| ANNUAL REPORT CONTENTS CONTENTS CORPORATE OVERVIEW 06 Chairman’s and CEO’s Statement 10 About L’azurde 16 Key Milestones 18 Profile of the Board 24 Profile of Executive Management STRATEGIC BUSINESS REVIEW 30 L’azurde’s Principal Business Activities 36 Business Description 38 Business Model 60 L’azurde’s Ownership Structure FINANCIAL PERFORMANCE 70 Key Financial Highlights 86 Dividend Policy 90 Risk Factors CORPORATE GOVERNANCE 98 Board Formation 116 Policies and Code of Governance 134 Communication with Shareholders 140 Audit Committee Report CONSOLIDATED FINANCIAL STATEMENTS 144 Consolidated Financial Statements 2 3 �� CORPORATE OVERVIEW 4 5 01 | CORPORATE OVERVIEW CHAIRMAN AND CEO’S STATEMENT CHAIRMAN’S AND CHAIRMAN'S AND CEO'S STATEMENT Despite the Company’s net loss generated by all the above- 2020 was unlike any other year. With the global pandemic and a mentioned factors, the Group has managed to generate a worldwide lockdown, the past year was challenging for all. For significant positive cash inflow from its operations amounting CEO’S STATEMENT L’azurde, 2020 was also marked by a sharp increase in gold to SAR 58.7 million in 2020. This was achieved by increasing prices and the tripling of KSA VAT to 15%. As a result of these collection from wholesale customers and higher sales in the major market shocks, L’azurde posted a substantial loss in retail channel. The Group has also reduced its gold working 2020. Despite this, we are pleased to have produced a positive capital by 36% from 6.6 Tons in December 2019 to 4.2 tons in cashflow and to have made major advances in executing the December 2020. transformation program that we announced in 2019. Of the positives that came out of 2020, the Company’s new L’azurde is implementing major changes to its business model e-commerce business launched in April 2020 achieved and mix to meet modern consumer trends while at the same revenues of SAR 6.6 Million, representing already 2% of the time building on our strong brand and 40-year experience total Group operating revenues. Those revenues amounted to in the jewelry industry. This strategy includes the expansion 15% of the Miss L’ products sold online and offline. On a run- of our retail presence in top malls and an increased focus rate basis, e commerce sales accounted for 5.5% % of total on the affordable and fashion jewelry segments, the fastest retail sales in the fourth quarter. growing parts of our market. To this end, we have acquired Relaunched with a new creative direction, an attractive the Tous fashion jewelry franchise for Saudi Arabia, launched packaging design and a trendy modern assortment, Miss our own new brand, Miss L’, targeting the fashion segment L’ increased its brand value and secured a strong market with affordable gold jewelry and achieving SAR 44 million in position, which resulted in a significant increase in revenues sales in 2020, expanded our L’azurde and Kenaz retail network from SAR 14 million in 2019 to SAR 44 million in 2020. and developed a new, fashion line, L’azurde Instyle, to be sold through our traditional channels in the gold souks. We have also committed major resources to the E-Commerce channel, MAIN ACTIVITIES AND KEY achieving in 2020 sales of SAR 6.6 million since its launch in ACHIEVEMENTS IN 2020 April 2020. For the first time in 2020, L’azurde started selling gold jewelry At the same time, we have not been neglecting our traditional by piece in its core wholesale channel with the aim of enhancing business centered on selling gold by weight through the gold its gross margin and reducing its working capital. The first line souks. 2020 was a difficult year for our customers, with the sold by piece in the wholesale channel was launched under the convergence of COVID 19, high gold prices and increased name of L’azurde Instyle in the Fourth quarter. It has started VAT. We therefore took the decision to recall a large quantity well and shows a promising potential. It is worth noting that of products from this channel to help our customers survive with Instyle, L’azurde is not only selling gold jewelry by piece difficult times and reposition for growth. This also reduced in the wholesale channel for the first time, but it is also using our credit risk and materially reduced our working capital. At the latest Radio Frequency Identification (RFID) technology the same time, we streamlined our sales force and revamped for jewelry, which will enable the Company to boost its selling our product designs. In a major new initiative, we introduced efficiency, optimize its investment in gold working capital and Mohammed Ebrahim Juma Al Shroogi Selim Chidiac L’azurde Instyle. This is a new line of fashion jewelry to be reduce its costs. sold by piece, rather