Kingold Jewelry Reports Financial Results For The Second Quarter And Six Months Ended June 30, 2017

PR Newswire 11-Aug-2017 8:57 AM

- Company to Hold Conference Call with Accompanying Slide Presentation at 5:30 p.m. E.T. on August 11, 2017

WUHAN, China, Aug. 11, 2017 /PRNewswire/ -- Kingold Jewelry, Inc. ("Kingold" or the "Company") (NASDAQ: KGJI), one of China's leading manufacturers and designers of high quality 24-karat gold jewelry, ornaments and investment-oriented products, today announced its financial results for the second quarter and six months ended June 30, 2017.

2017 Second Quarter Financial Highlights (all results compared to prior year period)

  • Net sales were $475.9 million, an increase of 22% from $390.3 million
  • Proceeded a total of 26.0 metric tons of 24-karat gold products, increased 28.1% from 20.3 metric tons
  • Net income was $8.0 million, or $0.12 per diluted share, compared to net income was $19.9 million, or $0.30 per diluted share

Outlook for 2017

  • Company reiterates guidance of between 70 metric tons and 80 metric tons of 24-karat gold products in 2017

Management Commentary

Mr. Zhihong Jia, Chairman and CEO of the Company, commented, "We were pleased to continue to deliver strong operating results in the second quarter of 2017, as we fully leveraged the higher gold price along with the strong growing demand and further expanded our production capacity. Meanwhile, we continue to watch market dynamics and gold price trends to be able to make timely adjustment of our business strategy. Based on our team's extensive experience in the gold industry, we will further explore upstream-downstream industries to establish an all-roundstrategicplan for Kingold's overall development."

2017 SECOND QUARTER OPERATIONAL REVIEW

Metric Tons of Gold Processed

Three Months Ended:

June 30 , 2017

June 30 , 2016

Volume

Volume

Volume

Volume

Branded*

12

46.2%

10.5

51.7%

Customized**

14

53.8%

9.8

48.3%

Total

26

100.0%

20.3

100%

Six Months Ended:

June 30 , 2017

June 30 , 2016

Volume

% of Total

Volume

% of Total

Branded*

20.1

47.7%

18.7

53.1%

Customized**

22

52.3%

16.5

46.9%

Total

42.1

100%

35.2

100%

*

Br anded Production:

The Company acquires gold from the Shanghai Gold Exchange to produce branded products.

**

Customized Production:

Clients who purchase customized products supply gold to the Company for processing.

For the three months ended June 30, 2017, the Company sold a total of 26 metric tons of gold, of which branded production was 12 metric tons, representing 46.2% of total gold sold, and customized production was 14 metric tons, representing 53.8% of total gold sold in the second quarter of 2017. In the second quarter of 2016, the Company sold a total of 20.3 metric tons, of which branded production was 10.5 metric tons, or 51.7% of the total gold sold, and customized production was 9.8 metric tons, or 48.3% of total gold sold.

CONSOLIDATED FINANCIAL AND OPERATING REVIEW

N et Sales

Net sales for the three months ended June 30, 2017 was $475.9 million, representing an increase of $85.6 million, or 22%, from $390.3 million for the same period in 2016. The increase in net sales was primarily driven by the higher sales volume and the higher average selling price for branded production which increased from RMB 238.42 per gram in the three months ended June 30, 2016 to RMB 264 per gram in three months ended June 30, 2017.

For the six months ended June 30, 2017, the Company's net sales were $768.1 million, increased 14% from $672.4 million in the first half of 2016. The increase in net sales was mainly due to the higher sales volume and the higher average selling price for branded production which increased from RMB 231.34 per gram in the six months ended June 30, 2016 to RMB 256.66 per gram in six months ended June 30, 2017.

Gross Profit

Gross profit for the three months ended June 30, 2017 was $47.8 million, compared to $46.1 million for the same period in 2016.

For the six months ended June 30, 2017, the Company's gross profit was $64.9 million decreased from $74.6 million in the first half of 2016.

Gross Margin

The Company's gross margin was 10% for the three months ended June 30, 2017, compared to 11.8% in the prior year period. The decrease in gross margin was primarily because the increase in unit cost of branded production sales exceeded the increase of average selling price during the three months ended June 30, 2017.

