Executive and Remunerations Committee
Member of the Nominations Mr. Abdullah Al Othaim Non-Executive and Remunerations Committee
Member of the Nominations Mr. Adel Al-Maiman Non-Executive and Remunerations Committee
106 107 NOMINATIONS AND REMUNERATION COMMITTEE REPORT 2019 SUMMARY OF WORK • Appointment of an executive search firm to identify possible During 2019, the activities undertaken by the NRC were as future independent directors and review of potential THE NOMINATIONS AND REMUNERATION COMMITTEE follows: candidates. The Nominations and Remuneration Committee (“NRC” or the “Committee”) is appointed by and operates under the delegation of the • Review and approval of nominations to positions on the Board • Appointment of a specialist consulting firm to perform Board of Directors under the terms of its Charter which was approved by the Board of Directors in compliance with the guidance and of Directors and its Committees for the consideration of the evaluations of senior management and review of the results regulation of the CMA. Board, including acting appointments for positions vacated of this assessment. during the year The members of the Committee during 2019 were: • Completion and reporting of the Board Self-Assessment • Approval of compensation actions involving members of Process and the Assessment of the Chairman for 2018. senior Executive management. • Initiation of the Board Self-Assessment Process for 2019. Members Position Status • Approval of salary guidelines and bonus pools for staff other All of the duties undertaken by the Committee were performed in than senior Executive management. accordance with the Company’s Corporate Governance Manual • Approval of performance KPI’s for senior management in 2019. and, in the case of compensation actions, in accordance with Mr. Abdul Kareem Abu Al Nasr Chairman Independent Director well-established policies and processes, and with due notice of • Ratification of the appointment of a new GM, Marketing market conditions and practices. Mr. Brian Dickie Member Non-Executive Director • Review of an exit interview performed by a member of the CHANGES TO THE COMMITTEE FOR 2020 Committee of the departing, previous GM, Marketing. Mr. Abdullah Al-Othaim Member Non-Executive Director • No changes in Committee membership are planned for 2020. • Approval of several other management appointments and
Mr. Adel Al-Maiman Member Non-Executive Director organization changes, including a broad restructuring of KSA operations. Abdul Kareem Abu Alnasr, Chairman • Review of Saudization compliance. MEETINGS • Continued work on succession planning for both the The committee meets at least twice per year with additional meetings and Conference Calls held as and when necessary. The Management organization and the Board of Directors. committee held seven meetings whether through physical meeting or Conference Calls during the year 2019. The Company’s Chief Executive Officer was invited to the meetings when required, to facilitate direct communication as well as to provide clarification on compensation and related personnel matters. D. BOARD AND EXECUTIVE MANAGEMENT REMUNERATION
BOARD OF DIRECTORS AND EXECUTIVES 3. Motivating the Members to achieve the Company’s business NUMBER OF MEETINGS REMUNERATION POLICY strategy and objectives. The details of attendance of the committee members during the financial year 2019 are as follows: The purpose of remunerations policy is to regulate and set 4. Aligning the interests of the Members with the long term clear standards regarding the remuneration of the members interests of the Company and its shareholders. of the Board of Directors, its Committees and executives’ management of L’azurde Company for Jewlery. B. The remuneration of Members and executives shall be Members Number of NRC meetings Number of meetings attended determined based on the following principals: held during the year by NRC members The remunerations policy of the Board, its committees and executive management has been prepared in accordance with 1. The remuneration shall be fair, proportionate and reasonably Mr. Abdul Kareem Abu Al Nasr 7 7 the requirements of Companies’ Law and Corporate Governance sufficient to attract, retain and motivate Members with the Regulation (CGR). appropriate level of experience and qualification.
Mr. Brian Dickie 7 4 This policy is active and applied since 2016 but the General 2. The sector in which the Company operates, the size of the Assembly approved such remunerations policy on 8 January Company and the Company’s annual objectives shall be 2018 as required by new CGR. taken into consideration in determining the remuneration. Mr. Abdullah Al-Othaim 7 7 3. To the extent appropriate, the remuneration shall be 1.POLICY OBJECTIVES AND PRINCIPLES Mr. Adel Al-Maiman 7 7 in line with the remuneration received by directors in A. The remuneration of board members and executives shall comparable companies. be determined with the and executives shall be determined with the view of achieving the following objectives: 4. The experience, competencies, efforts, contributions, scope of work and record of attendance of each Member shall be 1. Enabling the Company to maintain a Board of Directors with taken into consideration in determining the remuneration. the appropriate level of experience and qualification. 5. The remunerations of the members and executives may be 2. Supporting the Company in adapting to the competitive paid monthly, quarterly or annually. pressures of the sectors in which it operates. 6. In accordance with Company’s by-laws, Companies’ Law and CMA instructions related to listed companies.
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2. RULES OF REMUNERATION DETERMINATION REMUNERATION OF BOARD MEMBERS The following table illustrates details of remunerations and compensations paid to Directors and top five Senior Executives during 2019: A. The remuneration of all Board Members shall be AND EXECUTIVES FOR 2019 recommended by the Board of Directors to the Company’s Members of the Board of Directors do not receive any annual General Assembly of shareholders for approval on an annual remuneration for their role in managing the Company unless 1. BOARD RENUMERATIONS basis based on the recommendation of the Company’s NRC. approved by the General Assembly. During 2019, only independent board members and only one of non-executive member have B. The recommendations of the NRC and the Board of Directors deserved remunerations based on board of directors and shall be in compliance with the applicable laws, regulations executives remunerations policy and NRC recommendation. Fixed remunerations Variable remunerations and Company’s by-laws. More details are available in the below tables.
C. The remuneration of Members could be in the form of specific Independent Directors receive a fixed remuneration based on the cash payments, in-kind benefits, attendance allowances, General Assembly approval on 24 April 2019; to maintain their a percentage of the Company’s annual net profits or a independence as recommended by CMA Guidance regarding Board Member Name combination of any of the foregoing. corporate governance implementation, where independent Total Total director remuneration should not link to Company’s profit. End of Service Actual Expenses Actual
D. Determine all paid amounts, allowances, dividends and the Aggregate Amount Granted shares In-kind benefits Board meetings like, periodic or annual bonuses, based on job level, duties Mr. Brian Dickie, a non-executive director, has a consultancy amount Specific committee meetingscommittee Remunerations of the the Remunerations of Allowance attending for Periodic remunerationsPeriodic Percentage of the profits
and responsibilities, educational qualifications, practical or Secretary, if a member Long-term incentive plans
agreement for a year that is approved by General Assembly on 24 Short-term incentive plans Remunerations for technical, technical, Remunerations for Total Allowance attending for Total experience, skills and level of performance; except the actual chairman, Director Managing
April 2019. For more details about this agreement refer to related work consultative and managerial reasonable expenses and fees incurred by the company to party transactions section. enable the Board member to perform his duties. First Independent Directors: Except for the remuneration of Mr. Brian Norman Dickie, a non- E. Where the remuneration of Members is distributed as a executive board member, the remaining non-executive members Mr. Abdul Kareem 200,000 21,000 ---- 221,000 ------221,000 - percentage of the Company’s net profits, the maximum total did not get any remuneration during the year. Assad Abu Alnasr annual remuneration may not exceed 5% of the Company’s Mr. Amin Mohamed net profits after deducting the relevant reserves and after Mr. Selim Chidiac, an executive board member, is also the Chief Akef Al-Maghrabi 200,000 15,000 ---- 215,000 ------215,000 - distributing profits to the Company’s shareholders at a Executive Officer of the Company. He does not get any additional Mrs. Sabah Khalil minimum rate of 5% of the Company’s paid-up capital. compensation for being a Board Director. All his compensations Almouyyed 200,000 16,500 ---- 216,500 ------216,500 - related to his position as Chief Executive Officer as per his F. Board member remuneration against his/her role as member employment agreement. Total 600,000 52,500 ---- 652,500 ------652,500 - of Board and Committees formed by the Board shall not exceed five hundred thousand Saudi Riyal. The Senior Executives, including the Chief Executive Officer and Second Non-Executive Directors: the Chief Financial Officer, receive remunerations according G. Board member may receive additional remuneration, to their employment contracts and Board of Directors and Mr. Mohammed Ebrahim Juma ------which shall not be subject to the maximum limit of five Executives Remuneration policy. Al Shroogi hundred thousand, Saudi Riyal for his/her membership in the Audit Committee formed by The General Assembly. Mr. Abdullah Abdulaziz Saleh Al Othaim ------Also any additional executive, technical, managerial or consultative duties carried out by the Board member should Mr. Brian Norman 400,000 --- 502,500 - 902,500 ------902,500 - be remunerated in addition to the Remuneration he/she Dickie
may receive in his/her capacity as a member in the Board Mr. Sunil Bhilotra ------and in the committees formed by the Board, pursuant to the Companies’ Law and the Company’s by-laws. Mr. Khalifa Al Jalahma ------
H. The remuneration of independent Members shall not be in Mr. Adel Abdullah the form of a percentage of the Company’s net profits and Al-Maiman ------shall not be, directly or indirectly, based on the profitability of the Company. Total 400,000 --- 502,500 - 902,500 ------902,500 -
I. Board members shall not vote on the agenda item relating Third Executive Directors: to the Remuneration of Board members at the General Assembly’s meeting. Mr Selim Chidiac 2,472,996 ----- 2,472,996 -- 551,250 -- 551,250 200,081 3,224,327 -
J. The Remunerations of different Board members may vary Total 2,472,996 ----- 2,472,996 -- 551,250 -- 551,250 200,081 3,224,327 - depending on the Board members’ experience, expertise, duties he/she undertakes and independence and number of Board meetings he/she attended in addition to other considerations. Worthy to mention the following: K. If it is evidenced to the audit committee that the Remuneration • There is no substantial deviation between the remuneration given to Board members, committee members and senior executives on related compensation policies in force. paid to any Board member was based on false or misleading information presented to the General Assembly or included • There are no arrangements or agreement whereby any Board member, committee members and senior executives waive any remuneration. However, directors’ remuneration is determined based on the remunerations policy for the Board of Directors and executives and NRC recommendation. in the annual Board report, the Board member shall return such Remuneration to the Company, and the Company may • There is no arrangement or agreement whereby any of the Company’s shareholders waives rights in dividends. request such Board member to return such Remuneration. • Except above mentioned personnel, the Company has not paid any compensation to rest of the non-executive board members. • There are no written arrangements or agreements under which a director or a senior executive of the Company has waived any salary or compensation.
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2. REMUNERATIONS OF SENIOR EXECUTIVES E. BOARD MEMBERS AND EXECUTIVES OWNERSHIP • The most Senior Executives, including the Chief Executive Officer and the Chief Financial Officer, receive remuneration based on the remunerations policy for the Board of Directors and executives and NRC recommendation.
The following table illustrates details of remuneration and compensation paid 1.BOARD MEMBERS to Senior Executives during 2019 (including CEO and CFO): The following table illustrate shares held by Board Members, their spouses and minors and any changes which have occurred during 2019:
Total Aggregate End-of- remunerations Fixed remunerations Variable remunerations service for Board Amount award executives, if any Number of Net change Change % Member Name Note Number of shares at the shares at the beginning of the year end of the year
Total Total Mr. Abdullah Abdulaziz Salary Profits In-kind In-kind Granted benefits
Periodic Periodic Personal ownership 41,000 41,000 -- 0%
the value) the Al Othaim Long-term Short-term Allowances shares (insert remunerations incentive plans incentive plans
Top Five Executives Total ------Remuneration 2019 There is an internal system to notify and improve the directors’ During 2019, L’azurde had the following related 477,588 7,709,820 1,861,880 1,861,880 2,393,940 5,315,880
10,049,288 awareness regarding the restriction periods during which Board party transactions: members are not allowed to deal in Company’s shares, as per article 69 of Rules of Offering and Continuing Obligations. A. During 2019, a consultancy agreement between the Company - - - - - Top Five Executives Total - Remuneration 2018 and Mr. Brian Norman Dickie, a non-executive board member 475,524 1,174,906 1,174,906 9,137,446 7,487,016 5,396,172 2,090,844 The Internal audit and compliance function regularly sends with total fees of SAR 502,500, was approved by the General alerts and notifications to the board members regarding the Assembly. The main scope of this agreement is to advise the Note: Company maintained car and actual mobile phone expenses rules of trading in Company’s shares and the restriction periods. Chief Executive Officer and top management of the Company in relation to Company’s strategy, financial performance and There is an internal policy to improve the awareness of Company operations. This Agreement is subject to annual review and 3. COMMITTEES MEMBERS REMUNERATIONS employees regarding Market Conducting Rules and directs approval by the General Assembly of the Company. all restricted persons to stop any direct or indirect trading in Company securities based on internal information, prohibits B. There are fixed paid remuneration to some directors based Fixed Remuneration Allowance for attending disclosing any internal information to any external party for the on internal directors and executives remunerations policy. (Except for the allowance for Board meetings Total attending Board meetings) purpose of trading in Company’s securities. Restricted persons Details of these remunerations have been disclosed in 2019 include all L’azurde Group employees including Key Management annual report as required by Article no (76) of Companies Audit Committee Members Personnel, Executives and senior employees of the Company and Law and Corporate Governance Regulation. its subsidiaries. Mr. Brian Norman Dickie - - - C. Independent members of the Board of Directors received
Mr. Sunil Bhilotra - - - 2.OWNERSHIP OF SENIOR MANAGERS, fixed remuneration based on their agreement and directors SPOUSES AND MINORS and executives remunerations policy as approved by Mrs. Sabah Khalil Almouyyed 200,000 16,500 216,500 the General Assembly on 8 April 2018. In line with the None of the senior managers, spouses and minors have any recommendations of the Capital Market Authority, these Mr. Adel Abdullah Al-Maiman - - - interests in Company’s shares. According to the internal policy remunerations were not linked to Company’s profits, in “dealing in L’azurde securities” all employees and their family order to maintain directors’ independence. Except for the Total 200,000 16,500 216,500 members are restricted persons and must not trade in Company’s remuneration of Mr. Brian Norman Dickie, a non-executive shares, based on internal information, whether by themselves or Nomination & Remuneration board member, the remaining non-executive members did Committee Members through any member of their family or other related party over not get any remuneration during the year. which they have influence or control. Mr. Abdullah Abdulaziz Saleh Al Othaim - - - D. There are some transactions with L’azurde Holding Company RELATED PARTY TRANSACTIONS in form of services and payments on behalf. Mr. Brian Norman Dickie - - - Related parties include major shareholders, board members E. As per annual declaration received from all board members Mr. Selim Chidiac - - - and seniors executives of the Group and entities controlled or for 2019, and except for above mentioned, none of the board Mr. Abdul Kareem Assad Abu Alnasr 200,000 16,500 216,500 significantly influenced by such parties. members have any interest, whether financial or non- financial, direct or indirect, in the businesses and contracts Total 200,000 16,500 216,500 L’azurde Corporate Governance Manual guards against conflicts that are related to the Company’s operations. of interest and remedies potential conflict situations for Executive Committee Members directors, executives and shareholders. The General Assembly F. None of the board members had any participation, directly shall be notified of any conflict of interest where request of or indirectly, in any businesses that may compete with the Mr. Abdullah Abdulaziz Saleh Al Othaim - - - approval should be raised. Company or lead to competing with the Company, directly or Mr. Sunil Bhilotra - - - indirectly, in respect of any of its activities.
Mr. Brian Norman Dickie - - -
Mr. Selim Chidiac - - -
Total - - -
112 113 04 | CORPORATE GOVERNANCE POLICIES AND CODE OF GOVERNANCE
Following are the details of the related party balances as at end of the year and the related party transactions during the year: DISCLOSURE AND TRANSPARENCY POLICY L’azurde seeks to provide accurate and regularly updated • Personal information about L’azurde employees, Board information to all its stakeholders and other interested parties. members or other individuals where to do so may be in breach Amount of Transactions Balances This policy reflects L’azurde current activities and will be updated of data protection principles. as and when those activities change. Member Name Nature of Transactions 2019 2018 2019 2018 • Where disclosure would or would be likely to prejudice L’azurde publishes and regularly updates information about its SAR SAR SAR SAR the investigation, prevention or detection of crime, or the corporate structure and operations, partners, investments and administration of justice. Due from related parties: other commercial activities and performance related information. As a publicly listed company, L’azurde also recognizes its • When information is subject to legal privilege. - - obligation to respond appropriately to legitimate questions from L’azurde Holding Company Services and payment on behalf 333,746 250,444 investors, consumers, customers, government, the media and other stakeholders. BOARD DECLARATIONS Due from related parties: The Board of Directors has taken care to ensure the professional L’azurde understands the needs of shareholders to information per formance of the Company during 2019 and cer tifies the following: Other Affiliates: to make informed decision. Accordingly, L’azurde discloses information as required and when allowed by related regulations 1. There are no equity shares or debt instruments belonging Board of Directors, except Re-numerations 1,485,500 1,502,557 - 385,762 using appropriate disclosure methods that enable the shareholders to subsidiaries. an Executive Director and other stakeholders to access the financial and non-financial information pertaining to the Company’s performance and 2. There were no convertible debt instruments or any securities Director Consultancy 502,500 502,500 - 125,625 information in respect of ownership of shares and to obtain a or contractual rights of initial public offering or similar rights comprehensive view of the Company’s position. issued or granted by L’azurde or its subsidiaries during 2019 and there was no compensation obtained by L’azurde in return. All disclosures to shareholders and investors are made without INDEPENDENT LIMITED REVIEW REPORT ON THE PERSONAL BENEFITS OF MEMBERS OF THE discrimination in a clear, correct and non-misleading fashion 3. There were no rights of conversion or initial public offering and in a timely, regular and accurate manner in order to enable BOARD OF DIRECTORS RELATED TO DEALINGS AND CONTRACTS EXECUTED ON BEHALF OF under convertible debt instruments or any securities or shareholders and other Stakeholders to exercise their rights to THE COMPANY PURSUANT TO THE PROVISIONS OF ARTICLE 71 OF THE COMPANIES LAW: contractual rights of initial public offering or similar rights the fullest extent. issued or granted by L’azurde or its subsidiaries during 2019.
