Kyuan Petrochemicals' Q3 net loss narrows to US$6.9M from loss of US$10.7M in year-ago period, helped by higher yield rate, lower legal, consulting, investigation expenses; revenue down 0.2% to US$164.3M

NINGBO, China , November 20, 2012 (press release) – Keyuan Petrochemicals Inc. (OTCQB: KEYP), ("Keyuan" or "the Company"), an independent manufacturer and supplier of various petrochemical products in China, today announced the Company's financial results for the third quarter ended September 30, 2012.

"We are pleased that our first nine months 2012 revenue benefited from solid customer demands and the improvement of production efficiency," commented Mr. Chunfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "Although our margins were negatively impacted by extreme fluctuations in international oil prices and the industry environment, I believe Keyuan's core earnings potential will continue to improve as a result of our engagement with research institutes, our initiatives on major projects, and our SBS facility ramping into commercial production."

Financial Summary

 

Q3 2012

Q3 2011

Chg.

Net Revenues                                          

$164.3M

$164.7M

(0.2%)

Gross Profit

$3.9M

($3.4M)

215%

Net (loss) (a)

($6.9M)

($11M)

(37%)

EPS (Diluted)

($0.12)

($0.19)

(37%)

Diluted Shares O/S

57.6M

57.6M

-

(a) Net (loss) attributable to KEYP common stockholders.

YTD 2012 Financial Results

Nine months ended September 30, 2012

YTD 2012

YTD 2011

Chg.

Net Revenues

$532.1M

$462.3M

15%

Gross Profit

$19.8M

$11.1M

78%

Net (loss) (a)

($4.0M)

($7.3M)

(45%)

EPS (Diluted)

($0.07)

($0.14)

(50%)

Diluted Shares O/S

57.6M

57.6M

-

(a)     Net Income attributable to KEYP common stockholders.

Sales for the three months ended September 30, 2012 were approximately $164.3 million compared to sales of $164.7 million for the three months ended September 30, 2011, a decrease of $0.4 million, or 0.2%. The decrease was due to the decrease of sales volume as a result of market downturn coupled with production lost of 30,000 metric tons (MT) caused by a suspension of production This suspension was due to a 15-day facilities shutdown for routine inspection and maintenance. During the three months ended September 30, 2012, we sold 155,249 MT of petrochemical products at an average price of $1,059 per MT, compared to sales of 162,552 MT at an average price of $1,013 per MT in the three months ended September 30, 2011. This represents an increase of approximately 4.5% in the average sales price and a decrease of approximately 4.5% in overall products sold.

Sales for the nine months ended September 30, 2012 were approximately $532.1 million compared to sales of $462.3 million for the nine months ended September 30, 2011, an increase of $69.8 million, or 15.1%. The increase in our sales was due to the increase of sales volume coupled with the higher average sales price of our products. During the nine months ended September 30, 2012, we sold 482,210 MT of petrochemical products at an average price of $1,103 per MT, as compared to sales of 447,706 MT at an average price of $1,033 per MT in the nine months ended September 30, 2011. This represents an increase of approximately 6.8% in the average sales price and an increase of approximately 7.7% in overall petrochemical products sold.

Overall cost of sales was approximately $160.5 million for the three months ended September 30, 2012, or 97.7% of sales, as compared to cost of sales of approximately $168.0 million, or 102% of sales for the three months ended September 30, 2011. For the three months ended September 30, 2012, our average cost of finished product was $1,034 per MT, the same as three months ended September 30, 2011.

Our overall cost of sales was approximately $512.3 million for the nine months ended September 30, 2012, or 96.3% of sales, as compared to cost of sales of approximately $451.2 million, or 97.6% of sales for the nine months ended September 30, 2011. For the nine months ended September 30, 2012, our average cost of finished product was $1,062 per MT, as compared to an average cost of $1,008 per MT for the nine months ended September 30, 2011, an increase of 5.4%. The increase was mainly caused by the increase in raw material prices. We use fuel oil as raw material for production, which is a product of heavy crude oil. For crude oil, the average Brent oil price for the nine months ended September, 2012 was $110 per barrel, as compared to the price of $100 during the same period of 2011, an increase of 10%.

Gross profit for the three months ended September 30, 2012 was approximately $3.9 million as compared to gross loss of $3.4 million for the comparable period in 2011. Our gross margin increased from negative 2.1% for the three months ended September 30, 2011 to positive 2.4% for the three months ended September 30, 2012. Even though both periods are negatively impacted by the suspension of production, the average price in 2012 is a little higher compared to the same period in 2011, while the average cost was similar.

Gross profit for the nine months ended September 30, 2012 was approximately $19.8 million as compared to $11.1 million for the comparable period in 2011. Our gross margin has increased from 2.4% for the nine months ended September 30, 2011 to 3.7% for the nine months ended September 30, 2012. The increase in the gross margin is mainly due to the increase in sales price during the nine months ended September 30, 2012.

