KBS Fashion Group Limited Announces Third 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 third quarter period ended September 30, 2016.

Third Quarter 2016 Financial Highlights

  • Net revenues for the third quarter of 2016 decreased by 14% YoY to $11.1 million, compared to $12.8 million in the prior year period.
  • Gross profit was $2.66 million, or 24% of revenue, compared to $3.53 million, or 27%, in the prior year period.
  • Profit for the period was $1.625 million, compared to $0.99 million for the same period in 2015, representing an increase of $0.64 million. Net margin was 14.6% for the period ended September 30, 2016, compared to a net margin of 7.7% 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 $1.625 million compared with $0.99 million for the same period last year.
  • Net income attributable to the Company per fully diluted share was $0.06, compared to $0.04 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 $0.06 compared with $0.04 for the same period last year.

Mr. Keyan Yan, Chairman and CEO of the Company commented, we have 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 have performed better in the third quarter as compared to first two quarters of 2016, due to the increasing orders from clients and our clients have booked most of autumn and winter collections in the third quarter.

Starting in 2015 we have also developed 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 an 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 fourth quarter 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.

Third quarter of 2016 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 September 30, 2016

Three months ended September 30, 2015

Three months ended September 30, 2016

Three months ended September 30, 2015

Three months ended September 30, 2016

Three months ended September 30, 2015

Three months ended September 30, 2016 Three months ended September 30, 2015

Segment revenue

9,352,700 10,426,506 386,321 1,653,835 1,331,218 796,222 11,070,239 12,876,562

% of Sales

84 % 81 % 3 % 13 % 12 % 6 % 100 % 100 %
Segment gross margins 2,020,687 2,336,582 198,756 890,038 440,577 306,441 2,660,019 3,533,061

Gross margin rate

22 % 22 % 51 % 54 % 33 % 38 % 24 % 35 %

Segment sales

For third quarter ended September 30, 2016, total revenue was approximately $11.1 million, decreasing 14% from $12.9 million for quarter ended September 30, 2015. The Company reports financial and operating results in three segments: distributor network, corporate stores and OEM.

Distributor Network - Revenue from the Company's distributor network reached approximately $9.4 million for quarter period ended September 30, 2016, a decrease of 10% from $10.4 million in the prior year. The distributor segment accounted for 84% of the total revenue for the period, compared to 81% during previous year. Gross profit margin for the Company's distributor network was maintained at 22%, which is same as 2015. The gross profit margin for sales to our distributor network is usually lower as compared with other segments and it accordingly decreases the general gross profit margin. Another reason of the margin compression is the reduction of the unit selling price to normal distributors.

The Company's distributor network consisted of 28 distributors in 15 provinces at the three month period ended September 30, 2016. Most of these distributors, either directly or through their sub-distributors, operate KBS-branded stores. As of September 30, 2016, distributors operated a total of 58 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 September 30, 2016:

Location

As of September 30, 2016

Fujian

11

Guangdong

2

Guangxi

9

Jiangsu

4

Anhui

1

Zhejiang

2

Chongqing

6

Inner Mongolia

1

Tianjin

4

Hebei

5

Heilongjiang

6

Sichuan

7

Total

58

Corporate Stores -Total retail revenue from corporate stores for third quarter ended September 30, 2016 decreased to approximately $0.38 million, compared to $1.65 million during the same period last year, representing a decrease of 77%. As of September 30, 2016, the Company operated 2 corporate stores, both located in Fujian, compared with 12 stores as of September 30, 2015.

The corporate stores segment contributed 3% of total revenue, compared to 13% in year 2015. Gross profit margin for the Company's corporate stores was 51%, compared to 54% in year 2015. Due to fierce competitions from online sales, the company holds regular promotional events in their corporate stores. Furthermore, the corporate stores are 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 increased by 67% to $1.33 million for third quarter ended September 30, 2016, compared to $0.80 million during the same period last year. Gross profit margin decreased to 33% from 38% of the same period of year 2015.

Cost of sales and gross profit rate

Cost of sales was $8.41 million for third quarter of year 2016, a decrease of 10% from $9.34 million in the prior year period. Gross profit for year for third quarter of year 2016 was $2.66 million, compared to $3.53 million in third 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 third quarter of year 2016 and increasing depreciation expense of building 2 in Anhui, the gross profit rate decreased from 27% in the third quarter of 2015 to 24% in the third quarter of 2016.

Administrative expenses

Administrative expenses increased by $0.032 million, or 6.6%, to $0.51 million for third quarter ended September 30, 2016, from $0.48 million for the prior year period. The increase was mainly due to the depreciation of new office building in Anhui, which finished at the end of year 2015 and increased design expense including increased design department staff salary and outsourcing design expense.

Distribution and selling expenses

Selling and distribution expenses decreased by $0.74 million, or 47%, to $0.84 million for the third quarter ended September 30, 2016, from $1.58 million for the prior year period. Selling expenses accounted for 7.5% of total revenue, compared to 12.3% 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 $1.6 million for third quarter ended September 30, 2016, compared to $0.99 million for the same period in 2015, representing an increase of $0.64 million. Net margin was 14.6% for third quarter ended September 30, 2016, compared to a net margin of 7.6% 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 $1.63 million for the third quarter ended September 30, 2016, compared with $0.99 million for the same period last year.

Net income attributable to the Company per fully diluted share was $0.061, compared to $0.04 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 $0.061 compared with $0.04 for the same period last year.