To the Shareholders of Information disclosed by L’azurde under this policy is available 4. No redemption, purchase, or cancellation by L’azurde or any on various websites including the Company’s website L’azurde Company for Jewelry of its subsidiaries of any redemption of debt instruments (www.lazurde com) and the Saudi Stock Exchange (Tadawul) occurred during 2019. (Saudi Joint Stock Company) website (www.tadawul.com.sa). Riyadh – Kingdom Saudi Arabia 5. There were no substantial operational conflicts of interest The following information is updated and published annually or during 2019, other than what has been disclosed. as required by the law and relevant rules and regulations. This is Scope: not an exhaustive list; other useful information is also disclosed 6. We did not receive a request from the Independent Auditors to We have performed a limited review on the enclosed notification as submitted by the Chairman of the Board of Directors of L’azurde as required: call a meeting of the General Assembly during 2019. Company for Jewelry (the “Company”) to the Annual General Assembly related to dealings and contracts carried out on behalf of the • Board Members. Company where a member of the Board of Directors has direct or indirect interest. The management of the Company is responsible 7. We did not receive a request from shareholders owning 5% or more of the Company’s share capital to call a meeting of the for preparing the enclosed notification. We have performed the limited review in accordance with the International Standard number • Board Committee Membership. 3000 (Assurance Engagements Other than Audits or Reviews of Historical Financial Information) endorsed by the Saudi Organization General Assembly during 2019. for Certified Public Accountants. • Board Reports. 8. There was no procedure that might lead to obstruction of the shareholders’ rights of voting. We are committed to independency and other requirements promulgated by the International Ethics Standard Board of Accountants • Quarterly Reports and Financial Statements. (IESBA), which have been established based on fundamental principles of integrity, objectivity, professionalism, due diligence, 9. There were no significant events affecting the integrity of the confidentiality and professional conduct. • Annual Reports and Financial Statements. financial position of the Company after the Financial Year 2019 requiring disclosure, other than information that is available Our limited review included procedures that we considered necessary to obtain reasonable degree of assurance to arrive at the • Accounting Policies. and declared. conclusion of our limited review. • Related Party Transactions. 10. The Company did not provide loans or credit facilities to any Our limited review is substantially less in scope than a review, the objective of which is the expression of an opinion on the enclosed member of the Board of Directors. notification as submitted by the Chairman of the Board of Directors of the Company to the Annual General Assembly related to • Review of Principle Activities. dealings and contracts carried out on behalf of the Company where a member of the Board of Directors has direct or indirect interest. 11. Proper books of account have been maintained. Accordingly, we do not express such an opinion. • Auditors Report. 12. The System of Internal Control is sound and has been Conclusion: In the following circumstances, L’azurde will not routinely publish information: effectively implemented. Based on our limited review, and except as disclosed in the enclosed notification as submitted by Chairman of the Board of Directors, • Where disclosure would or would be likely to, prejudice the 13. There are no significant doubts concerning L’azurde ability to nothing came to our attention that caused us to believe that any of the Company’s members of the Board of Directors have personal commercial interests of L’azurde, its business partners or continue as a going concern. interest in the dealings and contracts carried out on behalf of the Company during the year ended 31 December 2019. other third parties and where the public interest in disclosure 14. All published information by the Company, whether directly or Aldar Audit Bureau does not outweigh the public interest in maintaining the exemption. indirectly, is accurate and true statement of material fact or Abdullah Al Basri & Co. a statement of opinion not for the purpose of influencing the • When information has been given to L’azurde in confidence share price. and where disclosure could give rise to an action for breach Abdullah M. Al Basri Riyadh of confidence. Corresponding to: (License No. 171)
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IMPLEMENTED AND NON-IMPLEMENTED PROVISIONS OF CORPORATE GOVERNANCE REGULATIONS AND RELATED JUSTIFICATIONS
This report sets out the Board’s approach and work during the financial year 2019 includes details of how the Company has applied and complied with the principles and provisions of the Corporate Governance Regulation issued by the Capital Market Authority. The directors consider that the Company has complied with the provisions of the regulation throughout the year, except the following articles:
No. Article/Subject Description Note Reasons for non-implement
The Audit Committee has been appointed by the General Assembly to monitor the Company’s financial The Company’s Board shall, by resolution there from, reporting, internal and external audit and ensures Article 70 - Composition of the form a committee to be named the “risk management compliance with applicable laws and regulations. Risk Management Committee committee.” Chairman and majority of its members Furthermore, the General Assembly based on shall be Non-Executive Directors. The members of that the Board recommendation, delegated the Audit Article 71 - Competencies of the committee shall possess an adequate level of knowledge Committee to undertake responsibilities for oversight Risk Management Committee Guiding 1 in risk management and finance. Article of Company’s risk management. All competencies of Article 72 - Meetings of the Risk Competencies of the Risk Management Committee: risk management committee as mentioned in article Management Committee 71 have been assigned to the Audit committee. The risk management committee shall convene periodically at least once every six months, and as may According to Corporate Governance practices, it’s be necessary. permissible for formed committees to practice duties and responsibilities of other optional committees that stipulated in guiding articles.
The company is developing and encouraging the The Company shall establish programmes for developing participation and performance of the Company’s and encouraging the participation and performance employees through holding specialised workshops of the Company’s employees. The programmes shall to hear the opinions of the Company’s employees particularly include the following: and discuss the issues and topics that are subject to 1. Forming committees or holding specialized important decisions. workshops to hear the opinions of the Company’s The company has not established a scheme for granting employees and discuss the issues and topics Company shares or a percentage of the Company’s Guiding profits and pension programs for employees. However, 2 Article 85 - Employee Incentives that are subject to important decisions. 2. Establishing a scheme for granting Company Article the topic is part of the NRC plan for study during 2020 shares or a percentage of the Company profits and and its recommendation will presented to the board. pension programmes for employees and setting The current bylaws has been updated by adds new up an independent fund for such programme. article related to buy-back company shares which 3. Establishing social organizations for the empower the company to buy-back its shares for the benefit of the Company’s employees. purpose of allocating them to the employees of the Company as part of an Employee Share Program. This update has been approved by the General Assembly on 24 April 2019.
The Ordinary General Assembly, based on the Board recommendation, shall establish a policy that The Social Responsibility Policy is under preparation 3 Article 87 - Social Responsibility guarantees a balance between its objectives and those of Guiding by management and expected to be endorsed by the the community for purposes of developing the social and Article board during the year 2020 then presented to the economic conditions of the community. general assembly for approval.
The Board shall establish programmes and determine the necessary methods for proposing social initiatives by the Company, which include: 1. Establishing indicators that link the Company’s performance with its social initiatives and comparing it with other companies that engage in similar activities. The requirements of article no. (88) - Social Initiatives 2. Disclosing the objectives of the Company’s social Guiding - are under study by management and executive 4 Article 88 - Social Initiatives responsibility to its employees and raising their Article committee, their recommendation will be presented to awareness and knowledge of social responsibility. the board of directors during 2020. 3. Disclosing plans for achieving social responsibility in the periodical reports on the activities of the Company’s. 4. Establishing awareness programmes to the community to familiarise them with the Company’s social responsibility.
The board established governance rules for the Company in accordance with the provisions of If the Board forms a corporate governance committee, Corporate Governance Regulation issued by CMA. The it shall assign to it the competences stipulated in board is monitoring their implementation, verifying Article 95 - Formation of a Article (94) of these Regulations. Such committee shall Guiding their effectiveness, and amending them as necessary 5 Corporate Governance Committee oversee any matters relating to the implementation of Article based on recommendations of Audit Committee and governance and shall provide the Board with its reports Internal Audit Function and the Company utilizes the and recommendations at least annually. external consultancy firms to perform external review to corporate governance rules when required based on audit committee recommendation and board approval.
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SHAREHOLDERS RIGHTS AND COMMUNICATION METHODS
A. GENERAL ASSEMBLY During 2019 there are only one General Assembly Meeting has been convened, which is the extraordinary General Assembly Meeting held in Riyadh at 6:30 p.m. on Wednesday, 24 April 2019 (19 Sha’ban 1440H) at Commercial Chamber head-quarter, Prince Abdulaziz Ibn Musaid Ibn Jalawi, Al Murabba district.
All board members attended this General Assembly Meeting except for Mr. Amin Mohamed Akef Al-Maghrabi was not able to attend as they were on overseas travel.
The following are the details of the General Assembly meetings that have been convened during the year 2019 and the names of the Board members who attended them:
Name Position 24 April 2018
Mr. Mohammed Ebrahim Shroogi Chairman Attended
Mr. Abdullah Abdulaziz Al Othaim Vice-chairman Attended
Board Member Mr. Brian Norman Dickie Attended Executive Committee Chairman
Mr. Adel Abdullah Al-Maiman Board Member Attended
Mr. Selim Chidiac Board Member and CEO Attended
Board Member Mr. Abdul Kareem Attended Assad Abu Alnasr NRC Chairman
Mr. Amin Akef Al-Maghrabi Board Member Absent
Mrs. Sabah Khalil Almoayyed Board Member Attended
Board Member Mr. Sunil Bhilotra Attended Audit Committee Chairman
Mr. Ayman Gamil Ammar CFO Attended
L’azurde uses its General Assembly Meetings as an opportunity to engage with its shareholders and seek their input on the management of the Company.
COMMUNICATION WITH SHAREHOLDERS
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B. RIGHTS OF SHAREHOLDERS The Group’s Investor Relations Function and the Board Secretary We pro-actively encourage shareholders participation in the • Shareholders are encouraged to participate in general AND GENERAL ASSEMBLY act as the centre for ongoing communication with shareholders, AGM, both by attending the meeting and voting, either in person assembly or to appoint proxies to attend and vote at investors and analysts. The Board receives regular updates on or by proxy. The Company seeks to maximize shareholders’ meetings for and on their behalf if they are unable to attend L’azurde by-laws and Corporate Governance Manual ensure that the views of the Group’s shareholders and their suggestions and ability to participate in the General Assembly process by: the meetings. shareholders enjoy all rights related to shares, in particular the remarks on the Company and its performance through Investors right of receiving a share of approved dividends payments, the Relations Function and Board Secretary. • Appropriate arrangements for the General Assembly to We aim to balance investors’ engagement throughout the right to receive a share of the Company assets upon liquidation, encourage greatest number of Shareholders’ participation, year, providing the opportunity for frequent interaction with the right to attend Shareholders’ General Assembly meetings The Chief Executive Officer informs the Board members of the including determination of the appropriate place and time. investors through a variety of forums including meetings, (participate in their deliberations and vote on their decisions), opinions and suggestions of the shareholders and discusses quarterly conference calls, investor conferences and the right of share disposal, the right to oversee the work of the these opinions and suggestions with them during board meetings. • Making Directors, Executive Management and the management presentations. Board of Directors, file responsibility litigation against the Board external statutory auditor available to shareholders at the members and the right to inquire and request information as long D. METHODS OF COMMUNICATION General Assembly. During 2019, the executive management held conference calls as it does not compromise the interest of the Company and does WITH OUR SHAREHOLDERS and meetings with analysts and shareholders, based on their not conflict with the Terms and Executive regulations of the CMA. • Allowing shareholders in attendance at the General requests to understand L’azurde business model, Company’s L’azurde is committed to promoting effective and open Assembly an opportunity to ask questions regarding the strategy, performance and plans to manage current changes in L’azurde allows the maximum participation of its shareholders in communication with all shareholders, ensuring consistency items of business, including questions to the external regulations and economic environment. General Assembly meetings and is keen to ensure that the choice and clarity of disclosure at all times. We aim to engage with our statutory auditor regarding the conduct of the audit and of time and venue enable full participation. shareholders transparently and regularly in order to facilitate the preparation and content of the external statutory TADAWUL ANNOUNCEMENTS a mutual understanding of our respective objectives. We strive auditor’s report. L’azurde by-laws and Corporate Governance Manual also provide to be accessible to both institutional and private investors, and L’azurde had a busy year with a number of events and strategic provision related to the Shareholders General Assembly, which pro-actively encourage all shareholders to participate at our • The Company may invite the General Shareholders’ Assembly activities announced to shareholders in the course of the year. The include procedures and precautions necessary to ensure that all Annual General Meeting (AGM). to convene using methods of contemporary technologies. most important events, activities and strategic decisions were Shareholders are exercising their regular rights. announced on the official website of the Saudi Stock Exchange L’azurde is committed to providing greater disclosure and • The Company invites the General Shareholders’ Assembly (Tadawul) and L’azurde’s corporate website. In total, twenty one The Shareholders’ General Assembly has the highest power in transparency in its financial reporting whether the quarterly or to electronic voting on the agenda items through Tadawulaty announcements were made to L’azurde’s shareholders within the Company with sole authorities including the appointment annual financials with the aim of being industry leaders. services portal. the year 2019. and termination of Board Members, approval of the Consolidated Financial Statements, appointment of the external auditor L’azurde aims to deliver all financial and strategic communications and determine their fees, approve dividend distribution as in a consistent and open way ensuring, wherever possible, the use recommended by the Board of Directors, increases or decreases of both languages Arabic and English to make such disclosures the share capital of the Company and the amendment of by-laws easily intelligible and in order to present a fair, balanced and Article of Association. and understandable assessment of the company’s position The following table summarizes those announcements by date and subject: and prospects. L’azurde provides sufficient access for its shareholders to read the minutes of the General Assembly meeting through uploading L’azurde welcomes feedback and suggestions for improvement, on Company’s website and provides the CMA with a copy of the which can be submitted to Investor Relations at the email No. Date Title of announcement minutes within (10) days of the date of the meeting. address: [email protected].
1 10/12/2019 L’azurde company for jewelry announces resignation and appointment of a board member. The investors relation function is the continues communication All financial reports, corporate governance policies, General channel with investors and answers their questions during Assembly minutes and regulatory announcements as well as L’azurde company for jewelry announces resignation and appointment audit working days and also work as two ways communication associated materials including management presentations and 2 10/12/2019 channel between the investors the company board and transcripts are made available on our website L’azurde .com on a committee member. executive management. timely basis for all investors to access. L’azurde company for jewelry conducted its third quarter 2019 financial results earning 3 12/11/2019 conference call with the financial analysts and investors. C. INVESTORS RELATION ACTIVITIES L’azurde understands the importance of communicating effectively with shareholders and is committed to the constructive The Board recognizes the importance of regular open and Its condensed consolidated interim financial results for the nine months period ended 30 use of the AGM for the Board, Chairman and Directors to meet 4 06/11/2019 constructive dialogue with shareholders and other stakeholders, September 2019 (nine months). with shareholders, hear their views and to answer their questions. not just ahead of the Annual General Meeting but throughout Correcting announcement from l’azurde company for jewelry in regards to its condensed the year. 5 06/11/2019 consolidated interim financial results for the nine months period ended 30 September 2019 (nine months).
L’azurde announces its condensed consolidated interim financial results for the nine 6 04/11/2019 months period ended 30 September 2019 (nine months).
L’azurde company for jewelry announces the receipt of the shariaa review report for the 7 28/10/2019 third quarter of 2019.
L’azurde company for jewelry conducted its h1 2019 results earnings conference call with 8 21/08/2019 financial analysts and investors.
L’azurde company for jewelry announces the receipt of the shariaa review report for the 9 28/07/2019 second quarter of 2019.
L’azurde announces its condensed consolidated interim financial results for the six months 10 28/07/2019 period ended 30 June 2019 (six months).
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SHAREHOLDERS RECORDS No. Date Title of announcement
L’azurde announces its interim financial results for the three months period ended 11 01/05/2019 On the following dates during 2019, the Company requested shareholders’ register through Tadawulaty system, for various reasons: 31 March 2019 (three months).
L’azurde company for jewelry announces the receipt of the shariaa review report for the 12 30/04/2019 first quarter of 2019.
Request # Request Date Request Type Reasons L’azurde company for jewelry announces the results of the extraordinary general 13 25/04/2019 meeting ( first meeting). 1 January 31, 2019 Quantities - at the level of identity Company Procedures L’azurde company for jewelry invites its shareholders to attend the extraordinary 14 21/04/2019 general assembly meeting (first meeting) (reminder announcement). 2 February 28, 2019 Quantities - at the level of identity Company Procedures L’azurde company for jewelry announces to its shareholders the starting date 15 18/04/2019 of electronic voting on the items of the extraordinary general assembly meeting (first meeting). 3 March 31, 2019 Quantities - at the level of identity Company Procedures
L’azurde company for jewelry invites its shareholders to attend the extraordinary 16 15/04/2019 general assembly meeting (first meeting) (reminder announcement). 4 April 24, 2019 Quantities - at the level of identity General Assembly Meetings
L’azurde company for jewelry invites its shareholders to attend the extraordinary 17 28/03/2019 general assembly meeting (first meeting). 5 May 1, 2019 Quantities - at the level of identity Company Procedures
L’azurde company for jewelry announces its annual financial results for the period 18 10/03/2019 ending on 2018-12-31. 6 June 30, 2019 Quantities - at the level of identity Company Procedures
L’azurde company for jewelry announces the recommendation of its board of directors 19 10/03/2019 to not distribute dividends for the fiscal year 2018 to pursue its m&a strategy. 7 July 31, 2019 Quantities - at the level of identity Company Procedures
L'azurde company for jewelry announces the signing of Sharia’a consultancy services 20 25/02/2019 agreement to examine and certify its alignment with Sharia’a provisions. 8 September 4, 2019 Quantities - at the level of identity Company Procedures
L’azurde company for jewelry announces the visit of a number of specialists in the 21 15/01/2019 jurisprudence of Islamic financial transactions to the company’s factory in Riyadh. 9 October 10, 2019 Quantities - at the level of identity Company Procedures
10 November 30, 2019 Quantities - at the level of identity Company Procedures
11 December 31, 2019 Quantities - at the level of identity Company Procedures
RECOMMENDATIONS TO THE GENERAL ASSEMBLY We are pleased, after reviewing the most important operational and financial activities for the financial year 2019, to attach the Consolidated Financial Statements with the Auditor’s Report thereon. We recommend that the General Assembly approves the Board of Directors Report and the Consolidated Financial Statements. The place and time of the General Assembly meeting and any other items on the agenda will be announced at a later date.
