IFRS 16- Leases
6.7 Results of operations
6.7.13 Current Assets
Work in progress
Work in progress increased from SAR5.0 million as at 31 December 2019G to SAR5.8 million as at 31 December 2020G, driven by additions of SAR11.1 million, partly offset by transfers from work in progress with a total amount of SAR10.3 million.
The balance then decreased from SAR5.8 million at 31 December 2020G to SAR3.4 million as at 31 December 2021G driven by transfers with a total amount of SAR13.2 million, partly offset by additions of SAR10.8 million over the same period.
Right-of-use Assets
Table No. (6.22): Right-of-use assets as at 31 December 2019G, 2020G and 2021G
SAR in 000s As at 31 December 2019G
(Audited) As at 31 December 2020G
(Audited) As at 31 December 2021G (Audited) Cost
Balance as at 1 January 101,196 101,196 125,159
Additions - 23,964 42,038
Disposals and write-offs - - (2,880)
Balance as at 31 December 101,196 125,159 164,317
Accumulated Depreciation
Balance as at 1 January - 10,728 25,891
Charge for the year 10,728 15,162 18,877
Disposals - - (1,892)
Balance as at 31 December 10,728 25,891 42,875
Net book value as at 31 December 90,467 99,269 121,442
Source: Audited financial statements for the financial years ended as at 31 December 2019G, 2020G and 2021G
The Company adopted IFRS16 “Leases” in accordance with the requirements of International Financial Reporting Standards effective 1 January 2019G, whereby lease contracts are recognized as right-of-use assets alongside its corresponding liabilities on the date when the leased assets become ready for use by the Company. Lease payments are allocated between lease liabilities and finance cost. The finance cost is recognized in the statement of comprehensive income over the lease term and the right-of-use assets are depreciated using the straight-line method over the useful life of the asset or end of the lease term, to the earlier of any of both methods.
Inventories
Table No. (6.24): Inventories as at 31 December 2019G, 2020G and 2021G
SAR in 000s As at 31 December 2019G
(Audited) As at 31 December 2020G
(Audited) As at 31 December 2021G (Audited)
Goods available for sale 128,313 168,366 257,520
Goods in transit 3,222 24,196 3,139
Provision for slow-moving inventory (4,344) (3,568) (2,405)
Net inventory 127,191 188,995 258,253
Key performance indicators
Days inventory outstanding (DIO) 152 150 185
Source: Audited financial statements for the financial years ended as at 31 December 2019G, 2020G and 2021G
Goods available for sale
Goods available for sale increased from SAR128.3 million as at 31 December 2019G to SAR168.4m as at 31 December 2020G following the increase in revenue and in order to meet the market demand. Goods available for sale then increased further to SAR257.5 million as at 31 December 2021G, following management’s decision to increase the inventory purchases in line with the increase in sales and considering (1) the increased risk of lockdown restrictions and increase in shipping costs amidst the COVID-19 pandemic, and (2) to meet the market demand prior to Ramadan 2022G, hence avoid any inventory stock shortages.
Goods in transit
Goods in transit increased from SAR 3.2 million as at 31 December 2019G to SAR24.2 million as at 31 December 2020G, resulting from the delayed shipping amidst the COVID-19 lockdown restrictions. The balance of goods in transit then subsequently decreased to SAR3.1 million as at 31 December 2021G driven by the gradual lifting of COVID-19 shipping routes restrictions.
Provision for slow-moving inventory
Table No. (6.25): Provision for slow-moving inventory as at 31 December 2019G, 2020G and 2021G
SAR in 000s As at 31 December 2019G
(Audited) As at 31 December 2020G
(Audited) As at 31 December 2021G (Audited)
Opening balance 4,344 4,344 3,568
Provision for the year - - 1,240
Provision written off during the year - (776) -
Provision written back during the year - - (2,403)
Closing balance 4,344 3,568 2,405
Source: Audited financial statements for the financial years ended as at 31 December 2019G, 2020G and 2021G
Provision for slow-moving inventory decreased from SAR4.3 million as at 31 December 2019G to SAR3.6 million as at 31 December 2020G resulting from the write-off of SAR776 thousand during the same period. Provision for slow-moving inventory then decreased further to SAR2.4 million as at 31 December 2021G, as a result of the provision written back during the year of SAR2.4 million following the increase in inventory turnover over the same period, which was partly offset by additional provisions for the year of SAR1.2 million.
