Attached files
Exhibit 99.1
Kingold Jewelry Reports Financial Results for the Third Quarter and Nine Months Ended September 30, 2018
Company to Hold Conference Call with Accompanying Slide Presentation at 8:30 a.m. E.T. on November 15, 2018
WUHAN CITY, China, November 14, 2018 - 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 third quarter and nine months ended September 30, 2018.
2018 Third Quarter Financial Highlights
| · | Net sales were approximately $626.2 million, an increase of 7.1% from approximately $584.5 million in the same period of 2017 |
| · | Processed a total of 29.6 metric tons of 24-karat gold products, compared to 30.1 metric tons in the third quarter of 2017 |
| · | Net income was approximately $13.2 million, or $0.20 per diluted share, compared to net income of approximately $29.0 million, or $0.44 per diluted share in the same period of 2017 |
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 continue to deliver relatively strong operating results in the third quarter of 2018, despite the challenges from the uncertainty of the rapid changing market along with the RMB depreciation during the quarter. Recent challenging business environment in China has brought lots of pressure on us. Demand for gold has been slowing down in the wake of monetary tighten-up. Kingold is committed to continuous innovations even during the challenging times and believe it is the foundation of the company's long-term development.”
2018 THIRD QUARTER AND NINE MONTHS OPERATIONAL REVIEW
Metric Tons of Gold Processed
Three Months Ended:
| September 30, 2018 | September 30, 2017 | |||||||||||||||
| Volume | % of Total | Volume | % of Total | |||||||||||||
| Branded* | 16.6 | 56.1 | % | 14.6 | 48.6 | % | ||||||||||
| Customized** | 13.0 | 43.9 | % | 15.5 | 51.4 | % | ||||||||||
| Total | 29.6 | 100.0 | % | 30.1 | 100 | % | ||||||||||
| Nine Months Ended: | ||||||||||||||||
| September 30, 2018 | September 30, 2017 | |||||||||||||||
| Volume | % of Total | Volume | % of Total | |||||||||||||
| Branded* | 46.5 | 57.7 | % | 34.7 | 48.1 | % | ||||||||||
| Customized** | 34.0 | 42.3 | % | 37.5 | 51.9 | % | ||||||||||
| Total | 80.5 | 100.0 | % | 72.2 | 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 September 30, 2018, the Company processed a total of 29.6 metric tons of gold, of which branded production was 16.6 metric tons, representing 56.1% of total gold processed, and customized production was 13.0 metric tons, representing 43.9% of total gold processed in the third quarter of 2018. In the third quarter of 2017, the Company processed a total of 30.1 metric tons, of which branded production was 14.6 metric tons, or 48.6% of the total gold processed, and customized production was 15.5 metric tons, or 51.4% of total gold processed.
Kingold Jewelry, Inc.
November 14, 2018
For the nine months ended September 30, 2018, the Company processed a total of 80.5 metric tons of gold, of which branded production was 46.5 metric tons, representing 57.7% of total gold processed, and customized production was 34.0 metric tons, representing 42.3% of total gold processed in the first nine months of 2018. In the first nine months of 2017, the Company processed a total of 72.2 metric tons, of which branded production was 34.7 metric tons, or 48.1% of the total gold processed, and customized production was 37.5 metric tons, or 51.9% of total gold processed.
CONSOLIDATED FINANCIAL AND OPERATING REVIEW
Net Sales
Net sales for the three months ended September 30, 2018 were approximately $626.2 million, increased by 7.1% from approximately $584.5 million for the same period in 2017. The increase in net sales was mainly due to higher sales volume of branded production sales.
For the first nine months ended September 30, 2018, the Company's net sales were approximately $1,844.5 million, increased by 36.4% from approximately $1,352.7 million in the first nine months of 2017. The increase in net sales was due to the same reason described above.
Gross Profit
Gross profit for the three months ended September 30, 2018 was approximately $61.2 million, decreased by 22.1% from approximately $78.6 million for the same period in 2017.
For the nine months ended September 30, 2018, the Company's gross profit was approximately $189.3 million, increased by 31.9% from approximately $143.5 million in the same period of 2017.
Gross Margin
The Company’s gross margin was 9.8% for the three months ended September 30, 2018, compared to 13.4% in the prior year period.
The decrease in gross margin was mainly due to the decreased average selling price of branded production, compensated by decreased unit cost of branded production during the three months ended September 30, 2018. The average selling price of branded production was RMB 250.77 per gram for the three months ended September 30, 2018, decreased by RMB 10.14 or 3.9%, from RMB 260.91 per gram for the same period in 2017. The unit cost of branded production sales was RMB 230.86 per gram for the three months ended September 30, 2018, decreased by RMB 16.95 or 6.8%, from RMB 247.81 per gram for the same period in 2017. The decrease of the both average selling price and unit cost of branded production was mainly due to the weak gold price in 2018.
