KBS Fashion Group Limited Announces Second Quarter 2016 Financial Results

SHISHI, CHINA / ACCESSWIRE / November 7, 2016 / 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 second quarter of 2016. The unaudited consolidated financial statements and other financial information included in this press release have been prepared in conformity with International Financial Reporting Standards ("IFRS").

Second Quarter 2016 Financial Highlights

  • Net revenues for the second quarter of 2016 decreased by 41% YoY to $7.91 million, compared to $13.5 million in the prior year period.
  • Gross profit was $1.75 million, or 22% of revenue, compared to $3.82 million, or 28%, in the prior year period.
  • Profit for the period was $0.08 million for second quarter of 2016, compared to $1.2 million for the same period in 2015, representing a decrease of $1.15 million. Net margin was 1% for the quarter period ended June 30, 2016, compared to a net margin of 9% 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 $0.07 million compared with $1.2 million for the same period last year.
  • Net income attributable to the Company per fully diluted share was $0.0029, compared to $0.05 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 $0.0028 compared with $0.05 for the same period last year.

Mr. Keyan Yan, Chairman and CEO of the Company commented, because our clients order most of their spring and summer collections in the first quarter of year 2016, the second quarter of the year is considered a slow season of our industry, so the performance of second quarter has decreased as compared the same period of last year. We have also closed some corporate stores in year 2015 and made an effort to access the new and faster growing smaller regional cities instead of the larger cities, as well as efforts on sales to online shop and multi-brand stores. We expect to have a better performance in the third quarter of year 2016.

Starting in 2015 we have also developed a new channel of sales involving wholesale to online shop and multi-brands stores, and we have made progress on this part of our sales strategy starting from the first quarter of year 2016. We have spent considerable time to demonstrate our products on some of the internet platforms as well as setting up international sales group. These channels will be a key driver for our future growth in next and following periods.

Additionally, in year 2015 we have expanded our R&D department and established a strong design team. Our current design team is able to capture fashion trends and product designs, transforming design concepts into commercially viable products with quality and reasonable cost.

Finally, we just moved in to our new office building and factory in the first quarter of year 2016. Our factory currently has an annual capacity of producing five million articles of clothing, 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.

With these advantages, we also expanded our sales department by employing international sales staff. So we expect our revenue to grow in the second half of 2016 and we believe we are on track to deliver profits in excess of $3 million for 2016, excluding the provision of the change in fair value of warrants and our non-recurring fees related to our recent transactions.

Second Half 2015 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

Three months ended June 30, 2016

Three months ended June 30, 2015

Three months ended June 30, 2016

Three months ended June 30, 2015

Three months ended June 30, 2016

Three months ended June 30, 2015

Three months ended June 30, 2016 Three months ended June 30, 2015

Segment revenue

6,826,543 9,292,155 479,981 3,443,823 607,775 768,040 7,914,299 13,504,019

% of Sales

86 % 69 % 6 % 26 % 8 % 6 % 100 % 100 %
Segment gross margins 1,365,915 2,244,128 164,471 1,288,509 218,233 286,245 1,748,618 3,818,882

Gross margin rate

20 % 24 % 34 % 37 % 36 % 37 % 22 % 28 %

Segment sales

For second quarter ended June 30 2016, total revenue was approximately $7.91 million, decreasing 41.3% from $13.5 million for quarter ended June 30, 2015. 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 $6.83 million for the three month period ended June 30, 2016, a decrease of 26% from $9.29 million in the prior year. The distributor segment accounted for 86% of the total revenue for the period, compared to 69% during 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 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 in the three month period ended June 30, 2016. Most of these distributors, either directly or through their sub-distributors, operate KBS-branded stores. As of June 30, 2016, distributors operated a total of 60 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 June 30, 2016:

Location

As of June 30, 2016

Fujian

11

Guangdong

2

Guangxi

10

Jiangsu

4

Anhui

1

Zhejiang

2

Chongqing

7

Inner Mongolia

1

Tianjin

4

Hebei

5

Heilongjiang

6

Sichuan

7

Total

60

Corporate Stores - Total retail revenue for corporate stores for the second quarter ended June 30, 2016 decreased to approximately $0.48 million, compared to $3.44 million during the same period last year, representing a decrease of 86%. As of June 30, 2016, the Company operated 2 corporate stores, both located in Fujian, compared with 12 stores as of June 30, 2015.

The corporate stores segment contributed 6% of total revenue, compared to 26% in year 2015. Gross profit margin for the Company's corporate stores was 34%, compared to 37% in year 2015. This margin compression is primarily due to promotions made in the two remaining corporate stores. Due to fierce competition from online sales, the company holds regular promotional events in their corporate stores. Furthermore, the corporate stores are also flagship stores for our distributors which emphasize the importance of promoting our brand awareness and market position.