Trade Receivables
Table No. (6.26): Trade receivables as at 31 December 2019G, 2020G and 2021G
SAR in 000s As at 31 December 2019G
(Audited) As at 31 December 2020G
(Audited) As at 31 December 2021G (Audited)
Gross trade receivables 1,450 3,760 5,361
Impairment allowance for doubtful receivables (82) (82) (52)
Total net trade receivables 1,368 3,678 5,309
Key performance indicators
Days sales outstanding (DSO) 1 1 2
Source: Audited financial statements for the financial years ended as at 31 December 2019G, 2020G and 2021G
Trade receivable balances include outstanding receivables from third parties in relation to revenue in advance (in credit).
The average collection terms of trade receivables with customers falls in the range of 39 days over the historical period, which is in compliance with the credit terms with the majority of the Company’s clients. It is worth noting that trade receivable balances are not subject to any financing commission, and the average repayment term falls within the range of 30 days to 120 days on average. It is worth noting that the Company’s policy does not require guarantees from customers, and accordingly trade receivables from customers are recorded without guarantees.
Trade receivables increased from SAR1.5 million as at 31 December 2019G to SAR3.8 million as at 31 December 2020G in line with the increase in wholesale revenue from SAR8.8 million in 2019G to SAR10.6 million in 2020G, as most trade receivables are in relation to wholesale products sold to customers. The balance then increased further to SAR5.4 million as at 31 December 2021G mainly driven by the accumulation balances of customer balances from prior years.
Table No. (6.27): Movement in impairment allowance for doubtful receivables for the financial years ended as at 31 December 2019G, 2020G and 2021G
SAR in 000s As at 31 December 2019G
(Audited) As at 31 December 2020G
(Audited) As at 31 December 2021G (Audited)
Opening balance 82 82 82
Write-off of impairment allowance for doubtful
receivables - - (30)
Closing balance 82 82 52
Source: Audited financial statements for the financial years ended as at 31 December 2019G, 2020G and 2021G
The Company uses the simplified approach for estimating the expected credit losses. Impairment allowance for doubtful receivables remained stable at SAR82 thousand as at 31 December 2019G and 31 December 2020G, and then decreased to SAR52 thousand as at 31 December 2021G mainly driven the write-off of total balances of SAR30 thousand.
Prepayments and other receivables
Table No. (6.28): Prepayments and other receivables as at 31 December 2019G, 2020G and 2021G
SAR in 000s As at 31 December 2019G
(Audited) As at 31 December 2020G
(Audited) As at 31 December 2021G (Audited)
Advances rent 11,481 16,608 14,971
Advances to suppliers 881 3,941 3,145
Prepayments 8,345 19,987 10,377
Advances to employees 1,326 869 2,945
Margin on letters of credit and guarantee 1,471 2,808 1,545
Others 1,394 933 4,105
Total 24,898 45,146 37,087
Source: Audited financial statements for the financial years ended as at 31 December 2019G, 2020G and 2021G
Advances rent
Advances rent comprised mainly of advances paid to landlords in relation to the leased stores. Advances rent increased from SAR11.5 million as at 31 December 2019G to SAR16.6 million as at 31 December 2020G, mainly driven by leasing new stores over the same period. Advances rent decreased to SAR15.0 million as at 31 December 2021G, driven by rent discounts granted by the landlords over the same period.
Advances to suppliers
Advances to suppliers comprised of advances to suppliers for electronic and non-electronic equipment. Advances to suppliers balance increased from SAR881 thousand as at 31 December 2019G to SAR3.9 million as at 31 December 2020G stemming from COVID-19 lockdown measures, whereby, the products were not received by year-end. Advances to suppliers balance slightly decreased to SAR 3.1 million as at 31 December 2021G.
