SHISHI, CHINA / ACCESSWIRE / June 27, 2017 / KBS Fashion Group Limited (“KBS” or the “Company”) (NASDAQ: KBSF), a leading fully-integrated casual menswear company in China, today announced its unaudited financial results for the first quarter ended March 31, 2017.
First Quarter 2017 Financial Highlights
Net revenues for the first quarter of 2017 decreased by 35% YoY to $5.5 million, compared to $8.99 million in the prior year period.
Gross profit was $1.21 million, or 26% of revenue, compared to $2.36 million, or 35%, in the prior year period.
Profit for the period was -$2.2 million for first quarter of 2017, compared to $0.66 million for the same period in 2016, representing a decrease of $2.9 million. Net margin was -31% for the quarter period ended March 31, 2017, compared to a net margin of 7.3% during the same period last year. Non-GAAP net income, which excludes the provision of the change in fair value of warrants and non-recurring fees related to NASDAQ listing compliance, was -$1.73 million, compared with $0.4 million for the same period last year.
Net income attributable to the Company per fully diluted share was -$0.977, compared to $0.255 in the prior year period. Non-GAAP net income per fully diluted share, which excludes the provision of the change in fair value of warrants and non-recurring fees related to NASDAQ listing compliance, was -$0.977 for the first quarter of 2017, compared with $0.255 for the same period last year.
Mr. Keyan Yan, Chairman and CEO of the Company, commented, “The apparel industry in China remains challenging, and the Company is in the process of implementing new strategies to become more competitive in the current environment. We are currently looking into the development of our own on-line sales platform and will shortly adjust our Distributor/Sales program to provide a more competitive platform for all our distributors to work from. Additionally, we are planning to hold more sales exhibitions for our distributors, from 2 exhibitions currently to 4 exhibitions a year. Our prime objective at this time is the cash preservation to ensure that we are able to meet our investment objectives and return the company to profitability over the next couple of quarters.”
First Quarter of 2017 Results
Revenue
A breakdown of revenue, percentage of revenue, and percentage of gross margin by segment is as follows:
By business
Distribution network
Corporate stores
OEM
Consolidated
Q1 ended
March 31,
2017
Q1 ended
March 31,
2016
Q1 ended
March 31,
2017
Q1 ended
March 31,
2016
Q1 ended
March 31,
2017
Q1 ended
March 31,
2016
Q1 ended
March 31,
2017
Q1 ended
March 31,
2016
Segment revenue
4,864,419
7,898,385
212,599
497,191
432,734
602,865
5,509,752
8,998,441
% of Sales
88
%
88
%
4
%
6
%
8
%
7
%
100
%
100
%
Segment gross margins
967,350
1,897,557
117,753
228,321
127,823
234,811
1,212,926
2,360,689
Gross margin rate
20
%
24
%
55
%
46
%
30
%
39
%
22
%
26
%
Segment Sales
For first quarter ended March 31, 2017, total revenue was approximately $5.5 million, decreasing 35% from $8.99 million for the quarter ended March 31, 2016. The Company reports financial and operating results in three segments: distributor network, corporate stores, and ODM.
Distributor Network – Revenue from the Company’s distributor network reached approximately $4.86 million for the quarter period ended March 31, 2017, a decrease of 38% from $7.89 million in the prior year. The decrease was mainly due to overstocking of our distributors and high competition of online sales and other brand products.
The distributor segment accounted for 88% of the total revenue for the period, which is the same compared to previous year. Gross profit margin for the Company’s distributor network decreased to 20% from 24% for last year. The gross profit rate decreased due to the reduction of unit selling price to area-distributors in the first quarter of year 2017 and the increase in staff expenses.
The Company’s distributor network consisted of 32 distributors in 12 provinces during the three month period ending ended March 31, 2017. Most of these distributors, either directly or through their sub-distributors, operate KBS-branded stores. As of the period ended March 31, 2017, distributors operated a total of 52 KBS-branded stores, primarily in second and third tier cities. KBS products distributed to the fourth and fifth tier cities are primarily sold in multi-branded department stores and online shops.
