I want to thank all of Kingold's customers and shareholders for your continued support over the past year, which has been monumental for the Company. I would like to take this opportunity not only to provide you with some of our recent developments and milestones, but also to provide details for our 2017 plans that I hope will answer many questions and validate your long term investment in our Company. My goal is to release a letter twice a year, including every December, as a thorough measure of addressing the current year's activities, while also setting the expectations for the coming year.
Review of Kingold's Accomplishments in 2016
We achieved strong financial and operating results throughout 2016, highlighted by growth in demand for our 24-karat gold jewelry products that exceeded our expectations. We recently raised our annual guidance as a result of this demand to processing between 60 and 65 metric tons, compared with earlier guidance of between 50 and 60 metric tons. The Company achieved this as a result of continued expansion of many of the core tenets that led to the formation of Kingold, including the dominance of 24-karat gold and its role as both a luxury item and as a savings proxy and the continued urbanization of the Chinese population.
We have grown to understand the changing nature of our customer base, which is predominantly retail establishments and wholesale distributors. Distributors and retailers have come to rely on our highly intricate designs to meet very specific customer requests, as well as our ability to deliver these products in a timely fashion. We have long-standing relationships that marry our expertise in gold-jewelry design with the ever-evolving needs of our end customers.
During 2016, we also completed the sale our interest in the Shanghai Creative Industry Park, or the Kingold Jewelry Cultural Industry Park (the "Jewelry Park") to Wuhan Lianfuda Investment Management Co., Ltd. ("Wuhan Lianfuda") for RMB 1.14 billion (approximately US $171 million). We know the principles behind Wuhan Lianfuda very well and share their vision for the long-term potential of the Jewelry Park. We originally conceived the idea of the Jewelry Park as a method of expanding Kingold's exposure throughout China's growing jewelry market. We wanted to create a one-stop shop for all businesses in the industry to see as a central hub throughout the country, and simultaneously create a destination spot for customers. Over the course of three years, we expended a considerable amount of resources and time to move the project from inception to completion. As we got into this, we appreciated gold industry as our core business more and more and sale of the Jewelry Park was a way to return to our core business. We were ultimately pleased to sell the property at a time that was favorable from a return on investment perspective, but also furthered our ultimate goal to see the Jewelry Park develop into the special destination we all envisioned. We are excited to benefit from our role in creating this active market that truly will serve as a bridge between upstream and downstream jewelry companies.
The ancillary benefit of our work on the Jewelry Park was that it greatly enhanced Kingold's exposure across the entire industry. As we move into 2017, we are dedicated to leveraging this increased exposure and focusing our capital and personal resources on expanding our core jewelry design and manufacturing business.
Operational Plans in 2017 - Development of Gold Jewelry Manufacturing Business
Since Kingold began trading as a public company in 2010, we have achieved continued growth in the amount of gold the Company processes. Our business model is not complex: we derive our revenue from the sales of 24-karat jewelry and Chinese ornaments and from design and processing fees we receive from other jewelry companies that hire us and supply us with the gold to design and produce 24-karat jewelry and Chinese ornaments. These are a mix of rings, necklaces, pendants, earrings, bracelets, and range in complexity from very simple bands or chains to highly intricate designs. Some investors have inquired about potential scale, and how our business could continue to grow at a reasonable rate given that we do pride ourselves on the unique nature of our products. This is one of our Company's biggest challenges, that is balancing the need to generate favorable margins by providing a higher level of detail on certain projects while also utilizing our operational leverage to increase volume production.
Kingold benefits from a senior group of designers who manage this process, and we rely on these individuals to meet our customers' demands and expectations. We are diligent in researching and developing new designs that we believe will fit the needs of our customers, and benefit from years of testing, launching, successes, and in some cases failure. How do you grow metric tons year over year while still maintaining that balance? It is a mix of experience, culture, and capacity. We have a large-scale production base that includes a 74,933 square foot factory, a dedicated design, sales, and marketing team, and trained employees. We have received ISO 9001 accreditation from the International Organization for Standardization attesting to our quality control systems. Our production lines include automated jewelry processing equipment and procedures that we can rapidly modify to accommodate new designs and styles.
In 2017, we expect to continue to maintain a balance between the branded products where the Company acquires gold from the Shanghai Gold Exchange, and customized production where clients supply gold to the Company for processing products that they have commissioned. We generally have found that we can shift the balance based on a number of factors, including customer demand and fluctuations in gold prices. Our accounts receivables are very low as a result of operating in predominantly a cash business, and Kingold's net cash from operating activities can fluctuate due to changes in our gold inventories.