The announcement for the 2019 Annual General Meeting will be published on Tadawul’s website, Company’s website and in a local newspaper, at a later date, at least 21 working days before the meeting, after obtaining the required approvals from all the relevant regulatory bodies.
All directors, including the Chairmen of the Audit Committee and the Remuneration and Nomination Committee will attend the 2018 Annual General Meeting and will be available to respond to shareholders’ questions.
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RIYADH, 11 MARCH 2020 Annual Report of The Audit Committee PREAMBLE The Audit Committee (“AC” or the “Committee”) is delegated by the General Assembly with the responsibility to provide independent oversight of the Group’s financial reporting, internal control systems, compliance with applicable laws and regulations and the adequacy of the External and Internal Audits Activities. Further to that, the approved charter of the AC has assigned risk management supervision duty to the AC.
During the year, The AC has been provided with sufficient resources to perform its duties including support, as necessary, from the Internal Audit Department (“IAD”), the External Auditors (‘Grant Thornton” or “GT”), legal counsel and management to examine all matters relating to the Group’s adopted accounting principles and practices and in reviewing all material financial, operational and compliance controls systems. The AC’s terms of reference are available on the L’azurde Group website (www.lazurde com).
The AC comprises four board members including a specialist in financial and accounting matters appointed by the General Assembly for a term coinciding with the term of the Board of Directors. None of the AC members are employed by or otherwise affiliated with the former or current auditors of L’azurde Group.
The AC members’ names are the following and biographies are set out in the Board and Committees section of the 2019 Annual Report:
Members Position Membership Status Appointment Date
Chairman of the Mrs. Sabah Khalil Almoayyed (9) Independent 22 April 2018 Audit Committee
Member of the Mr. Brian Norman Dickie Non-Executive 22 April 2018 Audit Committee
Member of the Mr. Sunil Bhilotra (10) Non-Executive 22 April 2018 Audit Committee
Member of the Mr. Adel Al-Maiman Non-Executive 22 April 2018 Audit Committee
Member of the Mr. Khalifa Hassan Non-Executive 10 December 2019 Al Jalahma (11) Audit Committee
9. Mrs. Sabah Khalil Almouyyed, is an independent board member, the chairwoman of the Audit Committee and specialist in finance and accounting matters. 10. The Board of Directors issued its acceptance of the resignation letter of Mr. Sunil Bhilotra (a non-executive director) from the Board and its committees for personal reasons. The resignation is effective as of the Board acceptance on 10 December 2019. 11. The Board of Directors accepted on December 10, 2019, the recommendation of the NRC to appoint Mr. Khalifa Hassan Al Jalahma as a non-executive Board Member and member of the AC. This appointment is effective from 10 December 2019. Board Approval May not be Deemed Final, this Appointment Shall Be Put before the First General Assembly Meeting for Approval.
AUDIT COMMITTEE REPORT
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MEETINGS 4.EXTERNAL AUDIT 6. REVIEW OF ACCOUNTING, FINANCIAL REPORTING AND INTERNAL AUDIT FUNCTIONS The committee meets on a quarterly basis with additional 1. FINANCIAL REPORTING The AC is mandated to monitor the independence of the Group’s meetings and conference calls held as and when necessary. The external auditor, Grant Thornton. the Committee obtained a The AC reviewed and was satisfied with the adequacy of • The AC reviewed the quarterly financial statements for the committee held seven (7) meetings whether through physical written assurance letter from Grant Thornton as External the resources, staff qualifications and experience, training first, second and third quarters of 2019. meeting (4) or conference calls (3) during the year 2019. Members’ Auditors on 24 April 2019, confirming their independence. The programmes and budget of the Group’s accounting, financial attendance records are disclosed in the Corporate Governance • The AC reviewed the 2019 Consolidated Financial Committee agreed that the External Auditors are and have been reporting while unsatisfied with adequacy of the resources at Report contained in the Annual Report. Statements in conjunction with the External Auditors, Grant independent throughout the conduct of their audit engagement internal audit functions. Thornton (“GT”). Based on this review and discussions with in accordance with the terms of all relevant professional and The Company’s chief Executive Officer and Chief Financial Officer The AC recommends appointment of additional resources in Saudi management, the AC was satisfied that the Consolidated regulatory requirements and they have met the criteria of were invited to the meetings, when required, to facilitate direct to have sufficient resources for 2020 audit plan implementation. Financial Statements were prepared in accordance with suitability. communication as well as to provide clarification on accounts, applicable accounting standards in KSA (International financial and specific issues. The Committee had undertaken an assessment on the suitability The Internal Auditor presented to the Committee the proposed Financial Reporting Standards approved by SOCPA) and and independence of the External Auditors in accordance with Internal Audit Plan for the financial year 2020. The Committee fairly presents the Group’s financial position and results Minutes of each meeting were documented and tabled for the Policy and Procedures for the Assessment of External has approved the proposed Internal Audit Plan while enforcing of its operations for the year ended 31 December 2019. The confirmation at the next Audit Committee meeting and Auditors. The Committee has considered the audit firm the need to hire soon the additional resources. AC therefore recommended the Consolidated Financial subsequently presented to the Board for approval. capabilities, professional team assigned, proposed methodology, Statements for the year ended 31 December 2019 to be independence and audit fees. 7. PERFORMANCE EVALUATION The Chairman of the AC conveyed to the Board matters of approved by the Board and General Assembly. significant concern as and when raised by the External Auditors Reviewed together with the Audit Committee the results of The AC undertakes an annual evaluation of its performance • The AC reviewed on a quarterly basis, separately with each or Internal Audit function. their audit, the audit report and recommendations in respect of and effectiveness. As with the Board’s annual performance of management and the External Statutory Auditors, any improvements to the internal control procedures noted during evaluation for 2019, the AC’s performance evaluation was significant outstanding issues (if any) between management SUMMARY OF WORK the course of their audit at the meetings and conference calls facilitated by corporate advisory firm through the Nomination and the External Statutory Auditors in connection with the • Reviewed the Group’s quarterly and annual financial results. held during 2019. and Remunerations Committee. Each AC member responded preparation of the financial statements, any difficulties to a confidential questionnaire related to the AC’s performance encountered during the course of the audit (including any • Reviewed, with both the external auditor and management, The Committee had four (4) private calls with the External covering questions relating to: the management of the AC in restrictions on the scope of work or access to required the audit approach and methodology applied, and in Auditors during 2019 without the presence of the CEO, areas such as the annual cycle of work, agenda for meetings, and information); and Management’s response to each of the above. particular to those Key Audit Matters included in the year end Management and Internal Auditor. The feedback from GT during time and input in meetings; rating the quality of the information auditor’s report. those sessions was consistent and did not raise any concerns on provided to the AC; the effectiveness of the AC’s oversight in 2. REVIEW OF INTERNAL CONTROL SYSTEMS the audit procedures and cooperation of management. areas such as the work of internal and external audit, the Group’s • Approved the internal audit plan for 2019. financial reporting, the system of internal controls and the risk The AC reviewed the effectiveness of the Group’s policies and management policies and practices; rating the AC’s performance procedures regarding internal control systems (including the 5. RE-APPOINTMENT OF EXTERNAL AUDITOR • Reviewed significant findings of the IAD, the external in reviewing and assessing significant accounting and reporting financial, operational, IT, risk management, information security, auditor and regulators, and management’s response to As required by corporate governance regulation, at least two issues; and generally how to improve the AC’s performance. The outsourcing, legal, compliance and those controls designed to their recommendations. audit firms should be nominated to the General Assembly. The AC concluded that its performance in 2019 had been effective and detect material fraud) by reviewing the work and reports of the Audit Committee reviewed submitted audit services proposals that it fulfilled its role in accordance with its terms of reference. • Reviewed quarterly reports on legal and regulatory internal auditor and the Group’s external auditor, and regular for 2020 and nominated the following three audit firms: compliance matters, including a nti-bribery and anti- reports from management including those on risk management, corruption matters and whistle-blowing disclosures. regulatory compliance and legal matters. In conjunction with - PKF - Ibrahim Ahmed Al-Bassam & Co. Certified Public the Risk Committee, the AC reviewed and concurred with the Accountants. • Reviewed the adequacy and effectiveness of the Group’s management confirmation that for the year ended 31 December internal control systems and its accounting, financial 2019, the Group’s risk management and internal control systems - Baker Tilly MKM & Co. Certified Public Accountants. Audit Committee Chairwoman reporting and internal audit functions. were effective. The AC is satisfied that the Group has adopted necessary control mechanisms to monitor and correct non- - Grant Thornton - Aldar Audit Bureau Certified Public Mrs. Sabah Almoayyed • Reviewed the continuing connected transactions. compliance and complied satisfactorily with the requirements of Accountants. the Corporate Governance Code in respect of risk management • Reviewed and monitored the external auditor’s independence and internal control systems. and engagement to perform non-audit services.
• Approved the 2019 external audit engagement letters and fees. 3. RELATED PARTY TRANSACTIONS
• Reviewed the External Auditors’ 2019 Audit Plan including The Committee reviewed the related party transactions of their scope of work. the company. The Committee did not report any conflict of interest situation within the Company nor the Group including • Reviewed changes in accounting principles and practices any transaction, procedure or course that raises questions of proposed by management. management integrity to the Board. The Committee reviewed the External Auditors (Grant Thornton) limited review report During the financial year, the activities undertaken by the Audit regarding related parties transactions during 2019. Committee regarding major topics were as follows:
126 127 CONSOLIDATED FINANCIAL 05 STATEMENTS 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT 2. CARRYING VALUE OF GOODWILL: 3. VALUATION OF INVENTORIES: As at 31 December 2019, the Group had goodwill, which arose on As at 31 December 2019 the Group held inventories with a value past business combination amounting to 109.9 million. of SAR 858.6 million (2018: SAR 788.9 million). To the Shareholders of L’azurde Company for Jewelry and its Subsidiaries The annual impairment testing of goodwill is considered to be a key Inventories are stated at lower of cost or net realizable value (A Saudi Joint Stock Company) audit matter due to the complexity of the accounting requirements and a provision for melting and slow-moving inventories is and the significant judgement required in determining the made by management. The Group makes significant judgments Riyadh, Saudi Arabia assumptions to be used to estimate the recoverable amount. The in estimating net realizable values of inventories along with the recoverable amount of the cash generating unit (CGU), which is assessment of the level of provision required for melting and based on the higher of the value in use or fair value less costs slow-moving inventories based on the inventory ageing reports to sell, has been derived from discounted forecast cash flow together with the historical trends to estimate the likely future REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS models. These models use several key assumptions, including salability of slow moving and older inventory items. estimates of future sales growth rates, terminal value growth rates and the weighted-average cost of capital (discount rate). We focused on this area given the size of the inventory balance OPINION 1. PURCHASE PRICE ALLOCATION relative to the total assets of the Group. Moreover, the estimation ('PPA') ON THE ACQUISITION OF IZDIAD We have audited the consolidated financial statements Goodwill is disclosed in note 9 to the consolidated of net realizable values of inventories involved a high level of RETAIL COMPANY OF ARABIA: of L’azurde Company for Jewelry (the “Company”) and its financial statements. The Group’s accounting policies for management judgment. These estimations are also subject to Subsidiaries (collectively referred to as the “Group”), which As disclosed in note 33, the Group acquired 100% of the share goodwill are disclosed in notes 4 and 5 to the consolidated uncertainty as a result of changes in gold market values. comprise the consolidated statement of financial position as at capital of Izdiad Company for 185.5 million. financial statements. Our audit procedures in this area included, among others: 31 December 2019, and the consolidated statement of profit or In line with the requirements of IFRS 3 “Business Combinations” Our audit procedures in this area included, among others: loss, consolidated statement of other comprehensive income, • Assessed and tested the design and operating effectiveness the Group performed a PPA. The PPA is subject to significant consolidated statement of changes in equity and consolidated • Assessed the methodology used by the management to of key controls over inventories. judgements and estimation in the identification of intangible statement of cash flows for the year then ended, and notes to determine recoverable amount based on value-in-use assets, valuation of tangible and intangible assets (including the consolidated financial statements, including a summary of technique of the assets in the CGU and compared it with that • For a sample of inventory items, we re-performed the goodwill) and determination of amortization period for the significant accounting policies. of IAS 36. We also tested the mathematical accuracy of the valuation of inventory items to the last purchase invoice. identified intangible assets. The Group managed engaged an impairment model. In our opinion, the accompanying consolidated financial external professional firm to perform PPA. The judgement • Tested the ageing reports used by the management by statements taken as a whole present fairly, in all material involved in determining the PPA as well as the value allocated • Evaluating the appropriateness of the assumptions applied agreeing the sample of aged inventory items to the last respects, the consolidated financial position of the Group as at to intangible asset makes the purchase price allocation a key to key inputs such as sales growth rates, discount rates recorded invoice. 31 December 2019, and its consolidated financial performance audit matter. and long-term growth rates, which includes comparing and its consolidated cash flows for the year then ended in these inputs with externally derived data as well as our • On a sample basis, we tested the net realizable value of non- Our audit procedures in this area included, among others: accordance with International Financial Reporting Standards own assessment based on our knowledge of the client and gold inventories to the most recent selling prices and for gold (IFRSs), as endorsed in the Kingdom of Saudi Arabia by the Saudi the industry. inventory to gold market prices. Organization for Certified Public Accountants (SOCPA) and other • Evaluated the qualifications and competence of the external professional firm. standards and pronouncements endorsed by SOCPA. • Reconciling input data used in the cash flow forecasts • Re-performed the calculation of provision for melting and to supporting evidence, such as approved budgets and slow-moving inventory items in accordance with the Group’s BASIS FOR OPINION • Held discussions with the management and the external policy, based on the inventory ageing reports. professional firm to obtain an understanding of the purchase considering the reasonability of those budgets. We conducted our audit in accordance with International price allocation exercise. • Assessed the adequacy of the Group’s disclosure in relation to Standards on Auditing (ISAs), as endorsed in the Kingdom • Considering the potential impact of reasonably possible the valuation on inventories by reference to the requirements of Saudi Arabia. Our responsibilities under those standards downside changes in these key assumptions, in order to • With the assistance of our internal valuation specialist, we of the relevant accounting standards. are further described in the Auditors’ Responsibilities for the reviewed the basis of determination made that the franchise assess the potential impact of a range of possible outcomes. Audit of the Consolidated Financial Statements section of our was the only identifiable intangible asset acquired as part • Evaluating the adequacy of the financial statement report. We are independent of the Group in accordance with of the acquisition of Izdiad and the key assumptions used to disclosures, including disclosures relating to key the International Ethics Standards Board for Accountants’ Code determine its fair value. of Ethics for Professional Accountants (IESBA Code) together assumptions, judgements and sensitivities. with the ethical requirements that are relevant to our audit of • Assessed the reasonableness of the assumptions used in the consolidated financial statements in the Kingdom of Saudi determining the useful life of the definite life intangible asset Arabia, and we have fulfilled our other ethical responsibilities acquired, against those determined by the professional firm. in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and • Assessed the disclosures included in note 33 against the appropriate to provide a basis for our opinion. relevant IFRS disclosure requirements. KEY AUDIT MATTERS (KAMS) Based on the work performed we found the identification of the intangible asset and the valuation method used to be appropriate. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each key audit matter, a description of how our audit addressed the matter is set out below:
130 131 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
