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| 8-K - KINGOLD JEWELRY, INC. | v221747_8-k.htm |
EXHIBIT 99.1
Kingold Jewelry, Inc. Reports Record First Quarter 2011 Results
-- Launches New Line of 24-Karat Gold Investment Oriented Products --
WUHAN CITY, CHINA, May 10, 2011 – Kingold Jewelry, Inc. (“Kingold” or the “Company”) (NASDAQ: KGJI), one of China’s leading manufacturers and designers of 24-karat gold jewelry and ornaments, today announced financial results for the first quarter ended March 31, 2011.
First Quarter 2011 Highlights
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Revenue increased 160.6% to $157.7 million from $60.5 million in first quarter 2010
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Gross profit rose 49.0% to $9.0 million from $6.0 million in first quarter 2010
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Net income attributable to common stockholders grew 34.0% to $5.3 million, or $0.11 per diluted share, from $3.9 million, or $0.09 per diluted share, in first quarter 2010
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In February 2011, Kingold entered into an agreement with China Merchants Bank Limited to manufacture 24-karat gold investment oriented products for resale by China Merchants Bank to customers throughout its retail banking network across China.
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In March 2011, Kingold entered into an agreement with Bank of Communications Co. Limited to manufacture 24-karat gold investment oriented products for resale by Bank of Communications to customers throughout its retail bank network in Hubei Province.
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“This quarter we continued to achieve robust organic revenue and earnings growth, while making significant progress in our strategy to build a new line of 24-karat gold investment-oriented products,” said Mr. Zhihong Jia, Kingold's Chairman and CEO. “We have reached agreements to supply gold coins, bars and other products to two of China’s leading financial institutions, positioning Kingold well for accelerating growth as we move into the seasonally strong second half of the year. We continue to see healthy demand for our traditional jewelry and ornament products and above average performance from our proprietary Mgold jewelry line, reinforcing our optimism for 2011.”
Subsequent Events
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In April 2011, the Company opened a new showroom and distribution center in Shenzhen, a major jewelry hub in Southern China’s Guangdong Province.
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First Quarter 2011 Results
First quarter 2011 revenue increased 160.6% to $157.7 million from $60.5 million for the same period of 2010. Of the $97.2 million year-over-year revenue increase, approximately $84 million was due to higher volume and approximately $13 million was attributable to higher gold prices. In the first quarter of 2011, the Company produced 7.52 metric tons of 24-karat gold products compared to 5.95 metric tons in the same period of 2010. The year-over-year increase in first quarter 2011 revenue reflects higher sales to existing customers as well as incremental sales to new regional jewelry wholesalers and expanded geographic coverage in China.
First quarter 2011 gross profit grew to $9.0 million, up 49.0% from $6.0 million for the same period of 2010. Gross margin declined to 5.7% in first quarter 2011 from 9.9% in first quarter 2010, primarily reflecting a shift in volume mix to Branded Production (which utilizes Company purchased gold and the cost of gold is recognized as part of sales) from Customized Production (which utilizes customer supplied gold and the cost of gold is not recognized as part of sales). Customized Production revenue is presented in the Company’s financial statements net of cost of goods sold and therefore exhibits significantly higher gross margin than Branded Production revenue. Branded Production represented approximately 3.80 tons, or 50.6% of total volume during first quarter 2011, compared to roughly 1.7 tons, or 28.6% of total volume during first quarter 2010. The significant shift in volume mix to Branded Production reflects the Company’s utilization of approximately $20 million in working capital raised in its January 2011 follow-on offering to purchase a large amount of additional gold in February and March. The Company expects the balance between Branded and Customized Production to migrate to historical levels throughout the remainder of the year as the impact of the Company’s larger-than-normal gold purchase in the first quarter subsides.
First quarter 2011 operating expenses increased by 232.7% to $1.3 million, compared to $0.4 million in the same period last year, primarily reflecting $0.8 million of incremental selling general and administrative expenses, mainly for increased professional fees associated with the Company’s status as a NASDAQ listed company as well as increased sales costs associated with the Company’s rapid expansion.
Operating income increased 36.1% to $7.7 million, or 4.9% of revenue, from $5.6 million, or 9.3% of revenue, in the first quarter of 2010.
Net income attributable to common shareholders increased 34.0% to $5.3 million, or $0.11 per diluted share, as compared to $3.9 million, or $0.09 per diluted share, in the first quarter of 2010.
Financial Condition
As of March 31, 2011, Kingold had $7.3 million in cash and cash equivalents, $86.5 million in working capital and a current ratio of 10.4. Total stockholders’ equity was $98.3 million on March 31, 2011, up 36.4% from $72.1 million at the end of 2010. Accounts receivable totaled $0.2 million at March 31, 2010, compared to $1.2 million at December 31, 2010. The Company used $22.0 million in cash flow for operating activities for the three months ended March 31, 2011, compared to cash flow provided from operating activities of $7.4 million in the three months ended March 31, 2010. Cash flow from operations in the first quarter was negatively impacted by the timing of a large purchase of 24-karat gold raw material inventory, funded with proceeds from the Company’s follow-on offering in January 2011, to meet strong ongoing customer demand.
