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Kingold Jewelry Reports Financial Results for the Second Quarter and Six Months Ended June 30, 2018

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Kingold Jewelry Reports Financial Results for the Second Quarter and Six Months Ended June 30, 2018

Company to Hold Conference Call with Accompanying Slide Presentation at 4:30 p.m. E.T. on August 9, 2018

PR Newswire

WUHAN CITY, China, Aug. 9, 2018 /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 unaudited financial results for the second quarter and six months ended June 30, 2018.

2018 Second Quarter Financial Highlights (all results compared to prior year period)

  • Net sales were $678.8 million, an increase of 42.6% from $475.9 million
  • Processed a total of 27.6 metric tons of 24-karat gold products, increased by 6.0% from 26 metric tons
  • Net income was $13.6 million, or $0.20 per diluted share, compared to net income of $8.0 million, or $0.12 per diluted share

Outlook for 2018

  • Company reiterates guidance of between 100 metric tons and 110 metric tons of 24-karat gold products in 2018

Management Commentary

Mr. Zhihong Jia, Chairman and CEO of the Company, commented, "We were pleased to deliver strong operating results in the second quarter of 2018 and continue to benefit from our gold investment which enabled us to further expand our production capacity and design capabilities. During the quarter, we have witnessed a strong growing demand for 24-karat gold jewelry and investment products in China, and our management quickly adjusted the product mix in response to market demand with additional trendy design jewelry products and value preserving investment gold products. We are dedicated to building the Kingold brand as an increasingly important participant in the gold industry in China, while quickly responding to market changes and adjusting operational strategies."

2018 SECOND QUARTER AND SIX MONTHS OPERATIONAL REVIEW

Metric Tons of Gold Processed

Three Months Ended:


June 30, 2018

June 30, 2017


Volume

% of Total

Volume

% of Total

Branded*

16.9

61.1%

12

46.2%

Customized**

10.7

38.9%

14

53.8%

Total

27.6

100.0%

26

100%

Six Months Ended:


June 30, 2018

June 30, 2017


Volume

% of Total

Volume

% of Total

Branded*

29.8

58.6%

20.1

47.7%

Customized**

21.1

41.4%

22.0

52.3%

Total

50.9

100.0%

42.1

100.0%

*

Branded 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, 2018, the Company processed a total of 27.6 metric tons of gold, of which branded production was 16.9 metric tons, representing 61.1% of total gold processed, and customized production was 10.7 metric tons, representing 38.9% of total gold processed in the second quarter of 2018. In the second quarter of 2017, the Company processed a total of 26 metric tons, of which branded production was 12 metric tons, or 46.2% of the total gold processed, and customized production was 14 metric tons, or 53.8% of total gold processed.

For the six months ended June 30, 2018, the Company processed a total of 50.9 metric tons of gold, of which branded production was 29.8 metric tons, representing 58.6% of total gold processed, and customized production was 21.1 metric tons, representing 41.4% of total gold processed in the first half of 2018. In the first half of 2017, the Company processed a total of 42.1 metric tons, of which branded production was 20.1 metric tons, or 47.7% of the total gold processed, and customized production was 22 metric tons, or 52.3% of total gold processed.

CONSOLIDATED FINANCIAL AND OPERATING REVIEW

Net Sales

Net sales for the three months ended June 30, 2018 was $678.8 million, increased by 42.6% from $475.9 million for the same period in 2017. The increase in net sales was mainly the result of the higher sales volume for branded production sales.  

For the six months ended June 30, 2018, the Company's net sales were $1,218.3 million, increased by 58.6% from $768.1 million in the first half of 2017. The increase in net sales was mainly the result of the higher sales volume for branded production sales.

Gross Profit

Gross profit for the three months ended June 30, 2018 was $63.8 million, increased by 33.4% from $47.8 million for the same period in 2017.

For the six months ended June 30, 2018, the Company's gross profit were $128 million increased by 97.3% from $64.9 million in the same period of 2017.

