KBS Fashion Group Limited Reports Robust First Quarter 2019 Financial Results

SHISHI,China,June 3,2019 -- KBS Fashion Group Limited ("KBS" or the "Company") (NASDAQ: KBSF),a leading fully-integrated casual menswear company inChina,today announced its unaudited financial results for the first quarter ended March 31,2019.

First quarter of 2019 Financial Highlights

Net revenues increased by 3.5% to$4.62 millionfor the first quarter of 2019 from$4.46 millionfor the same period of last year.

Gross profit increased by 48.3% to$1.61 millionfor the first quarter of 2019 from$1.09 millionfor the same period of last year. Gross margin was 34.9% for the first quarter of 2019,compared to 24.0% for the same period of last year.

Operating profit increased by 127.0% to $0.54 million for the first quarter of 2019 from operating loss of $2.01 million for the same period of last year.

IFRS net income was$0.31 million,or$0.135 earnings per basic and diluted share,for the first quarter of 2019,compared to net loss of$1.90 million,or$0.886loss per basic and diluted share,for the same period of last year.

Mr.Keyan Yan,Chief Executive Officer of the Company commented,"we are very pleased with our operating and financial results for the first quarter,which demonstrated strong profitability given the first quarter being a slow season. The management team is working diligently to keep strong momentum by continuing to improve our operational efficiencies and increase our sales from different channels. Looking forward to the remaining of 2019,we are excited about the sales potential from the recently signed contract and integration of our potential acquisition of Tribe which is expected to put us in a prominent position in the smart clothe technology market. We are confident about our ability to outperform in 2019 and beyond."

First quarter of 2019 Financial Results Analysis

For the Three Months Ended March 31,2019

($ millions,except per share data)2019

2018

% ChangeRevenues4.62

4.46

3.5%Distribution network3.04

3.91

-22.3%Corporate stores0.17

0.15

13.3%OEM1.40

0.40

250.0%Gross profit1.61

1.09

48.3%Gross margin34.9%

24.2%

44.3%Operating income (loss)0.54

-2.01

-127.0%Operating (loss) margin11.8%

-45.0%

-126.1%IFRS net income (loss)0.31

-1.90

-116.3%IFRS Earnings (loss) per share0.135

-0.886

-115.3%RevenuesTotal revenues increased by$0.16 million,or 3.5%,to$4.62 millionfor the first quarter of 2019 from$4.46 millionfor the same period of last year. The increase was mainly contributable to the increased orders from OEM segment.

For the Three Months Ended March 31,2019

2019

2018($ millions)

Revenues

Gross

Profit

Gross

Margin

Revenues

Gross

Profit

Gross

MarginDistribution

network

3.04

0.97

31.9%

3.91

0.89

22.9%Corporate

stores

0.17

0.07

37.4%

0.15

0.06

39.0%OEM

1.40

0.58

41.2%

0.40

0.14

33.7%Total

4.62

1.61

34.9%

4.46

1.09

24.4%Revenues from the Company's distribution networkdecreased by$0.87 million,or 22.3%,to$3.04 millionfor the first quarter of 2019 from$3.91 millionfor the same period of last year. Distribution network contributed 65.9% of total revenues for the first quarter of 2019,compared to 87.8% for the same period of last year. The Company's distributor network consisted of 11distributors in 10provinces during the first quarter of 2019,compared to 14 distributors in 12 provinces during the same period of last year. 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 March 31,2019,there were 32 KBS-branded franchise stores operated by our distributors and sub-distributors,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. As a comparison,we had 39KBS-branded franchise stores operated by our distributors and sub-distributors as of March 31,2018.The following table lists by regions the number of retail stores operated by distributors and sub-distributors as of March 31,2019:

