IFRS 16- Leases
6.7 Results of operations
6.7.5 Cost of Revenue
Table No. (6.9): Cost of revenue for the financial years ended 31 December 2019G, 2020G, 2021G.
SAR in 000s 2019G
(Management information)
2020G (Management
information)
2021G (Management
information)
Var.
2019G-2020G Var.
2020G-2021G CAGR 2019G-2021G Purchases of products from local and foreign
vendors (manufacturers and distributors) 319,067 407,936 448,474 27.9% 9.9% 18.6%
Salaries and wages 18,808 24,684 32,045 31.2% 29.8% 30.5%
Rent expenses 21,671 23,553 23,337 8.7% (0.9%) 3.8%
Other branches employees’ costs 6,971 8,754 18,633 25.6% 112.8% 63.5%
Depreciation costs 8,739 10,814 12,412 23.7% 14.8% 19.2%
Shipping and unloading merchandise 2,990 5,300 8,191 77.3% 54.5% 65.5%
Commission expenses and bonuses 5,749 6,772 6,274 17.8% (7.4%) 4.5%
Inventory adjustment differences 2,773 3,308 4,518 19.3% 36.6% 27.6%
Packaging expenses 2,361 2,403 2,654 1.8% 10.5% 6.0%
Marketing expenses 4,686 2,800 1,805 (40.3%) (35.5%) (37.9%)
Difference returns to suppliers (60) (119) 26 97.5% (121.8%) -
Discounts due to Covid-19 - (1,213) (328) - (73.0%) -
Discounts (14,440) (22,001) (7,117) 52.4% (67.6%) (29.7%)
Damaged inventory expenses adjustment - - (1,163) - - -
Total 379,314 472,990 549,761 24.7% 16.2% 20.4%
Key performance indicators
Number of employees 710 766 931 56 165 221
As a percentage of revenue
Purchases of products from local and foreign
vendors (manufacturers and distributors) 48.7% 51.2% 54.3% 2.5 3.2 5.6
Salaries and wages 2.9% 3.1% 3.9% 0.2 0.8 1.0
Rent expenses 3.3% 3.0% 2.8% (0.4) (0.1) (0.5)
Other branches employees’ costs 1.1% 1.1% 2.3% 0.0 1.2 1.2
Depreciation costs 1.3% 1.4% 1.5% 0.0 0.1 0.2
Shipping and unloading merchandise 0.5% 0.7% 1.0% 0.2 0.3 0.5
Commission expenses and bonuses 0.9% 0.8% 0.8% 0.1 0.0 0.0
Inventory adjustment differences 0.4% 0.4% 0.5% 0.0 0.1 0.1
Packaging expenses 0.4% 0.3% 0.3% (0.1) 0.0 (0.1)
Marketing expenses 0.7% 0.4% 0.2% (0.3) (0.2) (0.5)
Difference returns to suppliers 0.0% 0.0% (0.1%) 0.0 (0.1) (0.1)
Discounts due to Covid-19 0.0% (0.2%) 0.0% (0.2) 0.2 0.0
Discounts (2.2%) (2.8%) (0.9%) (0.6) 1.9 1.3
Damaged inventory expenses adjustment 0.0% 0.0% (0.1%) 0.0 (0.1) (0.1)
Total 57.9% 59.3% 66.6% 1.4 7.3 8.7
Source: Management information
Purchases of products from local and foreign vendors (manufacturers and distributors)
Purchases include the cost of products purchased from local and foreign vendors (manufacturers and distributors).
Purchases from local and foreign vendors increased by 27.9% from SAR319.1 million in 2019G to SAR407.9 million in 2020G, in line with the increase in the Company’s sales during this period. Purchases continued to increase to reach SAR448.5 million in 2021G, due to the increase in the Company’s sales during this period, coupled with the increase in international transportation costs due to the decrease in shipping routes to Saudi Arabia during COVID-19 pandemic.
Salaries and wages
Salaries and wages expenses mainly comprise of salaries, bonuses and other expenses associated with employees who hold operational positions in the branches and the online store. Salaries and wages expenses increased by 31.2% from SAR18.8 million in 2019G to SAR24.7 million in 2020G, due to the increase in employee headcount (by 56 employees) from 710 employees in 2019G to 766 employees in 2020G.
Salaries and wages expenses continued to increase by 29.8% to reach SAR32.0 million in 2021G, mainly due to (1) the increase in employee headcount driven by the addition of new divisions relating to the e-commerce, in addition to (2) recruiting additional number of employees, in light of COVID-19 measures, which was subsequently addressed in 2022G by conducting a workforce restructuring in order to reduce these costs.
Rent expenses
Rent expenses pertain to branches whereby the contracts are not subject to IFRS16 leases given the terms of the contract.