Gross Margin

The Company's gross margin was 9.4% for the three months ended June 30, 2018, compared to 10% in the prior year period. The slight decrease in gross margin was primarily due to the decreased average selling price of branded production, compensated by decreased unit cost of branded production during the three months ended June 30, 2018. The average selling price of branded production was RMB 252.34 per gram for the three months ended June 30, 2018, decreased by RMB 11.66 or 4.4%, from RMB 264 per gram for the same period in 2017. Meanwhile, the unit cost of branded production sales was RMB 232.43 per gram for the three months ended June 30, 2018, decreased by RMB 11.63, or 4.8%, from RMB 244.06 per gram for the same period in 2017.  The decreases of both the average selling price and unit cost of branded production were mainly due to the weak gold price in the three months ended June 30, 2018.

For the six months ended June 30, 2018, the Company's gross margin was 10.5%, compared to 8.4% in the first half of 2017. The increase in gross margin was because the decrease in unit cost of branded production sales exceeded the decrease in the average selling price of branded production during the six months ended June 30, 2018. The unit cost of branded production sales was RMB 232.30 per gram for the six months ended June 30, 2018, decreased by RMB 8.1 or 3.4% from RMB 240.39 per gram for the same period in 2017. However, the average selling price of branded production was RMB 254.95 per gram for the six months ended June 30, 2018, decreased by RMB 1.72 or 0.7% from RMB 256.66 per gram for the same period in 2017.

Net Income

Net income for the three months ended June 30, 2018 was $13.6 million, or $0.20 per diluted share based on 66.2 million weighted average diluted shares outstanding, compared to net income of $8.0 million in the prior year period, or $0.12 per diluted share based on 66.4 million weighted average diluted shares outstanding in the prior year period.

For the six months ended June 30, 2018, the Company's net income was $26.8 million, or $0.40 per basic and diluted share, compared to net loss of $13.3 million, or $(0.20) per basic and diluted share, in the same period of 2017.

Balance Sheet Highlights (USD in Millions)


6/30/2018


12/31/2017

Percentage Change

Cash and Cash Equivalents

$0.24


$5.0

(95.2) %

Inventories

$150


$135

11.1%

Working Capital (Current Assets -- Current Liabilities)

$603


$768

(21.5) %

Stockholders' Equity

$373


$390

(4.4) %

Net cash provided by operating activities was $446.3 million for the six months ended June 30, 2018, compared with net cash used in operating activities of $257 million for the same period in 2017. The increase of net cash provided by operating activities was mainly due to the decrease in inventory purchases of $311 million because $349.4 million of gold for investment was released to inventory during the six months ended June 30, 2018, a decrease in value added tax receivable of $76.6 million, an increase in income taxable of $2.9 million and an increase in other payables and accrued liabilities of $1.3 million.

The Company's net cash from operating activities can fluctuate significantly due to change in inventories. Other factors that may vary significantly include accounts payable, purchase of gold and income taxes. The Company expects the net cash it generates from operating activities to continue to fluctuate as inventories, receivables, accounts payables and the other factors described above change with increased production and the purchase of larger or smaller quantities of raw materials (principally gold). These fluctuations could cause net cash from operating activities to decrease, even if net income grows as the Company continues to expand. Although the Company expects that net cash from operating activities will increase over the long term, it cannot predict how these fluctuations will affect Kingold's cash flow in any particular quarter.

OUTLOOK FOR 2018

Based on its existing resources and capacity along with strong demand for 24-karat gold products in China, the Company reiterates its expectation that gold processed will be between 100 metric tons and 110 metric tons during 2018.

Conference Call Details
Kingold also announced that it will discuss these financial results in a conference call on August 9, 2018 at 4:30 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/q2-2018. The Company will also have an accompanying slide presentation available in PDF format on its homepage prior to the conference call.

About 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 visit www.kingoldjewelry.com.