Location

As of March 31,2019

Fujian

6

Guangdong

2

Guangxi

3

Jiangsu

4

Anhui

2

Chongqing

4

Tianjin

3

Hebei

4

Sichuan

4

Total

32

Revenues from corporate store salesincreased by$0.02 million,or 13.3%,to$0.17 millionfor the first quarter of 2019 from$0.15 millionfor the same period of last year. We currently have one corporate store operated directly by us,sales of which accounted for 3.8% of total revenues for the first quarter of 2019,compared to 5.5% for the same period of last year. The increase in corporate store sales was due to the overall improvement on products this year.Revenues from OEM salesincreased by$1.00 million,or 247%,to$1.40 millionfor the first quarter of 2019 from$0.4 millionfor the same period of last year. OEM accounted for 30% of total revenues for the first quarter of 2019,compared to 7% 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. The increase in revenues from OEM sales was primarily due to the increased orders from our two major customers: Hangzhou Ziyin and Hangzhou YiyuanCost of Sales and Gross ProfitTotal cost of sales decreased by$0.37million,11.0%,to$3.00 millionfor the first quarter of 2019 from$3.38 millionfor the same period of last year.The decrease in cost of sales was primarily due to higher products pricing strategy this year comparing same period of last year.Total gross profit increased by$0.52million,or 48.3%,to$1.61 millionfor the first quarter of 2019 from$1.09 millionfor the same period of last year. Gross profits for distribution network,corporate stores and OEM were$0.97 million,$0.07 million,and$0.58 million,respectively,for the first quarter of 2018,compared to$0.89 million,$0.06 million,and$0.14 million,for the same period of last year.Overall gross margin was 34.9% for the first quarter of 2019,compared to 24.4% for the same period of last year. On a segment basis,gross margins for distribution network,corporate stores and OEM were 31.9%,37.4%,and 41.2%,compared to 22.9%,39.0%,and 33.7%,for the same period of last year. The increase in overall gross margin was due to the rolling out of our new products. Our products of new styles have gained additional advantages in pricing which helped increase our gross margin during the first quarter of 2019.Operating Expenses and Operating Income (Loss)Distribution and selling expenses decreased by$0.43 million,or 59.1%,to$0.30 millionfor the first quarter of 2019 from$0.73 millionfor the same period of last year. The decrease in distribution and selling expenses was mainly due to the Company's new cost effective business strategy,resulting in reduced cost in marketing and advertising as well as the labor. Additionally,the Company adjusted the allowance standard for the dealer rental allowance to save the cost.Administrative expenses decreased by$1.53 million,or 63.8%,to$0.87 millionfor the first quarter of 2019 from$2.40 millionfor same period of last year. The decrease in administrative expenses was mainly due to the Company's new business strategy plan resulting in reduced labor salary,R&D expenses,and outsourced marketing team expanse. The depreciation expense was reduced relatively after the impairmentof our Anhui facility at the end of 2018.Other operating expenses,including other income and other gains and loss,totaled$95,314for the first quarter of 2019,compared to$30,354for the same period of last year. Operating profit was$0.54 millionfor the first quarter of 2019,compared to operating loss of$2.01 millionfor the same period of last year. Operating profit margin was 11.8% for the first quarter of 2019,compared to operating loss margin of 45.0% for the same period of last year.Income (Loss) before Income TaxesProfit before income taxes was$0.31 millionfor the first quarter of 2019,compared to loss before taxes of$2.04 millionfor the same period of last year.Income tax expensewas$0.22 millionfor the first quarter of 2019,compared to income tax gainof$0.14 millionfor the same period of last year.About KBS Fashion Group LimitedHeadquartered in Shishi,KBS Fashion Group Limited,through its subsidiaries,is engaged in the business of designing,manufacturing,selling and distributing casual menswear through a network of 33 KBS branded stores (as ofMarch 31,2019) and over a number of multi-brand stores. To learn more about the Company,please visit its corporate website atwww.kbsfashion.com.Safe Harbor StatementThis 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:Lisa Tu

Chief Financial Officer

T: +86 158-5972-2469

E:lingsantu@hotmail.comKBS Fashion Group LimitedUNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)(Stated in US dollars)

Three months ended March 31

2019

2018

USD

USD

Revenue

4,618,734

4,464,161Cost of sales

(3,004,923)

(3,376,037)Gross profit

1,613,811

1,088,125GP ratio

34.9%

24%

Other income

66,469

30,144Other gains and losses

28,846

209Distribution and selling expenses

(298,277)

(729,349)Administrative expenses

(867,496)

(2,399,251)Operating profit

543,353

(2,010,121)

Finance costs

(17,210)

(25,507)Change in fair value of warrant liabilities

-

-Profit before tax

526,143

(2,035,628)

Income tax expense

(215,967)

137,313Profit for the year

310,176

(1,898,315)

Other comprehensive income

-Currency translation differences

(1,486,930)

(10,189,384)Total comprehensive income

(1,176,753)

(12,087,699)

Attributable to:

Owner of the Company

(1,753)