For the six months ended June 30, 2017, the Company's gross margin was 8.4%, compared to 11.1% in the first half of 2016. The decrease in gross margin was primarily due to the increase in unit cost of our branded production sales exceeded the increase of average selling price of our branded production during the six months ended June 30, 2017.

N et Income ((Loss)

Net income for the three months ended June 30, 2017 was $8.0 million, or $0.12 per diluted share based on 66.4 million weighted average diluted shares outstanding, compared to net income of $19.9 million in the prior year period, or $0.30 per diluted share based on 66.3 million weighted average diluted shares outstanding in the prior-year period. The decrease in net income was primarily due to significant increase in interest expenses from $16.9 million in the three months ended June 30,2016 to $39 million in the three months ended June 30, 2017.

For the six months ended June 30, 2017, the Company's net loss was $13.3 million, or $(0.20) per basic and diluted share, compared to net income of $35.1 million, or $0.53 per basic and diluted share, in the same period of 2016. The decrease in net income was primarily due to significant increase in interest expenses from $21.5 million in the six months ended June 30,2016 to $75.3 million in the six months ended June 30, 2017.

Balance Sheet Highlights (USD in Millions)

6 /30/2017

12/31/2016

Percentage Change

Cash and Cash Equivalents

$9.2

$21.3

(56.8) %

Inventories

$309.6

$119.4

159 %

Working Capital

$861.0

$460.0

87.2 %

Stockholders' Equity

$326.5

$282.5

15.6 %

Net cash used in operating activities was $257 million for the six months ended June 30, 2017, compared with net cash provided by operating activities of $185.5 million for the same period in 2016. The increase of net cash used in operating was mainly due to the increase in inventories of $204 million for the increased production to meet the sales demand.

OUTLOOK FOR 2017

Based on the Company's existing resources and capacity along with strong demand for 24-karat gold products in China, and its possession of 42.1 metric tons of 24-karat gold products in the first half of 2017, the Company reiterates its expectation that gold processed will be between 70 metric tons and 80 metric tons during 2017.

Conference Call Details

Kingold also announced that it will discuss these financial results in a conference call on August 11, 2017 at 5:30 p.m. E.T.

The dial-in numbers are:

Live Participant Dial In (Toll Free):

877-407-9038

Live Participant Dial In (International):

201-493-6742

The conference call will also be webcast live. To listen to the call, please go to the Investor Relations section of Kingold's website at www.kingoldjewelry.com, or click on the following link: http://kingoldjewelry.equisolvewebcast.com/q2-2017. The Company will also have an accompanying slide presentation available in PDF format on its homepage prior to the conference call.

A bou t Kingold Jewelry, Inc.

Kingold Jewelry, Inc. (NASDAQ: KGJI), centrally located in Wuhan City, one of China's largest cities, was founded in 2002 and today is one of China's leading designers and manufacturers of 24-karat gold jewelry, ornaments, and investment-oriented products. The Company sells both directly to retailers as well as through major distributors across China. Kingold has received numerous industry awards and has been a member of the Shanghai Gold Exchange since 2003. For more information, please visitwww.kingoldjewelry.com.

Bu siness Risks and Forward-Looking Statements

This press release contains forward-looking statements that are subject to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. You can identify these forward -looking statements by words such as "expects," "believe," "project," "anticipate," or similar expressions. The forward-looking statements in this release include statements regarding Kingold's outlook with respect to its 2017 outlook for gold processing, its expectations with respect to completion of construction of the Jewelry Park and planned grand opening, as well as its ability to engage in presales and finance the remaining construction. Readers are cautioned that actual results could differ materially from those expressed in any forward-looking statements. Forward-looking statements are subject to a number of risks, including those contained in Kingold'sSEC filings available at www.sec.gov, including Kingold's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made. Kingold undertakes no obligation to update or revise any forward-looking statements for any reason.