For the nine months ended September 30, 2018, the Company's gross margin was 10.3%, compared to 10.6% in the first nine months of 2017.
The slightly decrease in gross margin was mainly due to the decrease of average selling price of our branded production exceeded the decrease in unit cost of branded production sales during the nine months ended September 30, 2018. The average selling price of branded production was RMB 253.45 per gram for the nine months ended September 30, 2018, decreased by RMB 5.00 or 1.9% from RMB 258.45 per gram for the same period in 2017. The unit cost of branded production sales was RMB 231.78 per gram for the nine months ended September 30, 2018, decreased by RMB 4.94 or 2.1% from RMB 236.72 per gram for the same period in 2017.
Net Income
Net income for the three months ended September 30, 2018 was approximately $13.2 million, or $0.20 per diluted share based on 66.1 million weighted average diluted shares outstanding, compared to net income of approximately $29.0 million in the prior year period, or $0.44 per diluted share based on 66.5 million weighted average diluted shares outstanding in the prior year period.
For the nine months ended September 30, 2018, the Company's net income was approximately $40.0 million, or $0.60 per diluted share based on 66.3 million weighted average diluted shares outstanding, compared to net income of approximately $15.7 million, or $0.24 per diluted share based on 66.3 million weighted average diluted shares outstanding in the same period of 2017.
Kingold Jewelry, Inc.
November 14, 2018
Balance Sheet Highlights (USD in Millions)
| 9/30/2018 | 12/31/2017 | Percentage Change | ||||||||||
| Cash | $ | 13.2 | $ | 5.0 | 164 | % | ||||||
| Inventories | $ | 147.3 | $ | 135.0 | 9.1 | % | ||||||
| Working Capital (Current Assets — Current Liabilities) | $ | 623.6 | $ | 768.3 | (18.8 | )% | ||||||
| Stockholders’ Equity | $ | 354.3 | $ | 390.2 | (9.2 | )% | ||||||
Net cash provided by operating activities was approximately $461.4 million for the nine months ended September 30, 2018, compared with approximately $145.6 million of net cash used in operating activities for the same period in 2017. The net cash provided by operating activities was mainly due to net income of approximately $40.0 million for the nine months ended September 30, 2018, the decrease in inventory purchased of $321 million because $557.9 million of gold for investment was released to inventory and processed during the nine months ended September 30, 2018, collections from value added tax receivables of $84.6 million, an increase in income tax payable of $0.7 million and an increase in other payables and accrued liabilities of $1.0 million.
Kingold’s net cash from operating activities can fluctuate significantly due to changes in our inventories. Other factors that may vary significantly include our accounts payable, purchases of gold and income taxes. The Company expects the net cash generated 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. These fluctuations could cause net cash from operating activities to decrease, even if the net income grows as Kingold continues to expand. Although the Company expect that net cash from operating activities will increase over the long term, but cannot predict how these fluctuations will affect the cash flow in any particular quarter.
OUTLOOK FOR 2018
Based on its existing resources and capacity along with expected relatively strong demand for 24-karat gold products in the fourth quarter of 2018 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 November 15, 2018 at 8:30 a.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: https://78449.themediaframe.com/dataconf/productusers/kgji/mediaframe/26970/indexl.html.
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.
Kingold Jewelry, Inc.
November 14, 2018
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.