(12,699)Minority interests

-

-

Outstanding shares

2,291,632

2,141,466

Profit per share - basic and diluted

0.135

-0.886

NON-GAAP Profit per share-basic and dilluted

0.135

-0.886

KBS Fashion Group LimitedUnaudited Consolidated Statements of Financial Position For the Period ended March 31,2019(Stated in US dollars)

2019/03/31

2018/12/31Current assets

Cash and cash equivalents

20,229,246

21,026,103Trade receivables

10,556,303

8,122,223Other receivables and prepayments

547,810

855,473Related parties receivables

158,172

-Inventories

1,344,772

1,245,800Subsidies prepaid to distributors

-

-Prepayments and premiums under operating leases

573,134

78,532Land Use Rights and Trademark

33,409,436

31,328,132Total current assets

Non-current assets

1,911,453

2,371,735Prepayments and premiums under operating leases

-

-Prepayment for construction of new plant

-

-Prepayment for acquisition of land use right

-

-Construction in progress

11,973,511

12,173,808Property,plant and equipment

599,989

603,503Prepaid lease payments

14,768,293

14,688,829Deferred tax asset

29,253,247

29,837,875Total non-current assets

62,662,683

61,166,006Total assets

Current liabilities

1,092,785

1,785Short-term loans

3,865,583

5,278,460Trade and other payables

(323,233)

445,614Related parties payables

164,554

47,828Income tax payable

532,128

-Total current liabilities

5,331,817

6,864,685

Total liabilities

5,685

Equity

share capital

257

227share premium

9,135,130

8,000,561Revaluation reserve

184,272

184,272Statutory Surplus reserve

6,084,836

6,836Retained earnings

46,488,390

46,178,214Foreign currency translation reserve

(4,562,020)

(6,146,787)Total equity

57,330,865

54,301,321

Total liabilities and equity

62,007KBS Fashion Group LimitedUnaudited Consolidated Statements of Cash FlowFor the three Months ended March 31,2019 and 2018USD

2019

2018

USD

USDProfit before tax310,315)Adjustments for:

Finance costs17,210

25,507change in fair value of warrant liabilities-

-Interest income(16,071)

(20,264)Bad debt allowance-

-Share based compensation1,134,600

(1,314,420)Depreciation of property,plant and equipment209,145

400,538Amortisation of prepaid lease payments and trademark3,595

3,818Amortisation of subsidies prepaid to distributors-

-Amortisation of prepayments and premiums under operating leases105,868

27,727Provision (Reversal) of inventory obsolescence(41,469)

(14,428)Provision (Reversal) of impairment loss in prepayments-

-Loss (gain) on disposal of property,plant and equipment(808)

-Deferred income tax-

-Operating cash flows before movements in working capital1,722,246

(2,789,837)(Increase) / Decrease in trade and other receivables(2,342,359)

(765,977)(Increase) / Decrease in prepayments and deferred expenses233,252

1,307,245(Increase) / Decrease in related parties receivables-

-(Increase) / Decrease in inventories(34,008)

(1,631,454)Increase / (Decrease) in trade and other payables(508,054)

(597,447)Increase / (Decrease) in income tax payable534,099

-Increase / (Decrease) in related parties payables-

Cash generated from operations(394,822)

(4,477,469)DTA

69,711

(137,313)Income taxes paid-

-Net cash from operating activities(325,111)

(4,614,781)Investing activities

Interest received16,071

20,264Prepayments and premiums paid under operating leases-

-withdraw the prepayments and premiums paid under operating leases-

-Subsidies prepaid to distributors-

-Prepayment for construction of new plant-

-Prepayment for acquisition of land use right-

-Purchase of property,plant and equipment and construction in process(0)

(20,575)CIP movement-

-Intangible movements-

-Prepayment on prepaid lease payments-

-Proceeds on disposal of property,plant and equipment-

-Net cash used in investing activities16,071

(312)

Financing activities

Advances from related parities54,074

163,315Interest paid

(17,507)New bank loans raised1,117,960

1,146Payment of bank loans(1,960)

(1,146)Shares issued-

-Net cash used in financing activities36,864

137,808

Net increase in cash and cash equivalent(272,176)

(4,285)Effects of currency translation(524,681)

5,306,418

5,282,494Cash and cash equivalents at beginning of year21,103

25,221,323

Cash and cash equivalents at end of year

20,246

26,050,456

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