Business 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 2018 outlook for gold processing. 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's SEC 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, CFO
Phone: +1-847-660-3498 (US) / +86-27-6569-4977 (China)
bl@kingoldjewelry.com

INVESTOR RELATIONS COUNSEL:
The Equity Group Inc.
Katherine Yao, Senior Associate Phone: +86-10-5661 7012
kyao@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,




2018



2017



2018



2017















NET SALES


$

678,796,263



$

475,891,200



$

1,218,320,318



$

768,155,277



















COST OF SALES

















Cost of sales



(614,775,972)




(427,858,604)




(1,089,741,556)




(702,767,612)


Depreciation



(228,173)




(210,888)




(545,838)




(505,331)


Total cost of sales



(615,004,145)




(428,069,492)




(1,090,287,394)




(703,272,943)



















GROSS PROFIT



63,792,118




47,821,708




128,032,924




64,882,334



















OPERATING EXPENSES

















Selling, general and administrative expenses



2,564,845




3,069,142




5,110,199




6,766,525


Stock compensation expenses



5,364




11,143




10,728




22,286


Depreciation



151,658




125,831




260,487




231,670


Amortization



2,963




2,755




5,936




5,498


Total operating expenses



2,724,830




3,208,871




5,387,350




7,025,979



















INCOME FROM OPERATIONS



61,067,288




44,612,837




122,645,574




57,856,355



















OTHER INCOME (EXPENSES)

















Other Income



-




132




-




65,497


Interest Income



446,143




504,462




822,144




1,191,307


Interest expense, including  amortization of debt
issuance costs of $2,305,354 and $3,116,277 for
the three months, and $4,560,420 and $6,403,986
for the six months ended June 30, 2018 and 2017,
respectively



(43,301,467)




(38,980,626)




(87,418,347)




(76,570,122)


Total other expenses, net



(42,855,324)




(38,476,032)




(86,596,203)




(75,313,318)



















INCOME (LOSS) FROM OPERATIONS BEFORE TAXES



18,211,964




6,136,805




36,049,371




(17,456,963)



















INCOME TAX PROVISION (BENEFIT)

















Current



4,169,121




5,218,082




7,426,595




5,218,082


Deferred



479,046




(7,114,895)




1,824,055




(9,402,844)


Total income tax provision (benefit)



4,648,167




(1,896,813)




9,250,650




(4,184,762)



















NET INCOME (LOSS)



13,563,797




8,033,618




26,798,721




(13,272,201)



















OTHER COMPREHENSIVE INCOME (LOSS)

















Unrealized gain (loss) related to investments in
   gold, net of tax


$

(19,350,626)



$

(54,046,052)



$

(37,973,323)



$

48,861,337


Foreign currency translation gains (loss)



(19,822,304)




11,789,755




(6,002,603)




8,362,338


Total Other comprehensive income (loss)


$

(39,172,930)



$

(42,256,297)



$

(43,975,926)



$

57,223,675



















COMPREHENSIVE INCOME (LOSS)


$

(25,609,133)



$

(34,222,679)



$

(17,177,205)



$

43,951,474


Earnings (Loss) per share

















Basic


$

0.21



$

0.12



$

0.41



$

(0.20)


Diluted


$

0.20



$

0.12



$

0.40



$

(0.20)


Weighted average number of shares

















Basic



66,113,502




66,018,867




66,113,502




66,018,867


Diluted



66,229,658




66,415,601




66,395,251




66,018,867



 

 

KINGOLD JEWELRY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN US DOLLARS)

(UNAUDITED)




June30,



December 31,




2018



2017











ASSETS


















Cash


$

240,453



$

4,997,125


Restricted cash



6,965,467




5,534,551


Accounts receivable



-




768,167


Inventories



150,437,622




135,042,713


Investments in gold



1,185,042,807




1,562,943,153


Other current assets and prepaid expenses



250,183




100,592


Value added tax recoverable



274,033,622




353,732,758


Total current assets



1,616,970,154




2,063,119,059











Property and equipment, net



6,517,129




7,299,643


Restricted cash



7,600,532




7,392,721


Investments in gold



908,899,905




957,124,267


Other assets



296,897




302,072


Deferred income tax assets



18,545,561




6,677,675


Land use right



416,840




429,915


Total long-term assets



942,276,864




979,226,293


TOTAL ASSETS


$

2,559,247,018



$

3,042,345,352











LIABILITIES AND STOCKHOLDERS' EQUITY


















CURRENT LIABILITIES


















Short term loans


$

908,635,791



$

962,101,746


Other payables and accrued expenses



19,906,196




18,913,863


Related party loan



75,530,983




307,389,647


Due to related party



3,420,269




2,630,301


Income tax payable



4,015,473




1,208,742


Other taxes payable



2,496,472




2,615,463


Total current liabilities



1,014,005,184




1,294,859,762


Related party loans



414,034,451




567,843,066


Long term loans



758,141,473




789,410,137


TOTAL LIABILITIES



2,186,181,108




2,652,112,965


COMMITMENTS AND CONTINGENCIES









EQUITY









Preferred stock, $0.001 par value, 500,000 shares authorized, none issued or 
outstanding as of June 30, 2018 and December 31, 2017  