Prepayments
Prepayments relate to prepaid maintenance, marketing, and cleaning fees. Prepayments balance increased from SAR8.3 million as at 31 December 2019G to SAR20.0 million as at 31 December 2020G, due to the marketing campaigns prepared by the Company over the same period.
Prepayments balance decreased to SAR10.4 million as at 31 December 2021G, following the release of some prepayments in relation to the marketing campaigns.
Advances to employees
Advances to employees decreased from SAR1.3 million as at 31 December 2019G to SAR869 thousand as at 31 December 2020G, mainly driven by COVID-19 pandemic. Advances to employees decreased further to SAR530 thousand as at 31 December 2021G, following the new policy adopted by the Company which reduced the advances to employees. Advances to employees then subsequently increased to SAR2.9 million as at 31 December 2021G due to the increase in advances to employees amidst COVID-19 pandemic.
Margin on letters of credit and guarantee
Margin on letters of credit and guarantee represents margin entitled exclusively to Al Rajhi bank and SABB Bank. Margin on letters of credit and guarantee increased from SAR1.5 million as at 31 December 2019G to SAR2.8 million as at 31 December 2020G, stemming from the increase in the volume of letters of credits (from Al Rajhi Bank and SABB Bank) from 71 letters of credits in 2019G to 95 letters of credits in 2020G, in line with the increase in purchases from foreign and local suppliers during the year.
The margin on letters of credit and guarantee decreased to SAR1.5 million as at 31 December 2021G, driven by the direct settlement of letters of credits instead of financing them.
Others
Other prepayments comprised of various prepaid amounts such as rent security deposits, customs prepayments, deferred finance costs, and other miscellaneous prepayments. Other prepayments decreased from SAR1.4 million at 31 December 2019G to SAR933 thousand as at 31 December 2020G, stemming from the receipt of security deposits over the same period.
Other prepayments increased to SAR4.1 million as at 31 December 2021G, driven by (1) SAR805 thousand prepaid as penalty to customs however is expected to be recovered, (2) deferred finance costs in relation to letters of credit from Al Rajhi bank and SABB Bank, (3) additional security deposits for new rents of SAR336 thousand, and (4) security deposit in relation to residential apartments for employees of SAR324 thousand.
Financial assets carried at fair value through profit or loss (FVTPL)
Financial assets carried at fair value through profit or loss relate to investments in funds. The balance of financial assets carried at fair value through profit or loss increased from SAR10.6 million as at 31 December 2019G to SAR14.9 million as at 31 December 2020G, due to the increase in investment in funds over the same period.
Financial assets carried at fair value through profit or loss decreased to nil as at 31 December 2021G, stemming from the sale of investment in funds.
Cash and cash equivalents
Table No. (6.29): Cash and cash equivalents as at 31 December 2019G, 2020G and 2021G
SAR in 000s As at 31 December 2019G
(Audited) As at 31 December 2020G
(Audited) As at 31 December 2021G (Audited)
Cash at banks - current accounts 144,966 66,167 32,037
Cash in investment funds - - 12,892
Cash on hand - - 1,775
Total 144,966 66,167 46,704
Source: Audited financial statements for the financial years ended as at 31 December 2019G, 2020G and 2021G
Cash at banks - current accounts
Cash at banks – current accounts decreased from SAR145.0 million as at 31 December 2019G to SAR66.2 million as at 31 December 2020G mainly driven by the distribution of dividends with a total amount of SAR197.0 million in 2020G. This was partly offset by an increase in net profit before zakat with a total amount of SAR26.8 million over the same period.
Cash at banks decreased to SAR32.0 million as at 31 December 2021G, driven by the distribution of dividends with a total amount of SAR150.0 million in 2021G, and purchase of property and equipment with a total amount of SAR31.4 million over the same period.
Cash in investment funds
Cash in investment funds amounted to SAR12.9 million as at 31 December 2021G.
Cash on hand
Cash on hand amounted to SAR1.8 million as at 31 December 2021G.