Rental expenses increased by 8.7% from SAR21.7 million in 2019G to SAR23.6 million in 2020G driven by the increase in rent expenses which did not have a full year impact in 2019G, which led to an increase in the expenses by SAR2.8 million compared to 2019G, in addition to the opening of two new branches during this period (contributed to an increase in expenses by SAR850 thousand). This was partially offset by a decrease of SAR841 thousand in Khobar branch rent, which was closed during the month of April 2020G. Rent expenses subsequently decreased by 0.9% to reach SAR23.3 million in 2021G as a result of the absence of significant changes to the lease contracts.
Other branches employees’ costs
Other branches employees ‘cost comprised of housing allowance, overtime, medical insurance, etc. Other branches employees’ costs increased by 25.6% from SAR7.0 million in 2019G to SAR8.8 million in 2020G, due to the increase in employee headcount (by 56 employees) from 710 employees in the 2019Gto 766 employees in 2020G.
Other branches employees ‘cost continued to increase by 112.8% to reach SAR18.6 million in 2021G driven by the additional number of employees, in light of COVID-19 measures, which was subsequently addressed in 2022G by conducting a workforce restructuring in order to reduce these costs.
Depreciation expenses
Depreciation expenses increased by 23.7% from SAR8.7 million in 2019G to SAR10.8 million in 2020G and subsequently increased by 14.8% to reach SAR12.4 million in 2021G, as a result of the additions to the property and equipment in line with the new branches that opened during this period.
Shipping and unloading merchandise
Shipping and unloading merchandises comprised of shipping merchandises related solely to local vendors in addition to expenses related to unloading merchandise from warehouses to branches. Shipping and unloading costs increased by 77.3% from SAR3.0 million in 2019G to SAR 5.3 million in 2020G, attributable to the increase in revenue and branches across the revenue period.
The expenses of shipping and unloading merchandises continued to increase by 54.5% to reach SAR8.2 million in 2021G, stemming from the increase in petrol and car rental prices in the Kingdom of Saudi Arabia, in addition to the increase in sales and number of branches during this period.
Commission expenses and bonuses
Commission expense and bonuses comprised mainly of bonuses and commissions entitled to employees’ depending on their performance and evaluation throughout the year. Commission expenses and bonuses increased by 17.8% from SAR 5.7 million in 2019G to SAR 6.8 million in 2020G, in line with (1) the increase in overall sales coupled with (2) the increase in employee headcount, which led to an increase commission expenses and bonuses during this period.
Commission expense and bonuses decreased by 7.4% to reach SAR6.3 million in 2021G, due to the change in sales commission policy.
Inventory adjustment differences
Inventory adjustment differences comprised of inventory count discrepancies. Inventory adjustment differences increased by 19.3% from SAR2.8 million in 2019G to SAR3.3 million in 2020G and subsequently by 36.6% to reach SAR4.5 million in 2021G driven by additional adjustments in relation to inventory count discrepancies during this period.
Packaging expenses
Packaging expenses mainly comprised of packaging expenses in relation to online sales. Packaging expenses stabilized at SAR2.4 million in 2019G and 2020G, then increased by 10.5% to reach SAR2.7 million in 2021G due to the increase in online sales stemming from the COVID-19 lockdown.
Marketing expenses
Marketing expenses mainly consist of marketing salaries. Marketing expenses decreased by 40.3% from SAR4.7 million in 2019G to SAR2.8 million in 2020G, due to the partial reclassification from the “Marketing Expenses” account to the “Other branches employee’s costs” account.
Marketing expenses continued to decline by 35.5% to reach SAR1.8 million in 2021G as a result of the partial reclassification of other expenses.
Difference returns to suppliers
The difference returns to suppliers mainly comprised of settlements and returns of defected products to suppliers. The differences increased by 97.5% from (-SAR60 thousand) in 2019G to (-SAR119 thousand) in 2020G, during the same period.
The difference returns to suppliers decreased to reach SAR26 thousand in 2021G, driven by settlements between the Company and the supplier, regarding invalid merchandise.
Discounts due to Covid-19
Discounts due to Covid-19 pertains to additional rent discount provided to the Company as a result of COVID-19. The discounts obtained by the company amounted to (-SAR1.2 million) in 2020G as a result of COVID-19 pandemic. These discounts decreased by 73% from (-SAR1.2 million) in 2020G to (-SAR328 thousand) in 2021G given the gradual improvement in the overall economy post COVID-19.
Discounts
Discounts comprises of discounts received from local vendors. The discounts increased from (-SAR14.4 million) in 2019G to (-SAR22.0million) in 2020G, due to the increase in purchases from local vendors stemming from COVID 19 cross border restrictions.
The discounts decreased to reach (-SAR7.1 million) in 2021G driven by the decrease in purchase from local vendor given the gradual lifting of cross border restrictions which increased the purchases from foreign suppliers.
Damaged inventory expenses adjustment
Damaged inventory expense adjustment represented goods that were returned by customers during the warranty period due to a malfunction. They were used as spare parts and a provision was taken for them amounting to SAR1.2 million during 2021G.