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
Revenue increased 160.6% to $157.7 million from $60.5 million in first quarter 2010
Gross profit rose 49.0% to $9.0 million from $6.0 million in first quarter 2010
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
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.
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.
“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
In April 2011, the Company opened a new showroom and distribution center in Shenzhen, a major jewelry hub in Southern China’s Guangdong Province.
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.
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