The following table lists by region the number of retail stores operated by distributors and sub-distributors as of March 31, 2017:
Location
As of March 31, 2017
Fujian
9
Guangdong
2
Guangxi
8
Jiangsu
4
Anhui
1
Zhejiang
1
Chongqing
6
Inner Mongolia
1
Tianjin
3
Hebei
5
Heilongjiang
5
Sichuan
7
Total
52
Corporate Stores – Total retail revenue for our corporate stores for the first quarter ended March 31, 2017 decreased to approximately $0.2 million, compared to $0.5 million during the same period last year, representing a decrease of 57%, due to the close of a corporate store in Fujian. As of March 31, 2017, the Company operated 1 corporate store, compared with 2 stores as of March 31, 2016.
The corporate stores’ segment contributed 4% of total revenue, compared to 6% in year 2016. Gross profit margin for the Company’s corporate stores was 55%, compared to 46% in year 2016. The margin of our corporate stores’ segment is dependent on the percentage of promotion products. A higher percentage of promotion products often causes reduction of the gross margin. The gross margin increase for the first quarter ended March 31, 2017 is primarily due to fewer promotions made in the corporate stores compared to same period last year.
ODM – The ODM segment is comprised of products that are designed and sold by our clients, but manufactured by us. Revenue from the ODM segment decreased by 28% to $0.43 million for first quarter ended March 31, 2017, compared to $0.6 million during the same period last year. Gross profit margin decreased to 30% from 39% for same period in 2016. The decrease was mainly due to the loss of some online orders in the first quarter of 2017.
Cost of Sales and Gross Profit Rate
The cost of sales was $4.30 million for the first quarter of the year 2017, a decrease of 35% from $6.63 million in the prior year period, which was commensurate with the reduction of our sales. Gross profit for the year for the first quarter of the year 2017 was $1.21 million, compared to $2.36 million in the first quarter of 2016. Due to the decrease in the unit prices sale to our area-distributor network in the first quarter of the year 2017 and reduced purchases of our products, which resulted in the decrease of our revenue, the gross profit rate decreased from 26% in the first quarter of 2016 to 22% in the first quarter of 2017.
Administrative Expenses
Administrative expenses increased by $0.29 million, or 32%, to $1.16 million for the first quarter ended March 31, 2017, from $0.87 million for the prior year period. The increase was mainly due to:
Distribution and Selling Expenses
Selling and distribution expenses decreased by $0.10 million, or 10%, to $0.87 million for the first quarter ended March 31, 2017, from $0.97 million for the prior year period. Selling expenses accounted for 15% of total revenue, compared to 10% for the same period last year. The decrease in selling expenses was mainly due to the reduction in the expenses attributable to corporate stores, including staff salary, rental expense, and other corporate store expenses.
Profit for the Year
Due to the factors described above, profit for the year was -$1.73 million for the first quarter ended March 31, 2017, compared to $0.43 million for the same period in 2016, representing a decrease of $2.16 million. Net margin was -31% for the first quarter ended March 31, 2017, compared to a net margin of 4.8% during the same period last year.
Non-GAAP net income, which excludes the provision of the change in fair value of warrants and non-recurring fees, was -$1.7 million for the first quarter ended March 31, 2017, compared with $0.43 million for the same period last year.
Net income attributable to the Company per fully diluted share was -$0.977, compared to $0.255 in the prior year period. Non-GAAP net income per fully diluted share, which excludes the provision of the change in fair value of warrants and non-recurring fees, was -$0.977 compared with $0.255 for the same period last year.
Cash and Cash Equivalents
Our cash and cash equivalents balance was $23.90 million at the period ended March 31, 2017, compared with $24.57 million as at December 31, 2016, representing a decrease of $0.67 million, or 2%.
About KBS Fashion Group Limited
Headquartered in Shishi, China, KBS Fashion Group Limited, through its subsidiaries, is engaged in the business of designing, manufacturing, selling and distributing its own casual menswear brand, KBS, through a network of 52 KBS stores and over a number of multi-brand stores. To learn more about the Company, please visit its corporate website at www.kbsfashion.com.