4.ADOPTION OF IFRS 16 'LEASES': OTHER INFORMATION INCLUDED IN RESPONSIBILITIES OF MANAGEMENT • Conclude on the appropriateness of management’s use of the The Group adopted the accounting standard IFRS 16 “Leases” THE GROUP'S ANNUAL REPORT AND THOSE CHARGED WITH going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists during the year. The new standard supersedes the requirements Other information consists of the information included in the GOVERNANCE FOR THE CONSOLIDATED related to events or conditions that may cast significant of IAS 17 “Leases”. Group’s 2019 annual report, other than the financial statements FINANCIAL STATEMENTS doubt on the Group’s ability to continue as a going concern. and our auditors’ report thereon. Management is responsible for Management is responsible for the preparation and fair If we conclude that a material uncertainty exists, we are IF R S 16 p r incip al ly m o di fi e s th e acco untin g tr e atm ent of op er atin g the other information in its annual report. presentation of the consolidated financial statements in required to draw attention in our auditors’ report to the leases at inception, with the recognition of right-of-use asset accordance with IFRSs, as endorsed in the Kingdom of Saudi and a corresponding lease liability for the discounted amount Our opinion on the consolidated financial statements does cover related disclosures in the consolidated financial statements Arabia and other standards and pronouncements issued by or, if such disclosures are inadequate, to modify our opinion. of lease payments over the term of lease contract. The Group the other information and we do not and will not express any form SOCPA, applicable requirements of Regulation for Companies has adopted IFRS 16 by using modified retrospective approach. of assurance or conclusion thereon. Our conclusions are based on the audit evidence obtained up and by-laws of the Group and for such internal control as to the date of our auditors’ report. However, future events Therefore, the comparative financial statements have not been management determines is necessary to enable the preparation In connection with our audit of the consolidated financial or conditions may cause the Group to cease to continue as a restated, and the cumulative impact of first time adoption of the of consolidated financial statements that are free from material statements, our responsibility is to read the other information going concern. standard presented as at 1 January 2019. misstatement, whether due to fraud or error. identified above and, in doing so, consider whether the other We considered it as a key audit matter because the calculation information is materially inconsistent with the consolidated • Evaluate the overall presentation, structure and content of the In preparing the consolidated financial statements, management consolidated financial statements, including the disclosures, of amounts underlying the right-of-use assets and the financial statements or our knowledge obtained in the audit, or is responsible for assessing the Group’s ability to continue as corresponding lease liabilities involve new processes for otherwise appears to be materially misstated. and whether the consolidated financial statements represent a going concern, disclosing, as applicable, matters related to the underlying transactions and events in a manner that collecting data, complex rules and the application of significant going concern and using the going concern basis of accounting If, based on the work we have performed, we conclude that achieves fair presentation. management judgement relating to the terms in the contract. unless management either intends to liquidate the Group or to there is a material misstatement of this other information, we cease operations, or has no realistic alternative but to do so. Our audit procedures in this area included, among others: are required to report that fact. We have nothing to report in • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities this regard. Those charged with governance, being the “Audit Committee”, • Reviewed management’s assessment of the impact of the within the Group to express an opinion on the consolidated a r e r e s p o n s i b l e f o r o v e r s e e i n g t h e G r o u p ’ s fi n a n c i a l IFRS 16 in terms of the classification and measurement of its financial statements. We are responsible for the direction, reporting process. right-of-use assets and lease liabilities, and understood the supervision and performance of the Group audit. We remain solely responsible for our audit opinion. approach taken towards implementation. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements • Verified the accuracy of the underlying lease data by agreeing REPORT ON OTHER LEGAL AND a representative sample of leases to the original contract or Our objectives are to obtain reasonable assurance about whether REGULATORY REQUIREMENTS other supporting information, and checked the mathematical the consolidated financial statements as a whole are free from Article (135) of the Companies Law requires that the auditor accuracy of the IFRS 16 calculations for a sample of material misstatement, whether due to fraud or error, and to includes in his report violations to the provisions of the Companies lease schedules. issue an auditors’ report that includes our opinion. Reasonable Law or Company’s articles of association. During the course of assurance is a high level of assurance but is not a guarantee that • Evaluated the lease terms, including the renewal periods, our audit of the consolidated financial statements, we have not an audit conducted in accordance with ISAs will always detect a where appropriate, by inspecting the contracts and assessing discovered a violation to the provisions of the Companies Law or material misstatement when it exists. Misstatements can arise management’s judgements for lease periods applied in the the provisions of the Company’s articles of association. from fraud or error and are considered material if, individually or lease calculation, to ensure they are accurate and complete. in the aggregate, they could reasonably be expected to influence • Reviewed the adequacy of the disclosures required in the the economic decisions of users taken on the basis of these Aldar Audit Bureau consolidated financial statements in relation to adoption of consolidated financial statements. Abdullah Al Basri & Co. new standard. As part of an audit in accordance with ISAs, we exercise Leases are disclosed in note 8 to the consolidated financial professional judgment and maintain professional scepticism statements. The Group’s accounting policies for leases are throughout the audit. We also: Riyadh 21 Rajab 1441 Abdullah M. Al Basri disclosed in notes 5 and 6.1 to the consolidated financial Certified Public Accountant • Identify and assess the risks of material misstatement of the statements. consolidated financial statements, whether due to fraud or Corresponding to 16 March 2020 (License No. 171) error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
132 133 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
Consolidated statement of financial position as at 31 December 2019 Consolidated statement of financial position as at 31 December 2019
31 December 2019 31 December 2018 31 December 2019 31 December 2018 Notes Notes SAR SAR SAR SAR
ASSETS Current Liabilities
Non-Current Assets Accounts payable and other current liabilities 19 236,812,062 50,194,990
Property and equipment 7 87,426,984 92,114,655 Current portion of long-term murabaha facility 16 19,000,000 14,000,000
Right-of-use-assets 8 48,574,644 - Current portion of lease liabilities 8 21,251,209 -
Intangible assets and goodwill 9 140,688,956 142,414,707 Short-term murabaha facilities 20 1,117,990,648 1,091,731,614
Other non-current assets 1,562,326 1,075,452 Zakat and income tax liability 22,024,926 23,093,823
Total Non-Current Assets 278,252,910 235,604,814 Total Current Liabilities 1,417,078,845 1,179,020,427
Current Assets Total Liabilities 1,596,823,514 1,357,248,644
Inventories 10 858.623,747 788,855,739 TOTAL EQUITY AND LIABILITIES 2,015,034,575 1,783,334,171
Accounts receivable 11 665,257,301 570,488,644
Other current assets 12 59,351,040 39,123,127
Cash margins 99,974,368 101,528,790 AYMAN GAMIL MR. SELIM CHIDIAC SABAH ALMOAYYED Cash and cash equivalents 13 53,575,209 47,733,037 CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER AUHTORIZED BOARD MEMBER
Total Current Assets 1,736,781,665 1,547,729,357
TOTAL ASSETS 2,015,034,575 1,783,334,171
EQUITY AND LIABILITIES
Equity
Share capital 14 430,000,000 430,000,000
Statutory reserve 15 22,186,724 22,186,724
Retained Earnings 132,123,563 149,927,579
Foreign currency translation reserve (166,099,226) (176,028,776)
Total Equity 418,211,061 426,085,527
Liabilities
Non-Current Liabilities
Long term murabaha facility 16 75,000,000 94,000,000
Employees’ end of service benefits 17 29,335,858 32,645,186
Lease liabilities 8 22,631,499 -
Deferred tax liability 18 1,403,075 982,726
Long term payable 33 51,375,237 50,600,305
Total Non-Current Liabilities 179,744,669 178,228,217
134 135 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
Consolidated statement of profit or loss for the year ended 31 December 2019 Consolidated statement of other comprehensive income for the year ended 31 December 2019
31 December 2019 31 December 2018 31 December 2019 31 December 2018 Notes SAR SAR SAR SAR
REVENUE NET (LOSS)/PROFIT FOR THE YEAR (17,547,550) 17,665,938
Gold 32 1,495,209,023 1,505,917,472 OTHER COMPREHENSIVE INCOME
Operations 32 481,204,711 406,445,323 Items that will not be reclassified subsequently to profit or loss 1,705,537 4,311,996 Re-measurement on employees’ end of service benefits COST OF REVENUE 1,976,413,734 1,912,362,795 Items that will be reclassified subsequently to profit or loss 9,929,550 (550,017) Exchange differences on translation of foreign operations Gold (1,495,209,023) (1,505,917,472)
Other comprehensive income for the year - net of tax 11,635,087 3,761,979 Operations 22 (193,394,537) (162,368,950)
TOTAL COMPREHENSIVE (LOSS)/INCOME FOR THE YEAR (5,912,463) 21,427,917 GROSS PROFIT 287,810,174 244,076,373 TOTAL COMPREHENSIVE (LOSS)/INCOME OPERATING EXPENSES FOR THE YEAR ATTRIBUTABLE TO:
Selling and marketing expenses 23 (179,936,203) (131,809,933) Equity holders of the Parent Company (5,912,463) 21,427,917
General and administrative expenses 24 (43,373,761) (42,339,004)
Impairment of inventories 10 (17,764,781) -
Consolidated statement of changes in equity for the year ended 31 December 2019 OPERATING PROFIT 46,735,429 69,927,436 Foreign Currency OTHER EXPENSES Share Capital Statutory Reserve Retained Earnings Translation Reserve Total
Other income/(expenses) - net 25 1,012,214 (4,358,152) SAR SAR SAR SAR SAR
Finance costs - net 26 (50,872,646) (35,593,722) Balance at 1 January 2019 430,000,000 22,186,724 149,927,579 (176,028,776) 426,085,527
NET (LOSS)/PROFIT BEFORE ZAKAT AND TAX (3,125,003) 29,975,562 Net loss for the year - - (17,547,550) - (17,547,550)
Zakat 27 (11,306,499) (10,718,836) Other comprehensive income for the year - - 1,705,537 9,929,550 11,635,087
Income Tax 27 (3,116,048) (1,590,788) Total comprehensive income for the year - - (15,842,013) 9,929,550 (5,912,463) NET (LOSS)/PROFIT FOR THE YEAR (17,547,550) (17,665,938) Transferred to statutory reserve (note 15) - - - - - NET (LOSS)/PROFIT FOR THE YEAR ATTRIBUTABLE TO: Dividends (note 34) - - (1,962,003) - (1,962,003) Equity holders of the Parent Company (17,547,550) (17,665,938) BALANCE AT 31 DECEMBER 2019 430,000,000 22,186,724 132,123,563 (166,099,226) 418,211,061 (LOSS)/EARNINGS PER SHARE:
Basic 28 (0.41) 0.41
Diluted 28 (0.41) 0.41 Balance at 1 January 2018 430,000,000 20,420,130 131,517,388 (175,478,759) 406,458,759
Net profit for the year - - 17,665,938 - 17,665,938
Other comprehensive loss for the year - - 4,311,996 (550,017) 3,761,979 AYMAN GAMIL MR. SELIM CHIDIAC SABAH ALMOAYYED Total comprehensive income for the year - - 21,977,934 (550,017) 21,427,917 CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER AUHTORIZED BOARD MEMBER
Transferred to statutory reserve (note 15) - 1,766,594 (1,766,594) - -
Dividends (note 34) - - (1,801,149) - (1,801,149)
BALANCE AT 31 DECEMBER 2018 430,000,000 22,186,724 149,927,579 (176,028,776) 426,085,527
AYMAN GAMIL MR. SELIM CHIDIAC SABAH ALMOAYYED
CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER AUHTORIZED BOARD MEMBER
136 137 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
Consolidated statement of cash flows for the year ended 31 December 2019 Consolidated statement of cash flows for the year ended 31 December 2019
31 December 2019 31 December 2018 31 December 2019 31 December 2018 Notes Notes SAR SAR SAR SAR
OPERATING ACTIVITIES INVESTING ACTIVITIES
Net (loss)/profit before zakat and tax (3,125,003) 29,975,562 Purchase of property and equipment 7 (11,668,077) (12,201,437)
Adjustments to reconcile net profit before zakat Proceeds from sale of property and equipment 1,090,295 1,616,298 and tax to net cash from operating activities:
Depreciation on property and equipment 7 16,681,918 11,320,316 Acquisition of subsidiary, net of cash acquired 33 - (131,628,213)
Depreciation of right-of-use assets 8 25,940,026 - Purchase of intangible assets 9 (635,183) (1,256,260)
Amortization of intangible assets 9 2,148,081 417,036 Other non-current assets (486,874) (75,957)
Provision for employees’ end of service benefits 17 3,243,699 4,507,767 Net cash used in investing activities (11,699,839) (143,545,569)
Provision for expected credit losses 11 5,060,150 2,504,441 FINANCING ACTIVITIES
Finance costs – net 26 45,080,720 35,593,722 Cash facilities (Tawaruq) 20 26,940,918 39,000,000
Loss/ (gain) on sale of property and Long-term murabaha facility 16 (14,000,000) 108,000,000 equipment and intangible assets 25 2,450,580 (39,648)
Melting costs and charge for slow moving inventory 10 27,312,838 9,629,809 Repayments of lease liabilities 8 (28,096,672) -
Foreign currency exchange differences - net (5,487,996) (979,168) Cash margins 1,554,422 8,613,193
Operating income before changes in working capital 119,305,013 92,929,837 Dividends paid 34 (1,962,003) (1,801,149)
Net cash (used in)/generated Net changes in working capital: from financing activities (15,563,335) 153,812,044
Inventories (91,508,977) 151,348,458 Net change in cash and cash equivalents 2,636,179 (9,574,339)
Accounts receivable (96,853,544) (112,315,682) Cash and cash equivalents at beginning of the year 13 47,733,037 57,431,809
Other current assets (19,360,627) (7,133,985) Exchange differences on cash and cash equivalents 3,205,993 (124,433)
Accounts payable and other current liabilities (8,601,489) (10,827,606) Cash and cash equivalents at end of the year 13 53,575,209 47,733,037
Account payable for gold 19 193,896,938 -
Short term murabaha facilities (681,884) (81,440,772)
Cash generated from operating activities 96,195,430 32,560,250 AYMAN GAMIL MR. SELIM CHIDIAC SABAH ALMOAYYED
CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER AUHTORIZED BOARD MEMBER Employees’ end of service benefits paid 17 (4,991,328) (5,737,518)
Finance costs paid (45,695,400) (33,730,278)
Income taxes paid (308,494) (2,606,428)
Zakat paid (15,300,855) (10,326,840)
Net cash generated from/ (used in) operating activities 29,899,353 (19,840,814)
AYMAN GAMIL MR. SELIM CHIDIAC SABAH ALMOAYYED
CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER AUHTORIZED BOARD MEMBER
138 139 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
1. ORGANIZATION AND D. L'AZURDE JEWELLERY 2. STATEMENT OF COMPLIANCE BASIS OF CONSOLIDATION LLC ('LJ ABU DHABI') PRINCIPAL ACTIVITIES The consolidated financial statements include consolidated A subsidiary company is consolidated from the date on which L’azurde Company for Jewelry (the “Company”, “Parent LJ Abu Dhabi is a Limited Liability Company incorporated statement of financial position, consolidated statement of profit the Group obtains control until the date that control ceases. The Company”) is a Saudi Joint Stock Company registered in Riyadh, in the United Arab Emirates (Abu Dhabi) under Commercial or loss, consolidated statement of other comprehensive income, consolidated financial statements are prepared on the basis of Kingdom of Saudi Arabia under commercial registration number Registration number 1060233 dated 1 June 2004. The principal consolidated statement of changes in equity, consolidated the individual financial statements of the Parent Company and 1010221531 and dated 26 Jumad Thani 1427H (corresponding to activity of LJ Abu Dhabi is trading of gold jewelry items. statement of cash flows, and notes to the consolidated financial the financial statements of its subsidiaries. 22 July 2006). The Company’s head office is located in Second statements. These consolidated financial statements are All transactions and balances between Group companies are Industrial Area, P.O. Box 41270, Riyadh 11521, Kingdom of E. L'AZURDE COMPANY FOR prepared in accordance with International Financial Reporting eliminated on consolidation, including unrealized gains and Saudi Arabia. JEWELLERY LLC ('LCJ QATAR') Standards (“IFRS”) endorsed by Saudi Organization for Certified Public Accountants (“SOCPA”) and other standards losses on transactions between Group companies. Where The Company and its subsidiaries (together referred to as LCJ Qatar is a Limited Liability Company incorporated in the and pronouncements issued by SOCPA. This is the first set of unrealized losses on intra-Group asset sales are reversed on the “Group”) are engaged in the production, manufacturing, State of Qatar under Commercial Registration number 60716 consolidated financial statements where IFRS 16 ‘Leases’ has consolidation, the underlying asset is also tested for impairment forming and forging of golden wares, jewelry, precious stones dated 21 May 2013. The principal activity of LCJ Qatar is trading been applied. Refer note 6 relating to the adoption of the standard. from a Group perspective. Amounts reported in the financial and golden alloys in accordance with the ministerial resolution of gold jewelry items. statements of subsidiaries have been adjusted where necessary number 1354/S and dated 21 April 2008 corresponding to 15 Rabi The Capital Market Authority (CMA) announced the Board of to ensure consistency with the accounting policies adopted by Thani 1429H. The Group’s other permissible activities include Commissioners resolution dated 16 October 2016 (corresponding the Group. F. ALMUJWHARAT ALMASIAH LLC ('AA') distribution of glasses, watches, accessories, pens, perfumes, to 15 Muharram 1438H), which obligates the listed entities to leather products and export of gold wares, alloys and silver. AA is a Limited Liability Company incorporated in the Kingdom apply the cost model to measure the property and equipment, Profit or loss and other comprehensive income of subsidiaries of Saudi Arabia under Commercial Registration number investment properties and intangible assets upon adopting the acquired or disposed of during the year are recognized from The Group carries out its activities through various branches in 1010236734 dated 25 Rajab 1428H (corresponding to 8 August IFRSs for three years period starting from the IFRSs adoption the effective date of acquisition, or up to the effective date of the Kingdom of Saudi Arabia and Kuwait and through subsidiaries 2007). The principal activities of AA are trading of gold and silver date, while continuing to abide by the IFRSs, that are endorsed disposal, as applicable. in the Kingdom of Saudi Arabia, the United Arab Emirates, the products and precious stones. in the Kingdom of Saudi Arabia, disclosure requirements, which Arab Republic of Egypt, the State of Qatar and the Sultanate of encourage the disclosure of the fair value within the notes to these The Group attributes total comprehensive income or loss of Oman. All these branches and subsidiaries are engaged in the consolidated financial statements. The Group has complied with subsidiaries between the owners of the parent and the non- G. KENAZ LLC ('KENAZ') manufacturing and trading of jewelry, gold and silver products. the requirements in these consolidated financial statements. controlling interests based on their respective ownership Kenaz is a Limited Liability Company incorporated in the interests, if material. The Parent Company directly or indirectly owns 100% share Kingdom of Saudi Arabia under Commercial Registration The consolidated financial statements for the year ended 31 capital in each subsidiary except L’azurde Company for Jewellery number 1010352574 dated 21 Dhul Qadah 1433H (corresponding December 2019 were approved and authorized for issue by the BUSINESS COMBINATIONS LLC (“LCJ Qatar”) in the State of Qatar. The direct ownership to 6 October 2012). The principal activities of Kenaz are trading of Board of Directors on 16 March 2020. of the Parent Company in LCJ Qatar is 49%, however, based gold and silver products and precious stones. The Group accounts for the business combination using the on the agreement with the nominee shareholder of LCJ Qatar, 3. BASIS OF PREPARATION acquisition method when the control is transferred to the group. the Parent Company is entitled to 98% of the economic benefits The consideration transferred in the acquisition is generally of LCJ Qatar. The Ultimate Holding Company of the Group is H. L'AZURDE GROUP FOR GOLD AND BASIS OF MEASUREMENT measured at fair value, as are the identified net assets acquired. L’azurde Holding LLC based in the Kingdom of Saudi Arabia. JEWELLERY DMCC ('L'AZURDE DMCC') The excess of the cost of acquisition and amount of non- These consolidated financial statements have been prepared L’azurde DMCC is a Limited Liability Company registered with controlling interest if any over the fair value of the identifiable The Group carries out its activities through the following under historical cost basis as explained in the relevant Dubai Multi Commodities Centre Authority, UAE under Trade net assets acquired is recorded as goodwill in the consolidated subsidiaries as set out below: accounting policies and measurement basis summarized below, statement of financial position. License number DMCC 108442 dated 26 February 2015. The except for employees’ end of service benefits provision which has principal activity of L’azurde DMCC is trading of pearls, precious been valued by an independent professional actuary and certain A. ORO EGYPT FOR MANUFACTURING stones and gold jewellery. financial assets and financial liabilities which are measured at FUNCTIONAL AND PRESENTATIONAL PRECIOUS METALS ('ORO') fair value. CURRENCY ORO is a Joint Stock Company incorporated in the Arab Republic I. L'AZURDE JEWELLERY LLC ('LJ OMAN') The consolidated financial statements are presented in Saudi of Egypt under Commercial Registration number 7877 dated 27 Historical cost is generally based on the fair value of the LJ Oman is a Limited Liability Company registered in the Riyal (SAR), which is also the functional and presentational January 2003. The principal activities of ORO are gold jewelry consideration given in exchange for goods and services. Sultanate of Oman under Commercial Registration number currency of the Parent Company. All amounts have been manufacturing and trading. 1320525 dated 30 May 2018. The principal activity of LJ Oman rounded-off to the nearest Saudi Riyal unless otherwise stated. is manufacturing, and trading of jewelry made from precious B. L'AZURDE EGYPT FOR metals or stones. JEWELLERY LLC ('LJ EGYPT') LJ Egypt is a Limited Liability Company incorporated in the Arab J. IZDIAD COMMERCIAL COMPANY Republic of Egypt under Commercial Registration number 14997 OF ARABIA ('IZDIAD') dated 08 June 2005. The principal activities of LJ Egypt are gold Izdiad is a Limited Liability Company registered in the Kingdom jewelry manufacturing and trading. of Saudi Arabia under Commercial Registration number 1010458294 dated 25 Dhul Hijjah 1439 (corresponding to 5 C. L'AZURDE COMPANY FOR September 2018). The principal activity of Izdiad is the trading JEWELLERY LLC ('LCJ DUBAI') of jewellery, perfume, men and women accessories, leather products and managing franchises and trademarks. LCJ Dubai is a Limited Liability Company incorporated in the United Arab Emirates (Dubai) under Commercial Registration number 620369 dated 23 December 2008. The principal activity of LCJ Dubai is trading of gold jewelry items.