OEM - The OEM segment is comprised of products that are designed and sold by our clients, but manufactured by us. Revenue from the OEM segment decreased by 20% to $0.60 million for the second quarter ended June 30, 2016, compared to $0.77 million during the same period last year. Gross profit margin slightly decreased to 36% from 37% of same period of year 2015.

Cost of sales and gross profit rate

Cost of sales was $6.16 million for second quarter of year 2016, a decrease of 36% from $9.68 million in the prior year period. Gross profit for year for second quarter of year 2016 was $1.75 million, compared to $3.82 million in second quarter of 2015. Due to the decrease in the unit prices offered by our distributor network to online shops and mixed-brand stores in the second quarter of year 2016 and the increasing depreciation expense of building 2 in Anhui, the gross profit rate decreased from 28% in the second quarter of 2015 to 22% in the second quarter of 2016.

Administrative expense

Administrative expenses increased by $0.856 million, or 188%, to $1.31 million for second quarter ended June 30, 2016, from $0.45 million for the prior year period. The increase of $0.856 million was mainly due to the depreciation of new office building in Anhui which was built at the end of year 2015 and increasing design expense including increased design department staff salary and outsourcing design expense.

Distribution and selling expenses

Selling and distribution expenses decreased by $0.83 million, or 47%, to $0.94 million for the second quarter ended June 30, 2016, from $1.78 million for the prior year period. Selling expenses accounted for 12% of total revenue, compared to 13% 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 stores expense.

Profit for the year

Profit for the year was $0.08 million for second quarter ended June 30 2016, compared to $1.23 million for the same period in 2016, representing a decrease of $1.15 million. Net margin was 1% for the second quarter ended June 30 2016, compared to a net margin of 9% 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, was $0.074 million for second quarter ended June 30 2016, compared with $1.23 million for the same period last year.

Net income attributable to the Company per fully diluted share was $0.0029 compared to $0.05 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 $0.0028 compared with $0.05 for the same period last year.

Cash and Cash Equivalents

Our cash and cash equivalents balance was $25.86 million at the period ended June 30, 2016, compared with $21.21 million for as of December 31, 2015, representing an increase of $4.65 million, or 18%. The increase of cash was mainly due to the collection of account receivable and the profit of the past 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 60 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
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 June 30

Six months ended June 30

2016

2015

2016

2015

USD

USD

USD

USD

Revenue

7,914,299 13,504,019 16,909,670 22,412,336

Cost of sales

(6,165,681 ) (9,685,136 ) (12,802,096 ) (15,508,854 )

Gross profit

1,748,618 3,818,882 4,107,574 6,903,481

GP ratio

22 % 28 % 24 % 31 %

Other income

22,858 31,622 168,010 112,322

Other gains and losses

884,226 4,253 882,883 2,619

Distribution and selling expenses

(947,766 ) (1,778,772 ) (1,918,295 ) (3,523,158 )

Administrative expenses

(1,311,825 ) (455,256 ) (2,183,832 ) (1,025,058 )

Operating profit

396,112 1,620,729 1,056,340 2,470,207

Finance costs

(23,260 ) - (23,326 ) -

Change in fair value of warrant liabilities

3,409 - 3,409 13,603

Profit before tax

376,260 1,620,729 1,036,423 2,483,809

Income tax expense

(298,094 ) (390,303 ) (525,870 ) (630,782 )

Profit for the year

78,166 1,230,425 510,553 1,853,027

Other comprehensive income

-Currency translation differences

(2,683,709 ) 1,528,550 (2,175,404 ) 1,132,438

Total comprehensive income

(2,605,543 ) 2,758,975 (1,664,851 ) 2,985,465

Attributable to:

Owner of the Company

(2,605,543 ) 2,758,975 (1,664,851 ) 2,985,465

Minority interests

- - - -

Outstanding shares

26,518,537 25,418,537 26,518,537 25,418,537

Profit per share - basic and diluted

0.0029 0.05 0.02 0.07

NON-GAAP Profit per share-basic and diluted

0.0028 0.05 0.02 0.07

KBS Fashion Group Limited

Unaudited Consolidated Statements of Financial Position

(Stated in US dollars)
June 30,

2016

December 31,

2015

Current assets

Cash and cash equivalents

25,859,551 21,214,080

Trade and other receivables

32,887,105 36,743,402

Related parties receivables

- (0 )