Safe Harbor Statement
This press release may contain certain “forward-looking statements” relating to the business of KBS Fashion Group Limited, and its subsidiary companies. All statements, other than statements of historical fact included herein, are “forward-looking statements” in nature within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, often identified by the use of forward-looking terminology such as “believes,” “expects” or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks, and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company’s periodic reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.
For further information, please contact:
Mr. Themis Kalapotharakos
Director
T: +306932284718
E: Themis.Kalapotharakos@RemiMaritime.com
Ms. Lisa Tu
CFO (Chief Financial Officer)
T: +86 15859722469
E: lingsantu@hotmail.com
www.kbsfashion.com
KBS Fashion Group Limited
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(LOSS)
(Stated in US dollars)
Three months ended March 31
2017
2016
USD
USD
Revenue
5,509,752
8,998,441
Cost of sales
(4,296,826
)
(6,637,752
)
Gross profit
1,212,926
2,360,689
GP ratio
22
%
26
%
Other income
42,302
145,499
Other gains and losses
(1,462,007
)
(3,887
)
Distribution and selling expenses
(866,157
)
(970,594
)
Administrative expenses
(1,159,571
)
(871,945
)
Operating profit
(2,232,506
)
659,763
Finance costs
(23,981
)
–
Change in fair value of warrant liabilities
–
–
Profit before tax
(2,256,488
)
659,763
Income tax expense
522,902
(227,576
)
Profit for the year
(1,733,586
)
432,187
Other comprehensive income
-Currency translation differences
(782,270
)
508,505
Total comprehensive income
(2,515,855
)
940,692
Attributable to:
Owner of the Company
(2,515,855
)
940,692
Minority interests
–
–
Outstanding shares
1,774,435
1,694,489
Profit per share – basic and diluted
-0.977
0.255
NON-GAAP Profit per share-basic and dilluted
-0.977
0.255
KBS Fashion Group Limited
Unaudited Consolidated Statements of Financial Position
For the Period ended March 31, 2017(Stated in US dollars)
2017/03/31
2016/12/31
Current assets
Cash and cash equivalents
23,903,501
24,576,341
Trade receivables
24,370,838
23,483,465
Other receivables and prepayments
457,427
5,364,120
Related parties receivables
–
–
Inventories
4,865,305
2,450,866
Subsidies prepaid to distributors
194,998
389,996
Prepayments and premiums under operating leases
86,758
79,035
Land Use Rights and Trademark
53,878,827
56,343,823
Total current assets
Non-current assets
Prepayments and premiums under operating leases
2,486,499
2,491,647
Prepayment for construction of new plant
–
–
Prepayment for acquisition of land use right
–
–
Construction in progress
–
–
Property, plant and equipment
26,539,278
26,758,749
Prepaid lease payments
624,813
624,894
Deferred tax asset
5,427,581
4,879,652
Total non-current assets
35,078,170
34,754,942
Total assets
88,956,997
91,098,765
Current liabilities
Short-term loans
1,521,894
1,513,623
Trade and other payables
3,084,857
4,774,628
Related parties payables
1,093,990
1,150,129
Income tax payable
893,239
258,259
Total current liabilities
6,593,980
7,696,639
Warrant liabilities
–
–
Total liabilities
6,593,980
7,696,639
Equity
share capital
177
177
share premium
6,056,241
6,056,241
Revaluation reserve
184,272
184,272
Statutory Surplus reserve
6,084,836
6,084,836
Retained earnings
77,231,199
78,962,407
Foreign currency translation reserve
(7,193,706
)
(7,885,806
)
Total equity
82,363,017
83,402,126
Total liabilities and equity
88,956,997
91,098,765
KBS Fashion Group Limited
Unaudited Consolidated Statements of Cash Flow
For the three Months ended June 30, 2017 and 2016
2017
2016
USD
USD
Profit before tax
(1,733,586
)
432,188
Adjustments for:
Finance costs
(23,981
)
–
change in fair value of warrant liabilities
–
–
Interest income
(20,493
)
(19,512
)
Bad debt allowance
(1,450,798
)
–
Share based compensation