Cash and Cash Equivalents

Our cash and cash equivalents balance was $26.3 million at September 30, 2016 compared with $21.2 million at December 31, 2015, representing an increase of $5.1 million, or 23.9%. The increase of cash was mainly due to the reduction of the accounts receivable and the profit of the 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 58 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 September 30

2016

2015

USD

USD

Revenue

11,070,239 12,876,562

Cost of sales

(8,410,220 ) (9,343,502 )

Gross profit

2,660,019 3,533,061

GP ratio

24 % 27 %

Other income

366,771 24,478

Other gains and losses

302,371 (115,828 )

Distribution and selling expenses

(836,623 ) (1,580,044 )

Administrative expenses

(514,963 ) (483,034 )

Operating profit

1,977,575 1,378,634

Finance costs

(24,489 ) (7,071 )

Change in fair value of warrant liabilities

- -

Profit before tax

1,953,086 1,371,563

Income tax expense

(327,684 ) (382,376 )

Profit for the year

1,625,402 989,187

Other comprehensive income

-Currency translation differences

(1,387,149 ) (4,362,600 )

Total comprehensive income

238,252 (3,373,413 )

Attributable to:

Owner of the Company

238,252 (3,373,413 )

Minority interests

- -

Outstanding shares

26,518,537 25,418,537

Profit per share - basic and diluted

0.0613 0.04

NON-GAAP Profit per share-basic and diluted

0.0613 0.04

KBS Fashion Group Limited
Unaudited Consolidated Statements of Financial Position
(Stated in US dollars)

September 30,

2016

December 31,

2015

Current assets

Cash and cash equivalents

26,292,063 21,214,080

Trade and other receivables

33,975,185 36,743,402

Related parties receivables

154,039 (0 )

Inventories

4,135,532 3,527,695

Subsidies prepaid to distributors

607,700 516,231

Prepayments and premiums under operating leases

84,254 81,147

Prepaid lease payments

5,280 16,395

Total current assets

65,254,054 62,098,950

Non-current assets

Prepayments and premiums under operating leases

3,214,909 2,739,311

Prepayment for construction of new plant

6,963,008 7,160,523

Prepayment for acquisition of land use right

4,642,375 4,774,063

Construction in progress

(0 ) (0 )

Property, plant and equipment

28,363,971 30,536,721

Prepaid lease payments

651,699 670,643

Deferred tax asset

1,303,298 1,340,268

Total non-current assets

45,139,261 47,221,529

Total assets

110,393,314 109,320,479

Current liabilities

Short-term loans

1,572,374 -

Trade and other payables

5,520,650 4,978,465

Related parties payables

877,660 983,391

Income tax payable

427,171 2,401,742

Total current liabilities

8,397,855 8,363,598

Warrant liabilities

- 3,409

Total liabilities

8,397,855 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

93,006,108 91,016,972

Foreign currency translation reserve

(3,147,522 ) (1,760,373 )

Total equity

101,995,459 100,953,473

Total liabilities and equity

110,393,314 109,320,480

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

2016

2015

Operating activities

USD

USD

Profit before tax

1,625,402 989,186

Adjustments for:

Finance costs

24,489

change in fair value of warrant liabilities

(0 )

Interest income

(21,705 ) (24,477 )

Bad debt allowance

- -

Depreciation of property, plant and equipment

477,056 463,706

Amortisation of prepaid lease payments

8,414 32,971

Amortisation of subsidies prepaid to distributors

(1,417,967 ) (1,856,404 )

Amortisation of prepayments and premiums under operating leases

(574,891 ) 670,707

Provision (Reversal) of inventory obsolescence

- 2,746

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

- -
- 19,331

Operating cash flows before movements in working capital

120,798 297,766

(Increase) / Decrease in trade and other receivables

(1,088,080 ) 274,433

(Increase) / Decrease in related parties receivables

(154,039 ) (155,296 )

(Increase) / Decrease in inventories

(447,428 ) -

Increase / (Decrease) in trade and other payables

416,202 3,085,303

Increase / (Decrease) in related parties payables

(299,436 ) 335,959

Cash generated from operations

(1,572,781 ) 3,540,399

Deferred income tax

Income taxes paid

284,834 (1,934,863 )

Net cash from operating activities

(1,167,148 ) 1,903,302

Investing activities

Interest received

21,705 24,477

Prepayments and premiums paid under operating leases

5,944 (459,268 )

withdraw the prepayments and premiums paid under operating leases

- -

Subsidies prepaid to distributors

810,267 1,065,990

Prepayment for construction of new plant

- (8,645,624 )

Prepayment for acquisition of land use right

- -

Purchase of property, plant and equipment and construction in process

185,034 7,515

Prepayment on prepaid lease payments

- -

Proceeds on disposal of property, plant and equipment

- -

Net cash used in investing activities

1,022,950 (8,006,909 )

Financing activities

Waiver of payable to Bay Peak

- -

Interest paid

(24,489 ) -

New bank loans raised

- -

Repayment of borrowings

- -

Reverse acquisition

- -

Net cash used in financing activities

(24,489 ) -

Net increase in cash and cash equivalent

(168,688 ) (6,103,607 )

Effects of currency translation

601,200 (3,206,108 )

Cash and cash equivalents at beginning of quarter

25,859,551 32,143,023

Cash and cash equivalents at end of year

26,292,064 22,833,308

KBS Fashion Group Limited
Reconciliation of IFRS profit to non-GAAP profit
For the three Months ended September 30, 2016 and 2015
(Stated in US dollars)

Three months ended September 30

2016

2015

USD

USD

Unaudited

EPS

Unaudited

EPS

Profit for the period

$ 1,625,402 $ 0.06 $ 989,187 $ 0.04

Change in fair value of warrants

0 0

Non-GAAP profit for the period

$ 1,625,402 $ 0.06 $ 989,187 $ 0.04
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