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Edited Transcript of KGJI earnings conference call or presentation 16-May-19 12:30pm GMT

Q1 2019 Kingold Jewelry Inc Earnings Call

WUHAN Jun 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Kingold Jewelry Inc earnings conference call or presentation Thursday, May 16, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bin Liu

Kingold Jewelry, Inc. - CFO & Secretary

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Conference Call Participants

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* Lucy Ma

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Presentation

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Operator [1]

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Greetings, and welcome to the Kingold Jewelry First Quarter 2019 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce Lucy Ma of The Equity Group who will read the safe harbor statement introductions. Please go ahead, Lucy.

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Lucy Ma, [2]

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Thank you, Kevin, and good morning, everyone. Thank you for joining us. A copy of the press release announcing the 2019 first quarter financial results is available on Kingold Jewelry's website, www.kingoldjewelry.com. As a part of this conference call, the company has a slide presentation available in PDF format on the company's website. It is an accompaniment and you are welcome to contact our office at (212) 836-9600, and we would be happy to send you a copy.

Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meaning of safe harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risk and uncertainties that may affect Kingold Jewelry's business and the prospects and the results of operation. Such risks are fully detailed in Kingold Jewelry's filings with the Securities and Exchange Commission. Regarding the disclaimer language, I would like -- I would also like to refer you to Slide #2 of the webcast presentation for further information.

Management presenting on the call today are Kingold Jewelry's CFO, Mr. Bin Liu; and Kingold Jewelry's Treasurer, [Mr. Xiao Hu]. Now I would like to take a moment to outline the format for today's call. First, I will read an opening statement prepared by the company's Chairman and CEO, Mr. Zhihong Jia. And I will turn the conference call over to Mr. Bin Liu, Kingold Jewelry's CFO, who will continue with the presentation. When the company finishes the presentation, we will open the floor for questions.

With that, I will start to read the opening statement from Kingold Jewelry's Chairman and CEO, Mr. Zhihong Jia.

"Thank you for joining our 2019 first quarter conference call. In the first quarter of 2019, both of Kingold's operational and financial performances were affected by China's economic slowdown which negatively impact our customers' purchases of gold product. And it was not until the end of first quarter that the market gradually warmed up.

In the first quarter of 2019, we have witnessed the lower demand for gold for both jewelry and investment products. According to the World Gold Council, gold jewelry and investment products went down 2% and 8% respectively during the quarter. However, even China's economy is lack of growth. 3D hard gold products and antique craft gold product was still in trend.

In addition, based on the World Gold Council's recent gold demand trends for the first quarter of 2019 report published in early this month, has stated that 3D hard gold will be a segment of the market to watch over the coming year. In this regard, Kingold has been dedicated in the development and the design of 3D hard gold jewelry products in past 3 years, and we are proud to be a major manufacturing supplier for this refined product in China.

Every time when Kingold encounters the impact from challenging environment, we have always maintained a positive attitude and focused on our product research and development. We believe in our ability of providing good-quality products to meet consumer demand when the market picks up, which is a key strength of Kingold.

On behalf of Kingold, I look forward to speaking to all of you in person and welcome to visit our facilities in Wuhan and take a tour. Thank you."

With that, I will now like to turn the call over to Mr. Bin Liu, Kingold's Chief Financial Officer. Please go ahead, Mr. Liu.

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Bin Liu, Kingold Jewelry, Inc. - CFO & Secretary [3]

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Thank you, Lucy, and welcome, everybody, again. Today, I will discuss Kingold's operation and financial results for 2019 first quarter. Kingold sales are primarily composed of the sales of branded products and customized products. Kingold sells its products to customers at a price that reflects the market price of base material plus a markup of design and processing fees.

In branded production, we purchase gold directly from Shanghai Gold Exchange once a customer has placed an order and we recognize revenue on sales and branded products when the goods are delivered. Thus, the cost of gold is recorded as a part of our revenue. In customized production, our customers supply us the raw materials and we create products per the customer's instructions, and the cost of gold is not recorded as part of our revenue.

During the first quarter of 2019, we processed approximately 22 metric tons of 24-karat gold products, decreased 5.7% compared to 23.3 metric tons for the same period last year. Among the 22 metric tons we processed during the first quarter of 2019, of which branded production accounted for 11.2 metric tons or 50.9% of the total volume and customized production accounted for 10.8 metric tons or 49.1% of the total volume.

In the 3 months ended March 31, 2019, the company reported net sales of USD 453.5 million, a decrease of approximately USD 86 million or 15.9% from the net sales of USD 539.5 million for the 3 months ended March 31, 2018. The decrease in net sales was mainly the result of the following reasons.