How do we think about inventory management? As we have said for years, our goal is not to act as a commodity-driven company. We want to be paid as a designer and processor of gold jewelry products, and our inventory balances are largely driven by customer orders and timing that require flexibility. While we do try to take advantage in the short-term as we purchase inventory in advance of orders that are pending delivery, we work to try and do so with a margin of safety so that Kingold's commodity risk is minimized. In 2017, the entirety of our focus will be on continuing to refine our processes and continue to improve.
Experience of Management / Business Relationships
We believe that one of Kingold's core strengths is our considerable experience and continuity of upper management and a diverse Board of Directors. We have a group of professionals who are experienced not only in our specific jewelry business but also throughout all facets of business. We have also worked to maintain a diverse group of Board members to ensure Kingold benefits from a well-rounded perspective on the long-term growth strategy of the business.
A recent item highlighted by a potential investor was a general questioning about our managements' business dealings outside of Kingold and their relation with each other. This includes my involvement in other investments. It is very important to note that my day-to-day activities and focus are entirely on the development and continuing progression of Kingold's business. I also feel very strongly about driving the long-term health of the jewelry industry in China. Our mission has been to grow at some point beyond simply being a well-respected manufacturer in China into a globally recognized company in the jewelry industry. It is what drives our people on a day-to-day basis.
I do invest in businesses outside of Kingold. I do not believe this is different from any other party involved in business generally. In a recent story written about Kingold, there were several loosely substantiated innuendos that the Company was utilizing Kingold's balance sheet as a tool for exploring different investment opportunities. This is not the case. We have remained and will continue to remain transparent in our filings as to all of our financial activities. We have spent a considerable time operating as a public entity in disclosing transactions that have a material impact on our financial results. We are always willing to listen to investors' opinions about ways to improve this communication, and one of our principal goals in the coming year will be to further investors' understanding of our business model, capabilities, and company relationships.
Capital Market Activities in 2017
Despite the accomplishments of our Company in recent years, we believe that the public market does not fully value the strength of our operations or our position in the jewelry industry marketplace. Many investors have explained to us that Kingold's biggest challenge is not in its operations, but in its consistency in communicating its plans and business model to investors. We have generally taken the approach that our focus must remain on enhancing our operations and the capital markets will eventually grow to understand our model and value the Company appropriately. However, we understand that to fully garner the trust and attention of investors in the United States we must improve our investor communication strategy. Periods of silence leads to speculation, which in turn leads to negative reports on our business, and ultimately, damages our reputation globally.
We expect to expand our outreach efforts to the investor community in 2017.
Specifically, we expect to re-commence quarterly conference calls throughout the year. We will continue to maintain a consistent schedule of conference calls after close of the stock market after periodic filings throughout 2017.
Personally, I have received a number of requests to host investor meetings in the United States in recent quarters. We have been very welcoming to any investor willing to travel to meet with us here at our headquarters in Wuhan, China. I greatly enjoy those visits. I certainly am more comfortable hosting a tour of our facilities so investors can fully appreciate our business than struggling through translated discussions of our gross margins in a New York conference room where I am not speaking in my native language (this letter in of itself was a fun process). However, I certainly understand that new and existing investors will gain comfort from us being proactive in visiting and updating everyone on the current status of operations.
Our management team is committed to hosting a roadshow in the United States by May 2017 and will also commit to another in the fall. We expect to continue these stateside visits with investors in the years ahead.
We also have other goals in relation to communications, such as improving our website to better provide resource for investors to gather necessary information as part of their diligence on our Company. And finally, we intend to have two periods of communicating our strategy and philosophy to investors through the letters to shareholders. These letters include one as part of the Annual Meeting and the other in December each year. As always, we welcome any feedback or suggestions from investors.
We continue to operate in an industry that is always changing, and Kingold must evolve to meet the needs of the market. The Company has a strong track record of earnings progression and we recognize that one of the key areas of improvement for our team will be to better communicate the various aspects of our business to investors.
On behalf of our board of directors, management team, and over 550 employees, we thank you for your investment in our company and your continued interest in Kingold.
Mr. Zhihong Jia,
Chairman and CEO
For a current review of the Company and a copy of this letter, management invites you to access it at the Company's website www.kingoldjewelry.com.
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. 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.
Bin Liu, CFO
Phone: +1-847-660-3498 (US) / +86-27-6569-4977 (China)
The Equity Group Inc.
Katherine Yao, Senior Associate
Phone: +86 10-6587-6435
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SOURCE Kingold Jewelry, Inc.