KBS Fashion Group Limited Announces First Half 2015 Financial Results

SHISHI, CHINA / ACCESSWIRE / December 16, 2015 / KBS Fashion Group Limited ("KBS" or the "Company") (KBSF), a leading fully-integrated casual menswear company in China, today announced its unaudited financial results for the six month period ended June 30, 2015.

First Half 2015 Financial Highlights

- Net revenues for the first half of 2015 increased by 3% YoY to $22.4 million, compared to $21.8 million in the prior year period.

- Gross profit was $6.9 million, or 31% of revenue, compared to $7.4 million, or 34%, in the prior year period.

- Profit for the period was $1.8 million for first half year ended June 30, 2015, compared to -$0.17 million for the same period in 2014, representing an increase of $2 million. Net margin was 8% for the period ended June 30, 2015, compared to a loss of 7% during the same period last year. Non-GAAP net income, which excludes the provision of the change in fair value of warrants and on-recurring fees related to NASDAQ listing compliance , was $1.8 million compared with $2.2 million for the same period last year.

- Net income attributable to the Company per fully diluted share was $0.07, compared to -$0.01 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 $0.07 compared with $0.09 for the same period last year.

Mr. Keyan Yan, Chairman and CEO of the Company commented, "During 2015, we adjusted our strategy for capturing the changing trends of the Chinese consumer market by focusing our sales efforts to the new fast growing smaller regional cities instead of the larger capital cities. Part of this strategy has been the selective gradual closing of corporate stores and increase of wholesaling to online shops and multi-brand stores. The objective is for the remaining corporate stores to serve as show rooms for distributors and customers."

"We are pleased to comment that only in the first half of 2015 the Company contracted six new wholesale customers and two new distributors which helped offset the reduction of sales due to the closing of our corporate stores in the first half of the year 2015. While the profitability of whole company was a bit lower than same period of 2014, because of the lower profit margin of wholesales to online and multi-brand stores, the company's expectation is that its adjusted strategy will eventually increase significantly sales in the medium term."

Mr. Yan continued, "Additionally, we invested significantly in expanding our R&D department by employing more R&D staff and appointing third party design to improve the Company's brand name and penetration to our targeted markets.

Finally, the second stage of construction of our new manufacturing facilities located in Taihu, Anhui province is making good progress and is expected to be completed shortly. The new factory, will have an annual production capacity of five million articles of clothing, and will operate with state of art manufacturing machinery will provide services to several well-known brands as one of their original design manufacturing ("ODM") suppliers."

Mr Yan added, "The completion of KBS manufacturing factory will be the most important milestone in the Company's history, .which will allow us to best position the Company for taking advantage of the rising demand for the provision of third party manufacturing services from regional and international customers."

"We expect our revenue to grow in the second half of 2015 and we believe we are on track to deliver profits in excess of $3.7 million for 2015, excluding the provision of the change in fair value of warrants and our non-recurring fees related to our recent transactions.

First Half 2015 Results

Revenue

A breakdown of revenue, percentage of revenue and percentage of gross margin by segment is as follows:






Segment sales

For half year ended June 30 2015, total revenue reached approximately $22.4 million, increasing 3% from $21.8 million for half year ended June 30, 2014. 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 $15.6 million for the six month period ended June 30, 2015, a decrease of 7% from $16.7 million in the prior year. The distributor segment accounted for 70% of the total revenue for the period, compared to 77% during previous year. Gross profit margin for the Company's distributor network decreased to 26% from 30% for last year. The gross profit rate decreased due to the increase of wholesaler sales to online customers and mixed-brand stores. The gross profit margin of these parts is usually lower as compared with other segments and it accordingly decreased the general gross profit margin.

The Company's distributor network consisted of 30 distributors in 15 provinces at the six month period ending June 30, 2015. Most of these distributors, either directly or through their sub-distributors, operate KBS-branded stores. As of June 30, 2015, distributors operated a total of 71 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.

