IFRS 16- Leases
6.7 Results of operations
6.7.1 Statement of comprehensive income
Table No. (6.4): Statement of comprehensive income for the financial year ended 31 December 2019G, 2020G, 2021G.
SAR in 000s 2019G
(Audited) 2020G
(Audited) 2021G
(Audited) Var.
2019G-2020G Var.
2020G-2021G CAGR
2019G-2021G
Revenue 655,220 797,197 825,289 21.7% 3.5% 12.2%
Cost of revenue (379,314) (472,990) (549,761) 24.7% 16.2% 20.4%
Gross profit 275,906 324,207 275,528 17.5% (15.0%) (0.1%)
Selling and distribution expenses (33,138) (43,273) (58,128) 30.6% 34.3% 32.4%
General and administrative expenses (39,871) (46,860) (24,015) 17.5% (48.8%) (22.4%)
Finance cost (6,495) (8,295) (7,076) 27.7% (14.7%) 4.4%
Depreciation on right-of-use assets (10,728) (15,162) (18,877) 41.3% 24.5% 32.6%
Operating profit 185,674 210,617 167,432 13.4% (20.5%) (5.0%)
Loss on disposal of property and equipment (844) (725) (0.3) (14.1%) (100.0%) (98.0%)
Other income 4,813 6,487 19,715 34.8% 203.9% 102.4%
Gains on sale of financial assets carried at fair
value through profit or loss 2,578 2,628 4,289 1.9% 63.2% 29.0%
Gain on revaluation of financial assets carried at
fair value through profit or loss 578 782 - 35.3% (100.0%) 0.0%
Net profit before Zakat 192,800 219,789 191,436 14.0% (12.9%) (0.4%)
Zakat (5,374) (5,597) (6,551) 4.2% 17.0% 10.4%
Net profit of the year 187,426 214,191 184,884 14.3% (13.7%) (0.7%)
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss Actuarial loss on re-measurement of employees’
benefits liabilities (111) (1,293) (1,583) 1064.9% 22.5% 277.0%
Total items that will not be reclassified
subsequently to profit or loss (111) (1,293) (1,583) 1064.9% 22.5% 277.0%
Total comprehensive income for the year 187,314 212,899 183,301 13.7% (13.9%) (1.1%)
Source: Audited financial statements for the financial years ended 31 December 2019G, 2020G and 2021G.
Table No. (6.5): Key performance indicators for the financial years ended 31 December 2019G, 2020G, 2021G
Indicators 2019G
(Management information)
2020G (Management
information)
2021G (Management
information)
Var.
2019G-2020G Var.
2020G-2021G CAGR 2019G-2021G As a percentage of revenue
Gross profit 42.1% 40.7% 33.4% (1.4) (7.3) (8.7)
Selling and distribution expenses 5.1% 5.4% 7.0% 0.4 1.6 2.0
General and administrative expenses 6.1% 5.9% 2.9% (0.2) (3.0) (3.2)
Operating profit 28.3% 26.4% 20.3% (1.9) (6.1) (8.0)
Net profit before zakat 29.4% 27.6% 23.2% (1.9) (4.4) (6.2)
Net profit of the year 28.6% 26.9% 22.4% (1.7) (4.5) (6.2)
Key performance indicators Number of stores (including the closed
branch during 2020G) 44 49 56 5 7 12
Number of invoices (in thousand) 2,325 2,775 3,015 19.4% 8.6% 13.9%
Average revenue per invoice-SAR 282 287 274 1.9% (4.7%) (1.4%)
Total area of branches (in square meters) 71,499 83,436 99,210 16.7% 18.9% 17.8%
Average revenue per branch (in square
meters)-SAR 8,901 8,977 7,639 0.9% (14.9%) (7.4%)
Source: Management information
Revenue
Revenue is mainly generated from the sale of cookware such as pots, frying pans, spoons and cooking accessories and the sale of Serveware such as thermos, cups, serving trays, hospitality sets, and dining sets in addition to small household appliances such as electric pressure cookers, air fryers, coffee machines, microwave ovens, mini ovens, kettles, among others. The Company currently generates its revenue through operating 56 retail stores across different regions in the Kingdom of Saudi Arabia as at 31 December 2021G, in addition to the online store/platform and wholesale.
Revenue increased by 21.7% from SAR655.2 million in 2019G to SAR797.2 million in 2020G driven mainly by the increase in quantities sold from 8.8 million items in 2019G to 9.4 million items in 2020G as a result of an increase in demand for Kitchenware and appliances in light of the COVID-19 pandemic, in addition to introducing new products during the year and opening of five new stores.
Revenue further increased by 3.5% to reach SAR825.3 million in 2021G stemming mainly from the increase in online sales by 63.1% from SAR35.9 million in 2020G to SAR58.7 million in 2021G coupled with the increase in revenue by SAR56.6 million from 8 new stores which opened during 2021G.This was offset by the decrease in revenue from existing branches from SAR539.3 million in 2020G to SAR487.6 million in 2021G.