than by weight, through our traditional Chairman Chief Executive Officer Instyle features exquisite pieces of jewelry encrusted with channels. This new line, which is complementary to our diamonds, pearls and precious stones. As its name suggests, traditional assortment, will help our long-standing customers “ Instyle promises all L’azurde jewelry lovers fashionable and to rebound from the market shocks of 2020. ultra-modern ornaments which can be styled in glamorous looks to keep up with the latest design and color trends in the 2020 NET INCOME AND worlds of fashion and jewelry. BUSINESS PERFORMANCE The new brand Miss L’ has performed successfully in 2020, 2020 was unlike any other year. With the global pandemic In 2020, L’azurde witnessed a decrease in its wholesale channel building on its new positioning as a young brand and a and a worldwide lockdown, the past year was challenging revenues in both KSA and Egypt. In KSA, wholesale revenues new creative direction offering attractive assortment and were 45.2% lower than last year, negatively impacted by the packaging. With new collections launched regularly, the for all. complete closure of gold souks and malls from mid-March brand’s revenues raised significantly despite the challenging to end of April, reduced working hours in May and June due circumstances. Marked by regular collaborations with top to COVID-19, the tripling of VAT to 15% from 1 July 2020 and influencers in both KSA and Egypt, Miss L’ has attracted a the sharp increase in gold price. Wholesale revenues in Egypt loyal base of young customers with its fashionable, trendy and “ also declined by 24.0% compared to last year due to reduced colorful jewelry assortment, all crafted in the highest-quality working hours enforced in Egypt’s malls and souks in the first gold at amazing prices. half of the year due to COVID-19 and the sharp increase in gold price. While the traditional wholesale business selling jewelry by weight represented a lower share of revenues in 2020 While retail revenues decreased by 37.5% in KSA, they compared to 2019, the Company expects that the share however increased in Egypt by 24.4% organically and due to of jewelry sold by piece will continue growing rapidly, the opening of five new locations in 2020 for selling Miss L’ and which will enhance gross margins and reduce the Group’s diamond jewelry. working capital. 6 7 01 | CORPORATE OVERVIEW CHAIRMAN AND CEO’S STATEMENT CHAIRMAN’S AND CEO’S STATEMENT On another note, L’azurde worked on strengthening its retail network in the past year through the opening of five new locations in Egypt during 2020 for selling Miss L’ and diamond jewelry, a step that contributed to overcoming the impact of reduction in working hours after precautionary actions were taken due to COVID-19. As a key and unprecedented step, 2020 also saw the launch of L’azurde’s new fast growing e-commerce business in the past month of April. The new business which has already generated revenues of SAR 6.6 million in 2020, offers customers a modern and convenient style of shopping, and a safe one too especially at the time where people were confined to their homes because of the COVID-19 pandemic. Last but not least, the Company restructured itself in 2020 by recalling products from wholesale customers to clear the wholesale channel and set it up for growth in 2021, with the objective of reducing risk and supporting L’azurde’s customers in the face of COVID-19. OUTLOOK FOR 2021 4. Rebuilding the volume and optimize the traditional wholesale business selling jewelry by weight through working capital L’azurde has a very solid brand name, a strong heritage, a deep reduction and costs efficiencies. jewelry industry knowledge, an experienced management team and a very committed Board of Directors all of which will 5. Leveraging our solid customers’ network in the traditional ensure the successful transformation of the Company and its gold jewelry market to fully develop the recently launched future success. In 2021, we will be focusing on a number of L’azurde Instyle jewelry line sold by piece. As the market key drivers, namely: leader, L’azurde will help reshape and transform the traditional Gold jewelry segment by offering a new jewelry 1. Developing the fast-growing Miss L’ fashion j e w e l r y line meeting the consumers’ latest trends and offering line to its full potential through our own retail points of sales, retailers very attractive commercial terms. e-Commerce and 3rd party retailers in modern trade. 6. Scaling our promising fast growing e-Commerce business 2. Expanding our successful L’azurde retail business in Egypt through more investments in technology, infrastructure, through new points of sales and a stronger assortment.