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4. SIGNIFICANT ACCOUNTING AMORTIZATION OF INTANGIBLE ASSETS 5. SIGNIFICANT ACCOUNTING POLICIES CAPITAL WORK IN PROGRESS (CWIP) ESTIMATES AND ASSUMPTIONS The Group’s management determines the estimated useful lives, Capital work in progress is stated at cost less any impairment PROPERTY AND EQUIPMENT The preparation of consolidated financial statements in residual values and impairment indicators for intangible assets losses. All expenditure incurred during installation and accordance with IFRSs applicable in the Kingdom of Saudi Arabia annually. Intangible assets with infinite useful lives are checked Property and equipment are stated at cost less accumulated construction period, in connection with specific assets, requires the use of certain critical estimates and assumptions annually for impairment. Amortization is reviewed annually and depreciation and accumulated impairment losses, if any. Cost are carried to CWIP. The cost of CWIP is transferred to the that affect the reported amounts of assets and liabilities and adjusted where management believes that future estimates will includes any costs directly attributable to bringing the assets appropriate category of property and equipment when it is ready disclosure of contingent assets and liabilities at the reporting differ from those used in previous periods. to the location and condition necessary for it to be capable of for use. The cost of CWIP comprises purchase price and costs date and the reported amounts of revenues and expenses during operating in the manner intended by the Group’s management. directly attributable to bringing the CWIP for its intended use. the reporting period. Estimates and judgments are continually INVENTORIES Depreciation is recognized so as to write off the cost of assets less evaluated and are based on historical experience and other RIGHT-OF-USE ASSETS AND Management estimates the net realizable values of inventories, their residual values over their useful lives, using the straight- factors, including expectations of future events that are believed LEASE LIABILITIES to be reasonable under the circumstances. The Group makes taking into account the most reliable evidence available at each line method. The estimated useful lives, residual values and estimates and assumptions concerning the future. The resulting reporting date. The future realization of these inventories may depreciation method are reviewed at the end of annual reporting The Group has applied IFRS 16 using the modified retrospective accounting estimates will, by definition, seldom equal the related be affected by future events or other market-driven changes that period, with the effect of any changes in estimate accounted for approach and therefore comparative information has not been actual results. may reduce or increase future selling prices. on a prospective basis. restated. It means that comparative information is still reported under IAS 17 and IFRIC 4. Areas involving higher degree of judgment or complexity or When inventory items become old or obsolete, an estimate is Leasehold improvements are depreciated on a straight-line areas where assumptions and estimates are significant to the made for their market value. For significant items, this estimation basis over the shorter of the useful life of the improvements, or For any new contracts entered into on or after 1 January 2019, consolidated financial statements are as follows: is performed on an individual basis. Inventory items which are the term of the lease. the Group considers whether a contract is, or contains a lease. A not individually significant, but are old or obsolete, are assessed lease is defined as ‘a contract, or part of a contract, that conveys collectively and a provision is applied based on inventory type, Expenditure for repair and maintenance are charged to the the right to use an asset (the underlying asset) for a period of time PROVISION FOR EXPECTED CREDIT degree of ageing or obsolescence, and anticipated selling price. consolidated statement of profit or loss as incurred with the in exchange for consideration’. To apply this definition the Group LOSSES OF ACCOUNTS RECEIVABLE exception of costs that extend the useful life of the asset or assesses whether the contract meets three key evaluations The Group uses a provision matrix to calculate ECLs for accounts At the reporting date, inventories were SAR 889.4 million (31 increase its value, which are then capitalized. which are whether: receivable. The provision rates are based on days past due for December 2018: SAR 802.1 million) with a provision for melting groupings of various customer segments that have similar and slow-moving inventory items of SAR 30.8 million (31 The cost of replacing part of an item of property and equipment is • The contract contains an identified asset, which is either loss patterns. December 2018: SAR 13.2 million). Differences between amounts recognized in the carrying amount of the item if it is probable that explicitly identified in the contract or implicitly specified by actually realized and amounts expected to be realized in future the future economic benefits embodied within the part will flow being identified at the time the asset is made available to The provision matrix is initially based on the Group’s historically periods will be recognized in the consolidated statement of profit to the Group and its cost can be measured reliably. The costs of the Group. observed default rates. The Group will adjust the matrix to or loss. day-to-day servicing of property and equipment are recognized adjust the historical credit loss experience with forward-looking in the consolidated statement of profit or loss. • The Group has the right to obtain substantially all the economic benefits from the use of the identified asset information. For instance, if forecast economic conditions are IMPAIRMENT OF NON-FINANCIAL ASSETS expected to deteriorate over the next year which can lead to an An item of property and equipment is de-recognized upon throughout the period of use, considering its rights within the increased number of defaults in the manufacturing sector, the The Group’s management periodically reviews the carrying disposal or when no future economic benefits are expected defined scope of the contract. historical default rates are adjusted. At every reporting date, the amounts of non-financial assets to determine whether there is to arise from the continued use of the asset. Any gain or loss historically observed default rates are updated and changes in any indication that those assets have suffered any impairment arising on the disposal of an item of property and equipment is • The Group has the right to direct the use of the identified asset the forward-looking estimates are analyzed. loss. If any such indication exists, the recoverable amount of the determined as the difference between the sales proceeds and throughout the period of use. The Group assesses whether it asset is estimated to determine the extent of the impairment loss. the carrying amount of the asset and is recognized in profit or has the right to direct ‘how and for what purpose’ the asset. The assessment of the correlation between historically observed Where it is not possible to estimate the recoverable amount of an loss. default rates, forecast economic conditions and ECLs is a individual asset, the Group estimates the recoverable amount of Depreciation of property and equipment is calculated on a significant estimate. The amount of ECLs is sensitive to changes the cash generating unit to which the asset belongs. in circumstances and forecast economic conditions. The Group’s straight-line basis over the estimated useful lives of assets. historical credit loss experience and forecast of economic If the recoverable amount of an asset is estimated to be less The Group applies the following useful lives for conditions may also not be representative of customer’s actual than its carrying amount, the carrying amount of the asset is depreciation to its property and equipment: default in the future. reduced to its recoverable amount. Impairment is recognized in the consolidated statement of profit or loss. USEFUL LIVES, RESIDUAL VALUES, OR DEPRECIATION METHOD OF PROVISION FOR ZAKAT AND TAXES PROPERTY AND EQUIPMENT Assets Category Life in Years In making estimates for the zakat and tax payable by the Group, management considers applicable laws and past decisions and The Group’s management determines the estimated useful lives Buildings 50 for property and equipment. This estimate is determined after judgments of the General Authority of Zakat and Tax. considering the expected usage of the asset or physical wear Machinery and equipment 10 and tear. PROVISION FOR EMPLOYEES' END OF SERVICE BENEFITS Furniture and fixtures 6-7 Management reviews the useful lives, residual values, or depreciation method for property and equipment annually. Future The liabilities relating to defined benefit plans are determined Motor vehicles 4 depreciation expense would be adjusted where management using the Projected Unit Credit Method, with actuarial valuations believes that useful lives, residual values, or depreciation being carried out at the end of annual reporting period. The Office equipment 7 method differ from those used in previous periods. method involves making assumptions about discount rates, future salary increases and mortality rates. Due to the long- Tools, dies and other assets 4-7 term nature of these benefits, such estimates are subject to certain uncertainties. Significant assumptions used to carry out Leasehold improvements Shorter of useful life or lease terms. the actuarial valuation have been disclosed in note 17 to these consolidated financial statements.
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MEASUREMENT AND RECOGNITION OF LEASES An intangible asset is de-recognized on disposal, or when no INVENTORIES In the periods presented the Group does not have any financial assets categorized as FVOCI. The classification is determined by At lease commencement date, the Group recognizes a right- future economic benefits are expected from use or disposal. Inventories are stated at the lower of cost and net realizable both: of-use asset and a lease liability on the balance sheet. The Gains or losses arising from de-recognition of an intangible value. Net realizable value represents the estimated selling asset, measured as the difference between the net disposal price for inventories less all estimated costs of completion and right-of-use asset is measured at cost, which is made up of the • The entity’s business model for managing the financial asset. initial measurement of the lease liability, any initial direct costs proceeds and the carrying amount of the asset are recognized costs necessary to make the sale. Costs of other inventory items incurred by the Group, an estimate of any costs to dismantle and in consolidated statement of profit or loss when the asset is de- are determined as follows: recognized. • The contractual cash flow characteristics of the financial remove the asset at the end of the lease, and any lease payments asset. made in advance of the lease commencement date (net of any • Raw materials in the form of gold are determined at purchase incentives received). GOODWILL cost using the First-In-First-Out (FIFO) method and other raw All income and expenses relating to financial assets that are materials, consumables and other manufacturing materials recognized in profit or loss are presented within finance costs, Goodwill represents the future economic benefits arising from The Group depreciates the right-of-use assets on a straight-line are determined at purchase costs on weighted average basis. finance income or other financial items, except for impairment a business combination that are not individually identified basis from the lease commencement date to the earlier of the of accounts receivable which is presented within selling and and separately recognized. Goodwill is carried at cost less • Work in progress and finished goods are determined at cost end of the useful life of the right-of-use asset or the end of the marketing expenses. lease term. The Group also assesses the right-of-use asset for accumulated impairment losses, if any. of direct material, labor and overheads based on a normal impairment when such indicators exist. level of activity. For the purposes of impairment testing, goodwill is allocated to SUBSEQUENT MEASUREMENT At the commencement date, the Group measures the lease each of the Group’s cash-generating units (or groups of cash- • Re-sellable goods are determined on specific identification basis. OF FINANCIAL ASSETS liability at the present value of the lease payments unpaid at generating units) that is expected to benefit from the synergies of the combination. that date, discounted using the return rate implicit in the lease CASH AND CASH EQUIVALENTS FINANCIAL ASSETS AT AMORTIZED COST if that rate is readily available or the Group’s incremental Financial assets are measured at amortized cost if the assets financing rate. A cash-generating unit to which goodwill has been allocated is Cash and cash equivalents are items which are readily tested for impairment annually, or more frequently when there convertible to known amounts of cash and which are subject to meet the following conditions (and are not designated as FVTPL): Lease payments included in the measurement of the lease liability is an indication that the unit may be impaired. If the recoverable insignificant risk of change in value. Cash and cash equivalents • They are held within a business model whose objective is are made up of fixed payments (including in substance fixed), amount of the cash-generating unit is less than its carrying in the consolidated statement of financial position comprise to hold the financial assets and collect its contractual cash variable payments based on an index or rate, amounts expected amount, the impairment loss is allocated first to reduce the cash on hand and bank account balances and are initially and flows. to be payable under a residual value guarantee and payments carrying amount of any goodwill allocated to the unit and then subsequently recorded at fair value. arising from options reasonably certain to be exercised. to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for For the purposes of the statement of cash flows, cash and cash • The contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the Subsequent to initial measurement, the liability will be reduced goodwill is recognized directly in the Consolidated Statement of equivalents comprise cash on hand and deposits held with banks, principal amount outstanding. for payments made and increased for interest. It is remeasured Profit or Loss. An impairment loss recognized for goodwill is not all of which have maturities of 90 days or less and are available reversed in subsequent periods. for use by the Group unless otherwise stated. to reflect any reassessment or modification, or if there are After initial recognition, these are measured at amortized cost changes in-substance fixed payments. On disposal of the relevant cash-generating unit, the attributable using the effective interest method. Discounting is omitted FINANCIAL INSTRUMENTS where the effect of discounting is immaterial. The Group’s cash The Group has elected to account for short-term leases and amount of goodwill is included in the determination of the profit and cash equivalents, accounts receivable collected in cash and leases of low-value assets using the practical expedients. or loss on disposal. most other receivables and cash margins placed with banks fall Instead of recognizing a right-of-use asset and lease liability, the RECOGNITION AND DE-RECOGNITION An impairment loss is recognized for the amount by which the into this category of financial instruments. payments in relation to these are recognized as an expense in Financial assets and financial liabilities are recognized when asset’s (or cash-generating unit’s) carrying amount exceeds its profit or loss on a straight-line basis over the lease term. the Group becomes a party to the contractual provisions of the recoverable amount, which is the higher of fair value less costs financial instrument. FINANCIAL ASSETS AT FAIR VALUE of disposal and value-in-use. To determine the value-in-use, THROUGH PROFIT OR LOSS (FVTPL) INTANGIBLE ASSETS AND GOODWILL management estimates expected future cash flows from each Financial assets are de-recognized when the contractual rights Financial assets that are held within a different business cash-generating unit and determines a suitable discount rate in to the cash flows from the financial asset expire, or when the INTANGIBLE ASSETS model other than ‘hold to collect’ or ‘hold to collect and sell’ order to calculate the present value of those cash flows. The data financial asset and substantially all the risks and rewards are are categorized at fair value through profit and loss. Further, used for impairment testing procedures is directly linked to the transferred. A financial liability is de-recognized when it is An intangible asset is initially recognized at cost which is equal irrespective of business model financial assets whose Group’s latest approved budget, adjusted as necessary to exclude extinguished, discharged, cancelled or expires. to the fair value of consideration paid at the time of acquisition contractual cash flows are not solely payments of principal and of the asset. the effects of future reorganizations and asset enhancements. Discount factors are determined individually for each cash- interest are accounted for at FVTPL. CLASSIFICATION AND INITIAL The Group applies the following estimated useful generating unit and reflect current market assessments of the time value of money and asset-specific risk factors. MEASUREMENT OF FINANCIAL ASSETS Assets in this category are measured at fair value with gains or lives for amortization of intangible assets: losses recognized in profit or loss. The fair values of financial Except for those accounts receivable that do not contain a assets in this category are determined by reference to active significant financing component and are measured at the market transactions or using a valuation technique where no transaction price in accordance with IFRS 15, all financial assets active market exists. Accounts receivable collected in gold are Assets Category Life in Years are initially measured at fair value adjusted for transaction costs, classified under FVTPL. where applicable. Franchise agreement 20 Financial assets, other than those designated and effective as Computer software 2 hedging instruments, are classified into the following categories:
• Amortized cost.
