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L'azurde Company for Jewelry announces its annual financial results for the year ended on 31 December 2017 (Twelve Months)

Element Current quarter Similar quarter for previous year % Change current Previous quarter % Change previous
Net profit (loss) 2,630 -766 - 502 423.9
Gross profit (loss) 46,763 12,839 264.23 44,939 4.06
Operational profit (loss) 13,992 -29,759 - 10,733 30.36
All figures are in (Thousands) Saudi Arabia, Riyals
Element Current period Similar period for previous year % Change
Net profit (loss) 31,544 71,952 -56.16
Gross profit (loss) 217,481 244,542 -11.07
Operational profit (loss) 75,268 68,001 10.69
Earning or loss per share, Riyals 0.73 1.67 -
All figures are in (Thousands) Saudi Arabia, Riyals
Element EXPLAINATION
Reasons of increase (decrease) for quarter compared with same quarter last year The following major factors impacted the performance of fourth quarter of 2017:

1. Operating revenues for the fourth quarter of 2017, amounted to SAR 75.1 million, increased by 62.3% compared to SAR 46.3 million in the same quarter of last year. This was mainly due to an increase by 61.1% in the wholesale business, whereby KSA increased by 69.6% and Egypt increased by 48.7%. Also, there was an increase in the retail business by 63.8% whereby KSA increased by 61.8% due to expansion in KSA airport locations and Egypt grew by 78.7% due to opening new shops.

2. Operating cost of revenues decreased by 15.3% compared to the same quarter of last year despite the high increase in operating revenues. This was due to higher fixed costs in the same quarter of last year, in addition to reducing labor costs and manufacturing overheads during this quarter, by improving manufacturing productivity.

3. Gross profit of SAR 46.8 million for the fourth quarter of 2017 was 264% higher than the same quarter of last year due to higher operating revenues and lower operating cost of revenues.

4. Operating expenses of SAR 32.8 million for the fourth quarter of 2017 were lower than SAR 42.6 million of operating expenses for same quarter of last year, 23% reduction due to cost reduction, despite costs incurred to finance retail business expansion in this quarter.

5. Operating income for the fourth quarter of 2017 amounted to SAR 14.0 million compared to an operating loss of SAR 29.8 million in the same quarter of last year due to higher gross profit and lower operating expenses.

6. Net income for the fourth quarter of 2017 amounted to SAR 2.6 million, an increase of SAR 3.4 million compared to the same quarter of last year. The increase was due to higher gross profit and lower operating expenses in the fourth quarter of 2017, partially offset by a large one off foreign exchange gain of SAR 44.2 million in the same quarter of last year. Excluding the one off gain of last year, net income for the fourth quarter of 2017 was higher than last year by SAR 47.6 million.

7. Gross profit, operating income and net income represented 62.3%, 18.6% and 3.5% of operating revenues for the fourth quarter of 2017 compared to 27.7%, (64.3%) and (1.7%) for the same quarter of 2016 respectively.

8. For the fourth quarter of 2017, the Comprehensive income attributable to shareholders of the Company amounted to SAR 0.7 million compared to Comprehensive loss of SAR 106.2 million in the corresponding quarter of last year which was due to increase in the negative translation reserve of consolidating the Egyptian subsidiaries at lower exchange rate due to significant devaluation of Egyptian Pound in 2016.

9. The Basic Earnings per Share (EPS) based on the profit attributable to shareholders of the Company for the fourth quarter of 2017, was SAR 0.06 as against SAR (0.02) in same quarter of last year.
Reasons of increase (decrease) for period compared with same period last year The following major factors impacted the performance of full year 2017:

1. Operating revenues of SAR 355.4 million for the year ended 31 December 2017 declined by 12.3% when compared to SAR 405.4 million for the last year. This was mainly due to 34.3% decline in Egypt revenues due to Egyptian Pound devaluation, when converted to Saudi Riyal from Egyptian Pound. The devaluation of Egyptian Pound took place in November 2016 and affected the full year of 2017. KSA operating revenues increased by 5.9% when compared to last year due to growth in L'azurde retail, Kenaz and airports businesses. GCC and Export operating revenues declined by 29.1% due to the instability in some export countries.

2. Operating cost of revenues decreased by 14.3% when compared to last year as the company managed to largely absorb the impact of volume decline and to reduce fixed costs by reducing labor headcount and reducing overheads by improving manufacturing productivity.

3. Gross profit of SAR 217.5 million for the year 2017 declined by 11.1% when compared to SAR 244.5 million in the last year, due to lower operating revenues.

4. Operating expenses for the year 2017 decreased by 19.4% when compared to last year due to reduced staff costs, lower advertising and lower direct selling costs due to reduction in volume.

5. Operating income for the year 2017 amounted to SAR 75.3 million, an increase of 10.7% when compared to SAR 68.0 million for the last year, due to lower operating expenses.

6. Net income of SAR 31.5 million for the year 2017 was lower than last year by SAR 40.4 million or 56.2%. This was mainly due to a large one off foreign exchange gain of SAR 59.8 million in the last year. Excluding the one off gain of last year, net income for 2017 was higher than last year by SAR 19.4 million.

