KBS Fashion Group Limited Announces Full Year 2015 Financial Results

SHISHI, CHINA--(Marketwired - May 2, 2016) - KBS Fashion Group Limited ( NASDAQ : KBSF ) ("KBS" or the "Company"), a leading fully-integrated casual menswear company in China, today announced its financial results for the fiscal year ended December 31, 2015.

Full Year 2015 Financial Highlights

For the Twelve Months Ended December 31,
($ millions, except per share data) 2015 2014 % Change
Revenues 61.3 58.8 4.3%
Distribution network 40.8 40.7 0.4%
Corporate stores 18.1 16.1 12.3%
OEM 2.4 2.0 18.2%
Gross profit 14.8 19.4 -23.6%
Gross margin 24.2% 33.0% -8.8%
Operating income 1.8 5.8 -68.3%
Operating margin 3.0% 9.8% -6.8%
Net income 1.2 6.9 -81.9%
Basic/ Diluted EPS 0.05 0.27 -81.9%
  • Total revenues increased by 4.3% to $61.3 million primarily due to increased sales from corporate owned stores and OEM.
  • Gross profit decreased by 23.6% to $14.8 million and gross margin decreased by 8.8 percentage points to 24.2%. The decrease in gross profit and gross margin were results of decreased in unit sales price and reduction in sales discount offered to new sales.
  • Net income was $1.2 million, or $0.05 per share, compared to $6.9 million, or $0.27 per share, for the same period of last year.

Mr. Keyan Yan, Chairman and Chief Executive Officer of KBS, commented, "Our 2015 financial results were negatively impacted by weakening market conditions of the China economy and the apparel industry as well. Despite these headwinds, we managed to grow our top line by 4.3% as we added distribution channels from wholesales to multi-branded stores, Wechat shops, internationals orders and OEM while closed some of the unprofitable franchised stores and corporate owned stores. Looking ahead, we remain cautious about our outlook amidst macro challenges and will actively seek opportunities to grow our business through development of new distribution channels, geographical expansion, brand promotion, and strategic partnerships."

Full Year 2015 Financial Results

Revenues

Total revenues increased by $2.5 million, or 4.3%, to $61.3 million for the twelve months ended December 31, 2015 from $58.8 million for the same period of last year. The increase was primarily related to revenues from corporate stores sales and OEM.

For the Twelve Months Ended December 31,
2015 2014
($ millions) Revenues Gross Profit Gross Margin Revenues Gross Profit Gross Margin
Distribution network 40.8 9.7 23.7% 40.7 12.4 30.5%
Corporate stores 18.1 4.2 23.4% 16.1 6.3 39.2%
OEM 2.4 0.9 38.3% 2.0 0.7 34.5%
Total 61.3 14.8 24.2% 58.8 19.4 33.0%

Revenues from the Company's distribution network increased by $0.2 million, or 0.4%, to $40.8 million for the twelve months ended December 31, 2015 from $40.7 million for the same period of last year. The Change reflected increased sales from new wholesale distributors that were partially offset decreased sales from old distributors. Distribution network contributed 66.5% of total revenues for the twelve months ended December 31, 2015, compared to 69.1% for the same period of last year. The Company's distributor network consisted of 33 distributors in 16 provinces during the year of 2015. Most of these distributors, either directly or through their sub-distributors, operate KBS-branded stores. Some wholesale distributors sold the products to multi-branded stores and online stores. As of December 31, 2015, the Company operated 69 franchised stores operated by 25 third party distributors or their sub-distributors, compared to 84 franchised stores at the end of 2014.

Revenues from corporate stores sales increased by $2.0 million, or 12.1%, to $18.1 million for the twelve months ended December 31, 2015 from $16.1 million for the same period of last year. The increase in corporate stores sales was a result of promotional sales aimed at promoting our brand. Corporate stores accounted for 29.5% of total revenues for the twelve months ended December 31, 2015, compared to 27.4% for the same period of last year. As of December 31, 2015, the Company operated 2 corporate stores, compared to 18 corporate stores at the end of 2014.

Revenues from OEM sales increased by $0.4 million, or 19.2%, to $2.4 million for the twelve months ended December 31, 2015 from $2.0 million for the same period of last year. This increase was due to increase in unit price due to improvement in fabrics quality and workmanship. OEM accounted for 4.0% of total revenues for the twelve months ended December 31, 2015, compared to 3.5% for the same period of last year. The OEM segment is comprised of products that are designed by the customers and manufactured by the Company.

Cost of revenues and gross profit

Total cost of revenues increased by $7.1 million, 18.0%, to $46.5 million for the twelve months ended December 31, 2015 from $39.4 million for the same period of last year. The increase was related to reduction in discounts offered to sales to multi-branded stores, online stores, and wholesaler distributors.