-




-


Common stock $0.001 par value, 100,000,000 shares authorized, 66,113,502
shares issued and outstanding as of June 30, 2018 and December 31, 2017



66,113




66,113


Additional paid-in capital



80,388,177




80,377,449


Retained earnings









Unappropriated



330,465,332




303,666,611


Appropriated



967,543




967,543


Accumulated other comprehensive income (loss), net of tax



(38,821,255)




5,154,671


Total Equity



373,065,910




390,232,387











TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY


$

2,559,247,018



$

3,042,345,352


 

 

KINGOLD JEWELRY, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(IN US DOLLARS)

(UNAUDITED)




For the six months ended June 30,




2018



2017









CASH FLOWS FROM OPERATING ACTIVITIES









Net income (loss)


$

26,798,721



$

(13,272,201)


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









Depreciation and amortization



806,325




737,001


Amortization of intangible assets



5,936




5,498


Amortization of debt issuance costs included in interest expense



4,560,420




6,403,986


Share based compensation for services and warrants expense



10,728




22,286


Inventory valuation allowance



-




17,597,804


Deferred tax provision (benefit)



1,824,055




(9,402,844)


Changes in operating assets and liabilities









Accounts receivable



784,850




572,975


Inventories



331,036,274




(204,138,326)


Other current assets and prepaid expenses



(157,286)




587,453


Value added tax recoverable



76,550,155




(66,550,772)


Other payables and accrued expenses



1,251,498




5,063,398


Customer deposits



(82,602)




-


Income tax payable



2,939,193




5,218,082


Other taxes payable



(77,119)




123,225


Net cash provided by (used in) operating activities



446,251,148




(257,032,435)











CASH FLOWS FROM INVESTING ACTIVITIES









Purchases of property and equipment



(453,522)




(1,141,219)


Investments in gold



-




(270,889,242)


Net cash used in investing activities



(453,522)




(272,030,461)











CASH FLOWS FROM FINANCING ACTIVITIES









Proceeds from other loans – short term



-




29,090,063


Repayments of other loans – short term



(301,624,503)




(72,870,607)


Proceeds from other loans – long term



240,479,892




95,997,207


Repayments of other loans – long term



-




(101,815,220)


Proceeds from related party loans – short term



-




290,900,628


Repayments of related party loans – short term



(235,549,065)




-


Proceeds from related party loans – long term



334,479,672




690,888,992


Repayments of related party loans – long term



(484,255,723)




(415,987,899)


Payments of loan origination fees



(309,511)




(1,998,723)


Repayment of third party loans



-




(29,090,063)


(Repayment of) borrowings from related party



800,793




(3,988,513)


Net cash provided by (used in) financing activities



(445,978,445)




481,125,865











EFFECT OF EXCHANGE RATES ON CASH AND RESTRICTED CASH



(2,937,126)




1,732,785


NET DECREASE IN CASH AND RESTRICTED CASH



(3,117,945)




(46,204,246)


CASH AND RESTRICTED CASH, BEGINNING OF PERIOD



17,924,397




81,677,623


CASH AND RESTRICTED CASH, END OF PERIOD


$

14,806,452



$

35,473,377











SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION









Cash paid for interest expense


$

81,761,918



$

56,674,744


Cash paid for income tax


$

4,487,402



$

-











NON-CASH INVESTING AND FINANCING ACTIVITIES









Investments in gold obtained in a lease from a related party and fully repaid


$

-



$

131,117,303


Investments in gold transferred to inventories


$

389,112,590



$

180,786,694


Unrealized gain (loss) on investments in gold, net of tax


$

(37,973,323)



$

48,861,337


 

 

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SOURCE Kingold Jewelry, Inc.

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