Kingold Jewelry Reports 2013 Second Quarter Financial Results

Company to Hold Conference Call with Accompanying Slide Presentation on August 14, 2013, at 8:30 a.m. ET

Aug 13, 2013, 16:05 ET from Kingold Jewelry, Inc.

WUHAN, China, Aug. 13, 2013 /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 financial results for its second quarter and six months ended June 30, 2013.

2013 Second Quarter Financial and Operating Highlights (Comparisons are to 2012 Second Quarter):

  • Net sales increased 36.7% to $367.0 million compared to $268.5 million, largely as a result of increased production due to higher demand.
  • Processed 15.2 metric tons [one metric ton = 35,274 ounces] of 24-karat gold products compared to 11.8 metric tons.
  • As a result of lower gold prices, the Company incurred a $2.4 million write-down on the value of its inventory.
  • Gross profit decreased to $11.1 million compared to $15.0 million, and gross margin was 3.0% compared to 5.6%, largely as a result of this write-down in inventory.
  • Net income attributable to common shareholders was $6.3 million, or $0.10 per diluted share, compared to $9.6 million, or $0.18 per diluted share.
  • Book value per diluted share of $2.99 at June 30, 2013 compared to $2.97 at December 31, 2012.

Company Reiterates Guidance for 2013 Due to Strong Demand in Second Quarter

  • During the quarter, the Company experienced an increase in demand for its jewelry and investment gold products as a result of the May 1st Chinese Labor Day Holiday and correction in the price of gold in April.
  • Kingold reiterates its expectation of processing between 50-60 metric tons of 24-karat gold products in 2013.  The Company processed 23.8 million metric tons through the first six months of 2013.

Management Comments

Mr. Zhihong Jia, Chairman and CEO of Kingold, stated, "We were pleased to report top-line growth and profitability despite changes in global gold pricing.  As reported previously, we were affected by the rapid changes in gold prices.  Our customers altered their buying patterns and delayed orders as a result of the extreme volatility in pricing.  We mitigated the impact on our operations by slowing down sales of products where we are not able to fix the price at the time of sale (such as our investment gold business and sales to certain jewelry customers) to avoid market risk and to preserve value.  We also wrote-down our inventory to reflect the change in market value.  We understand that Kingold is subject to commodity risk, however we remain focused on properly running our business through all market cycles.  We are pleased that from mid-to-late April and throughout the remainder of the second quarter we witnessed a surge in demand as prices stabilized, and as expected, saw increased demand for our products due to the May 1st Chinese Labor Day holiday.  We focused on providing quick turnaround to meet this demand, and have received a favorable response from our customer base.  Over the long-term, we think this will add tremendous value to our brand and customer loyalty, and ultimately continue to drive sales and profits in the future.  Further, we are benefiting from an improving balance sheet position, as noted by our increased cash, lower receivables, lower inventory, and increasing book value. We feel that our business is a sustainable and flexible model that can shift with changing market cycles that may create great difficulty for our smaller competitors." 

Operational Review

In the second quarter of 2013, Kingold processed a total of 15.2 metric tons of 24-karat gold products compared to 11.8 metric tons processed in the prior-year period.  The Company's net sales consisted primarily of sales of branded products to wholesale and retail customers, as well as fees generated from customized production (as detailed in the table below).  Of the 15.2 metric tons processed during the period, Kingold's branded production accounted for 8.5 metric tons (56.2%) and customized production accounted for 6.7 metric tons (43.8%).   

In the first half of 2013, the Company processed a total of 23.8 metric tons of gold, of which branded production accounted for 13.2 metric tons (55.3%) and the customized production accounted for 10.6 metric tons (44.7%).In the first half of 2012, Kingold processed a total of 20.6 metric tons of gold, of which branded production accounted for 10.1 metric tons (49.1%) and customized production accounted for 10.5 metric tons (50.9%).