• Fair value through profit or loss (FVTPL).
• Fair value through other comprehensive income (FVOCI).
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FINANCIAL ASSETS AT FAIR VALUE THROUGH CLASSIFICATION AND MEASUREMENT FAIR VALUE HEDGES ZAKAT AND TAXES OTHER COMPREHENSIVE INCOME (FVOCI) OF FINANCIAL LIABILITIES The change in the fair value of a hedging instrument is recognized Zakat is provided for on behalf of the Group and its effectively The Group accounts for financial assets at FVOCI if the assets The Group’s financial liabilities carried at amortized cost include in the statement of profit or loss as other expense. The change wholly owned subsidiaries in accordance with the Saudi Arabian meet the following conditions: long term murabaha facility, short term cash facilities, accounts in the fair value of the hedged item attributable to the risk fiscal regulations. The foreign subsidiaries provide for income payable and other current liabilities. Short term gold facilities hedged is recorded as part of the carrying value of the hedged tax liabilities, if any, in accordance with tax regulations of the • They are held under a business model whose objective it is are designated at FVTPL. i t e m a n d i s a l s o r e c o g n i z e d i n t h e s t a t e m e n t o f p r o fi t o r l o s s a s country in which they operate. Zakat and income tax provisions “hold to collect” the associated cash flows and sell. other expense. are charged to the consolidated statement of profit or loss and Financial liabilities are initially measured at fair value, and, consolidated statement of comprehensive income. • The contractual terms of the financial assets give rise to cash where applicable, adjusted for transaction costs unless the When an unrecognized firm commitment is designated as a flows that are solely payments of principal and interest on the Group designated a financial liability at fair value through profit hedged item, the subsequent cumulative change in the fair Deferred income tax is provided for foreign subsidiaries subject principal amount outstanding. or loss. value of the firm commitment attributable to the hedged risk is to tax, using the liability method, on all temporary differences at recognized as an asset or liability with a corresponding gain or the reporting date between the tax bases of assets and liabilities Any gains or losses recognized in other comprehensive income Subsequently, financial liabilities are measured at amortized loss recognized in profit or loss. and their carrying amounts. (OCI) will be recycled upon de-recognition of the asset. cost using the effective interest method except for derivatives and financial liabilities designated at FVTPL, which are carried Deferred income tax assets and liabilities are measured at the ACCOUNTS PAYABLE AND ACCRUALS IMPAIRMENT OF FINANCIAL ASSETS subsequently at fair value with gains or losses recognized in tax rates that are expected to apply to the period when the asset profit or loss (other than derivative financial instruments that are Liabilities are recognized for amounts to be paid in the future for is realized, or the liability is settled, based on laws that have The Group assesses on forward looking basis the Expected designated and effective as hedging instruments). goods or services received, whether billed by the supplier or not. been enacted in the respective countries at the reporting date. Credit Losses (ECL) for the impairment of financial assets. All interest-related costs and, if applicable, changes in an DIVIDENDS Recognition of credit losses is no longer dependent on the Group instrument’s fair value that are reported in profit or loss are PROVISIONS first identifying a credit loss event. Instead the Group considers included within finance costs or finance income. Provisions are recognized when the Group has an obligation Final dividends are recognized as a liability at the time of a broader range of information when assessing credit risk and (legal or constructive) arising from a past event, and the costs their approval by the General Assembly. Interim dividends are measuring expected credit losses, including past events, current DERIVATIVE FINANCIAL INSTRUMENTS to settle the obligation are both probable and can be measured recorded when approved by the Board of Directors. conditions, reasonable and supportable forecasts that affect the AND HEDGE ACCOUNTING reliably. Provisions are reviewed at each reporting date and expected collectability of the future cash flows of the instrument. adjusted to reflect current best estimate. REVENUE The Group has entered into Islamic derivative financial In applying this forward-looking approach, a distinction is instruments with a financial institution, in the form of forward Revenue arises mainly from the sale of gold and revenue from CONTINGENT LIABILITIES made between: commodity contracts in order to mitigate the risk of increase in operations. To determine whether to recognize revenue, the finance costs on short-term gold facilities, due to increase in Group follows a 5-steps process: • Financial instruments that have not deteriorated significantly A contingent liability is disclosed when the Group has a possible gold prices. Such derivative financial instruments are initially in credit quality since initial recognition or that have low obligation as a result of past event, whose existence will be recognized at fair value on the date on which a derivative contract 1. Identifying the contract with a customer. credit risk (‘Stage 1’). confirmed only by the occurrence or non-occurrence, of one is entered into and are subsequently remeasured at fair value. or more uncertain future events not wholly within the control 2. Identifying the performance obligations. • Financial instruments that have deteriorated significantly in Derivatives are carried as financial assets when the fair value is of the Group; or the Group has a present legal or constructive positive and as financial liabilities when the fair value is negative. credit quality since initial recognition and whose credit risk is obligation that arises from past events, but is not probable that 3. Determining the transaction price. not low (‘Stage 2’). an outflow of the resources embodying economic benefits will be Derivative financial instruments are accounted for at fair value required to settle the obligation, or the amount of the obligation through profit and loss (FVTPL) except for derivatives designated 4. Allocating the transaction price to the performance ‘Stage 3’ would cover financial assets that have objective evidence cannot be measured with sufficient reliability. obligations. of impairment at the reporting date. as hedging instruments in cash flow hedge relationships, which require a specific accounting treatment. To qualify for hedge 5. Recognizing revenue when/as performance obligation(s) are accounting, the hedging relationship must meet all of the EMPLOYEES' END OF SERVICE BENEFITS ‘12-month expected credit losses’ are recognized for the first satisfied. category while ‘lifetime expected credit losses’ are recognized following requirements: The Group provides end of service compensation to its employees for the second category. in accordance with the provisions of the Labor Law applicable The Group often enters into transactions involving a range • There is an economic relationship between the hedged item in the Kingdom of Saudi Arabia. The entitlement to these of the Group’s products and services. In all cases, the total and the hedging instrument. Measurement of the expected credit losses is determined by a benefits is based upon the employees’ final salary and length of transaction price for a contract is allocated amongst the various probability-weighted estimate of credit losses over the expected service, subject to completion of a minimum service period. The performance obligations based on their relative stand-alone life of the financial instrument. • The effect of credit risk does not dominate the value changes that result from that economic relationship. expected costs of these benefits are accrued over the period of selling prices. The transaction price for a contract excludes any employment. Provision is made annually based on valuation done amounts collected on behalf of third parties. ACCOUNTS AND OTHER RECEIVABLES • The hedge ratio of the hedging relationship is the same as that by an independent professional actuary, in accordance with the resulting from the quantity of the hedged item that the entity requirements of IAS 19 “Employee Benefits” using Projected Unit Revenue is recognized at a point in time, when the Group satisfies For accounts receivable, the Group applies the simplified actually hedges and the quantity of the hedging instrument that Credit Method. Last valuation was carried out on 31 December 2019. performance obligations by transferring the promised goods or approach, which requires expected lifetime losses to be the entity actually uses to hedge that quantity of hedged item. services to its customers. recognized from initial recognition of the accounts receivable. All past service costs are recognized as an expense immediately. To measure the expected credit losses, accounts receivable All actuarial gains and losses on defined benefit obligation are have been grouped based on shared credit risk characteristics recognized in consolidated statement of comprehensive income. and the days past due. Expected loss rates were derived from historical information of the Group and are adjusted to reflect the expected future outcome which also incorporates forward looking information for macroeconomic factors such as inflation and gross domestic product growth rate.
Other financial assets such as receivable from employees, bank balances and cash margin deposits have low credit risk and the impact of applying ECL is immaterial.
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REVENUE FROM GOLD GOLD REVALUATION 6. APPLICATION OF NEW AND REVISED INTERNATIONAL Revenue from sale of gold refers to the value of gold weight Transactions denominated in gold are recorded in Saudi Riyals at FINANCIAL REPORTING STANDARDS (IFRS) sold to the wholesale customers. Revenue is recognized at the relevant market rates prevailing at the time of the respective the time of issuing invoices and delivering the quantities of transactions. Asset and liability balances denominated in gold, 6.1 NEW STANDARDS ADOPTED The Group has elected not to include initial direct costs in the jewelry stated in the invoices when the Group has performed its except for gold inventory, are revalued at the market price AS AT 1 JANUARY 2019: measurement of the right-of-use asset for operating leases in obligation as agreed in the contract, at the then price of gold in ruling at the consolidated statement of financial position date. existence at the date of initial application of IFRS 16, being 1 the international markets. All realized and unrealized gains and losses from revaluation of IFRS 16 'LEASES' January 2019. At this date, the Group has also elected to measure the right-of-use assets at an amount equal to the lease liability gold related items are recognized in the consolidated statement IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’ along with three Revenue from gold and cost of revenue from gold are equal adjusted for any prepaid or accrued lease payments that existed of profit or loss. Interpretations (IFRIC 4 ‘Determining whether an Arrangement and offsetting each other as the gold used in jewelries sold to at the date of transition. contains a Lease’, SIC 15 ‘Operating Leases-Incentives’ and SIC customers is valued at the international gold prices prevailing on BASIC AND DILUTED EARNINGS PER SHARE 27 ‘Evaluating the Substance of Transactions Involving the Legal the date of each transaction, without adding any margin. On transition, for leases previously accounted for as operating Form of a Lease’). The new Standard has been applied using leases with a remaining lease term of less than 12 months and The Group presents basic and diluted earnings per share (EPS) the modified retrospective approach from 1 January 2019, but for leases of low-value assets, the Group has applied the optional for its shareholders. Basic EPS is calculated by dividing the REVENUE FROM OPERATIONS has not restated comparatives for the 2018 reporting period, exemptions to not recognize right-of-use assets but to account net income or loss attributable to ordinary shareholders of the as permitted under the specific transitional provisions in the Revenue from operations refers to the value-added component of for the lease expense on a straight-line basis over the remaining Parent Company by the weighted average number of ordinary standard. The reclassifications and adjustments arising from the the jewelry piece namely labor service charge, value of additions, lease term. shares outstanding during the year. Diluted EPS is determined new standard are therefore recognized in the opening statement sales of diamond jewelry and other revenues generated through by adjusting the net income or loss attributable to ordinary of financial position on 1 January 2019. The Group has benefited from the use of hindsight for wholesale and retail channels. shareholders and the weighted average number of ordinary determining lease term when considering options to extend and shares outstanding for the effects of dilutive potential ordinary For contracts in place at the date of initial application, the Group Revenue from operations is recognized in accordance with the terminate leases. shares, if any. has elected to apply the definition of a lease from IAS 17 and fair value of the consideration received or receivable at the IFRIC 4 and has not applied IFRS 16 to arrangements that were time the performance obligation is satisfied. The performance previously not identified as lease under IAS 17 and IFRIC 4. obligation is performed when the promised goods are delivered SEGMENTAL REPORTING to the customers. Revenue is reduced for applicable discounts An operating segment is a component of the Group that engages relating to the items sold. in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate FOREIGN CURRENCY TRANSACTIONS to transactions with any of the Group’s other components. All The following is a reconciliation of total operating lease commitments at 31 December operating segments’ operating results are reviewed regularly 2018 to the lease liabilities recognized at 1 January 2019: Transactions in foreign currencies are translated into Saudi by the Group’s Executive Committee which makes decisions Riyals (SAR) at the relevant exchange rates prevailing at the time about resources to be allocated to the segment and to assess of the respective transactions. At the reporting date monetary its performance, and for which discrete financial information is assets and liabilities denominated in foreign currencies are available. Segment results include items directly attributable Notes to the consolidated financial statements (continued for the year ended 31 December 2019) converted into SAR at the exchange rates ruling on such date. to a segment as well as those that can be allocated on a SAR Any resulting exchange differences are charged or credited to reasonable basis. consolidated statement of profit or loss. Total operating lease commitments disclosed at 31 December 2018 79,782,785
Recognition exemptions: Lease with remaining TRANSLATION OF FOREIGN OPERATIONS lease term of less than 12 months. (754,610)
As at the reporting date, the assets and liabilities of these Operating lease liabilities before discounting 79,028,175 subsidiaries are translated into Saudi Riyal (SAR), at the rate of exchange ruling at the consolidated statement of financial Discount using incremental financing rate (11,713,121) position date and their consolidated statements of profit or loss are translated at the average exchange rates for the year. Total lease liabilities recognized under IFRS 16 at 1 January 2019 67,315,054 Components of equity, other than retained earnings, are translated at the rate ruling at the date of occurrence of each component. Translation adjustments in respect of these components of The recognized right-of-use assets relate to the following class of asset: equity are recorded through consolidated statement of other comprehensive income as a separate component of equity.
EXPENSES 1 January 2019 SAR Selling and marketing expenses are those which specifically relate to marketing and promotional activities. All other expenses Land 2,816,261 are classified as general and administration expenses and cost of services. Buildings - shops 70,569,264
75,385,525
Lease liabilities as at the end of the period are as follows:
Non-current portion of lease liabilities 38,508,049
Current portion of lease liabilities 28,807,005
Total lease liabilities 67,315,054
148 149 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
The change in accounting policy affected the following line AMENDMENTS TO IFRS 3 - 7. PROPERTY AND EQUIPMENT i t e m s i n t h e c o n s o l i d a t e d s t a t e m e n t o f fi n a n c i a l p o s i t i o n o n DEFINITION OF A BUSINESS 1 January 2019: This amendment revises the definition of a business. According to feedback received by the IASB, application of the current 1. Right-of-use asset – increased by SAR 73.4 million. guidance is commonly thought to be too complex, and it results Machinery Tools, dies Construction Land Buildings and Furniture Motor Office and other Leasehold work in Total 2019 2. Prepayments – decreased by SAR 6.1 million. in too many transactions qualifying as business combinations. equipment and fixtures vehicles equipment assets improvements progress
3. Lease liabilities – increased by SAR 67.3 million. AMENDMENTS TO IAS 1 AND IAS 8 ON SAR SAR SAR SAR SAR SAR SAR SAR SAR SAR THE DEFINITION OF MATERIAL Cost 6.2 NEW STANDARDS ISSUED T h e s e a m e n d m e n t s t o I A S 1 , ‘ P r e s e n t a t i o n o f fi n a n c i a l s t a t e m e n t s ’, BUT NOT YET EFFECTIVE At the beginning and IAS 8, ‘Accounting policies, changes in accounting estimates of the year 319,874 94,237,231 66,561,023 21,363,512 8,108,952 23,828,959 13,059,422 40,140,805 (13,357,565) 254,262,213 Following are the new standards and amendments to standards and errors’, and consequential amendments to other IFRSs: which are effective for annual periods beginning on or after 1 Reclassifications - (10,403,760) 13,652 3,796,978 230 (928,817) 75,013 6,672,008 13,390,276 12,615,580 January 2020 and earlier application is permitted; however, • Use a consistent definition of materiality throughout IFRSs the Group has not early adopted them in preparing these and the Conceptual Framework for Financial Reporting. Additions - - 1,491,340 857,059 717,771 1,690,888 302,698 4,752,683 1,855,638 11,668,077 Consolidated Financial Statements. • Clarify the explanation of the definition of material. Disposals - (500,000) (699,026) (136,654) (961,643) (471,507) - (8,245,935) (27,607) (11,042,372)
• Incorporate some of the guidance in IAS 1 about immaterial Currency translation differences 24,608 1,506,161 1,344,288 177,821 112,854 867,362 165,560 991,039 80,427 5,270,120 information. At the end of the year 344,482 84,839,632 68,711,277 26,058,716 7,978,164 24,986,885 13,602,693 44,310,600 1,941,169 272,773,618
AMENDMENTS TO IFRS 9, IAS 39 AND IFRS Accumulated 7 - INTEREST RATE BENCHMARK REFORM depreciation These amendments provide certain relief in connection with At beginning of the year - 43,468,213 52,877,333 14,435,094 7,183,869 17,516,609 11,388,132 15,278,308 - 162,147,558 interest rate benchmark reform. The relief relate to hedge accounting and have the effect that IBOR reform should not Reclassifications - 1,270,818 (133) 3,814,749 217 443,535 - 7,086,394 - 12,615,580 generally, cause hedge accounting to terminate. However, any Depreciation charge hedge ineffectiveness should continue to be recorded in the for the year - 1,551,103 2,508,154 2,211,196 545,795 2,063,121 268,470 7,534,079 - 16,681,918 Consolidated Statement of Profit or Loss. Relating to disposals - (103,750) (672,346) (132,207) (961,636) (307,852) - (5,546,590) - (7,724,381)
Currency translation differences - 98,711 379,467 108,300 69,987 521,639 107,415 340,440 - 1,625,959
At the end of the year - 46,285,095 55,092,475 20,437,132 6,838,232 20,237,052 11,764,017 24,692,631 - 185,346,634
Net book value:
As at 31 December 2019 344,482 38,554,537 13,618,802 5,621,584 1,139,932 4,749,833 1,838,676 19,617,969 1,941,169 87,426,984
150 151 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
8. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES Machinery Tools, dies Construction Land Buildings and Furniture Motor Office and other Leasehold work in Total 2019 equipment and fixtures vehicles equipment assets improvements progress
31 December 2019 SAR SAR SAR SAR SAR SAR SAR SAR SAR SAR Depreciation SAR Carrying Value SAR Cost Land 193,668 2,622,593 At the beginning of the year 321,399 69,684,136 68,072,456 15,071,533 8,843,273 19,200,103 12,782,745 26,186,365 12,451,650 232,613,660 Buildings 25,746,358 45,952,051 Reclassifications - 12,945,909 14,839 25,116 192 1,443,343 (14,983) 1,633,842 (14,317,886) 1,730,372 Total Right-of-Use Assets 25,940,026 48,574,644
Additions - 11,675,099 2,340,693 379,337 708,278 2,990,543 300,295 5,512,802 (11,705,610) 12,201,437
Acquisition through Additions to Right-of-use assets during the year ended 31 December 2019 amounting to SAR 2.3 million. business combination - - - 5,956,879 - 607,571 - 9,063,542 280,176 15,908,168 (refer note 33) Lease liabilities as at year end are as follows:
Disposals - - (3,790,770) (60,091) (1,437,121) (367,248) - (2,204,327) (39,314) (7,898,871)
Currency translation differences (1,525) (67,913) (76,195) (9,262) (5,670) (45,353) (8,635) (51,419) (26,581) (292,553
At the end of the year 319,874 94,237,231 66,561,023 21,363,512 8,108,952 23,828,959 12,059,422 40,140,805 (13,357,565) 254,262,213 31 December 2019
Accumulated Depreciation SAR depreciation Non-current portion of lease liabilities 22,631,499 At beginning of the year - 40,956,957 53,390,701 13,824,289 7,914,958 16,472,862 11,118,809 11,823,167 - 155,501,743 Current portion of lease liabilities 21,251,209 Reclassifications - 1,270,809 (144) (463) 192 (15,701) - 475,679 - 1,730,372 Total Lease Liabilities 43,882,708 Depreciation charge for the year - 1,245,401 2,325,084 676,937 710,038 1,421,738 275,195 4,665,923 - 11,320,316
Relating to disposals - - (2,280,326) (59,618) (1,437,114) (334,742) - (1,670,421) - (6,322,221) The total interest expense on lease liabilities recognized during the year ended 31 December 2019 is SAR 4.4 million and total cash outflows for leases SAR 28.1 million. Currency translation differences - (4,954) (17,982) (6,051) (4,205) (27,548) (5,872) (16,040) - (82,652) Expense relating to short-term leases is SAR 2.9 million respectively. At the end of the year - 43,468,213 52,877,333 14,435,094 7,183,869 17,516,609 11,388,132 15,278,308 - 162,147,558
Net book value: 9. INTANGIBLE ASSETS AND GOODWILL As at 31 December 2018 319,874 50,769,018 13,683,690 6,928,418 925,083 6,312,350 1,671,290 24,862,497 (13,357,565) 92,114,655
31 December 2019 31 December 2018 Notes SAR SAR
7.1. Depreciation charge for the year has been allocated as follows: Franchise agreement and computer software 9.1 30,711,105 32,436,856
Goodwill 109,977,851 109,977,851
140,688,956 142,414,707 31 December 2019 31 December 2018
SAR SAR
Cost of sales 5,316,819 4,251,335
Selling and marketing expenses 10,196,419 5,793,361
General and administrative expenses 1,168,680 1,275,620
16,681,918 11,320,316
152 153 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
9.1. Franchise agreement and computer software: 9.2. The goodwill relates to the acquisition of Izdiad Retail Company of Arabia in 2018
Following is the movement in the net carrying amount of goodwill:
31 December 2019 31 December 2018 Notes SAR SAR 31 December 2019 31 December 2018 Notes Gross carrying amount: SAR SAR
As at 1 January 39,267,525 7,050,128 Gross carrying amount:
Additions 635,183 1,256,260 As at 1 January 109,977,851 -
Acquired through business combination 33 - 30,964,350 Acquired through business combination 33 - 109,977,851
Disposals (431,330) - As at 31 December 109,977,851 109,977,851
Foreign exchange differences 58,105 (3,213) Accumulated impairment:
As at 31 December 39,529,483 39,267,525 As at 1 January and 31 December - -
Accumulated amortization: Net carrying amount as at 31 December 109,977,851 109,977,851
As at 1 January 6,830,669 6,416,267
Charge for the year 2,148,081 417,036 Goodwill is subject to annual impairment testing. Assets are tested for impairment by comparing the carrying amount of each Cash- Generating Unit (CGU) to the recoverable amount which has been determined based on a value-in-use calculation using cash flow Disposals (208,446) - projections based on financial forecasts approved by senior management covering a period of 10 years. A 10 year projections period
Foreign exchange differences 48,074 (2,634) was used as it was in line with the tenure of the Franchise Agreement. The discount rate applied to cash flow projections is 7.5% as relevant for the CGU and the terminal value and cash flows beyond the 10 years period are extrapolated using a 2% growth rate. As at 31 December 8,818,378 6,830,669
Net carrying amount as at 31 December 30,711,105 32,436,856 KEY ASSUMPTIONS USED IN VALUE-IN-USE CALCULATIONS AND SENSITIVITY TO CHANGES IN ASSUMPTIONS:
A. Sales growth assumption: The anticipated annual revenue growth included in the cash flow projections has been based on historical experience and expectations of future changes in the market conditions.