COMPANY CONTACT Kingold Jewelry, Inc. Bin Liu, CFOPhone: +1-847-660-3498 (US) / +86-27-6569-4977 (China)bl@kingoldjewelry.com

INVESTOR RELATIONS The Equity Group Inc. Katherine Yao, Senior AssociatePhone: +86-10-6587-6435kyao@equityny.com

KINGOLD JEWELRY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(IN US DOLLARS)

(UNAUDITED)

For the three months ended June 30,

For the six months ended June 30,

2017

2016

2017

2016

(Restated)

(Restated)

NET SALES

$

475,891,200

$

390,260,645

$

768,155,277

$

672,448,702

COST OF SALES

Cost of sales

(427,858,604)

(343,880,390)

(702,767,612)

(597,292,834)

Depreciation

(210,888)

(291,683)

(505,331)

(582,365)

Total cost of sales

(428,069,492)

(344,172,073)

(703,272,943)

(597,875,199)

GROSS PROFIT

47,821,708

46,088,572

64,882,334

74,573,503

OPERATING EXPENSES

Selling, general and administrative expenses

3,069,142

3,181,568

6,766,525

6,020,161

Stock compensation expenses

11,143

11,142

22,286

22,285

Depreciation

125,831

23,474

231,670

46,987

Amortization

2,755

2,891

5,498

5,781

Total operating expenses

3,208,871

3,219,075

7,025,979

6,095,214

INCOME FROM OPERATIONS

44,612,837

42,869,497

57,856,355

68,478,289

OTHER INCOME (EXPENSES)

Other Income

132

130

65,497

130

Interest Income

504,462

757,264

1,191,307

816,488

Interest expense, including $6,403,986 and $3,692,330 of amortization of financing costs for six months ended June 30, 2017 and 2016

(38,980,626)

(16,883,371)

(76,570,122)

(22,287,496)

Total other expenses, net

(38,476,032)

(16,125,977)

(75,313,318)

(21,470,878)

INCOME (LOSS) FROM OPERATIONS BEFORE TAXES

6,136,805

26,743,520

(17,456,963)

47,007,411

INCOME TAX PROVISION (BENEFIT)

Current

5,218,082

6,849,780

5,218,082

11,660,784

Deferred

(7,114,895)

64

(9,402,844)

255,738

Total income tax provision (benefit)

(1,896,813)

6,849,844

(4,184,762)

11,916,522

NET INCOME (LOSS)

8,033,618

19,893,676

(13,272,201)

35,090,889

Add: net loss attributable to non-controlling interest

-

(268)

-

(1,465)

NET INCOME (LOSS) ATTRIBUTABLE TO KINGOLD JEWELRY, INC.

$

8,033,618

$

19,893,944

$

(13,272,201)

$

35,092,354

OTHER COMPREHENSIVE INCOME (LOSS)

Change in unrealized gain (loss) related to investments in gold

$

(54,046,052)

$

50,778,172

$

48,861,337

$

68,343,038

Total foreign currency translation gains (loss)

11,789,755

(8,624,477)

8,362,338

(6,661,783)

Less: foreign currency translation gain attributable to non- controlling interest

-

2,030

-

1,576

Total Other comprehensive income (loss) attributable to KINGOLD JEWELRY, INC.

$

(42,256,297)

$

42,151,665

$

57,223,675

$

61,679,679

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:

KINGOLD JEWELRY, INC.

$

(34,222,679)

$

62,045,609

$

43,951,474

$

96,772,033

Non-controlling interest

-

1,762

-

111

$

(34,222,679)

$

62,047,371

$

43,951,474

$

96,772,144

Earnings (Loss) per share

Basic and diluted

$

0.12

$

0.30

$

(0.20)

$

0.53

Weighted average number of shares

Basic

66,018,867

65,964,110

66,018,867

65,963,806

Diluted

66,415,601

66,273,246

66,018,867

65,970,164

KINGOLD JEWELRY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN US DOLLARS)

(UNAUDITED)

June 30,

December 31,

2017

2016

ASSETS

CURRENT ASSETS

Cash

$

9,181,584

$

21,333,193

Restricted cash

17,940,508

52,786,257

Accounts receivable

106,205

670,878

Inventories, net

309,599,564

119,435,595

Investments in gold - current

963,585,694

281,895,403

Other current assets and prepaid expenses

119,521

698,217

Prepaid income tax

-

3,330,468

Value added tax recoverable

347,085,125

272,835,051

Total current assets

1,647,618,201

752,985,062

PROPERTY AND EQUIPMENT, NET

7,592,339

7,224,698

OTHER ASSETS

Restricted cash

8,351,285

7,558,173

Investments in gold

1,175,797,769

1,493,938,551

Other assets

289,993

283,003

Deferred income tax assets

8,258,042

-

Land use right

418,302

413,662

Total long-term assets

1,200,707,730

1,509,418,087

TOTAL ASSETS

$

2,848,325,931

$

2,262,403,149

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Short term loans, less unamortized debt issuance costs of $196,644 and $4,480,085

