The following factors mainly explain how the net profit of the first quarter of 2023 was achieved:

1. Group total revenues, including gold metal value, were SAR 496.3 million in first quarter of 2023, a reduction of 19.2% compared to SAR 614.5 million in the same quarter of last year. It is worth noting that the Group does not make profits or losses from sales of gold as a metal.

2. Group operating revenues, which better represent revenues of the Group after excluding gold metal value, amounted to SAR 126.1 million in the first quarter of 2023, a decrease of 16.9% compared to SAR 151.7 million in the same quarter of last year due to the translation of revenues of Egypt at a lower exchange rate.

In KSA, wholesale operating revenues were 20.4% higher than the last year due to strong sales of L’azurde gold in traditional gold souks.

In Egypt, wholesale operating revenues grew by 4.0% in Egyptian Pound (EGP) terms but declined by 43.5% after translation to SAR due to the devaluation of EGP, compared to the same quarter of last year. The company continues to increase its sales prices in Egypt gradually to cope with the EGP devaluation.

In Egypt, retail operating revenues grew by 47.0% in EGP terms due to increasing sales prices to cope with the devaluation, however, declined by 18.6% after translation to SAR due to the devaluation of EGP, compared to last year. The company will continue to increase prices to fully compensate for the devaluation impact.

Group e-commerce business delivered SAR 7.9 million revenues in the first quarter of 2023 (Q1 2022: SAR 7.4 million), an increase of 7.5%. Group e-commerce revenues represent a solid promising and progressive share of 6.3% of total Group operating revenues and 14.8% of Group Retail revenues in the first quarter of 2023 (Q1 2022: represented 4.9% of Group operating revenues and 12.5% of Group Retail revenues).

3. Group gross profit of SAR 79.1 million in the first quarter of 2023 was 20.3% lower than the same quarter of last year of SAR 99.2 million due to lower operating revenues because of the devaluation in EGP, which is expected to be compensated with continuing increasing prices in EGP.

4. Group operating expenses of SAR 54.0 million were 22% lower than the same quarter of last year of SAR 69.1 million due to cost control initiatives and EGP devaluation.

5. Group operating profit of SAR 25.1 million for the first quarter of 2023 was 16.6% lower compared to SAR 30.1 million in the same quarter of last year due to the reasons mentioned above.

6. Group finance costs in the first quarter of 2023 were SAR 8.3 million, an increase of 2.4% from SAR 8.1 million of finance costs in the same quarter of last year.

7. Net profit in the first quarter of 2023 amounted to SAR 11.6 million compared to SAR 13.7 million in the same quarter of last year, a decrease of 15.3%, mainly due to lower revenues and operating expenses because of EGP translation.

8. The Comprehensive loss attributable to shareholders of the Company for the current year amounted to SAR 10.7 million compared to SAR 16.7 million in the same quarter of last year, due to unrealized exchange loss on translation of foreign investment in Egypt. It is worth noting that investments in Egypt mostly represent factories and other assets for the purpose of production and generating revenues and not for the purpose of investment. The decline in the value of these investments, as a result of the depreciation of the Egyptian Pound, does not affect their ability to produce and generate revenues. Accordingly, this amount is a temporary and unrealized decline.

9. Basic Earnings per Share (“EPS”) was SAR 0.20 in the first quarter of 2023 compared to SAR 0.24 in the same quarter of last year.

10. Total Shareholders’ Equity on 31 March 2023 was SAR 378.8 million compared to SAR 437.5 million on 31 March 2022, a decrease of 13.4%, due to payment of dividends, and a negative movement in the Currency Translation Reserve due to unrealized foreign exchange loss on investment in Egypt, as stated above.

2. Operating revenues of SAR 126.1 million for the first quarter of 2023 were higher than the fourth quarter of 2022 by 11.1% of SAR 113.7 million due to seasonality.

3. Net profit of SAR 11.6 million for the first quarter of 2023 compared to SAR 2.7 million for the fourth quarter of 2022 mainly due to higher operating revenues in the current period.

Basis of Qualified Conclusion

We noted during our review that selling and marketing expense in the interim condensed consolidated statement of profit and loss for the period ended 31 March 2023 include gold calibration cost of SAR 8,525,733 (31 March 2022: SAR 11,314,058). Gold calibration cost represents costs incurred to refine low carat gold collected from customers as settlement of their gold receivables. In our view, gold calibration cost are production related costs and therefore, should be capitalized as part of inventory, and expensed in profit or loss when the inventory is sold. We were unable to determine the necessary adjustments to the cost of revenue and closing inventory on the interim condensed consolidated financial statements for the current period and prior periods respectively.

Gold calibration charges result from lower gold purity in physical gold collected from customers, as settlement of their accounts receivable balances denominated in gold. The Group records this charge as part of the accounts receivable collection department expenses in the selling and collection expenses, in line with the Group’s and industry’s practice, as this expense is incurred at the time of settlement of accounts receivable and due to the Group’s commercial policy of accepting lower gold purity from customers to avoid any delay in the collection, any impact of gold price fluctuation, higher credit risk, increase in working capital and the associated financing cost. Accordingly, this charge results from a commercial decision to accept lower purity gold from customers, and this decision can be changed at any time by the Company depending on market circumstances and has no connection to the cost of production.

The Company has adhered to the classification of gold calibration expenses in selling and collection expenses that it has applied historically since its inception and is the normal practice in our sector. We believe that this is a more conservative and correct approach. This historical approach involves recognizing these expenses in the period in which they are incurred. The auditor's suggested approach of capitalizing these expenses to inventory would have the effect of artificially inflating net profit in the current period and prior years.

General Comments:

The Company successfully pursued its turnaround plan in 2022/2023 and delivered robust results consistently quarter after quarter. Looking ahead, the Company will continue the major innovations undertaken over the last two years and introduce new upcoming growth drivers. We continuously search for and identify innovations and new initiatives to grow our topline, improve our gross margin and operate with a lower working capital. We offered in 2022 a diversified portfolio of brands including L’azurde, TOUS and Miss L’ while we consolidate our offering to adapt and win in times of changing consumers’ shopping behaviors. We are also mitigating the short-term downsides of the EGP devaluation by increasing our sales prices in EGP, and by launching new products offering great value to consumers and providing us strong margins.

The strategic drivers for the future success of the Company consist of:

1. Expanding the fast-growing Miss L’ fashion jewelry line to its full potential through our own retail points of sales, e-commerce and 3rd party retailers.

2. Growing our successful L’azurde retail business through new points of sales and a stronger assortment. Especially in KSA, we have a great opportunity to increase the current network of L’azurde retail to a much larger and profitable network. The Company has been successful in finding several promising new retail locations where stores will be opened soon.

3. Optimizing the traditional wholesale business selling jewelry by weight, through more profitable products mix, lower working capital and cost reductions.

4. Leveraging our solid customers’ network in the traditional gold jewelry market to further expand product lines and collections, thereby improving revenues and profits.

5. Scaling our fast-growing e-commerce business through more investments in technology, infrastructure, systems and building a state-of-the-art and experienced digital organization.

6. Expanding the TOUS global franchise business in KSA through e-commerce, stronger assortment and more investments in marketing.

7. Developing new material growth initiatives across the GCC to leverage the Company’s capabilities in markets other than Egypt.

8. Growing our cash position while continuing to generate positive cash flows and reinforcing our solid banking relationships to support the Company’s transformation initiatives.

For more information, we would like to draw the attention of the shareholders that the Condensed Consolidated Financial Statements for the period ended 31 March 2023 will be available on Company’s website (http://www.lazurde.com) under investors’ relations section.