B. Discount rate: Discount rate reflects the current market assessment of the risk specific to CGU. The discount rate is estimated based on the Weighted Average Cost of Capital (WACC).
C. Growth rate used to extrapolate cash flows beyond the forecast period: The expected long-term perpetual growth rate assumed is 2%, being the expected inflation rate as published by International Monetary Fund (IMF), specific to the country of operations of the CGU.
Management believes that reasonable changes in the key assumptions would not trigger recognition of impairment losses.
154 155 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
10. INVENTORIES 11. ACCOUNTS RECEIVABLE
31 December 2019 31 December 2018 31 December 2019 31 December 2018
SAR SAR SAR SAR
By main components: Accounts receivable - Gross 684,580,488 582,677,816
Gold 725,440,465 625,095,633 Provision for expected credit losses (19,323,187) (12,189,152)
Diamonds, stones and pearls 137,608,030 155,106,291 Accounts receivable - Net 665,257,301 570,488,664
Other materials and accessories 26,359,540 21,900,285
889,408,035 802,102,209 Accounts receivable originate from offering term facilities to the Group’s wholesale customers to pay their commitments, including the Less: Provision for melting and slow-moving items (30,784,288) (13,246,470) value of the gold purchased. These credit terms are in response to the demand of Group’s wholesale customers and are considered to be in compliance with Shari’a provisions according to Shari’a opinion issued by the Shari’a Advisory Committee of the Council of Saudi 858,623,747 788,855,739 Chambers, a number of Shari’a Scholars and the conclusion of the meetings between these Scholars and the Group’s management (see note 36). Credit sales are only offered to the Group’s wholesale customers and not retail customers.
31 December 2019 31 December 2018 The Group applies the IFRS 9 simplified approach to measure expected credit losses and uses a lifetime expected loss allowance for all accounts receivable. See note 31.1 (b) on ageing analysis and credit risk of accounts receivable, which explains how the Group SAR SAR manages and measures credit quality of accounts receivable. By stage of completion: Movement in the provision for expected credit losses is as follows: Finished goods 457,211,614 437,872,395
Raw materials 431,572,140 363,624,458
Work in progress 624,281 605,356 31 December 2019 31 December 2018 889,408,035 802,102,209 SAR SAR
Less: Provision for melting (30,784,288) (13,246,470) and slow-moving items At beginning of the year 12,189,152 9,720,488
858,623,747 788,855,739 Charge for the year 5,060,150 2,504,441
Amounts recovered during the year 1,164,604 -
The movement in provision for melting and slow-moving inventory items is as follows: Foreign exchange differences 909,281 (35,777)
At the end of the year 19,323,187 12,189,152
31 December 2019 31 December 2018 Notes 12. OTHER CURRENT ASSETS SAR SAR
Balance at 1 January 13,246,470 11,882,841
Charge for the year 10.1 & 22 27,312,838 9,629,809 31 December 2019 31 December 2018
Utilization during the year (10,010,382) (8,266,180) SAR SAR
Foreign exchange differences 235,362 - Prepayments 19,834,581 20,770,421
Advance to suppliers 9,990,734 8,097,565 Balance at 31 December 30,784,288 13,246,470
Advance to employees 3,196,459 3,356,299
Refundable VAT and other balances 15,938,237 2,183,583
Other receivables 10,391,029 4,715,259 10.1 EXCEPTIONAL CHARGE OF SAR 17.8 MILLION FOR MELTING AND SLOW-MOVING INVENTORY ITEMS: 59,351,040 39,123,127
Included in the SAR 27.3 million charge for melting and slow-moving inventory items for the year ended 31 December 2019 is an exceptional impairment amounting to SAR 17.8 million mainly related to the inventory items of the closed shops in Kingdom of Saudi Arabia.
156 157 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
13. CASH AND CASH EQUIVALENTS 17. EMPLOYEES' END OF SERVICE BENEFITS
GENERAL DESCRIPTION 31 December 2019 31 December 2018 The Group’s policy provides for end of service benefits for all employees who complete the qualifying period of service in accordance Note SAR SAR with the Labor laws.
Cash in hand 17,308,267 16,868,120 The annual provision is based on the actuarial valuations. The most recent actuarial valuation was performed by Alkhwarizmi Actuarial Services Company, an independent actuary, using the Projected Unit Credit Method as at 31 December 2019. Cash at bank 36,266,942 28,676,687 The movements in employees’ end of service benefits during the year are as follows: Short term deposits 13.1 - 2,188,230
53,575,209 47,733,037
31 December 2019 31 December 2018 Note 13.1. Short term deposits include various deposits placed with commercial banks and have maturity period ranging from a week SAR SAR to a month. At the beginning of the year 32,645,186 37,637,949
On acquisition through business 14. SHARE CAPITAL 15. STATUTORY RESERVE combination 33 33 - 557,014 The authorized and paid up share capital of the Company as at In accordance with Saudi Arabian Regulations for Companies Charge for the year 3,243,699 4,507,767 31 December 2019 is SAR 430,000,000 (31 December 2018: SAR and Company’s By-Laws, 10% of the net income for the year 430,000,000), divided into 43,000,000 shares (31 December 2018: shall be transferred to the statutory reserve. The Company may Payments during the year (4,991,328) (5,737,518) 43,000,000 shares) with a face value of SAR 10 per share. resolve to discontinue such transfers when the reserve totals 30% of its capital. The reserve is not available for distribution to Actuarial gains (1,705,537) (4,311,996) the shareholders. Foreign exchange differences 142,838 (8,030)
16. LONG TERM MURABAHA FACILITY At the end of the year 29,334,858 32,645,186
Principal actuarial assumptions
31 December 2019 31 December 2018 Financial assumptions:
SAR SAR Discount rate 2.7% - 5.15% 4.4% - 16.75%
Long-term murabaha facility 94,000,000 108,000,000 Salary increase 0% - 5.15% 0% - 10.0%
Less: current portion (19,000,000) (14,000,000) Demographic assumption:
Non-current portion 75,000,000 94,000,000 Rate of employee turnover Heavy Moderate
Service costs:
Current service cost 1,846,179 3,247,170 The Group has obtained a murabaha finance facility from a bank to finance the acquisition of Izdiad Commercial Company of Arabia Interest cost on define benefit obligation 1,397,520 1,260,597 (refer note 33). The facility is for a period of seven years at profit rate of SAIBOR plus an agreed rate with the bank and payable in semi-annual instalments. 3,243,699 4,507,767
158 159 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
18. DEFERRED TAX LIABILITY - NET 20. SHORT-TERM MURABAHA FACILITIES
Deferred tax liability relates to taxable temporary differences on property and equipment as follows: 31 December 2019 31 December 2018 Notes SAR SAR
31 December 2019 31 December 2018 Murabaha facilities (Gold) 20.1 1,024,049,730 1,024,731,614
SAR SAR Cash facilities (Tawaruq) 20.2 93,940,918 67,000,000 At the beginning of the year 982,726 555,171 1,117,990,648 1,091,731,614 Charge for the year 296,914 575,577
Foreign exchange differences 123,435 (148,022)
At the end of the year 1,403,075 982,726 20.1. Total gold procurement facilities of the Group at 31 banks’ internal Shari’a Committees including Murabaha December 2019 amounted to SAR 1.0 billion compared facilities (Tawaruq) to finance the purchase of gold, to SAR 1.0 billion at 31 December 2018. All outstanding as banks buy commodities other than gold or silver 19. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES financial facilities agreements are in the form of and then sell them to the Group on a credit basis. The Murabaha and Tawaruq agreements to finance the Group then sells the goods to a third party, and the bank supply of pure gold. immediately buys the gold using cash sales proceeds of 31 December 2019 31 December 2018 the commodity. Notes The Group has Islamic Murabaha facilities to obtain SAR SAR gold from various banks to finance gold working capital 20.2. Represents Islamic Tawaruq cash facilities from various Accounts payable 22,243,121 25,154,319 requirements, with maturity periods ranging from 1 banks solely to finance working capital requirements of to 3 months (2018: 1 to 3 months) with agreed profit the Group, with agreed profit rates and maturity periods Account payable for gold 19.1 193,896,938 - rates. All of these financial facilities are compliant with ranging from 1 to 9 months. Shari’a principles as per Shari’a certificates issued by Accrued expenses 11,076,548 16,891,186
Accrued financial costs 1,172,331 2,677,116
Employees payables 1,869,805 2,193,415
Amounts due to related parties 29 493,625 511,387
Other payables 6,059,694 2,767,567 21. REVENUE Revenue includes revenue from gold and revenue from operations. Revenue from gold relates to the value of gold weight used in 236,812,062 50,194,990 generating the operating revenues from wholesale channels. The presentation of revenue from gold serves as statistical information only as the Group does not generate any profit or loss from selling gold through wholesale channels. While revenue from operations relates to the value-added component of the jewelry piece, namely labor service charge revenue, value of additions and other sources 19.1. The Group provided a standby letter of credit amounting to SAR 200 million (31 December 2018: nil) as a security against of revenue generated through wholesale channels and gold and diamond jewelry sold in retail channels, which represent the real the gold which allows the supplier to receive the value of the gold at any time. revenue of the Group.
Revenue from operations can be analyzed as follows:
31 December 2019 31 December 2018
SAR % of total SAR % of total
On cash basis 223,989,004 46.5% 153,080,665 37.7%
On credit basis 257,215,707 53.5% 253,364,658 62.3%
Total revenue from operations 481,204,711 100% 406,445,323 100%
160 161 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
22. COST OF OPERATIONS
31 December 2019 31 December 2018 Notes SAR SAR
Raw material consumed 133,302,373 100,261,096
Salaries and employees’ benefits 43,546,792 43,632,328
Melting costs and charge for slow-moving inventory 10 9,548,057 9,629,809
Depreciation 7.1 5,316,819 4,251,335
Other 1,680,496 4,594,382
193,394,537 162,368,950
23. SELLING AND MARKETING EXPENSES
31 December 2019 31 December 2018 Notes SAR SAR
Salaries and employees’ benefits 34,733,735 30,144,699
Gold calibration costs 34,849,965 28,294,159
Advertisements and promotional activities 34,256,992 21,467,819
Depreciation on right-to-use asset 24,894,749 -
Sales commissions 16,387,634 13,888,267
Depreciation on property and equipment 7.1 10,196,419 5,793,361
Provision for expected credit losses 11 5,060,150 2,504,441
Rent 8 2,921,395 18,442,562
Travel expenses 2,020,795 1,402,004
Amortization of intangible assets 1,964,703 188,989
Insurance expenses 740,786 909,614
Other expenses 11,908,880 8,774,018
179,936,203 131,809,933
162 163 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
24. GENERAL AND ADMINISTRATIVE EXPENSES 27. ZAKAT AND INCOME TAX Zakat charge for the year amounts to SAR 11.3 million (2018: SAR 10.7 million). The Zakat base is as follows:
31 December 2019 31 December 2018 Notes 31 December 2019 31 December 2018 SAR SAR SAR SAR Salaries and employees’ benefits 29,650,733 31,045,597 Equity 600,152,300 580,136,368
Consultancy and professional fees 3,376,510 2,272,738 Opening provisions and other adjustments 74,705,017 38,588,281
Travel expenses 10 2,036,177 1,625,732 Book value of long-term assets (278,252,910) (235,604,814)
Depreciation on property and equipment 7.1 1,168,680 1,275,620 396,604,407 383,119,835 Printing, stationery and communication expenses 1,021,915 805,307 Zakatable income for the year 32,496,672 46,617,580
Repairs and maintenance expenses 497,518 539,100 Zakat base 429,101,079 429,737,415
Depreciation on right-of-use asset 41,510 - STATUS OF ZAKAT ASSESSMENTS Other expenses 5,580,718 4,774,910 The Company has filed the zakat returns and paid zakat for all the years up to 2018 and obtained respective zakat certificates. In 43,373,761 42,339,004 2017, the Company received zakat assessments for the years 2005 to 2014 with an additional zakat liability of approximately SAR 10.6 million which the company appealed against. Later after discussion with the Zakat authority the assessment was reduced to SAR 6.0 million which was agreed and settled by the company during 2019. Accordingly, no claims or assessments for Zakat are due from the company till the year 2014. The years 2015 to 2018 are still under review by GAZT. 25 OTHER EXPENSES - NET INCOME TAX CHARGE The income tax charge for the year consists of the following:
31 December 2019 31 December 2018
SAR SAR 31 December 2019 31 December 2018
(Gain)/ loss from foreign SAR SAR exchange differences – net (4,866,177) 656,029
Loss/ (gain) on disposal of Income tax 2,819,134 1,015,211 property and equipment 2,450,580 (39,648)
Bank charges 1,682,527 979,497 Deferred tax 296,914 575,577
Miscellaneous (279,144) 2,762,274 3,116,048 1,590,788
(1,012,214) 4,358,152 ORO Egypt Company (“ORO”) and L’azurde Egypt for Jewellery LLC (“LJ Egypt”) have accrued income tax on their estimated taxable profit at 22.5%. L’azurde Company for Jewellery LLC (“LCJ Qatar”) and L’azurde Jewellery LLC (“LJ Oman”) have accrued income tax on their estimated taxable profits at 10% and 15% respectively. 26. FINANCE COSTS - NET STATUS OF INCOME TAX ASSESSMENTS RELATED TO FOREIGN SUBSIDIARIES ORO, registered in Arab Republic of Egypt, was exempt from Corporate Income Tax until 31 December 2014 according to the Egyptian Law number 8 of the year 1997. ORO received tax assessments and settled its tax liabilities on non-exempt activities till the year 2014. 31 December 2019 31 December 2018 ORO paid all taxes due on its non-exempt activities to date. SAR SAR LJ Egypt, registered in Arab Republic of Egypt, was exempt from income tax on its commercial and manufacturing operations for a
Financing costs 45,080,720 34,333,125 period of 10 years ended December 2018. L’azurde Company for Jewellery LLC (“LCJ Qatar”), registered in the State of Qatar, filed its tax return for year 2018 and the tax Interest on employees’ end of service benefits 1,397,520 1,260,597 assessments for the company have been finalized up to year ended 31 December 2015.