$

465,616,205

$

234,691,670

Third party loan

-

28,798,526

Gold leases payable - Bank

-

7,167,391

Other payables and accrued expense

19,063,751

13,716,472

Related parties loan

295,098,415

-

Due to related party

3,299,524

7,223,321

Income tax payable

1,880,651

-

Other taxes payable

1,681,246

1,518,731

Total current liabilities

786,639,792

293,116,111

Deferred income tax liability

-

1,249,622

Related parties loan

751,025,467

460,776,408

Long term loans, less unamortized debt issuance costs of $4,383,067 and $4,350,348

984,196,625

1,224,770,721

TOTAL LIABILITIES

2,521,861,884

1,979,912,862

COMMITMENTS AND CONTINGENCIES

-

-

EQUITY

Preferred stock, $0.001 par value, 500,000 shares authorized, none issued or outstanding as of June 30, 2017 and December 31, 2016

-

-

Common stock $0.001 par value, 100,000,000 shares authorized, 66,018,867 shares issued and outstanding as of June 30, 2017 and December 31, 2016

66,018

66,018

Additional paid-in capital

80,253,254

80,230,968

Retained earnings

Unappropriated

264,201,758

277,473,959

Appropriated

967,543

967,543

Accumulated other comprehensive deficit

(19,024,526)

(76,248,201)

Total stockholders' equity

326,464,047

282,490,287

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

2,848,325,931

$

2,262,403,149

KINGOLD JEWELRY, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(IN US DOLLARS)

(UNAUDITED)

For the six months ended June 30,

2017

2016

(Restated)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

$

(13,272,201)

$

35,090,889

Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:

Depreciation and amortization

737,001

629,352

Amortization of intangible assets

5,498

5,781

Amortization of deferred financing costs

6,403,986

3,692,330

Share based compensation for services and warrants and shares issued for consulting services

22,286

151,580

Inventory valuation allowance

17,597,804

-

Deferred tax provision (benefit)

(9,402,844)

255,738

Changes in operating assets and liabilities

(Increase) decrease in:

Accounts receivable

572,975

1,202,904

Inventories

(204,138,326)

148,835,117

Other current assets and prepaid expenses

587,453

(4,128,476)

Value added tax recoverable

(66,550,772)

(72,157,904)

Increase (decrease) in:

Other payables and accrued expenses

5,063,398

(3,936,552)

Deposit payable, Jewelry Park, net

-

70,165,780

Income tax payable

5,218,082

5,649,770

Other taxes payable

123,225

67

Net cash provided by (used in) operating activities

(257,032,435)

185,456,376

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

(1,141,219)

(334,586)

Investments in gold

(270,889,242)

(651,747,004)

Construction in progress-Jewelry Park

-

(19,506,468)

Net cash used in investing activities

(272,030,461)

(671,588,058)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from bank loans short term

29,090,063

611,580,106

Repayments of bank loans short term

(72,870,607)

(9,175,996)

Proceeds from bank loans long term

95,997,207

-

Repayments of bank loans long term

(101,815,220)

-

Proceeds from related party loans short term

290,900,628

152,933,260

Proceeds from related party loans long term

690,888,992

-

Repayments of related party loans long term

(415,987,899)

-

Payments of loan origination fees

(1,998,723)

-

Proceeds from third party loans

-

37,631,334

Repayment of third party loans

(29,090,063)

-

Restricted cash

35,037,526

(208,544,198)

Due to related party

(3,988,513)

(2,157,701)

Proceeds from exercise of warrants

-

66,439

(Repayment) proceeds from debt financing instruments under private placement

-

(61,173,304)

Net cash provided by financing activities

516,163,391

521,159,940

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

747,896

(632,654)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(12,151,609)

34,395,604

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

21,333,193

3,100,569

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

9,181,584

$

37,496,173

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for interest expense

$

56,674,744

$

19,126,073

Cash paid for income tax

$

-

$

11,660,842

NON-CASH INVESTING AND FINANCING ACTIVITIES

Investments in gold obtained in a lease from a related party

$

131,117,303

$

219,495,527

Investments in gold transferred to inventories

$

180,786,694

$

-

Unrealized gain on investments in gold

$

48,861,337

$

68,343,038

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SOURCE Kingold Jewelry, Inc.

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