News Releases

 August 12, 2016

Kingold Jewelry Reports Financial Results for the Second Quarter and Six Months Ended June 30, 2016

Company to Hold Conference Call with Accompanying Slide Presentation on Friday, August 12, 2016, at 5:00 PM ET

WUHAN CITY, China, August 12, 2016 - 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 financial results for the second quarter and six months ended June 30, 2016.

2016 Second Quarter Financial Highlights (all results are compared to prior year comparative period)
  • Net sales were $390.3 million, an increase of 56.5% from $249.4 million
  • Processed 20.3 metric tons of 24-karat gold products during the period, an increase of 40.1% from 14.5 metric tons
  • Net income was $19.8 million, or $0.30 per diluted share, an increase from $0.6 million, or $0.01 per diluted share
  • Book value per diluted share was $4.46 at June 30, 2016, compared to $4.03 at December 31, 2015
Outlook for 2016
  • Company reiterates guidance of between 50 and 60 metric tons of 24-karat gold processed in 2016.
Mr. Zhihong Jia, Chairman and CEO of the Company, commented, "We were pleased to report strong operating results for the second quarter of 2016, as we have taken advantage of the increasing gold demand in China as well as a quick rebound of gold price. Our management team made adjustments on our sales go-to-market strategy and successfully achieved a 56.5% increase in net sales, a 40.1% increase in gold processed volume, plus over 30 times of growth in net income."

2016 SECOND QUARTER OPERATIONAL REVIEW
  • In the second quarter of 2016, Kingold sold approximately 20.3 metric tons of 24-karat gold products, an increase of 40.1% over the 14.5 metric tons sold in the second quarter of 2015.
    Metric Tons of Gold Processed
      Three Months Ended:
      June 30, 2016 June 30, 2015
      Volume Volume Volume Volume
    Branded* 10.5 51.7% 6.9 47.8%
    Customized** 9.8 48.3% 7.6 52.2%
    Total 20.3 100% 14.5 100.0%
      Six Months Ended:
      June 30, 2016 June 30, 2015
      Volume % of Total Volume % of Total
    Branded* 18.7 53.2% 12.5 46.6%
    Customized** 16.5 46.8% 14.3 53.4%
    Total 35.2 100% 26.8 100.0%
    * 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, 2016, the Company sold a total of 20.3 metric tons of gold, of which branded production was 10.5 metric tons, representing 51.7% of total gold sold, and customized production was 9.8 metric tons, representing 48.3% of total gold sold, in the second quarter of 2016. In the second quarter of 2015, the Company sold a total of 14.5 metric tons, of which branded production was 6.9 metric tons, or 47.8% of total gold sold, and customized production was 7.6 metric tons, or 52.2% of total gold sold.
KINGOLD JEWELRY SELLS JEWELRY PARK FOR APPROXIMATELY $171 MILLION

On July 29, 2016, Kingold announced that it sold all of its 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). In connection with the sale, Kingold leased space in the Jewelry Park for its new headquarter office and exhibit center for an aggregate of annual rent of RMB 1,718,400 (approximately US $258,600).

Wuhan Lianfuda has paid Wuhan Kingold the total consideration of RMB 1.14 billion (approximately US $171 million), pursuant to a contract to transfer the contractual rights and obligations (the "Transfer Contract") entered between Wuhan Kingold and Wuhan Lianfuda. In addition, Kingold transfers and Wuhan Lianfuda receives, all the rights and obligations in an acquisition agreement (the "Acquisition Agreement") signed among Kingold, Wuhan Wansheng and Wuhan Huayuan Science and Technology Development Limited Company ("Wuhan Huayuan") on October 23, 2013, including 60% stock rights of Wuhan Huayuan. Wuhan Lianfuda will undertake the remaining payment obligation of RMB 360 million (approximately US$54.2 million) stipulated in the Acquisition Agreement. According to an evaluation report issued by an independent evaluation agency, the evaluated value of the Jewelry Park on June 18, 2016 was approximately RMB 1.48 billion (approximately US $221 million).

Chairman Jia continued, "Our management team decided that it was in our best interest for Kingold to focus our capital and personal resources on expanding our core jewelry design and manufacturing business. We expect to use the proceeds to continue to grow both within China and internationally."