Inventories

3,688,104 3,527,695

Subsidies prepaid to distributors

- 516,231

Prepayments and premiums under operating leases

85,706 81,147

Prepaid lease payments

5,280 16,395

Total current assets

62,525,746 62,098,950

Non-current assets

Prepayments and premiums under operating leases

2,644,510 2,739,311

Prepayment for construction of new plant

7,011,940 7,160,523

Prepayment for acquisition of land use right

4,674,999 4,774,063

Construction in progress

- -

Property, plant and equipment

29,026,061 30,536,721

Prepaid lease payments

660,113 670,643

Deferred tax asset

1,056,060 1,340,268

Total non-current assets

45,073,683 47,221,529

Total assets

107,599,429 109,320,479

Current liabilities

Short-term loans

1,583,424 -

Trade and other payables

5,104,448 4,978,465

Related parties payables

1,177,096 983,391

Income tax payable

142,337 2,401,742

Total current liabilities

8,007,304 8,363,598

Warrant liabilities

- 3,409

Total liabilities

8,007,304 8,367,007

Equity

Common stock

2,652 2,542

Additional paid-in capital

704,954 265,064

Capital reserve

5,359,811 5,359,811

Surplus reserve

6,069,457 6,069,457

Retained earnings

91,391,027 91,016,972

Foreign currency translation reserve

(3,935,777 ) (1,760,373 )

Total equity

99,592,125 100,953,473

Total liabilities and equity

107,599,429 109,320,480

KBS Fashion Group Limited
Unaudited Consolidated Statements of Cash Flow
For the Six Months ended June 30, 2016 and 2015

2016

2015

Operating activities

USD

USD

Profit before tax

510,553 1,853,027

Adjustments for:

adjust statutory reserve for year 2013

Finance costs

23,326 (48,513 )

change in fair value of warrant liabilities

(3,409 ) (13,603 )

Interest income

(42,379 ) (29,356 )

Bad debt allowance

- -

Depreciation of property, plant and equipment

1,002,309 1,134,812

Amortisation of prepaid lease payments

8,142 8,048

Amortisation of subsidies prepaid to distributors

516,232 534,859

Amortisation of prepayments and premiums under operating leases

77,548 (791,209 )

Provision (Reversal) of inventory obsolescence

(449 ) (88 )

Loss (gain) on disposal of property, plant and equipment

1,752 -
-

Operating cash flows before movements in working capital

2,093,625 2,647,976

(Increase) / Decrease in trade and other receivables

3,969,567 985,037

(Increase) / Decrease in prepayments and deferred expenses

(363,913 )

Subsidies prepaid to distributors

(516,232 )

(Increase) / Decrease in related parties receivables

- 155,178

(Increase) / Decrease in inventories

(236,497 ) (495,851 )

Increase / (Decrease) in trade and other payables

(1,075,709 ) (820,116 )

Increase / (Decrease) in related parties payables

198,579 (240,670 )

Cash generated from operations

4,069,420 (416,422 )

Deferred income tax

260,058

Income taxes paid

(1,098,083 ) (634,770 )

Net cash from operating activities

3,231,395 1,596,784

Investing activities

Interest received

42,379 29,356

Prepayments and premiums paid under operating leases

- 1,046,234

withdraw the prepayments and premiums paid under operating leases

- -

Subsidies prepaid to distributors

- -

Prepayment for construction of new plant

- 8,894,262

Prepayment for acquisition of land use right

- -

Purchase of property, plant and equipment and construction in process

(114,528 ) (295,727 )

Prepayment on prepaid lease payments

- -

Proceeds on disposal of property, plant and equipment

- -

Net cash used in investing activities

(72,149 ) 9,674,125

Financing activities

Waiver of payable to Bay Peak

- -

Interest paid

(23,326 ) 48,513

New bank loans raised

1,606,033 -

Repayment of borrowings

- -

Reverse acquisition

- -

Net cash used in financing activities

1,582,707 48,513

Net increase in cash and cash equivalent

4,741,953 11,319,422

Effects of currency translation

(96,482 ) 219,043

Cash and cash equivalents at beginning of year

21,214,080 20,604,583

Cash and cash equivalents at end of year

25,859,551 32,143,049

KBS Fashion Group Limited

Reconciliation of IFRS profit to non-GAAP profit

For the three Months ended June 30, 2016 and 2015 (Stated in US dollars)
Three months ended June 30

2016

2015

USD

USD

Unaudited

EPS

Unaudited

EPS

Profit for the period

$ 78,166 $ 0.00 $ 1,230,425 $ 0.05

Change in fair value of warrants

3,409 0

Non-GAAP profit for the period

$ 74,757 $ 0.00 $ 1,230,425 $ 0.05
No. of shares outstanding 26,518,537 25,418,537

Non-GAAP Financial Measures:

This press release contains certain non-GAAP financial measures. A reconciliation of these non-GAAP measure 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