November 14, 2018
KINGOLD JEWELRY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN US DOLLARS)
(UNAUDITED)
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| NET SALES | $ | 626,171,072 | $ | 584,511,639 | $ | 1,844,491,390 | $ | 1,352,666,916 | ||||||||
| COST OF SALES | ||||||||||||||||
| Cost of sales | (564,685,762 | ) | (505,608,405 | ) | (1,654,427,318 | ) | (1,208,376,017 | ) | ||||||||
| Depreciation | (255,546 | ) | (300,716 | ) | (801,384 | ) | (806,047 | ) | ||||||||
| Total cost of sales | (564,941,308 | ) | (505,909,121 | ) | (1,655,228,702 | ) | (1,209,182,064 | ) | ||||||||
| GROSS PROFIT | 61,229,764 | 78,602,518 | 189,262,688 | 143,484,852 | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Selling, general and administrative expenses | 2,487,346 | 3,779,728 | 7,597,545 | 10,546,253 | ||||||||||||
| Stock compensation expenses | 5,364 | 5,364 | 16,092 | 27,650 | ||||||||||||
| Depreciation | 146,475 | 135,442 | 406,962 | 367,112 | ||||||||||||
| Amortization | 2,767 | 2,832 | 8,703 | 8,330 | ||||||||||||
| Total operating expenses | 2,641,952 | 3,923,366 | 8,029,302 | 10,949,345 | ||||||||||||
| INCOME FROM OPERATIONS | 58,587,812 | 74,679,152 | 181,233,386 | 132,535,507 | ||||||||||||
| OTHER INCOME (EXPENSES) | ||||||||||||||||
| Other Income | 64,433 | 661 | 64,433 | 66,158 | ||||||||||||
| Interest Income | 562,294 | 633,617 | 1,384,438 | 1,824,924 | ||||||||||||
| Interest expense, including amortization of debt issuance costs of $3,482,031 and $1,347,832 for the three months, and $8,042,451 and $7,751,818 for the nine months ended September 30, 2018 and 2017, respectively | (41,479,730 | ) | (36,585,321 | ) | (128,898,077 | ) | (113,155,443 | ) | ||||||||
| Total other expenses, net | (40,853,003 | ) | (35,951,043 | ) | (127,449,206 | ) | (111,264,361 | ) | ||||||||
| INCOME FROM OPERATIONS BEFORE TAXES | 17,734,809 | 38,728,109 | 53,784,180 | 21,271,146 | ||||||||||||
| INCOME TAX PROVISION (BENEFIT) | ||||||||||||||||
| Current | 1,787,717 | 7,778,520 | 9,214,312 | 12,996,602 | ||||||||||||
| Deferred | 2,699,588 | 1,962,539 | 4,523,643 | (7,440,305 | ) | |||||||||||
| Total income tax provision | 4,487,305 | 9,741,059 | 13,737,955 | 5,556,297 | ||||||||||||
| NET INCOME | 13,247,504 | 28,987,050 | 40,046,225 | 15,714,849 | ||||||||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
| Unrealized gain (loss) related to investments in gold, net of tax | $ | (18,935,552 | ) | $ | 27,074,547 | $ | (56,908,875 | ) | $ | 75,935,884 | ||||||
| Foreign currency translation gains (loss) | (13,077,661 | ) | 4,455,163 | (19,080,264 | ) | 12,817,501 | ||||||||||
| Total Other comprehensive income (loss) | $ | (32,013,213 | ) | $ | 31,529,710 | $ | (75,989,139 | ) | $ | 88,753,385 | ||||||
| COMPREHENSIVE INCOME (LOSS) | $ | (18,765,709 | ) | $ | 60,516,760 | $ | (35,942,914 | ) | $ | 104,468,234 | ||||||
| Earnings per share | ||||||||||||||||
| Basic | $ | 0.20 | $ | 0.44 | $ | 0.61 | $ | 0.24 | ||||||||
| Diluted | $ | 0.20 | $ | 0.44 | $ | 0.60 | $ | 0.24 | ||||||||
| Weighted average number of shares | ||||||||||||||||
| Basic | 66,113,502 | 66,049,726 | 66,113,502 | 66,029,266 | ||||||||||||
| Diluted | 66,121,121 | 66,484,717 | 66,311,149 | 66,337,069 | ||||||||||||
Kingold Jewelry, Inc.
November 14, 2018
KINGOLD JEWELRY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN US DOLLARS)
(UNAUDITED)
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| ASSETS | ||||||||
| Cash | $ | 13,245,436 | $ | 4,997,125 | ||||
| Restricted cash | 6,567,855 | 5,534,551 | ||||||
| Accounts receivable | 198,214 | 768,167 | ||||||
| Inventories | 147,264,405 | 135,042,713 | ||||||
| Investments in gold | 922,084,336 | 1,562,943,153 | ||||||
| Other current assets and prepaid expenses | 808,809 | 100,592 | ||||||
| Value added tax recoverable | 254,820,263 | 353,732,758 | ||||||
| Total current assets | 1,344,989,318 | 2,063,119,059 | ||||||
| Property and equipment, net | 5,903,782 | 7,299,643 | ||||||
| Restricted cash | 8,927,100 | 7,392,721 | ||||||
| Investments in gold | 1,071,005,836 | 957,124,267 | ||||||
| Other assets | 286,155 | 302,072 | ||||||
| Deferred income tax assets | 22,054,343 | 6,677,675 | ||||||
| Land use right | 399,007 | 429,915 | ||||||
| Total long-term assets | 1,108,576,223 | 979,226,293 | ||||||
| TOTAL ASSETS | $ | 2,453,565,541 | $ | 3,042,345,352 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Short term loans | $ | 621,518,946 | $ | 962,101,746 | ||||
| Other payables and accrued expenses | 18,845,062 | 18,913,863 | ||||||
| Related party loan | 72,798,218 | 307,389,647 | ||||||
| Due to related party | 3,592,726 | 2,630,301 | ||||||
| Income tax payable | 1,855,002 | 1,208,742 | ||||||
| Other taxes payable | 2,818,412 | 2,615,463 | ||||||
| Total current liabilities | 721,428,366 | 1,294,859,762 | ||||||
| Related party loans | 451,657,343 | 567,843,066 | ||||||
| Long term loans | 926,174,267 | 789,410,137 | ||||||
| TOTAL LIABILITIES | 2,099,259,976 | 2,652,112,965 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| EQUITY | ||||||||
| Preferred stock, $0.001 par value, 500,000 shares authorized, none issued or outstanding as of September 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 September 30, 2018 and December 31, 2017 | 66,113 | 66,113 | ||||||
| Additional paid-in capital | 80,393,541 | 80,377,449 | ||||||
| Retained earnings | ||||||||
| Unappropriated | 343,712,836 | 303,666,611 | ||||||
| Appropriated | 967,543 | 967,543 | ||||||
| Accumulated other comprehensive income (loss), net of tax | (70,834,468 | ) | 5,154,671 | |||||
| Total Equity | 354,305,565 | 390,232,387 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,453,565,541 | $ | 3,042,345,352 | ||||
Kingold Jewelry, Inc.
