Kingold Jewelry Reports Financial Results For The Second Quarter And Six Months Ended June 30, 2017
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PR Newswire 11-Aug-2017 8:57 AM
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- 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
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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%

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* 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.
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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.
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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 %
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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.
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The dial-in numbers are:
Live Participant Dial In (Toll Free): 877-407-9038
Live Participant Dial In (International): 201-493-6742
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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


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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
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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
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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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