Business Outlook
The Company reaffirms its 2011 guidance for revenue of between $720 million and $780 million and net income of between $30 million and $32 million. The Company’s guidance assumes, among other things, relatively stable gold prices for the remainder of the year, no additional capital raises in 2011, and meaningful contribution from its new line of investment-oriented gold products starting in the second half of 2011.
“Our performance in the first quarter sets the stage for another year of strong organic growth at Kingold,” commented Mr. Jia. “We continue to see above average growth prospects for our popular Mgold jewelry portfolio and for our new line of investment-oriented gold products, both of which are higher margin revenue streams. Furthermore, we expect to reap benefits from an expanding distribution network. In April, we celebrated the opening of our new showroom and distribution center in Shenzhen, the heart of China’s jewelry industry, and in the second quarter of 2011 we expect to open a northern distribution hub in Beijing, the capital of China.”
Conference Call
Kingold Jewelry will conduct a conference call at 4:30 p.m. Eastern Time (ET) on Tuesday, May 10, 2011, to discuss first quarter 2011 financial results. Hosting the call will be Mr. Zhihong Jia, Chairman and Chief Executive Officer, and Mr. Bin Liu, Chief Financial Officer.
The conference call can be accessed by dialing 866-759-2078 (U.S. and Canada callers) or 706-643-0585 (international callers) and entering the conference ID 64938763 approximately five to ten minutes prior to the call. A replay will be available for two weeks starting on Tuesday, May 10, 2011 at 7:30 p.m. ET by dialing 800-642-1687 (U.S. and Canada callers) or 706-645-9291 (international callers) and entering the conference replay ID 64938763.
About Kingold Jewelry, Inc.
Kingold Jewelry, Inc. (NASDAQ: KGJI), centrally located in Wuhan City, China's fourth largest city, was founded in 2002 and today is one of China's leading designers and manufacturers of 24-Karat gold jewelry and ornaments sold by weight. 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. Sales have grown from $29 million in FY 2006 to $523 million in FY 2010 with net income attributable to common stockholders growing from $1.3 million to $18.2 million over the same period. For more information, please visit www.kingoldjewelry.com.
Business Risks and Forward-Looking Statements
This press release contains forward-looking statements that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements, including our 2011 business outlook, are based on currently available information, operating plans and projections about future events and trends. They inherently involve risks and uncertainties, and readers are cautioned that actual results could differ materially from those expressed in any forward-looking statements. In addition, please refer to the risk factors contained in Kingold's SEC filings available at www.sec.gov, including Kingold's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made. Kingold undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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KINGOLD JEWELRY INC.
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CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
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(IN US DOLLARS)
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(UNAUDITED)
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For the three months ended March 31,
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2011
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2010
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NET SALES
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$ | 157,712,467 | $ | 60,512,328 | ||||
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COST OF SALES
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Cost of sales
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(148,461,129 | ) | (54,214,110 | ) | ||||
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Depreciation
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(285,207 | ) | (278,815 | ) | ||||
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Total cost of sales
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(148,746,336 | ) | (54,492,925 | ) | ||||
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GROSS PROFIT
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8,966,131 | 6,019,403 | ||||||
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OPERATING EXPENSES
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Selling, general and administrative expenses
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1,154,032 | 364,693 | ||||||
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Stock compensation expenses
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122,500 | - | ||||||
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Depreciation
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31,914 | 26,664 | ||||||
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Amortization
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2,873 | 2,768 | ||||||
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Total Operating Expenses
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1,311,319 | 394,125 | ||||||
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INCOME FROM OPERATIONS
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7,654,812 | 5,625,278 | ||||||
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OTHER INCOME (EXPENSES)
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Other income
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- | 1,758 | ||||||
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Interest income
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- | 1,181 | ||||||
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Interest expense
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(83,648 | ) | (134,968 | ) | ||||
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Fees to guarantor of short term loans
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- | (18,308 | ) | |||||
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Total Other Expenses, net
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(83,648 | ) | (150,337 | ) | ||||
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INCOME FROM OPERATIONS BEFORE TAXES
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7,571,164 | 5,474,941 | ||||||
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PROVISION FOR INCOME TAXES
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(2,025,604 | ) | (1,355,899 | ) | ||||
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NET INCOME
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$ | 5,545,560 | $ | 4,119,042 | ||||
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Less: net income attribute to the noncontrolling interest
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(253,403 | ) | (170,150 | ) | ||||
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NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
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$ | 5,292,157 | $ | 3,948,892 | ||||
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OTHER COMPREHENSIVE INCOME
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Total foreign currency translation gains
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656,149 | 59,322 | ||||||
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Less: foreign currency translation gains attributable to noncontrolling interest
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(15,509 | ) | (1,401 | ) | ||||
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Foreign currency translation gains attributable to common stockholders
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640,640 | 57,921 | ||||||
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COMPREHENSIVE INCOME
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$ | 5,932,797 | $ | 4,006,813 | ||||
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Earnings per share
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Basic
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$ | 0.11 | $ | 0.09 | ||||
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Diluted
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$ | 0.11 | $ | 0.09 | ||||
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Weighted average number of shares
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Basic
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48,249,588 | 41,766,404 | ||||||
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Diluted
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49,724,008 | 43,271,697 | ||||||
KINGOLD JEWELRY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN US DOLLARS)
(UNAUDITED)
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For the three months ended March 31,
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2011
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2010
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net income
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$ | 5,545,560 | $ | 4,119,042 | ||||
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Adjusted to reconcile net income to cash provided by (used in) operating activities:
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Depreciation
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317,121 | 305,479 | ||||||