Metric Tons of Gold Processed

Three Months Ended:

           June 30, 2013

              June 30, 2012

 Branded*

8.5

56.2%

5.6

47.2%

 Customized**

6.7

43.8%

6.2

52.8%

 Total

15.2

100%

11.8

100%

Six Months Ended:

          June 30, 2013

             June 30, 2012

 Branded*

13.2

55.3%

10.1

49.0%

 Customized**

10.6

44.7%

10.5

51.0%

 Total

23.8

100%

20.6

100%

* Branded Production: The Company purchases gold from the Shanghai Gold Exchange to produce branded products.

** Customized Production: Clients who purchase customized products supply gold to the Company for processing.

2013 Second Quarter Financial Review

  • Net sales for the three months ended June 30, 2013 was $367.0 million, an increase of $98.5 million, or 36.7%, compared to net sales of $268.5 million for the three months ended June 30, 2012. The increase in net sales was primarily driven by increased production of $124.4 million, offset by approximately $31.3 million due to the decrease in the price of gold.
  • Gross profit for the three months ended June 30, 2013 was $11.1 million, a decrease of $3.8 million, compared to $15.0 million for the same period in 2012.  Gross margin for the three months ended June 30, 2013 was 3.0% compared to 5.6% for the same period in 2012.  The decrease in gross profit and gross margin was primarily the result of a $2.4 million write-down of Kingold's gold inventory to current market prices, as well and the shift in product mix to increased branded production as compared to higher-margin customized production during the period.
  • Net income attributable to Kingold shareholders for the second quarter of 2013 was $6.3 million, or $0.10 per diluted share based on 64.3 million weighted average diluted shares outstanding, compared to net income of $9.6 million, or $0.18 per diluted share based on 54.6 million diluted shares outstanding, in the prior-year period.

Fiscal 2013 Six Month Financial Review

  • Net sales for the six months ended June 30, 2013 were $588.5 million, an increase of 19.3% from $493.5 million in the same period of the prior year.  The increase in net sales was primarily driven by increased production of $132.5 million, offset by approximately $43.5 million due to the decrease in the in the price of gold, with the remaining increase due to gains from exchange rate fluctuations.
  • Gross profit for the six months ended June 30, 2013 was $17.4 million, a decrease of $9.1 million, compared to $26.5 million in the prior-year period.  The Company's gross margin for the six months ended June 30, 2013 was 3.0% compared to 5.4% for the prior year period. The decrease in gross margin was primarily due to a $5.2 million write-down of inventory, as well as the shift in product mix to increased branded production as compared to higher-margin customized production during the period.
  • Net income attributable to Kingold shareholders for the six months ended June 30, 2013 was $9.4 million, or $0.15 per diluted share based on 62.7 million weighted average diluted shares outstanding, compared to net income of $16.9 million, or $0.31 per diluted share based on 54.4 million weighted average diluted shares outstanding, in the prior-year period.

Balance Sheet and Cash Flow

(in millions except for percentages)

6/30/2013

12/31/2012

% Change

Cash

$

5.7

$              2.5

128%

Inventories (gold)

163.2

150.0

8.2%

Working Capital

180.2

149.2

20.8%

Short-term debt

6.5

6.3

2.1%

Stockholders' Equity

192.2

161.5

19.0%

Kingold's net cash from operating activities can fluctuate significantly due to changes in inventories (principally gold).  Other factors that may vary significantly include the Company's purchases of gold and income taxes.  The Company expects that the net cash it generates from operating activities will continue to fluctuate as the Company's inventories, receivables, accounts payables, and the other factors described above change with increased production and the purchase of larger quantities of raw materials (principally gold).

Outlook for 2013

Kingold believes gold processed will be between 50 metric tons and 60 metric tons during 2013.  This guidance is based solely on current projected, organic growth, and would represent a 32.3% to 58.7% increase from the 37.8 metric tons processed in 2012.

