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RAPAPORT... Kingold Jewelry Inc. reported that its revenue surged 36.7 percent year on year to $367 million for the second quarter that ended on June 30. However, cost of sales, including depreciation, leaped more than 40 percent to $355.9 million, resulting in a gross profit decline of 26 percent to $11.1 million. Net income fell 34 percent to $6.3 million or 10 cents per share.
During the quarter, the company, which manufactures and designs high-quality 24-karat gold jewelry, ornaments and investment-oriented products in China, processed 15.2 metric tons [one metric ton equals 35,274 ounces] of 24-karat gold products compared with 11.8 metric tons one year ago. As a result of lower gold prices, Kingold Jewelry incurred a $2.4 million write-down on the value of its inventory. Gross margin fell to 3 percent compared with 5.6 percent one year earlier, largely as a result of inventory write-down.
Kingold Jewelry experienced an increase in demand for its jewelry and investment gold products as a result of the Chinese Labor Day Holiday on May 1, following a gold price correction in April. The company anticipates processing between 50 and 60 metric tons of 24-karat gold products in 2013 and had already processed 23.8 million metric tons as of June 30. In the first half of 2013, Kingold Jewelry processed branded gold products totaling 13.2 metric tons and customized gold production of 10.6 metric tons.
Zhihong Jia, the chairman of Kingold Jewelry, said, "We were pleased to report top-line growth and profitability despite changes in global gold pricing. As reported previously, we were affected by the rapid changes in gold prices. Our customers altered their buying patterns and delayed orders as a result of the extreme volatility in pricing. We mitigated the impact on our operations by slowing down sales of products where we are not able to fix the price at the time of sale (such as our investment gold business and sales to certain jewelry customers) to avoid market risk and to preserve value."
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