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Amortization of intangible assets
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2,873 | 2,768 | ||||||
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Share based compensation
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122,500 | - | ||||||
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Changes in operating assets and liabilities
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(Increase) decrease in:
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Accounts receivable
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959,184 | 250,286 | ||||||
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Inventories
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(25,666,030 | ) | 1,530,288 | |||||
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Other current assets and prepaid expenses
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61,844 | 30,409 | ||||||
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Deferred offering costs
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666,364 | - | ||||||
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Value added tax recoverable
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(2,695,585 | ) | 1,316,753 | |||||
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Increase (decrease) in:
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Other payables and accrued expenses
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(713,329 | ) | (4,327 | ) | ||||
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Income tax payable
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(167,321 | ) | 6,693 | |||||
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Other taxes payable
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(473,637 | ) | (173,139 | ) | ||||
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Net cash provided by (used in) operating activities
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(22,040,456 | ) | 7,384,252 | |||||
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CASH FLOWS FROM INVESTING ACTIVITIES
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Purchase of property and equipment
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(39,500 | ) | (11,217 | ) | ||||
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Net cash used in investing activities
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(39,500 | ) | (11,217 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES
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Net proceeds from stock issuance in public offering
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20,144,255 | - | ||||||
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Net proceeds from exercise of warrants
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49,800 | |||||||
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Net cash provided by financing activities
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20,194,055 | - | ||||||
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EFFECT OF EXCHANGE RATES ON CASH & CASH EQUIVALENTS
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(6,265 | ) | (12,952 | ) | ||||
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
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(1,892,167 | ) | 7,360,083 | |||||
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
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9,151,536 | 7,964,120 | ||||||
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CASH AND CASH EQUIVALENTS, END OF PERIOD
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$ | 7,259,369 | $ | 15,324,203 | ||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
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Cash paid for interest expense
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$ | 84,750 | $ | 116,660 | ||||
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Cash paid for income tax
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$ | 2,192,925 | $ | 1,349,206 | ||||
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KINGOLD JEWELRY INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(IN US DOLLARS)
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(UNAUDITED)
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March 31,
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December 31,
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2011
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2010
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ASSETS
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CURRENT ASSETS
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Cash and cash equivalents
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$ | 7,259,369 | $ | 9,151,536 | ||||
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Accounts receivable
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211,716 | 1,165,760 | ||||||
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Inventories
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81,665,763 | 55,426,830 | ||||||
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Other current assets and prepaid expenses
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10,393 | 72,215 | ||||||
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Deferred offering costs
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- | 666,364 | ||||||
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Value added tax recoverable
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6,593,263 | 3,853,647 | ||||||
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Total Current Assets
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95,740,504 | 70,336,352 | ||||||
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PROPERTY AND EQUIPMENT, NET
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13,162,864 | 13,332,416 | ||||||
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OTHER ASSETS
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Other assets
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147,421 | 146,222 | ||||||
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Intangible assets, net
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505,070 | 503,824 | ||||||
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Total other assets
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652,491 | 650,046 | ||||||
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TOTAL ASSETS
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$ | 109,555,859 | $ | 84,318,814 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
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Short term loans
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$ | 6,108,176 | $ | 6,058,486 | ||||
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Other payables and accrued expenses
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1,006,044 | 1,715,431 | ||||||
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Income tax payable
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2,034,941 | 2,185,112 | ||||||
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Other taxes payable
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73,872 | 545,221 | ||||||
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Total Current Liabilities
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9,223,033 | 10,504,250 | ||||||
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COMMITMENTS AND CONTINGENCIES
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- | - | ||||||
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STOCKHOLDERS' EQUITY
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Preferred stock, $0.001 par value, 500,000 shares authorized, none issued or outstanding as of March 31, 2011 and December 31, 2010
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- | - | ||||||
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Common stock $0.001 par value, 100,000,000 shares authorized, 49,803,666 and 42,531,994 shares issued and outstanding as of March 31, 2011 and December 31, 2010
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49,804 | 42,532 | ||||||
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Additional paid-in capital
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52,211,115 | 31,901,832 | ||||||
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Retained earnings
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Unappropriated
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39,011,061 | 33,744,244 | ||||||
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Appropriated
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992,884 | 967,543 | ||||||
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Accumulated other comprehensive income
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6,050,516 | 5,409,877 | ||||||
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Total Stockholders' Equity
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98,315,380 | 72,066,028 | ||||||
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Noncontrolling interest
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2,017,446 | 1,748,536 | ||||||
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Total Equity
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100,332,826 | 73,814,564 | ||||||
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$ | 109,555,859 | $ | 84,318,814 | ||||