Mr. Jia concluded, "Kingold is on track to produce its expected volume through 2013, largely as a result of a substantial increase in demand in the early weeks of the second quarter surrounding the May 1st Labor Day holiday in the PRC.   We are also looking into new methods of expanding our brand presence, including opening new showrooms for Kingold's own products.  In addition, we are steadily increasing the marketing of our investment gold products, while controlling this growth in light of changing gold prices.  Our goal throughout the first half of 2013 has been to continue developing our relationships with our customers, who we believe recognize the strength of a well-capitalized and organized company that can quickly handle their production needs throughout any cycle."

Conference Call Details

Kingold also announced that it will discuss financial results in a conference call on Wednesday, August 14, 2013, at 8:30 AM ET.

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/q2-2013

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, 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 and the Securities Exchange Act of 1934.  These include statements regarding the amount of gold to be processed in 2013, Kingold's ability to benefit from the recent stability in gold prices which will help fortify client relationships, Kingold's ability to withstand global pricing effects and gain market share from competitors that do not have such an advantage, consumer demand in China for gold, and fluctuations in net cash from operating activities.  Readers are cautioned that actual results could differ materially from those expressed in any forward-looking statements. In addition, please refer to the risk factors 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)

Email: bl@kingoldjewelry.com

INVESTOR RELATIONS

The Equity Group Inc.

Katherine Yao, Associate

Adam Prior, Senior Vice President

+86 10-6587-6435

(212) 836-9606

kyao@equityny.com

aprior@equityny.com

KINGOLD JEWELRY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(IN US DOLLARS)

(UNAUDITED)

 For the three months ended June 30,

For the six months ended June 30,

2013

2012

2013

2012

 

NET SALES

$

367,042,088

$

 

268,485,840

$

588,450,210

$

 

493,453,234

COST OF SALES

Cost of sales

(355,619,825)

(253,222,376)

(570,410,614)

(466,324,631)

Depreciation

(302,694)

(296,107)

(601,776)

(593,895)

Total cost of sales

(355,922,519)

(253,518,483)

(571,012,390)

(466,918,526)

GROSS PROFIT

11,119,569

14,967,357

17,437,820

26,534,708

OPERATING EXPENSES

Selling, general and administrative expenses

871,886

1,350,642

1,995,756

2,408,984

Stock compensation expenses

510,830

311,466

758,788

667,905

Depreciation

37,158

34,453

73,993

67,874

Amortization

3,045

2,979

6,054

5,975

Total Operating Expenses

1,422,919

1,699,540

2,834,591

3,150,738

INCOME FROM OPERATIONS

9,696,650

13,267,817

14,603,229

23,383,970

OTHER INCOME (EXPENSES)

Other Expense

-

(1,560)

-

(1,560)

Interest expense

(989,896)

(111,778)

(1,750,922)

(222,913)

Total Other Expenses, net

(989,896)

(113,338)

(1,750,922)

(224,473)

INCOME FROM OPERATIONS BEFORE TAXES

8,706,754

13,154,479

12,852,307

23,159,497

INCOME TAX PROVISION (BENEFIT)

Current

2,976,395

3,573,568

4,795,298

6,264,574

Deferred

(594,907)

-

(1,301,887)

-

TOTAL INCOME TAX PROVISION

2,381,488

3,573,568

3,493,411

6,264,574

NET INCOME

$

6,325,266

$

9,580,911

$

9,358,896

$

16,894,923

OTHER COMPREHENSIVE INCOME (LOSS)

Total foreign currency translation gains (loss)

$

2,539,475

$

(1,300,687)

$

3,502,015

$

(947,983)

COMPREHENSIVE INCOME

$

8,864,741

$

8,280,224

$

12,860,911

$

15,946,940

Earnings per share

Basic

$

0.10

$

0.18

$

0.15

$

0.32

Diluted

$

0.10

$

0.18

$

0.15

$

0.31

Weighted average number of shares

Basic

64,002,331

53,168,337

62,428,297

53,138,008

Diluted

64,253,053

54,579,029

62,727,247

54,383,690

 