CONSOLIDATED FINANCIAL AND OPERATING REVIEW

Net Sales
Net sales for the three months ended June 30, 2016 increased 56.5% to $390.3 million from $249.4 million for the same period in 2015. The increase was primarily due to an increase in sales volume, the increase of average unit selling price for the Company's branded production, and offset by a loss from currency translation.

The average unit selling price for the Company's branded production sales increased from RMB 212.5 per gram in the three months ended June 30, 2015 to RMB 238.4 per gram in the three months ended June 30, 2016. As a result, approximately $29.5 million increase in brand production revenue was affected by the increase in our selling price, partially offset against the decrease in customized production revenue to certain extent.

For the six months ended June 30, 2016, the Company's net sales were $672.4 million, increased 47.6% from $455.6 million in the first half of 2015.

Gross Profit
Gross profit for the three months ended June 30, 2016 increased 1,821% to $46.1 million from $2.4 million for the same period in 2015.

For the six months ended June 30, 2016, the Company's Gross profit were $74.6 million increased from $13.2 million in the first half of 2015.

Gross Margin
The Company's gross margin was 11.8% for the three months ended June 30, 2016, compared to 1.0% in the prior year period. The substantial increase was due to the increase of the unit price of branded production sales during the period mentioned above.

For the six months ended June 30, 2016, the Company's gross margin was 11.1%, compared to 2.9% for the same period of 2015.

Net Income
Net income for the three months ended June 30, 2016 was $19.8 million, or $0.30 per diluted share based on 66.0 million weighted average diluted shares outstanding, compared to net income of $0.6 million, or $0.01 per diluted share based on 66.0 million weighted average diluted shares outstanding in the prior-year period.

For the six months ended June 30, 2016, the Company's net income was $35.0 million, or $0.53 per basic and diluted share, compared to net income of $7.2 million, or $0.11 per basic and diluted share, in the same period of 2015.

Balance Sheet and Cash Flow (UNAUDITED)
(in millions except for per share data) percentages)   6/30/2016   12/31/2015
         
Cash $ 37.5 $ 3.1
Inventories (gold) $ 786.5 $ 298.3
Working Capital $ 637.2 $ 174.9
Stockholders’ Equity $ 294.1 $ 265.6
Book Value Per Share (in $) $ 4.46 $ 4.03

Net cash used in operating activities was $466.3 million for the six months ended June 30, 2016, compared with net cash used in operating activities of $23.6 million for the same period in 2015. The significant increase in net cash used in operating activities was mainly due to spending on purchase of inventory of $502.9 million in anticipation of the increased production and sales demand when the Jewelry Park is completed which may stimulate our sales starting from the second half of 2016. In addition, in connection with Kingold's significant bank borrowings during the quarter ended June 30, 2016, the Company was required to pledge approximately 22 metric tons of gold with the banks as collateral, which also led the Company to increase the inventory purchases and stockpile. On the other hand, in connection with the Jewelry Park Transfer Transaction, the Company received $90.1 million cash payment from Wuhan Lianfuda for the Jewelry Park transfer and at the same time the Company transferred back approximately $22.1 million customer deposit to the Jewelry Park property buyers, which led to a net change of deposit payable of $70.2 million. Such amount will be adjusted when the Company delivers the Jewelry Park to Wuhan Lianfuda in the near future. The overall increase in cash used in operating activities for the six months ended June 30, 2016 is reflected in the above mentioned factors.

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 2016
Based on its existing resources and capacity, the Company reiterates its expectation that gold processed will be between 50 metric tons and 60 metric tons during 2016.