Number one, total sales volume in terms of quantity sold decreased from 23.3 metric tons in 3 months ended March 31, 2018, to 22 metric tons in 3 months ended March 31, 2019, causing 1.3 metric tons or a 5.7% decrease. As a result, approximately $73.4 million decrease in our revenue was attributable to the decrease in our sales volume.

Secondly, the average unit selling price for our customer (sic) [customized] production sales increased from RMB 258.3 per gram in 3 months ended March 31, 2018, to RMB 266.6 per gram in 3 months ended March 31, 2019, causing 3.2% increase. In addition, the average unit selling price of our customer (sic) customized production sales increased from RMB 6.84 per gram in 3 months ended March 31, 2018, to RMB 6.96 per gram in 3 months ended March 31, 2019, causing 1.7% increase. As a result of the price change effect, the increase in average unit selling price led to approximately $70 million increase in our revenue. To compensate the revenue decrease derived from sales volume decrease a certain extent.

Thirdly, foreign currency adjustment effect was approximately $29.5 million of foreign currency translation loss, converting RMB into USD when the average exchange rate of USD versus RMB increased from USD 1 equals to RMB 6.3582 in 3 months ended March 31, 2018, to $1 equals to RMB 6.7485 in 3 months ended March 31, 2019.

For the first quarter of 2019 ended March 31, 2019, gross profit was $55.3 million, decreased by 13.9% from $64.2 million in the prior year period. The decrease in our gross profit resulted from the following factors. First, due to decreased sales volume affected by a decrease in market demand, the company gross profit for the 3 months ended March 31, 2019, was negatively affected.

Secondly, our gross profit was affected by the unit cost of raw materials used in our production. The unit cost of our branded production sales was RMB 239.7 per gram for the 3 months ended March 31, 2019; while the unit cost of our branded production sales was RMB 233.2 per gram for the 3 months ended March 31, 2018. In addition, the unit cost of our customized production sales was RMB 0.34 per gram for the 3 months ended March 31, 2019; while the unit cost of customized production sales was RMB 0.31 per gram for the 3 months ended March 31, 2018. Increasing in our unit cost of raw material used in our production reduced our gross profit for the 3 months ended March 31, 2019, as compared to the same period of 2018.

Decrease in quantity sold and increase in our unit cost were the major reasons which led to the decrease in our gross profit. For the first quarter of 2019 ending March 31, 2019, gross margin was 12.2% compared to 11.8% for same period in 2018. The primary reason for the increase was due to the increased average selling price of our branded production and customized production sales.

The average selling price of our branded production was RMB 266.6 per gram for the 3 months ended March 31, 2019, increased by RMB 8.33 or 3.2% from RMB 258.3 per gram for the same period in 2018. Meanwhile, the average selling price of our customer (sic) customized production sales was RMB 6.96 per gram for the 3 months ended March 31, 2019, increased by RMB 0.12 or 1.7% from RMB 6.84 per gram for the 3 months ended March 31, 2018; to RMB 6.96 per gram for the 3 months ended March 31, 2019.

For the first quarter of 2019 ended March 31, 2019, net income was USD 6.4 million or $0.10 per diluted share compared to net income of $13.2 million or $0.20 per diluted share in the prior year period. The decrease in net income was resulted in all above-described factors.

Moving to the balance sheet. At March 31, 2019, Kingold's cash and cash equivalents were $1.1 million, inventories...

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Operator [4]

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Ladies and gentlemen, please stand by.

(technical difficulty)

Mr. Bin Liu?

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Bin Liu, Kingold Jewelry, Inc. - CFO & Secretary [5]

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Moving to the balance sheet. On March 31, 2019, Kingold's cash and cash equivalents were $1 million; the inventories, which is mainly gold in our case, was $163.8 million; stockholders' equity was $632 million. Compared to cash and cash equivalent of $0.23 million, inventories of $127 million and stockholders' equity of $638.3 million at December 31, 2018.

To conclude, Kingold is dedicated in building its brand by continuing to expand in production capability, designing capabilities and sales channels. Based on existing resources and capacity and our strong demand for 20-karat gold products in China, we reiterate our expectation that gold processed will be between 110 metric tons and 120 metric tons during 2019.

With that, operator, please open it up for any questions. Thank you.

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Operator [6]

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(Operator Instructions) If there are no questions at this time, I'll turn the floor back over to Mr. Liu for any further or closing comments.

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Bin Liu, Kingold Jewelry, Inc. - CFO & Secretary [7]

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Thanks again to all of you each for joining us today. We look forward to speaking with you again in August after our 2019 second quarter and 6-month financial results. As always, we welcome investors and visitors to our facilities in Wuhan, China. Thank you.

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Operator [8]

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Thank you. It does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.