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Kingold Jewelry Reports Record Unaudited Fiscal 2012 First Quarter Financial Results

May 9, 2012

WUHAN CITY, China, May 9, 2012 /PRNewswire-Asia/ — Kingold Jewelry, Inc. (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 the first quarter ended March 31, 2012, highlighted by double-digit percentage growth in revenue and net income year-over-year.

Mr. Zhihong Jia, Chairman and CEO of Kingold, stated, “We continued to see strong growth in our sales volume during the first quarter of 2012, particularly from our investment gold business. We continue to gradually shift resources to support demand from our bank partners, and were pleased that this has helped serve as a new driver for sales. We are now distributing products from the investment gold business to several provinces and municipal locations throughout China, including Beijing, Hubei, Jiangsu, Jiangxi, Liaoning, Zhejiang, Henan and Sichuan. In our jewelry business, we have continued to build upon and expand our customer base over the past year, with new clients including Harbin Hengyuan Gold Corp, Hangzhou Xingya Jewelry, Wuxi Yinglou and Datong Jintai Jewelry. We were also pleased to receive a AAA credit rating from the Gems & Jewelry Trade Association of China, which we feel is a testament to our reputation in China’s jewelry industry and strong financial position. We feel that the long-term demand drivers in the jewelry business, such as a rising middle class, growing disposable income and culture (weddings and child births) will continue to provide stable growth for the Company.”

2012 First Quarter Operational and Financial Review

  • In the first quarter of 2012, Kingold processed approximately 8.84 metric tons [one metric ton = 35,274 ounces] of 24-karat gold products, an increase of 17.6% over the 7.52 metric tons processed in the first quarter of 2011. In the first quarter Kingold processed approximately 970,000 pieces of jewelry, gold bars and coins, with the majority being necklaces and rings (roughly 250,000 pieces for each category).
  • The Company reported revenues for the 2012 first quarter of $225.0 million, an increase of 42.6% from $157.7 million in the first quarter of 2011. The increase in net sales was primarily driven by increased branded production as well as by the increase in the price of gold. Of the $67.3 million increase in net sales, approximately $35.3 million was attributable to increased branded production and approximately $25.2 million to the increase in the price of gold and the remaining is due to the gain from exchange rate fluctuations.
  • The Company expects a higher percent of its revenue in future quarters to be derived from its investment gold business, which generated incremental $9.9 million of revenue in the first quarter of 2012. The Company’s investment gold consists of products such as gold coins, bars and certain gold gift products, which are sold to individual branch locations under that bank’s specific brand. The Company typically expects a higher margin from its investment gold products than its branded jewelry and ornament production.
  • Gross profit for the 2012 first quarter was $11.6 million, an increase of 29.0% from $9.0 million in the prior-year period. The Company’s gross margin for the period was 5.1% compared to 5.7% from the prior year period. Gross margin was lower for the period primarily because gold prices increased nearly 9% while the Company could not raise its processing fee proportionally. However, Kingold’s gross margin improved over the gross margin of 4.1% reported in the fourth quarter of 2011. The fourth quarter gross margin was affected by a shift in product mix (more branded production) and initial costs involved with ramping up the Company’s investment gold business.
  • The Company reported net income attributable to Kingold shareholders for the first quarter of 2012 of $7.3 million, or $0.13 per diluted share based on 54.4 million weighted average diluted shares outstanding, compared to net income of $5.3 million, or $0.11 per diluted share based on 49.7 million weighted average diluted shares outstanding, in the prior-year period.

Balance Sheet and Cash Flow Highlights

    (in millions except for
     percentages)             3/31/2012 12/31/2011 % Change
    -----------------------   --------- ---------- --------
    Cash and Cash Equivalents      $3.0       $8.8          (66%)
    Inventories (gold)            122.9      108.1          13.7%
    Working Capital               121.7      113.4           7.4%
    Short Term Loan                 6.3        6.3             0%
    Total Long-term Debt              0          0           N/A
    Stockholders' Equity          135.0      127.0           6.3%

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

Market and Business Outlook

Despite the fluctuation in gold prices, China’s gold consumption remained very strong in the first quarter of 2012. According to statistics from the Hong Kong Census and Statistics Department from May 2012, in the first quarter Hong Kong alone exported 135.5 metric tons of gold into mainland China, five times more than in the same period from last year. China is widely expected to overtake India as the world’s largest gold market in 2012.

The Company reaffirms its 2012 guidance that sales volume will be approximately 35 tons. This guidance is based solely on our current organic growth projections. Kingold expects its second quarter sales volume to continue the momentum and growth seen in the first quarter.

Chairman Jia concluded, “We have been very pleased with the development over the past six months, as we have begun to shift our resources towards growing the investment gold business. We expect this segment to continue to grow as a percentage of our revenues in coming periods. We continue to closely monitor gold price fluctuations globally, but were pleased to see stable pricing throughout the first quarter. We continue to feel that population growth, a rising middle class, and a trend towards risk-averse investment in gold will continue to drive China’s gold demand for the immediate and long-term future to the benefit of Kingold. We remain confident about the long-term growth prospects for the investment gold market and 24-karat gold jewelry in China and look forward to continuing to develop our new products and distribution abilities throughout the country. We have maintained a healthy balance sheet, are debt-free, and remain wholly focused on expanding our operations.”