It’s worth mentioning that the Company’s strategy is to capture the maximum of market share by maintaining their competitive prices and hence the increase in the Company’s revenue during the period from 2019G to 2021G was not driven by the increase in the prices. It is also worth mentioning that the Company succeeded in increasing its revenue during the period, despite the overall decrease in revenue in the retail sector (in the Kingdom of Saudi Arabia).
Cost of revenue
Cost of revenue comprise of cost of purchases from local and foreign vendors, salaries and wages for the employees who occupy operational positions in the branches and online store, rental costs, depreciation expenses and other expenses.
The cost of revenue increased by 24.7% from SAR379.3 million in 2019G to SAR473.0 million in 2020G mainly due to the increase in purchases (net) from SAR304.6 million in 2019G to SAR385.9 million in 2020G driven by the increase in demand for Kitchenware and appliances during the COVID-19 pandemic, in addition to (1) increase in salaries and wages expenses from SAR18.8 million to SAR24.7 million in line with the increase in the number of employees from 710 to 766 employees, (2) an increase in depreciation expenses by SAR 21.1 million in line with the increase in number of stores from 44 stores in 2019G to 49 stores in 2020G.
The cost of revenue continued to increase by 16.2% to reach SAR549.8 million 2021G, mainly due to the increase in international shipping/transportation costs from SAR8.4 million 2020G to SAR37.1 million in 2021G, due to the impact of COVID-19 pandemic on supply chains (such as shipping), resulting from the decrease in number of shipping routes from China. Moreover, upon the increase in international transportation costs during this period, the Company did not transfer the additional costs to the consumer, rather incurred them, in order to maintain the market share as well as being able to incur additional costs.
This was coupled by (1) the increase in salaries and wages by SAR 7.4 million, in addition to (2) the increase in other branches’
employee costs by SAR 9.9 million as a result of 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.
Gross profit
Gross profit increased by 17.5% from SAR275.9 million in 2019G to SAR324.2 million in 2020G. This is due to the increase in quantities sold driven by the increase in demand for Kitchenware and appliances during the COVID-19 pandemic.
Moreover, the gross profit decreased from 42.1% in 2019G to 40.7% in 2020G, mainly driven by higher purchase prices from local and foreign vendors, more specifically in the prices of small appliances.
Gross profit decreased by 15.0% to reach SAR275.5 million in 2021G, mainly driven by the increase in the cost of purchases, due to the overall increase in shipping costs from foreign suppliers during COVID-19, where shipping cost has increased from SAR8.4 million (represents 2.8% of total purchases) in 2020G to SAR37.1 million (represents 9.2% of total purchases) in 2021G. Moreover, the profit margin decreased from 40.7% in 2020G to reach 33.4% in 2021G, mainly due to increase in shipping costs across the period, whereby management decided not the reflect the increase in shipping costs in their selling price as a strategy to maintain market share in addition to its belief that it is able to withstand declines in profitability.
Selling and distribution expenses
Selling and distribution expenses consist mainly of advertising expenses, electricity and water expenses, bank charges, government fees, in addition to other expenses. Selling and distribution expenses increased by 30.6% from SAR33.1 million in 2019G to SAR43.3 million in 2020G, as a result of the increase in advertising expenses from SAR18.0 million to SAR26.8 million mainly driven by the firm’s strategy to focus on advertising their products during COVID-19 pandemic.
Selling and distribution expenses continued to increase by 34.3% to reach SAR58.1 million in 2021G, mainly due to (1) the increase in advertising expenses to reach SAR36.1 million driven by the additional advertising due to the overall decrease in demand stemming from the impact of COVID-19 pandemic on the overall economy and the retail sector, in addition to (2) an increase in bank charges by SAR2.1 million, and (3) other expenses by SAR2.4 million.
General and administrative expenses
General and administrative expenses consist mainly of wages and salaries expenses for administrative employees in the finance department and other administrative divisions, telephone and communications expenses, legal fees expenses, in addition to other administrative expenses. General and administrative expenses increased by 17.5% from SAR 39.9 million in 2019G to SAR 46.9 million in 2020G, as a result of the increase in wages and salaries expenses from SAR36.4 million to SAR41.4 million, mainly driven by the increase in employee headcount by 9 coupled with the increase in the bonuses entitled to the employees during this period, in addition to the increase in other general and administrative expenses by SAR1.5 million during the period.
General and administrative expenses decreased by 48.8% to reach SAR24.0 million in 2021G, mainly due to the decrease in wages and salaries to reach SAR16.4 million, mainly stemming from the decrease in employee bonuses during the same period, offset by an increase in other expenses amounting to SAR413 thousand.
Finance costs
Finance costs mainly include interest on short-term loans, finance cost related to the lease liabilities in addition to the end of service cost.
Finance costs increase by 27.7% from SAR6.5 million in 2019G to SAR8.3 million in 2020G driven mainly by the increase in lease liabilities finance cost, in-line with the increase in number of stores during this period.