Total gross profit decreased by $4.6 million, or 23.6%, to $14.8 million for the twelve months ended December 31, 2015 from $19.4 million for the same period of last year. Gross profits for distribution network, corporate stores and OEM were $9.7 million, $4.2 million, and $0.9 million, respectively, for the twelve months ended December 31, 2015, compared to $12.4 million, $6.3 million, and $0.7 million, respectively, for the same period of last year.

Overall gross margin was 24.2% for the twelve months ended December 31, 2015, compared to 33.0% for the same period of last year. On a segment basis, gross margins for distribution network, corporate stores and OEM were 23.7%, 23.4%, and 38.3%, respectively, for the twelve months ended December 31, 2015, compared to 30.5%, 39.2%, and 34.5%, respectively, for the same period of last year.

Operating expenses

Selling and distribution expenses decreased by $0.6 million, or 7.9%, to $6.6 million for the twelve months ended December 31, 2015 from $7.2 million for the same period of last year. Administrative expenses decreased by $1.9 million, or 39.8%, to $2.8 million for the twelve months ended December 31, 2015 from $4.6 million for same period of last year. The decrease in selling and distribution expenses and administrative expenses was mainly associated with reduction in staff salary. Other operating expenses, including other income and other gains and loss, totaled $3.6 million for the twelve months ended December 31, 2015, compared to $1.8 million for the same period of last year. The increase in other operating expenses was primarily due to impairment on prepayment for land use rights in Anhui and provision for bad debt related to three clients.

Total operating expense decreased by $0.6 million, or 4.6%, to $13.0 million for the twelve months ended December 31, 2015 from $13.6 million for the same period of last year.

Total income from operations decreased by $4.0 million, or 68.3%, to $1.8 million for the twelve months ended December 31, 2015 from $5.8 million for the same period of last year. Operating margin was 3.0% for the twelve months ended December 31, 2015, compared to 9.8% for the same period of last year.

Net income

Net Income decreased by $5.6 million, or 81.9%, to $1.2 million for the twelve months ended December 31, 2015 from $6.9 million for same period of last year. Basic and diluted earnings per share were $0.05 for the twelve months ended December 31, 2015, compared to $0.27 for the same period of last year.

Balance Sheet and Cash Flow

As of December 31, 2015, the Company had cash and cash equivalents of $21.2 million, working capital of $53.6 million and stockholders' equity of $100.8 million, compared to $20.6 million, $52.7 million, and $105.6 million at December 31, 2014.

Net cash provided by operating activities was $2.6 million for the twelve months ended December 31, 2015, compared to net cash used in operating activities of $3.3 million for the same period of last year. Net cash used in investing activities was $0.9 million in the twelve months ended December 31, 2015, compared to $17.5 million for the same period of last year. Net cash used in financing activities was nil for the twelve months ended December 31, 2015, compared to $2.0 million for the same period of last year.

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 69 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.