Conference Call Details
Kingold also announced that it will discuss these financial results in a conference call on Friday, August 12, 2016, at 5:00 PM ET.
The dial-in numbers are:

Live Participant Dial In (Toll Free): +1 877-407-9038
Live Participant Dial In (International): +1 201-493-6742

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/q2-2016. 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 2016 outlook for gold processing, its expectations with respect to completion of transferring the Jewelry Park. 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: +86-10-6587-6435
kyao@equityny.com

KINGOLD JEWELRY, INC
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN U.S. DOLLARS) (UNAUDITED)


    For the three months ended June 30,     For the six months ended June 30,  
    2016     2015     2016     2015  
                         
NET SALES   $ 390,260,645     $ 249,421,052     $ 672,448,702     $ 455,616,272  
                                 
COST OF SALES                                
Cost of sales     (343,880,390 )     (246,684,484 )     (597,292,834 )     (441,805,439 )
Depreciation     (291,683 )     (311,110 )     (582,365 )     (620,110 )
Total cost of sales     (344,172,073 )     (246,995,594 )     (597,875,199 )     (442,425,549 )
                                 
GROSS PROFIT     46,088,572       2,425,458       74,573,503       13,190,723  
                                 
OPERATING EXPENSES                                
Selling, general and administrative expenses     6,443,126       2,205,197       9,712,491       3,883,563  
Stock compensation expenses     11,142       102,344       22,285       315,127  
Depreciation     23,474       25,237       46,987       50,428  
Amortization     2,891       3,096       5,781       6,170  
Total operating expenses     6,480,633       2,335,874       9,787,544       4,255,288  
                                 
INCOME FROM OPERATIONS     39,607,939       89,584       64,785,959       8,935,435  
                                 
OTHER INCOME (EXPENSES)                                
Other Income     130       6,530       130       6,530  
Interest Income     624,199       133,803       683,423       151,072  
Interest expense     (13,621,813 )     (84,616 )     (18,595,166 )     (382,153 )
Total other income (expenses), net     (12,997,484 )     55,717       (17,911,613 )     (224,551 )
                                 
INCOME FROM OPERATIONS BEFORE TAXES     26,610,455       145,301       46,874,346       8,710,884  
                                 
INCOME TAX PROVISION (BENEFIT)                                
Current     6,849,780       557,373       11,660,784       3,286,274  
Deferred     64       (985,503 )     255,738       (1,730,028 )
Total income tax provision (benefit)     6,849,844       (428,130 )     11,916,522       1,556,246  
                                 
NET INCOME     19,760,611       573,431       34,957,824       7,154,638  
Add: net loss attributable to non-controlling interest     (268 )     (188 )     (1,465 )     (188 )
                                 
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS   $ 19,760,879     $ 573,619     $ 34,959,289     $ 7,154,826  
                                 
OTHER COMPREHENSIVE INCOME (LOSS)                                
Total foreign currency translation gains (loss)     (8,622,381 )     488,151       (6,659,687 )     1,587,816  
Less: foreign currency translation gain attributable to non-controlling interest     2,030       81     1,576       81
Foreign currency translation gains (loss) attributable to common stockholders   $ (8,624,411 )   $ 488,070     $ (6,661,263 )   $ 1,587,735  
                                 
COMPREHENSIVE INCOME ATTRIBITABLE TO:                                
Common stockholders   $ 11,136,468     $ 1,061,689     $ 28,298,026     $ 8,742,561  
Non-controlling interest     1,762       -       111       -  
    $ 11,138,230     $ 1,061,689     $ 28,298,137     $ 8,742,561  
Earnings per share                                
Basic   $ 0.30     $ 0.01     $ 0.53     $ 0.11  
Diluted   $ 0.30     $ 0.01     $ 0.53     $ 0.11  
Weighted average number of shares                                
Basic     65,964,110       65,963,502       65,963,806       65,963,502  
Diluted     66,273,246       65,963,502       65,970,164       65,963,502  


KINGOLD JEWELRY, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN U.S. DOLLARS) (UNAUDITED)


    June 30,     December 31,  
    2016     2015  
ASSETS                
                 
CURRENT ASSETS                
Cash   $ 37,496,173     $ 3,100,569  
Restricted cash     46,107,680       26,649,687  
Accounts receivable     403,267       1,624,323  
Inventories     786,485,088       298,303,185  
Other current assets and prepaid expenses     4,954,662       1,046,032  
Value added tax recoverable     86,193,253       15,526,002  
Total current assets     961,640,123       346,249,798  
PROPERTY AND EQUIPMENT, NET     7,158,325       7,622,509  
                 