Corporate Stores -- Total revenue for corporate stores for the first half year of 2015 rose to approximately $5.7 million, compared to $4.5 million during the same period last year, representing an increase of 27%. As of June 30, 2015, the Company operated 12 corporate stores, all located in Fujian, compared with 18 stores as of June 30, 2014.

The corporate stores segment contributed 26% of total revenue, compared to 21% in year 2014. Gross profit margin for the Company's corporate stores was 45%, compared to 52% in year 2014. This margin compression is primarily due to the store composition as more of the Company's remaining corporate stores are located in shopping malls which tend to be more promotional than freestanding stores. Additionally, because we closed some corporate stores and their inventory was sold at promotion price, and also we did some promotion in the remaining corporate stores to stimulate sales.

ODM -- The ODM segment is comprised of products that are designed and manufactured by the Company and then rebranded and sold by other firms. Revenue from the ODM segment increased by 100% to $1.1 million for first half year ended June 30, 2015, compared to $0.5 million during the same period last year. Gross profit margin increased to 39% from 28% of half year 2014.

Cost of sales and gross profit rate

Cost of sales was $15.5 million for first half year of 2015, increased by 7% from $14.4 million in the prior year period. Gross profit for year for first half year of 2015 was $6.9 million, compared to $7.4 million in half year of 2014. Due to the decreased unit price of distributor network to online shops and mixed-brand stores in first half year 2015, the gross profit rate decreased from 35% in the first half year of 2014 to 31% in the first half year 2015.

Administrative expenses

Administrative expenses decreased by $0.65 million, or 38%, to $1.02 million for first half year ended June 30, 2015, from $1.68 million for the prior year period. The decrease of $0.65 million was mainly due to the reduction of closed corporate stores expenses including staff salary, rental expense and other corporate stores expense.

Distribution and selling expenses

Selling and distribution expenses increased by $0.98 million, or 39%, to $3.5million for first half year ended June 30, 2015, from $2.5 million for the prior year period. Selling expenses accounted for 15% of total revenue, compared to 12% for the same period last year. The increase in selling expenses was mainly due to the increase in advertisement expense for 2015.

Change in fair value of warrant liabilities

As management of KBS estimated that the fair value of warrant on June 30, 2015 was $1,784 based on Black Scholes Model, therefore the change in fair value of warrant liabilities for the first half of 2015 was -$13,603 compared to $2.4 million for the six months ended June 30, 2014. The decrease was primary attributable to the additional provision for the change in fair value of warrants of $2.4 million due to consummation of the merger transaction with Hongri International Holdings Limited which significantly increased the valuation of the outstanding warrants.

Profit for the year

Profit for the year was $1.8 million for the first half year ended June 30, 2015, compared to -$0.17 million for the same period in 2014, representing an increase of $2 million . Net margin was 8% for the six months ended June 30, 2015, compared to loss of 7% during the same period last year.

Non-GAAP net income, which excludes the provision of the change in fair value of warrants and on-recurring fees related to NASDAQ listing compliance , was $1.8 million for the first half year ended June 30, 2015 compared with $2.2 million for the same period last year.

Net income attributable to the Company per fully diluted share was $0.07, compared to -$0.01 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 $0.07 compared with $0.09 for the same period last year.

Cash and Cash Equivalents

Our cash and cash equivalents balance was $32.14 million at the period ended June 30, 2015, compared with $48.2 million for the same period last year, representing a decrease of $16 million, or 33%. The reduction of cash was mainly due to the investment in our new factory in Taihu city, Anhui in 2014.

Business Outlook

For fiscal year 2015, the Company expects its net revenues to range between $50 million and $60 million, representing similar sales of the prior year. The Company projects its non-GAAP net income to be between $3.7 million and $4.5 million, which is similar to the net profit of year 2014. This projection excludes the change in fair value of warrants and non-recurring fees related to the Company's recent transactions and NASDAQ listing compliance. These forecasts reflect the management's current and preliminary view on the market and operational conditions, which is subject to change.

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 83 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