IFRS 16- Leases
6.8 Results of operations for the three-month period ended 31 March 2021G and 2022G
6.8.1 Statement of comprehensive income
Table No. (6.44): Statement of comprehensive income for the three-month period ended 31 March 2021G and 2022G
SAR in 000s Three-month period ending
31 March 2021G (Reviewed) Three-month period ending
31 March 2022G (Reviewed) Var.
2021G-2022G
Revenue 272,805 252,947 (7.3%)
Cost of revenue (170,375) (167,534) (1.7%)
Gross profit 102,430 85,413 (16.6%)
Selling and distribution expenses (17,249) (14,692) (14.8%)
General and administrative expenses (5,981) (8,179) 36.7%
Finance costs (2,376) (2,201) (7.4%)
Depreciation of right-of-use assets (4,179) (4,433) 6.1%
Operating profit 72,646 55,909 (23.0%)
Other income 2,311 2,165 (6.3%)
Gain on sale of financial assets carried at fair value through profit
or loss 54 - (100.0%)
Gain on revaluation of financial assets carried at fair value through
profit or loss 578 2,518 335.6%
Net profit before zakat 75,589 60,592 (19.8%)
Zakat (1,736) (1,500) (13.6%)
Net profit for the period 73,853 59,092 (20.0%)
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Actuarial loss on re-measurement of employees’ benefit liabilities - - N/A
Total items that will not be reclassified subsequently to profit
or loss - - N/A
Total comprehensive income for the year 73,853 59,092 (20.0%)
Source: The reviewed financial statements for the three-month period ended 31 March 2022G.
Table No. (6.45): Key Performance Indicators for the three-month period ended 31 March 2021G and 2022G.
Key Performance Indicators Three-month period ending 31 March 2021G (Manage-
ment information)
Three-month period ending 31 March 2022G (Manage-
ment information)
Var.
2021G-2022G As a percentage of revenue
Gross profit 37.5% 33.8% (3.7)
Selling and distribution expenses 6.3% 5.8% (0.5)
General and administrative expenses 2.2% 3.2% 1.0
Operating profit 26.6% 22.1% (4.5)
Net profit before zakat 27.7% 24.0% (3.7)
Net profit for the period 27.1% 23.4% (3.7)
Key performance indicators
Number of stores (including the closed branch during 2020G) 53 58 5
Number of invoices (in thousand) 936 881 (5.9%)
Average revenue per invoice-SAR 291 287 (1.5%)
Total area of branches (in square meters) 93,475 103,195 10.4%
Average revenue per branch (in square meters)-SAR 2,723 2,195 (19.4%)
Source: management information
Revenue
Revenue decreased by 7.3% from SAR272.8 million over the three-month period ending 31 March 2021G to SAR252.9 million over the three-month period ending 31 March 2022G, mainly due to the decrease in quantities sold from 3.1 million items over the three months period ending 31 March, 2021G to 2.8 million items over the three-month period ending 31 March, 2022G, due to the decrease in demand from customers for kitchen products and appliances and Serveware over the three-month period ending 31 March 2022G as compared to the three-month period ending 31 March 2021G, due to the relatively higher purchasing power of consumers in the market over the three-month period ending 31 March 2021G, coupled with the easing of COVID-19 restrictions and lifting the lockdowns by the Saudi authorities over the same period.
This accordingly resulted in a decrease in revenue generated from the core portfolio that were opened in 2019G and 2020G by SAR46.2 million, which was partially offset by (1) the increase in revenues generated from 2021G openings from SAR8.6 million over the three-month period ending 31 March 2021G to SAR24.7 million over the three-month period ending 31 March 2022G, as a result of the ramp up and full-period impact of the new stores opened throughout 2021G, coupled with (2) an increase in online sales (online store and online retailers) by 54.8% from SAR16.2 million over the three-month period ending 31 March 2021G to SAR25.1 million over the three-month period ending 31 March 2022G, following the Company’s expansion of e-commerce over the three-month period ending 31 March 2022G, upon the collaboration with several logistics companies, and (3) and the increase in revenue generated from two new stores that were opened over the three-month period ending 31 March 2022G (+SAR2.1 million).
Cost of revenue
Cost of revenue decreased by 1.7% from SAR170.4 million over the three-month period ending 31 March 2021G to SAR167.5 million over the three-month period ending 31 March 2022G, in line with the decrease in revenue over the same period, in addition to (1) a decrease in salaries and wages (- SAR1.9 million) following the decrease in the number of headcount (-160 employees) as a result of hiring contractual employees instead of full-time employees during the peak times, including Ramadan season and festivals, and (2) a decrease in inventory adjustment differences (- SAR3.2 million) mainly driven by inventory count discrepancies over the three-month period ending 31 March 2022G, after which the Company started implementing a new system to address these matters.