November 14, 2018
KINGOLD JEWELRY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN US DOLLARS)
(UNAUDITED)
| For the nine months ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | 40,046,225 | $ | 15,714,849 | ||||
| Adjustments to reconcile net income to cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 1,208,346 | 1,173,159 | ||||||
| Amortization of intangible assets | 8,703 | 8,330 | ||||||
| Amortization of debt issuance costs included in interest expense | 8,042,451 | 7,751,818 | ||||||
| Share based compensation for services and warrants expense | 16,092 | 27,650 | ||||||
| Inventory valuation allowance | - | - | ||||||
| Deferred tax provision (benefit) | 4,523,643 | (7,440,305 | ) | |||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | 558,165 | 647,049 | ||||||
| Inventories | 321,200,297 | (119,627,463 | ) | |||||
| Other current assets and prepaid expenses | (752,148 | ) | 185,892 | |||||
| Value added tax recoverable | 84,623,088 | (56,530,224 | ) | |||||
| Other payables and accrued expenses | 961,903 | 4,331,048 | ||||||
| Customer deposits | (192,313 | ) | - | |||||
| Income tax payable | 748,416 | 7,725,853 | ||||||
| Other taxes payable | 359,224 | 482,337 | ||||||
| Net cash provided by (used in) operating activities | 461,352,092 | (145,550,007 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of property and equipment | (491,136 | ) | (1,551,847 | ) | ||||
| Investments in gold | - | (358,279,503 | ) | |||||
| Net cash used in investing activities | (491,136 | ) | (359,831,350 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from other loans – short term | - | 169,103,063 | ||||||
| Repayments of other loans – short term | (554,840,248 | ) | (147,212,224 | ) | ||||
| Proceeds from other loans – long term | 435,804,951 | 96,966,135 | ||||||
| Repayments of other loans – long term | - | (102,695,952 | ) | |||||
| Proceeds from related party loans – short term | - | 293,836,774 | ||||||
| Repayments of related party loans – short term | (230,227,311 | ) | - | |||||
| Proceeds from related party loans – long term | 443,110,831 | 771,321,531 | ||||||
| Repayments of related party loans – long term | (534,050,005 | ) | (609,711,305 | ) | ||||
| Payments of loan origination fees | (6,578,966 | ) | (4,114,687 | ) | ||||
| Repayment of third party loans | - | (29,383,677 | ) | |||||
| (Repayment of) borrowings from related party | 965,643 | (5,212,812 | ) | |||||
| Proceeds from exercise of warrants | - | 113,562 | ||||||
| Net cash provided by (used in) financing activities | (445,815,105 | ) | 433,010,408 | |||||
| EFFECT OF EXCHANGE RATES ON CASH AND RESTRICTED CASH | (4,229,857 | ) | 2,619,437 | |||||
| NET INCREASE DECREASE IN CASH AND RESTRICTED CASH | 10,815,994 | (69,751,512 | ) | |||||
| CASH AND RESTRICTED CASH, BEGINNING OF PERIOD | 17,924,397 | 81,677,623 | ||||||
| CASH AND RESTRICTED CASH, END OF PERIOD | $ | 28,740,391 | $ | 11,926,111 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for interest expense | $ | 120,133,935 | $ | 92,580,544 | ||||
| Cash paid for income tax | $ | 8,465,896 | $ | 5,270,750 | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Investments in gold obtained in a lease from a related party and fully repaid | $ | - | $ | 132,748,925 | ||||
| Investments in gold transferred to inventories | $ | 557,866,549 | $ | 350,761,730 | ||||
| Unrealized gain (loss) on investments in gold, net of tax | $ | (56,908,875 | ) | $ | 75,935,884 | |||