Conference Call

Kingold will discuss these results in a conference call tomorrow morning (May 10, 2012) at 8:30 a.m. ET.

The dial-in numbers are:

Live Participant Dial In (Toll Free): 877-407-0778
Live Participant Dial In (International): 201-689-8565

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://www.investorcalendar.com/IC/CEPage.asp?ID=168420.

The Company will also post 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, 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, 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. 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.
Adam Prior, Vice President
(212) 836-9606
aprior@equityny.com

Katherine Yao, Account Executive
+86 10-6587-6435
kyao@equityny.com

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

                                                                                                                                                              For the three months ended March
                                                                                                                                                                             31,
                                                                                                                                                                                           2012                                            2011
                                                                                                                                                                                           ----                                            ----

    NET SALES                                                                                                                                                                        $224,967,394                                    $157,712,467

    COST OF SALES
                                   Cost of sales                                                                                                                                   (213,102,255)                                   (148,461,128)
                                   Depreciation                                                                                                                                        (297,788)                                       (285,207)

                                   Total cost of sales                                                                                                                             (213,400,043)                                   (148,746,335)
                                                                                                                                                                                   ------------                                    ------------

    GROSS PROFIT                                                                                                                                                                     11,567,351                                       8,966,132
                                                                                                                                                                                     ----------                                       ---------

    OPERATING EXPENSES
                                   Selling, general and administrative expenses                                                                   1,058,342                                       1,154,032
                                   Stock compensation expense                                                                                       356,439                                         122,500
                                   Depreciation                                                                                                                                          33,420                                          31,914
                                   Amortization                                                                                                                                           2,996                                           2,873

                                   Total Operating Expenses                                                                                       1,451,197                                       1,311,319
                                                                                                                                                  ---------                                       ---------

    INCOME FROM OPERATIONS                                                                                                                                                           10,116,154                                       7,654,813
                                                                                                                                                                                     ----------                                       ---------

    OTHER INCOME (EXPENSES)
                                   Interest expense                                                                                                                                    (111,136)                                        (83,648)
                                   Total Other Expenses, net                                                                                       (111,136)                                        (83,648)
                                                                                                                                                   --------                                         -------

    NET INCOME BEFORE PROVISION FOR INCOME TAXES                                                                                                                                     10,005,018                                       7,571,165

    PROVISION FOR INCOME TAXES                                                                                                                                                       (2,691,006)                                     (2,025,604)
                                                                                                                                                                                     ----------                                      ----------

    NET INCOME                                                                                                                                                                       $7,314,012                                      $5,545,560
                                    Less: net income attribute to the noncontrolling
                                    interest                                                                                                              -                                        (253,403)

    NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS                                                                                                                                   $7,314,012                                      $5,292,157
                                                                                                                                                                                     ----------                                      ----------

    OTHER COMPREHENSIVE INCOME
                                   Total foreign currency translation gains                                                                         352,704                                         656,149
                                   Less: foreign currency translation gains
                                   attributable to noncontrolling interest                                                                                -                                         (15,509)
                                                                                                                                                        ---                                         -------
                                   Foreign currency translation gains
                                   attributable to common stockholders                                                                              352,704                                         640,640
                                                                                                                                                                                                    -------

    COMPREHENSIVE INCOME                                                                                                                                                             $7,666,716                                      $5,932,797
                                                                                                                                                                                     ==========                                      ==========

    Earnings per share
                                   Basic                                                                                                                                                  $0.14                                           $0.11

                                   Diluted                                                                                                                                                $0.13                                           $0.11

    Weighted average number of shares
                                   Basic                                                                                                                                             53,107,343                                      48,249,588

                                   Diluted                                                                                                                                           54,358,067                                      49,724,008

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

                                                                                                                                                                                March 31,                                     December 31,
                                                                                                                                                                                                2012                                             2011

    ASSETS
    ------

    CURRENT ASSETS
                             Cash and cash equivalents                                                                                                   $2,954,410                                    $8,810,173
                             Accounts receivable                                                                                                            363,510                                       896,949
                             Inventories                                                                                                                                                 122,865,734                                      108,088,420
                             Other current assets and prepaid expenses                                                                         340,486                                        72,333
                             Value added tax recoverable                                                                                                  5,093,005                                     4,750,847
                             Total Current Assets                                                                                                       131,617,145                                   122,618,722
                                                                                                                                                        -----------                                   -----------

    PROPERTY AND EQUIPMENT, NET                                                                                                                                                           12,632,290                                       12,942,902
                                                                                                                                                                                          ----------                                       ----------

    OTHER ASSETS
                             Other assets                                                                                                                                                    153,336                                          153,102
                             Intangible assets, net                                                                                                         513,328                                       515,543