This decrease was partly offset by (1) an increase in international shipping/transportation costs from SAR11.0 million over the three-month period ending 31 March 2021G to SAR15.3 million over the three-month period ending 31 March 2022G, in light of COVID-19 measures on supply chains (such as shipping), which resulted in a decrease in the number of shipping routes from China that led to an increase in international shipping costs over the same period. Accordingly, the Company incurred additional shipping costs and did not pass them to consumers, rather incurred them, in order to maintain and increase its market share, (2) The increase in rent expenses by SAR1.8 million due to the addition of one new operating lease agreement, with a one-year lease period.
Gross profit
Gross profit decreased by 16.6% from SAR102.4 million over the three-month period ending 31 March 2021G to SAR85.4 million over the three-month period ending 31 March 2022G, mainly driven by the decrease in revenue by 7.3% from SAR272.8 million over the three-month period ending 31 March 2021G to SAR252.9 million over the three-month period ending 31 March 2022G, coupled with an increase in cost of revenue due to the increase in cost of purchases, considering the increased shipping costs from foreign vendors amidst COVID-19 pandemic, as the Company incurred additional shipping costs and did not pass them to consumers, rather incurred them, in order to maintain and increase its market share as well as being able to incur additional costs. This accordingly resulted in a decrease in gross profit from 37.5% over the three-month period ending 31 March 2021G to 33.8% over the three-month period ending 31 March 2022G.
Selling and distribution expenses
Selling and distribution expenses decreased by 14.8% from SAR17.2 million over the three-month period ending 31 March 2021G to SAR14.7 million over the three-month period ending 31 March 2022G, mainly due to the decrease in advertising expenses from SAR11.5 million over the three-month period ending 31 March 2021G to SAR9.7 million over the three- month period ending March 31 2022G.
General and administrative expenses
General and administrative expenses increased by 36.7% from SAR6.0 million over the three-month period ending 31 March 2021G to SAR8.2 million over the three-month period ending 31 March 2022G, mainly driven by the increase in salaries and related benefits from SAR4.2 million over the three-month period ending 31 March 2021G to SAR5.4 million over the three-month period ending 31 March 2022G in line with the increase in the number of headcount from 132 to 164 over the same period, coupled with an increase in rent expense (+SAR944 thousand) as a result of leasing a bigger warehouse by the Company at a relatively higher cost.
Finance costs
Financing costs decreased by 7.4% from SAR2.4 million over the three-month period ending 31 March 2021G to SAR2.2 million over the three-month period ending 31 March 2022G, stemming from the decrease in interest on the letters of credits (-SAR436 thousand). This was partly offset by the increase in lease liabilities finance cost driven by the increase in the number of stores from 53 over the three-month period ending 31 March 2021G to 58 stores over the three-month period ending 31 March 2022G.
Depreciation on right-of use assets
Depreciation of right-of-use increased by 6.1% from SAR4.2 million over the three-month period ending 31 March 2021G to SAR4.4 million over the three-month period ending 31 March 2022G, stemming from the increase in the number of stores from 53 over the three-month period ending 31 March 2022G to 58 stores over the three-month period ending 31 March 2022G.
Other income
Other income decreased by 6.3% from SAR2.3 million over the three-month period ending 31 March 2021G to SAR2.2 million over the three-month period ending 31 March 2022G, stemming from the decrease in leasing-out commercial showrooms by the Company in relation to buildings owned or fully leased by the Company, due to the decrease in the number of tenants during this period.
Gains from sale of financial assets carried at fair value through profit or loss
Gains from sale of financial assets carried at fair value through profit or loss decreased by 100.0% from SAR54 thousand over the three-month period ending 31 March 2021G to nil over the three-month period ending 31 March 2022G.
Gain on revaluation of financial assets carried at fair value through profit or loss
Gain on revaluation of financial assets carried at fair value through profit or loss increased from SAR578 thousand over the three-month period ending 31 March 2021G to SAR2.5 million over the three-month period ending 31 March 2022G, due to the increase in the amount invested by the Company in financial assets at fair value through profit or loss, and in the number of funds over the same period.
Zakat
Zakat expense decreased by 13.6% from SAR1.7 million over the three-month period ending 31 March 2021G to SAR1.5 million over the three-month period ending 31 March 2022G in line with the decrease in net profit before zakat over the same period.
Net profit for the period
Net profit for the period decreased by 20.0% from SAR73.9 million over the three-month period ending 31 March 2021G to SAR59.1 million over the three-month period ending 31 March 2022G, mainly driven by (1) the increase in shipping costs from SAR11.0 million over the three-month period ending 31 March 2021G to SAR15.3 million over the three-month period ending 31 March 2022G, due to the impact of COVID-19 pandemic on supply chains (such as shipping), resulting in the decrease in number of shipping routes from China, and (2) the decrease in revenue over the same period mainly due to the decrease in quantities sold from 3.1 million items over the three months period ending 31 March, 2021G to 2.8 million items over the three-month period ending 31 March, 2022G, due to the decrease in demand from customers for kitchen products and appliances and Serveware over the three-month period ending 31 March 2022G as compared to the three- month period ending 31 March 2021G, due to the relatively higher purchasing power of consumers in the market over the three-month period ending 31 March 2021G, coupled with the easing of COVID-19 restrictions and lifting the lockdowns by the Saudi authorities over the same period.