OTHER ASSETS                
Deposit on land use right - Jewelry Park     9,084,474       9,296,763  
Construction in progress- Jewelry Park     153,484,370       105,844,259  
Other assets     145,317       148,713  
Land use right     438,119       454,180  
Total long-term assets     170,310,605       123,366,424  
TOTAL ASSETS   $ 1,131,950,728     $ 469,616,222  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
CURRENT LIABILITIES                
Short term loans   $ 165,878,918     $ 55,455,428  
Debts payable, net     -       61,471,962  
Construction payables-Jewelry Park     54,189,120       23,876,642  
Deposit payable-Jewelry Park     90,736,671       22,182,171  
Other payables and accrued expenses     5,849,813       6,355,979  
Due to related party     449,809       200,059  
Income tax payable     6,740,793       1,119,918  
Other taxes payable     608,321       710,104  
Total current liabilities     324,453,445       171,372,263  
Deferred income tax liability     1,986,173       1,774,993  
Long term loans     511,334,558       30,808,571  
TOTAL LIABILITIES     837,774,176       203,955,827  
COMMITMENTS AND CONTINGENCIES                
                 
EQUITY                
Preferred stock, $0.001 par value, 500,000 shares authorized, none issued or outstanding as of June 30, 2016 and December 31, 2015     -       -  
Common stock $0.001 par value, 100,000,000 shares authorized, 66,018,867 and 65,963,502 shares issued and outstanding as of June 30, 2016 and December 31, 2015     66,018       65,963  
Additional paid-in capital     80,208,682       79,990,717  
Retained earnings                
Unappropriated     219,523,436       184,564,147  
Appropriated     967,543       967,543  
Accumulated other comprehensive loss     (6,662,512 )     (1,249 )
Total stockholders' equity     294,103,167       265,587,121  
Non-controlling interest     73,385       73,274  
Total Equity     294,176,552       265,660,395  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 1,131,950,728     $ 469,616,222  


KINGOLD JEWELRY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN U.S. DOLLARS) (UNAUDITED)


    For the six months ended June 30,  
    2016     2015  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income   $ 34,957,824     $ 7,154,638  
Adjustments to reconcile net income to cash used in operating activities:                
Depreciation     629,352       670,538  
Amortization of intangible assets     5,781       6,170  
Amortization of deferred financing costs     144,134       326,509  
Share based compensation for services and warrants and shares issued for consulting services     151,580       315,127  
Inventory valuation allowance     -       10,315,970  
Deferred tax provision (benefit)     255,738       (1,730,028 )
Changes in operating assets and liabilities                
(Increase) decrease in:                
Accounts receivable     1,202,904       372,622  
Inventories     (502,911,887 )     (37,695,661 )
Other current assets and prepaid expenses     (3,995,411 )     (120,344 )
Value added tax recoverable     (72,157,904 )     (5,280,553 )
Increase (decrease) in:                
Other payables and accrued expenses     (388,356 )     1,086,129  
Deposit payable, Jewelry Park, net     70,165,780       -  
Income tax payable     5,649,770       581,994  
Other taxes payable     67       366,577  
Net cash used in operating activities     (466,290,628 )     (23,630,312 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of property and equipment     (334,586 )     (29,825 )
Payment for construction in progress-Jewelry Park     (19,506,468 )     (24,233,680 )
Net cash used in investing activities     (19,841,054 )     (24,263,505 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Capital contribution from minority interest for the new subsidiary     -       73,465  
Proceeds from bank loans     611,580,106       6,530,186  
Repayments of bank loans     (9,175,996 )     (13,060,372 )
Restricted cash     (20,387,531 )     (9,991,098 )
Proceeds from related party loan     250,226       -  
Proceeds from exercise of warrants     66,439       -  
(Repayment) proceeds from debt financing instruments under private placement     (61,173,304 )     65,301,858  
Deferred financing costs     -       (653,019 )
                 
Net cash provided by financing activities     521,159,940       48,201,020  
                 
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS     (632,654 )     (140,539 )
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS     34,395,604       166,664  
                 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     3,100,569       1,331,658  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 37,496,173     $ 1,498,322  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                
Cash paid for interest expense   $ 19,126,073     $ 2,584,438  
Cash paid for income tax   $ 11,660,842     $ 2,704,280  



 
 

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