–
–
Depreciation of property, plant and equipment
366,873
514,374
Amortisation of prepaid lease payments and trademark
3,506
829
Amortisation of subsidies prepaid to distributors
196,679
257,097
Amortisation of prepayments and premiums under operating leases
27,387
(15,094
)
Provision (Reversal) of inventory obsolescence
(3,812
)
–
Provision (Reversal) of impairment loss in prepayments
–
–
Loss (gain) on disposal of property, plant and equipment
1,394
–
Deferred income tax
–
–
Operating cash flows before movements in working capital
(2,636,831
)
1,169,883
(Increase) / Decrease in trade and other receivables
688,961
4,269,216
(Increase) / Decrease in prepayments and deferred expenses
4,935,961
(6,707
)
(Increase) / Decrease in related parties receivables
–
–
(Increase) / Decrease in inventories
(2,404,775
)
(1,001,771
)
Increase / (Decrease) in trade and other payables
(78,357
)
1,032,104
Increase / (Decrease) in income tax payable
(999,583
)
(1,531,833
)
Increase / (Decrease) in related parties payables
–
118,834
Cash generated from operations
(494,623
)
2,879,842
DTA
(522,902
)
(6,721
)
Income taxes paid
–
(473,127
)
Net cash from operating activities
(1,017,525
)
3,569,877
Investing activities
Interest received
20,493
19,512
Prepayments and premiums paid under operating leases
–
15,094
withdraw the prepayments and premiums paid under operating leases
–
–
Subsidies prepaid to distributors
–
–
Prepayment for construction of new plant
–
–
Prepayment for acquisition of land use right
–
–
Purchase of property, plant and equipment and construction in process
(1,429
)
(116,324
)
CIP movement
–
–
Intangible movements
–
–
Prepayment on prepaid lease payments
–
–
Proceeds on disposal of property, plant and equipment
–
–
Net cash used in investing activities
19,063
(81,719
)
Financing activities
Advances from related parities
164,880
–
Interest paid
23,981
–
New bank loans raised
–
1,625,085
Reclass surplus
–
–
Shares issued
–
–
Net cash used in financing activities
188,861
1,625,085
Net increase in cash and cash equivalent
(809,600
)
5,113,244
Effects of currency translation
136,760
448,659
Cash and cash equivalents at beginning of year
24,576,341
21,214,080
Cash and cash equivalents at end of year
23,903,501
26,775,983
KBS Fashion Group Limited
Reconciliation of IFRS profit to non-GAAP profit
For the three Months ended March 31, 2017 and 2016
(Stated in US dollars)
three months ended March 31
2017
2016
USD
USD
Unaudited
EPS
Unaudited
EPS
Profit for the period
$
-1,733,586
$
-0.977
$
432,187
$
0.255
Change in fair value of warrants
0
0
Non-GAAP profit for the period
$
-1,733,586
$
-0.977
$
432,187
$
0.255
No. of shares outstanding
1,774,435
1,694,489
Non-GAAP Financial Measures:
This press release contains certain non-GAAP financial measures. A reconciliation of these non-GAAP measures to their nearest comparable GAAP measure is included in the above table. As described more fully below, we believe the use of non-GAAP measures is an additional useful method of evaluating our financial condition and results of operations The non-GAAP financial measures disclosed should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the expected results calculated in accordance with GAAP and reconciliations to those expected results should be carefully evaluated. The non-GAAP financial measures we use may be calculated differently from, and therefore may not be comparable to similarly titled measures used by other companies.
Management uses this information to measure performance over time on a consistent basis and to identify trends related to the Company’s financial condition and results of operations. Management believes that these non-GAAP measures provide investors with information regarding the underlying performance of the company’s core business operating results.
SOURCE: KBS Fashion Group Limited
ReleaseID: 466892