Finance costs decreased by 14.7% to reach SAR7.1 million in 2021G, stemming mainly from the decrease in finance expenses in relation to the interest on letter of credits. This was offset by an increase in lease liabilities finance costs, following the opening of 7 new branches during the same period.
Depreciation on right-of-use assets
Depreciation on right-of-use assets increased by 41.3% from SAR10.7 million in 2019G to SAR15.2 million in 2020G, and subsequently increased by 24.5% to reach SAR18.9 million in 2021G, mainly due to the increase the number of stores during this period, thus, additions to the right of use of the assets.
Losses on disposal of property and equipment
Losses from disposal of property and equipment amounted to SAR844 thousand in 2019G, as a result of the closure of one of the warehouses during this period. Losses from disposal of property and equipment decreased to SAR725 thousand in 2020G, as a result of closing the Khobar branch store during this period, followed by a decrease to SAR339 in 2021G.
Other income
Other income mainly consists of (1) rent income of commercial showrooms for the buildings owned by the Company or fully leased by the Company, in addition to (2) income in relation to cash on delivery fees to delivery fees related to online store sales, amounting to SAR29 per order (inclusive of tax) in addition to SAR25 shipping fees, (3) and advertising revenues, among other miscellaneous income. Other income increased by 34.8% from SAR4.8 million in 2019G to SAR6.5 million in 2020G and mainly due to (1) the increase in rental income of SAR627 thousand, whereby the Company leases out commercial showrooms (of the buildings owned by the company or fully leased by the company), in addition to (2) income from delivery fees related to the online store sales, which amounted to SAR1.1 million in 2020G.
Other income increased by 203.9% to reach SAR19.7 million in 2021G, mainly due to (1) the increase in income from delivery fees resulting from the increase in online delivery revenue by SAR2.6 million in line with the increase in online sales during the same period, in addition to (2) SAR10.7 million of advertising revenue from Alsaif Commercial Agencies.
Gains on sale of financial assets carried at fair value through profit or loss
Gains on sale of financial assets carried at fair value through profit or loss increased from SAR2.6 million in 2019G and 2020G to SAR4.3 million in 2021G, driven by the sale of shares in Al Rajhi Fund during the same period.
Gains on revaluation of financial assets carried at fair value through profit or loss
Gains on revaluation of financial assets at fair value through profit or loss increased from SAR578 thousand in 2019G to SAR782 thousand in 2020G due to the increase in the share price of Al Rajhi Fund by 10%. Furthermore, Gains on revaluation of financial assets at fair value through profit or loss decreased to nil in 2021G as a result of selling the Company’s shares in the Al Rajhi Fund towards the end of 2021G.
Zakat
Zakat expense increased by 4.2% from SAR5.4 million in 2019G to SAR5.6 million in 2020G, and subsequently increased by 17.0% to reach SAR6.6 million in 2021G in line with the increase in the profit for the year during this period.
Net profit for the year
Net profit for the year increased by 14.3% from SAR187.4 million in 2019G to SAR214.2 million in 2020G, mainly due to an increase in: (1) operating profit in line with the increase in gross profit by 17.5% from SAR275.9 million in 2019G to SAR324.2 million in 2020G, as a result of the increase in the quantities sold from 8.8 million to 9.4 million products during 2019G and 2020G, respectively, driven by the high demand for Kitchenware and appliances during the curfew, in light of COVID-19 pandemic, (2) the increase in other income from SAR4.8 million to SAR6.5 million, mainly due to the increase in rental income by SAR627 thousand, as the Company leased out commercial showrooms (for the buildings owned by the company or fully leased by the Company). This was offset by the increase in selling and distribution expenses from SAR33.1 million to SAR43.3 million resulting from the increase in advertising expenses namely due to the increase in the number of advertising and marketing campaigns during the COVID-19 pandemic, in addition to the increase in general and administrative expenses in line with the increase in bonuses paid to the employees and the increase in the number of employees headcounts during the same period, which led to a decrease in the profit margin for the year from 28.6% in 2019G to 26.9% in 2020G.
The profit for the year decreased by 13.7% to reach SAR184.9 million in 2021G. This is mainly due to the decrease in the operating profit stemming from (1) the decrease in the gross profit on the back of the increase in the cost of revenue, mainly driven by the increase in the cost of purchases, due to the overall increase in shipping costs from foreign suppliers during COVID-19, where shipping cost has increased from SAR8.4 million (represents 2.8% of total purchases) in 2020G to SAR37.1 million (represents 9.2% of total purchases) in 2021G, in addition to (2) the increase in selling and distribution expenses from SAR43.3 million to SAR58.1 million stemming from the increase in advertising expenses as a result of decrease in the demand of some products during the same period. This was offset by a decrease in general and administrative expenses from SAR46.9 million to SAR24.0 million stemming from the decrease in salaries and wages driven by the decrease in the bonuses paid to employee during the same period.