7. Gross profit, operating income and net income represented 61.2%, 21.2% and 8.9% of operating revenues for the year of 2017 compared to 60.3%, 16.8% and 17.7% for the last year respectively.

8. Total comprehensive income attributable to equity holders for the year was SAR 27.3 million when compared to negative SAR 65.6 million in the last year.

9. The Basic EPS based on the profit attributable to shareholders of the Company for the year ended 31 December 2017 was SAR 0.73 as against SAR 1.67 for the year ended 31 December 2016. Excluding the one off gain of last year, EPS based on the profit attributable to shareholders of the Company for the year ended 31 December 2017 was higher than last year by SAR 0.45.

10. Total Shareholders' Equity was SAR 406.5 million compared to SAR 402.5 million as at 31 December 2016, an increase of 1.0%. The book value per share as at 31 December 2017 was SAR 9.45 compared to SAR 9.36 as at 31 December 2016.
Reasons of increase (decrease) for quarter compared with previous quarter 1. Operating revenues of SAR 75.1 million for the fourth quarter of 2017 were lower than third quarter of 2017 by SAR 1.1 million or 1.4% due to seasonality.

2. Net income of SAR 2.6 million for the fourth quarter of 2017 was higher than the net income of SAR 0.5 million for the third quarter of 2017 due to lower operating expenses.
External auditor's report containing reservation The external auditor's report for the year ended 31 December 2017 contained the following other matters:

The consolidated financial statements of the Group for the year ended 31 December 2016, on which a predecessor auditor has issued an unqualified audit opinion dated 15 Jumad Thani 1438H (corresponding to 14 March 2017G), prepared under Accounting Standards Generally Accepted in the Kingdom of Saudi Arabia.
Reclassifications in quarterly financial results The comparative figures for the three and twelve months ended 31 December 2016 were restated and reclassified to comply with International Financial Reporting Standards ''IFRS'' requirements. For more information, please see the note 34 (First time adoption of IFRS) in the Annual Consolidated Financial Statements for the year ended 31 December 2017.
Other notes Overall, and as mentioned above, the gold jewelry market in KSA, Egypt and GCC was impacted since 2016 by a significant reduction in consumer spending and generally slow economy. The company responded to these macroeconomics and market challenges by:

1. Leveraging its technology and manufacturing capabilities to launch new fashionable and classic Gold jewelry in 21K and 18K at lower weights across all markets to target affordable consumer price points.

2. Increasing the number of new models in the profitable 18K line.

3. Raising prices in Egypt to drive profitability and compensate the currency devaluation, while offering discounts to wholesale customers to support the volume.

4. Expanding the L'azurde Retail mono-brand retail shops by opening new showrooms in Egypt.

5. Expanding Kenaz, the new value jewelry brand in Saudi Arabia through new kiosks at shopping malls, offering a wide range of top diamond jewelry designs at more affordable prices for consumers.

6. Growing revenues at the newly acquired exclusive distribution of Gold and Diamonds jewelry at key KSA airports through the agreement with the global retailer Saudi French Duty Free Operations and Management.

7. Improving efficiency and cost optimization through production process reengineering, headcount and other cost reductions, which enabled the Company to support its margins despite the reduction in volumes and revenues.

The Company is also pursuing inorganic expansion opportunities and recently announced signing a Memorandum of Understanding to acquire a well-known retail jewelry brand in KSA.

Considering the above initiatives, and the underlying fundamentals supporting the jewelry industry in the long term, we believe that L'azurde remains in a strong position to adapt to a challenging market and continue its longer term growth ambitions.

L'azurde announces its invitation to shareholders and prospective investors to a conference call, regarding the Annual 2017 Earnings Results, on March 11th at 4:00 PM, for duration of 20 minutes. The Company's management will elaborate on the financial results for the year 2017. After the Company' statement, there will be a forum for questions and answers.

To ask questions, attendees can join live questions session at the end of the conference or send their questions by email to the address: investors@lazurde.com before or during the conference call. Management will read questions sent by email and answer them during the conference call.

The Company advises interested attendees to dial-in for registration starting from 3:50pm to ensure that they are logged in at 4.00pm when the conference will start. The registration process for attendees will take a few minutes.

To access the conference call, attendees should dial-in the following toll free numbers in KSA:

KSA toll free: 800 814 3590
To access the conference call from out of KSA: UAE toll free: 8000 3570 3603, UK: +44 207 194 3759, USA: +1 646 722 4916
Confirmation Code: 44934662#

For more information, we would like to draw the attention of the shareholders that the Annual Consolidated Financial Statements for the period ended 31 December 2017 and earning presentation for 2017 will be available through the following link on Company's website.

http://www.lazurde.com/MainMenu/Investors/FinancialInformationM/ResultsAndReports.html

The Capital Market Authority and the Saudi Stock Exchange take no responsibility for the contents of this disclosure, make no representations as to its accuracy or completeness, and expressly disclaim any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this disclosure, and the issuer accepts full responsibility for the accuracy of the information contained in it and confirms, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts or information the omission of which would make the disclosure misleading, incomplete or inaccurate.

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