Interest on lease liabilities 4,394,406 - L’azurde Company for Jewellery LLC (“LCJ Dubai”), L’azurde Jewellery LLC (“LJ Abu Dhabi”) and L’azurde Group for Gold and Jewellery DMCC (“L’azurde DMCC”) registered in the United Arab Emirates, operate in a tax-free country, so no tax returns have been filed. 50,872,646 35,593,722
164 165 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
28. EARNINGS PER SHARE - BASIC AND DILUTED 31 December 2019 31 December 2018 Remuneration to key management personnel SAR SAR
31 December 2019 31 December 2018 Salaries 5,315,880 5,041,790
SAR SAR Allowances 2,393,940 2,274,348 Basic and diluted earnings per share Short-term incentive plans 1,861,880 2,093,500 Net (loss)/ profit for the year attributable to equity holders of the parent (in SAR) (17,547,550) 17,665,938 9,571,700 9,409,638 Weighted average number of ordinary shares during the year 43,000,000 43,000,000
Basic and diluted (loss)/ earnings per share (in SAR) (0.41) 0.41 30. CONTINGENCIES AND COMMITMENTS
CONTINGENCIES: The Group provided letters of guarantees amounting to SAR 1.6 million as at 31 December 2019 (31 December 2018: SAR 3.4 million) There is no dilution effect on the basic earnings per share of the Group as the Group has no convertible dilutive potential ordinary in relation to its operations. shares outstanding on 31 December 2019 (31 December 2018 Nil). 29. RELATED PARTY TRANSACTIONS AND BALANCES CAPITAL COMMITMENTS: Related parties of the Group include shareholders, Board of Directors, key management personnel and entities of which they are The Group has capital commitments in respect of capital expenditures amounting to SAR 0.5 million as at 31 December 2019 principal owners. (31 December 2018: SAR 0.8 million).
The terms of the transactions with related parties are approved by the Group’s management. Transactions with related parties are entered in the normal course of the Group’s business. These balances are expected to be settled in the normal course of business. Pricing policies and terms of these transactions are at arm’s length. 31. FINANCIAL INSTRUMENTS
Transactions with related parties during the year and the balances as at end of the year are as follows: 31.1. RISK MANAGEMENT OF FINANCIAL INSTRUMENTS The Group activities expose it to variety of financial risks; market risk (including gold price risk, currency risk and interest rate risk), liquidity risk and credit risk. The Group’s overall risk management program focuses on the predictability of financial market and seeks to minimize potential adverse effect on the Group’s financial performance. The Group’s senior management carries out risk management under governance framework. Nature of transaction Amount of transactions Balances
December 2019 SAR December 2018 SAR December 2019 SAR December 2018 SAR A. GOLD PRICE RISK
Due from related parties: Gold price risk is the risk that the value of assets and liabilities denominated in gold will fluctuate due to changes in the gold prices. The management minimizes its risk in gold by maintaining equal quantity of gold in assets and liabilities where deemed practical. Holding Company: As at 31 December gold accounts were as follows: Costs recharged, and L’azurde Holding Company amounts collected 333,746 250,444 - - by the Company
Due from related parties: 31 December 2019 31 December 2018
Grams Grams Other affiliates Net gold (liabilities)/ asset SAR (24 Karat) SAR (24 Karat)
Gold – inventories (non-financial asset) 659,191,983 3,590,032 561,079,720 3,631,128 Board of Directors, except 1,485,500 1,502,557 368,000 385,762 an Executive Director Remuneration Consultancy Gold – accounts receivable 558,640,395 3,042,417 463,590,849 3,000,211
Director 502,500 502,500 125,625 125,625 Gold liabilities – payable for gold (193,896,343) (1,055,981) - -
1,988,000 2,005,057 493,625 511,387 Gold murabaha facilities (1,024,049,730) (5,577,046) (1,024,731,614) (6,631,709)
Net gold (liabilities)/ assets (113,695) (578) (61,045) (370)
166 167 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
B. CREDIT RISK The geographical breakdown of the Group’s accounts receivable balance is as follows: Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.
The Group seeks to limit its credit risk with respect to customers by setting credit limits for individual customers and by monitoring 31 December 2019 31 December 2018 outstanding accounts receivable and maintains accounts with reputable, creditworthy banks. SAR SAR The Group has established policies and procedures for timely recovery of accounts receivable and mitigates its exposure and credit risk by applying specific controls in accordance with the Group’s policies and procedures. Kingdom of Saudi Arabia 368,218,106 359,709,745
The table below shows Group’s maximum exposure to credit risk for the Arab Republic of Egypt 269,217,214 177,160,722 components of the consolidated statement of financial position: United Arab Emirates 22,270,159 33,567,846
31 December 2019 31 December 2018 Others 5,551,822 50,351 Notes SAR SAR Accounts receivable - Net 665,257,301 570,488,664
Other non-current assets 1,449,826 929,202
Accounts receivable 11 665,257,301 570,488,664 C. CURRENCY RISK Other current assets 12 29,525,725 10,255,141 Currency risk is the risk that value of a financial instrument will fluctuate due to changes in foreign exchange rates.
Cash at bank 13 36,266,942 30,864,917 The Group is subject to fluctuations in foreign exchange r ates in the nor mal cour se of it s business. Dur ing the year, the Group under took significant transactions in currencies other than Saudi Riyals such as US Dollars, Euros and Egyptian Pounds. Management regularly Cash margins 99,974,368 101,528,790 monitors the fluctuations in currency exchange rates and the effect of currency rates have been accounted for in the consolidated financial statements. Since Saudi Riyal is on a fixed parity with the US Dollar and the Group does not have material net assets in 832,474,162 714,066,714 Euros, the Group is exposed to currency risk due to Egyptian Pound only.
Cash balances are held with banks having sound credit ratings. The accounts receivable are shown net of allowance for expected The quantitative data regarding the Group’s exposure to currency risk arising from Egyptian Pound is as follows: credit losses. The Group applies the IFRS 9 simplified approach to measure expected credit losses and uses a lifetime expected loss allowance for all accounts receivable. To measure the expected credit losses, accounts receivable have been grouped based on shared credit risk characteristics and the days past due. The historical loss rates are adjusted to reflect current and forward-looking information based on macroeconomic factors affecting the ability of the customers to settle the receivable balance. 31 December 2019 31 December 2018
As at 31 December, the ageing of unimpaired accounts receivable was as follows: SAR SAR
Cash and cash equivalents 28,269,631 16,958,697
Accounts receivable 27,234,104 17,822,292 31 December 2019 31 December 2018 Accounts payable and other current liabilities (6,078,934) (6,806,056) SAR SAR
Neither past due nor impaired 439,428,954 424,032,707 Net statement of financial position exposure 49,424,801 27,974,933
Past due but not impaired: A strengthening/ (weakening) of the Egyptian Pound by 1% against Saudi Riyal would have affected the measurement of financial (a) Less than 180 days 209,753,497 129,015,462 instruments denominated in Egyptian Pound and would have increased/ (decreased) equity by SAR 489,354 at year ended 31 December 2019 (31 December 2018: SAR 276,980). (b) 181 – 270 days 11,558,943 11,284,161
(c) 271 – 360 days 1,264,147 1,848,805
(d) 361 – 540 days 1,180,931 1,718,396
(e) Greater than 540 days 2,070,829 2,589,133
665,257,301 570,488,664
168 169 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
D. MARKET PRICE RISK 31.2 FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES Market price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in Assets and liabilities measured at fair value in the consolidated statement of financial position are grouped into three levels of market prices (other than those arising from gold price risk or currency risk), whether those changes are caused by factors specific fair value hierarchies. This grouping is determined based on the lowest level of significant inputs used in fair value measurement, to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The as follows: management is of the opinion that the Group’s exposure to market price risk is minimal. • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
E. LIQUIDITY RISK • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly Liquidity risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitments associated with financial (i.e. as prices) or indirectly (i.e. derived from prices). liabilities. Liquidity requirements are monitored on a regular basis and management ensures that sufficient funds are available to • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). meet any commitments as they arise. The following table shows the fair value of financial assets and financial liabilities, including their levels in Following table represents the maturity profiles of the financial liabilities: the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
0-12 months Over 12 months Total 31 December 2019 Notes SAR SAR SAR
Financial liabilities: Fair value (in SAR) 31 December 2019 Level 1 Level 2 Level 3 Total Long term murabaha facility 16 19,000,000 75,000,000 94,000,000
Financial assets: Long term payable - 51,375,237 51,375,237
Accounts receivable 558,640,395 - - 558,640,395 Lease liabilities 21,251,209 22,631,499 43,882,708 Financial liabilities: Accounts payable and other current liabilities 19 236,812,062 - 236,812,062 Account payable for gold 193,896,938 - - 193,896,938 Short-term murabaha facilities 20 1,117,990,648 - 1,117,990,648 Short-term murabaha facilities 1,024,049,730 - - 1,024,049,730 Total 1,395,053,919 149,006,736 1,544,060,655
Fair value (in SAR) 0-12 months Over 12 months Total 31 December 2018 31 December 2018 Notes Level 1 Level 2 Level 3 Total SAR SAR SAR Financial assets: Financial liabilities: Accounts receivable 463,590,849 - - 463,590,849 Long term murabaha facility 16 14,000,000 94,000,000 108,000,000 Financial liabilities: Long term payable - 50,600,305 50,600,305 Short-term murabaha facilities 1,024,731,614 - - 1,024,731,614
Accounts payable and other current liabilities 19 50,194,990 - 50,194,990
Short-term murabaha facilities 20 1,091,731,614 - 1,091,731,614
Total 1,155,926,604 144,600,305 1,300,526,909
F. CAPITAL MANAGEMENT The Board’s policy is to maintain an efficient capital base to maintain investors, creditors and market confidence and to sustain the future development of its business. The Board of directors monitor the return on capital employed and the level of dividends to its shareholders.
The Group’s objectives when managing capital are:
A. To safeguard the entity’s ability to continue as a going concern.
B. To provide adequate return to shareholders.
170 171 05 | CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS
32. SEGMENTAL INFORMATION SAR The Group is organized into wholesale and retail business segments. All the intra-group revenues and other balances are eliminated on consolidation. Fair value of consideration transferred:
Details of the Group’s segments are as follows: Amount settled in cash 135,000,000
Fair value of deferred consideration 50,469,837
Total 185,469,837 Wholesale Retail Total 31 December 2019 Recognized amounts of SAR SAR SAR identifiable net assets:
1,495,209,023 - 1,495,209,023 Property and equipment 15,908,168 Revenues - Gold - Operations 266,914,983 214,289,728 481,204,711 Intangible assets 30,964,350
Total non-current assets Gross profit 190,901,680 96,908,494 287,810,174 46,872,518
Inventories 35,156,003 Net book value of property and equipment 66,224,725 21,202,259 87,426,984
Other current assets 5,285,686 Total assets 1,636,967,604 378,066,971 2,015,034,575
Cash and cash equivalents 3,371,787 Total liabilities (1,394,625,194) (202,198,320) (1,596,823,514)
Total assets 90,685,994
Wholesale Retail Total 31 December 2018 Employees’ end of service benefits 557,014 SAR SAR SAR Total non-current liabilities 557,014 1,505,917,472 - 1,505,917,472 Revenues - Gold Accounts payable and other current liabilities 13,886,994 - Operations 268,790,195 137,655,128 406,445,323 Zakat liability 750,000
Gross profit 193,616,325 50,460,048 244,076,373 Total liabilities 15,194,008
Net book value of property and equipment 63,581,254 28,533,401 92,114,655 Identifiable net assets at the date of acquisition 75,491,986
Total assets 1,393,871,600 389,462,571 1,783,334,171 Goodwill arising on acquisition 109,977,851
Total liabilities (1,176,251,704) (180,996,940) (1,357,248,644) Consideration transferred and settled in cash (135,000,000)
Cash and cash equivalents acquired 3,371,787
Net cash outflow on acquisition (131,628,213) 33. BUSINESS COMBINATION
ACQUISITION OF IZDIAD COMMERCIAL COMPANY OF ARABIA The total purchase consideration for acquisition of Izdiad was SAR 185.5 million On 1 November 2018, the Group acquired 100% of the equity instruments of Izdiad Commercial Company of Arabia (“Izdiad”), the out of which SAR 108 million was settled in cash through a murabaha cash facility sole-franchisee and operator of TOUS international franchise in KSA, and thereby obtained full control from 30 October 2018. This taken by the Group from a financial institution and SAR 27 million was settled from represented a major development for the Group with an objective to establish a strong presence in the affordable jewelry segment Company’s own cash resources. The amount of SAR 50.5 million represents fair value and to add a new source of growth and profitability. of the deferred consideration at the acquisition date, payable within four years from During the year, the Group has completed the Purchase Price Allocation exercise relating to the acquisition of Izdiad Company. the date of acquisition in two instalments. The fair value of this long-term payable at 31 Accordingly, Franchise Agreement intangible asset with definite useful life of 20 years has been recognized amounting to SAR 30.9 December 2019 amounted to SAR 51.4 million (31 December 2018: 50.6 million). million (see note 9.1) and the initially recorded goodwill of SAR 140.9 million has been partially allocated to the Franchise Agreement intangible asset giving the final goodwill balance of SAR 110.0 million.
172 173 05 | CONSOLIDATED FINANCIAL STATEMENTS
34. DIVIDENDS The Group relies in its policies for wholesale gold sales on selling During 2019, one of the Group’s subsidiary, ORO Egypt for gold jewelry on credit basis against gold or crushed gold that is Manufacturing Precious Metals, declared and paid dividends equal to it in weight plus an additional charge for workmanship, amounting to SAR 1,962,003 which equal to EGP 9,000,000 (2018: based on the Shari’a opinion which permits selling of gold SAR 1,801,149 which equal to EGP 8,500,000). jewelry on credit basis. This is the point of view of a group of scholars of Islamic jurisprudence, including Imam Ibn Taymiyah 35. COMPARATIVE FIGURES and his disciple Ibn al-Qayyim, which also includes a number of contemporary scholars, including a number of members of For better presentation, certain of the prior year figures have the Shari’a Board of the Accounting and Auditing Organization been reclassified to conform with the presentation in the for Islamic Financial Institutions (AAOIFI), as well as issuance current year. of Shari’a opinion by the Shari’a Advisory Committee of the Council of Saudi Chambers; based on a request of the National 36. COMPLIANCE WITH SHARI'A RULES Committee for Precious Metals and Gemstones regarding sale The Group’s Shari’a Advisor, AlSayari Law Firm “AlSayari”, of gold jewelry by gold traders and manufacturers, where their issued the Shari’a review report dated 11 March 2020 for the conclusion stipulated the permissibility of gold and silver credit year 2019, which included the review of the Group’s banks sales between retailers and wholesalers and manufacturers, facilities and transactions, revenues generated from sale of gold subject to the following guidelines: and investments made by the Group, where their conclusion, within the scope of the review, was that it did not reasonably • Ensures the permissibility of gold ornaments manufacturing. show significant observations affecting compliance of Group’s • Ensures that fabricated ornament has a significant value, and activities, except for one gold transaction where the Group not an unreal cover to usury provisions. obtained gold from an international bank through an agreement that is inconsistent with the Shari’a provisions. As a result, • Ensures that ornament’s fabricated gold is required for account payable for gold amounted to (9.6%) of the Group’s total purchase by itself and not only the pure gold. assets as of 31 December 2019. Even though, this transaction does not comply with the Shari’a provisions, this percentage This is one of the legitimate conclusions on dealing in the trade does not affect the permissibility of investing in the Group in of gold jewelry and is not considered a breach of the Group’s accordance with Shari’a Standard no. 21 “Financial Paper compliance with the Shari’a rules and does not affect the Shari’a (Shares and Bonds)” issued by the Shari’a Committee of the classification of the Group’s activities. Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Following are the conclusions of the Shari’a Advisor:
A. The Group’s main operations of gold and jewelry manufacturing is a Shari’a compliant activity in principle.
B. All credit facilities and financing availed by the Group from banks during the audit period are in compliance with Islamic Shari’a provisions, except for obtaining gold through an agreement from an international bank by the end of the fourth quarter. After examination of this agreement and its implementation procedure, it was concluded that it is not compliant with the Shari’a provisions due to the fact that the Group is going to use the obtained gold and pay at a future date in gold and an additional fee for delayed payment, which will be considered as paying interest. The Group is currently working on regularizing its current position to achieve full compliance with Shari’a.
C. Cash sales through retail outlets and cash wholesale sales on credit are in compliance with Shari’a.
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