KINGOLD JEWELRY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN US DOLLARS)

(UNAUDITED)

June 30,

December 31,

2013

2012

ASSETS

CURRENT ASSETS

Cash

$

5,692,140

$

2,544,114

Restricted cash

2,559,514

-

Accounts receivable

-

692,762

Inventories

163,232,062

150,041,421

Other current assets and prepaid expenses

8,562,286

133,539

Value added tax recoverable

10,526,400

7,031,374

Deferred income tax assets

1,315,157

-

Total Current Assets

191,887,559

160,443,210

PROPERTY AND EQUIPMENT, NET

11,288,112

11,683,987

OTHER ASSETS

Other assets

156,196

153,029

Intangible assets, net

507,612

503,313

Total other assets

663,808

656,342

TOTAL ASSETS

$

203,839,479

$

172,783,539

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Short term loans

$

6,471,758

$

6,340,551

Other payables and accrued expenses

1,412,843

1,445,513

Related party loans

359,753

209,890

Income tax payable

2,995,638

2,587,680

Other taxes payable

417,872

659,989

Total Current Liabilities

11,657,864

11,243,623

COMMITMENTS AND CONTINGENCIES

-

-

EQUITY

Preferred stock, $0.001 par value, 500,000 shares

authorized, none issued or outstanding

as of June 30, 2013 and December 31, 2012

-

-

Common stock $0.001 par value, 100,000,000 shares

authorized, 64,294,216 and 54,521,140 shares issued and outstanding

as of June 30, 2013 and December 31, 2012

64,294

54,521

Additional paid-in capital

75,427,689

57,656,674

Retained earnings

  Unappropriated

101,965,345

92,606,449

  Appropriated

967,543

967,543

Accumulated other comprehensive income

13,756,744

10,254,729

Total Equity

192,181,615

161,539,916

TOTAL LIABILITIES AND EQUITY

$

203,839,479

$

172,783,539

KINGOLD JEWELRY, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(IN US DOLLARS)

(UNAUDITED)

For the Six months ended June 30,

2013

2012

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

9,358,896

$

16,894,923

Adjusted to reconcile net income to cash used in

operating activities:

Depreciation

675,769

661,769

Amortization of intangible assets

6,054

5,975

Share based compensation

758,788

667,905

Inventory valuation allowance

5,207,547

-

Deferred tax provision (benefit)

(1,301,887)

-

Changes in operating assets and liabilities

(Increase) decrease in:

Accounts receivable

699,963

438,129

Inventories

(15,191,547)

(22,277,149)

Other current assets and prepaid expenses

(8,414,355)

(73,432)

Value added tax recoverable

(3,315,726)

(3,399,771)

Increase (decrease) in:

Other payables and accrued expenses

36,309

200,238

Income tax payable

350,834

2,134,041

Other taxes payable

(253,195)

(243,627)

Net cash provided (used in) operating activities

(11,382,550)

(4,991,000)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment

(44,545)

(149,381)

Net cash( used in) investing activities

(44,545)

(149,381)

CASH FLOWS FROM FINANCING ACTIVITIES

Restricted cash

(2,533,688)

-

Proceeds from related party loans

59,948

-

Net proceeds from stock issuance

12,522,000

-

Net proceeds from exercise of warrants

4,500,000

-

Net cash provided by financing activities

14,548,260

-

EFFECT OF EXCHANGE RATES ON CASH & CASH EQUIVALENTS

26,861

78,530

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

3,148,026

(5,061,851)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

2,544,114

8,810,173

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

5,692,140

$

3,748,322

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Cash paid for interest expense

$

2,640,896

$

229,054

Cash paid for income tax

$

4,444,464

$

4,129,700

SOURCE Kingold Jewelry, Inc.



RELATED LINKS

http://www.kingoldjewelry.com