KBS Fashion Group Limited
Consolidated statements of comprehensive income

For the years ended December 31, 2015, 2014, and 2013
(Stated in US dollars)
Year ended December 31,
2015 2014 2013
Revenue 61,343,681 58,832,481 99,559,814
Cost of sales (46,511,274 ) (39,416,973 ) (57,363,839 )
Gross profit 14,832,407 19,415,508 42,195,975
Other income 302,145 252,748 367,896
Other gains and losses (3,877,832 ) (2,036,508 ) 96,806
Distribution and selling expenses (6,621,256 ) (7,191,606 ) (6,238,995 )
Administrative expenses (2,798,082 ) (4,649,229 ) (2,211,431 )
Profit from operations 1,837,381 5,790,913 34,210,251
Finance costs - (23,630 ) (116,421 )
Change in fair value of warrant liabilities 11,978 3,417,053 (45,442 )
Profit before tax 1,849,359 9,184,336 34,048,388
Income tax expense (605,689 ) (2,307,354 ) (8,629,022 )
Profit for the year 1,243,670 6,876,982 25,419,366
Other comprehensive income
-currency translation differences (6,044,772 ) (350,810 ) 2,597,259
Total comprehensive income for the year (4,801,102 ) 6,526,172 28,016,625
Earnings per share of common stock attributable to the Company
-Basic 0.05 0.27 1.00
-Diluted 0.05 0.27 1.00
KBS Fashion Group Limited
Consolidated statements of cash flow
For the years ended December 31, 2015, 2014, and 2013
(Stated in US dollars)
As of December 31,
2015 2014
Non-current assets
Property, plant and equipment-net 30,536,721 33,315,513
Prepayments and premiums under operating leases 2,739,311 2,991,245
Prepayment for construction of new plant 7,160,523 8,988,397
Prepayment for acquisition of land use right 4,774,063 6,409,689
Prepaid lease payments 670,643 729,098
Deferred tax assets 1,340,268 495,444
47,221,529 52,929,386
Current assets
Inventories 3,527,696 793,469
Trade and other receivables 36,743,402 39,516,503
Subsidies prepaid to distributors 516,231 534,859
Prepayments and premiums under operating leases 81,147 471,580
Prepaid lease payments 16,395 17,399
Cash and cash equivalents 21,214,080 20,604,582
62,098,951 61,938,392
Total assets 109,320,480 114,867,778
Current liabilities
Trade and other payables 5,114,964 5,527,158
Related parties payables 983,391 651,078
Income tax payable 2,401,742 3,056,079
8,500,097 9,234,315
Non-current liability
Warrant liabilities 3,409 15,387
3,409 15,387
Total liabilities 8,503,506 9,249,702
Equity
Share capital 2,542 2,542
Share premium 5,624,875 5,624,875
Statutory surplus reserve 6,069,457 5,815,493
Retained profits 90,880,473 89,890,767
Foreign currency translation reserve (1,760,373 ) 4,284,399
100,816,974 105,618,076
Total liabilities and equity 109,320,480 114,867,778
KBS Fashion Group Limited
Consolidated statements of cash flow
For the years ended December 31, 2015, 2014, and 2013
(Stated in US dollars)
Year ended December 31,
2015 2014 2013
OPERATING ACTIVITIES
Profit for the year 1,243,670 6,876,982 25,419,366
Adjustments for:
Finance cost - 23,630 116,421
Change in fair value of warrant liabilities (11,978 ) (3,417,053 ) 45,442
Interest income (92,747 ) (136,911 ) (142,239 )
Depreciation of property, plant and equipment 2,015,437 2,340,082 1,875,812
Amortization of prepaid lease payments and trademark 17,061 17,326 15,585
Amortization of subsidies prepaid to distributors 1,093,036 1,163,913 1,397,789
Amortization of prepayments and premiums under operating leases 728,996 659,442 1,892,254
Provision/ (Reversal) of inventory obsolescence 342 (1,848 ) 1,994
Bad debt provision of trade receivables 1,028,439 1,973,459 -
Gain/(loss) on disposal of property, plant and equipment 11,412 - (10,132 )
Provision of impairment loss in prepayments 2,565,334 - -
Operating cash flows before movements in working capital 8,599,002 9,499,022 30,612,292
Increase in trade and other receivables (345,348 ) (11,007,437 ) (16,252,778 )
Decrease in related parties receivables - - 414,052
(Increase)/ Decrease in inventories (2,893,284 ) (126,523 ) 1,170,209
Increase in trade and other payables 101,240 1,071,032 200,208
Increase in related parties payables
(excluding waiver of payables to ex-shareholder) 330,099 221,847 421,165
Increase/ (Decrease) in income tax payable (775,117 ) (918,759 ) 105,336
Increase in deferred tax assets (908,889 ) (495,444 ) -
Prepayments and premiums paid under operating leases (449,935 ) (515,038 ) (725,943 )
Withdraw the prepayments and premiums paid under operating leases - - 1,246,270
Subsidies prepaid to distributors (1,093,036 ) (1,065,227 ) (1,253,461 )
NET CASH USED IN / FROM OPERATING ACTIVITIES 2,564,732 (3,336,527 ) 15,937,350
INVESTING ACTIVITIES
Interest received 92,747 136,911 142,239
Prepayment for construction of new plant - (15,755,201 ) -
Purchase of property, plant and equipment (1,020,623 ) (1,919,723 ) (11,288,129 )
NET CASH USED IN INVESTING ACTIVITIES (927,876 ) (17,538,013 ) (11,145,890 )
KBS Fashion Group Limited
Consolidated statements of cash flow (continued)
For the year ended December 31, 2015, 2014 and 2013
(Stated in US dollars)
FINANCING ACTIVITIES
Interest paid - (23,630 ) (116,421 )
New bank loans raised - - 1,968,213
Repayment of borrowings - (1,968,213 ) (807,809 )
Repayment of loan payable-related party - - (35,650 )
Advance from related party - - 50,650
Payment of offering costs - - (72,105 )
NET CASH USED IN / PROVIDED BY FINANCING ACTIVITIES - (1,991,843 ) 986,878
NET DECREASE / INCREASE IN CASH AND CASH EQUIVALENTS 1,636,856 (22,866,383 ) 5,778,338
Effects of currency translation (1,027,358 ) (229,122 ) 1,591,835
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,604,582 43,700,087 36,329,914
CASH AND CASH EQUIVALENTS AT END OF YEAR 21,214,080 20,604,582 43,700,087