                             Total other assets                                                                                                             666,664                                       668,645
                                                                                                                                                            -------                                       -------
    TOTAL ASSETS                                                                                                                                                                        $144,916,099                                     $136,230,269
                                                                                                                                                                                        ============                                     ============

    LIABILITIES AND STOCKHOLDERS' EQUITY
    ------------------------------------

    CURRENT LIABILITIES
                             Short term loan                                                                                                                                              $6,353,270                                       $6,343,578
                             Other payables and accrued expenses                                                                                            678,874                                       870,454
                             Income tax payable                                                                                                           2,696,367                                     1,451,929
                             Other taxes payable                                                                                                            162,154                                       562,027
                             Total Current Liabilities                                                                                                    9,890,665                                     9,227,988
                                                                                                                                                          ---------                                     ---------

    COMMITMENTS AND CONTINGENCIES                                                                                                                                                                  -                                                -

    EQUITY
                             Preferred stock, $0.001 par value, 500,000 shares
                             authorized, none issued or outstanding
                             as of March 31, 2012 and December 31, 2011                                                                             -                                             -
                             Common stock $0.001 par value, 100,000,000 shares
                              authorized, 53,107,343 shares issued and
                              outstanding
                             as of March 31, 2012 and December 31, 2011                                                             53,108                   53,108
                             Additional paid-in capital                                                                                                  56,084,448                                    55,728,009
                             Retained earnings
                               Unappropriated                                                                                                            67,250,131                                    59,936,120
                               Appropriated                                                                                                                                                  967,543                                          967,543
                             Accumulated other comprehensive income                                                                         10,670,204                                    10,317,501

                             Total Equity                                                                                                                                                135,025,434                                      127,002,281
                                                                                                                                                                                         -----------                                      -----------

    TOTAL LIABILITIES AND EQUITY                                                                                                                                                        $144,916,099                                     $136,230,269
                                                                                                                                                                                        ============                                     ============

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

                                                                                                                                                                                                               For the three months ended March
                                                                                                                                                                                                               31,
                                                                                                                                                                                                                                             2012                                               2011
                                                                                                                                                                                                                                             ----                                               ----
    CASH FLOWS FROM OPERATING ACTIVITIES
                                                    Net income                                                                                                                                    $7,314,012                                         $5,545,560
                                                    Adjusted to reconcile net income to cash used in
                                                    Operating activities:
                                                    Depreciation                                                                                                                                     331,208                                            317,121
                                                    Amortization of intangible assets                                                                                                    2,996                                              2,873
                                                    Share based compensation                                                                                                                         356,439                                            122,500
                                                    Changes in operating assets and liabilities
                                                    (Increase) decrease in:
                                                    Accounts receivable                                                                                                                              533,746                                            959,184
                                                    Inventories                                                                                                                                 (14,583,108)                                       (25,666,030)
                                                     Other current assets and prepaid
                                                     expenses                                                                                                                         (255,292)                                            61,844
                                                         Deferred offering costs                                                                                                                           -                                            666,364
                                                    Value added tax recoverable                                                                                                       (334,233)                                        (2,695,585)
                                                    Increase (decrease) in:
                                                    Other payables and accrued expenses                                                                                               (203,998)                                          (713,329)
                                                    Income tax payable                                                                                                                             1,239,750                                           (167,321)
                                                    Other taxes payable                                                                                                                             (399,935)                                          (473,637)
                                                    Net cash used in operating activities                                                                                          (5,998,415)                                        (22,040,456)
                                                                                                                                                                                    ----------                                        -----------

    CASH FLOWS FROM INVESTING ACTIVITIES
                                                    Purchase of property and equipment                                                                                                  (1,476)                                           (39,500)
                                                    Net cash used in investing activities                                                                                               (1,476)                                           (39,500)
                                                                                                                                                                                        ------                                            -------

    CASH FLOWS FROM FINANCING ACTIVITIES
                                                    Net proceeds from stock issuance in public offering                                                                                                  -                                         20,144,255
                                                    Net proceeds from exercise of warrants                                                                                                                -                                             49,800
                                                     Net cash provided by financing
                                                     activities                                                                                                                                           -                                         20,194,055
                                                                                                                                                                                                        ---                                         ----------

    EFFECT OF EXCHANGE RATES ON CASH & CASH EQUIVALENTS                                                                                                                                                                                   144,129                                             (6,264)
                                                                                                                                                                                                                                          -------                                             ------

    NET DECREASE IN CASH AND CASH EQUIVALENTS                                                                                                                                                                                          (5,855,763)                                        (1,892,166)

    CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                                                                                                                                                      8,810,173                                          9,151,536

    CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                                                                                                                                           $2,954,410                                         $7,259,370
                                                                                                                                                                                                                                       ==========                                         ==========

    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                                                    Cash paid for interest expense                                                                                                    $117,302                                            $84,750

                                                    Cash paid for income tax                                                                                                                      $1,450,421                                         $2,192,925

SOURCE Kingold Jewelry, Inc.


Source: PR Newswire