Operating expenses were approximately $2.4 million, or 1.5% of sales for the three months ended September 30, 2012, as compared to $5.3 million, or 3.2% of sales, for the three months ended September 30, 2011, a decrease of approximately $2.9 million. The decrease of the expenses was due to a substantial decrease in general and administrative expenses. General and administrative expenses for the three months ended September 30, 2012 were $2.1 million, as compared to general and administrative expenses of $5.2 million for the three months ended September 30, 2011. Expenses in 2011 included various legal, consulting and internal expenses related to the independent investigation that took place in 2011.

Operating expenses were approximately $8.3 million, or 1.6 % of sales for the nine months ended September 30, 2012, as compared to $13.8 million, or 3.0 % of sales for the comparable period in 2011, a decrease of approximately $5.5 million. The decrease in the expenses was due to the decreases in share-based compensation and various legal, consulting and internal expenses related to the independent investigation.

Net loss was approximately $6.9 million for the three months ended September 30, 2012, as compared to a net loss of approximately $10.7 million in the same period in 2011, a decrease of $3.8 million, or 36%. The decrease was mainly due to a higher yield rate and decreased legal, consulting and investigation expenses. The net loss for the three months ended September 30, 2012 reflects the results of a 15-day facilities shutdown for routine inspection and maintenance, the fluctuation in exchange rates and the persistent impact of the market downturn.

Net loss for the nine months ended September 30, 2012 was approximately $4.0 million, as compared to a net loss of approximately $7.3 million in the same period in 2011, a decrease of $3.3 million, or 45%.

Business updates

The second line in our SBS production facility entered into commercial production in early August 2012. As of September 30, 2012, the Company has produced about 18,869 MT of SBS. The design capacity of the SBS facility allows for production of up to 70,000 MT per year. We expect to generate net profit margins of 10% from our production of SBS once the facility reaches normal production levels. Based upon the Company's realized utilization rate in the past nine months, the SBS facility is anticipated to achieve an average 50% utilization rate towards the end of 2012.

We are planning to expand our facility to include additional storage capacity, a raw material pre-treatment facility, an asphalt production and an ABS production facility. We have a total of 100,000 MT of storage capacity, consisting of 50,000 MT of storage capacity for raw materials and 50,000 MT for finished products. As part of our expansion plan, we intend to add 180,000 MT of new storage capacity in 2012, after which our total storage capacity will be 280,000 MT. The Company entered into the first phase of construction of new storage capacity in August 2012. In addition, we also entered into a cooperation agreement with Fanchenggang City to build an ABS production facility with an estimated annual production of 400,000 MT ABS upon completion.

The actual and estimated schedule of our expansion plan is as follows:

Completed SBS facility in September 2011(achieved)
Completed trial production and began SBS production and sales in the fourth quarter of 2011 (achieved)
Complete storage capacity expansion, pretreatment facility and asphalt by June 30, 2013
Complete first phase construction of an ABS facility by the end of 2013

However, management is re-evaluating the effectiveness and feasibility of the expansion projects based on the long-term development and the industry environment and our scheduled expansion plan may be adjusted when the evaluation results are available.

Other events: Share buyback plan

With a strong belief in Company's growth and fundamental strength, the Company, on September 18th, 2012, announced that its Board of Directors has authorized the repurchase of $2 million of the Company's common stock up to $1.50 per share. The Company's common stock may be purchased from time to time in the open market or in privately negotiated transactions. The timing and amount of any shares repurchased will be determined by the Company's management based on its evaluation of market conditions and other factors.

About Keyuan Petrochemicals, Inc.

Keyuan Petrochemicals, Inc., established in 2007 and operating through its wholly-owned subsidiary, Keyuan Plastics, Co. Ltd., is located in Ningbo, China and is a leading independent manufacturer and supplier of various petrochemical products. Having commenced production in October 2010, Keyuan's operations include an annual petrochemical manufacturing design capacity of 720,000 MT for a variety of petrochemical products, with facilities for the storage and loading of raw materials and finished goods, and a technology that supports the manufacturing process with low raw material costs and high utilization and yields. In order to meet increasing market demand, Keyuan plans to expand its manufacturing capacity to include a SBS production facility which was completed in September 2011. One SBS production line began commercial production in December 2011 and the second line began commercial production in August, 2012. The Company plans to add additional storage capacity, a raw material pre-treatment facility, an asphalt production facility, and an ABS production facility. The company entered into the first phase of construction of new storage capacity since August 2012.

Cautionary Statement Regarding Forward-Looking Information

This press release may contain certain "forward-looking statements" relating to the business of Keyuan Petrochemicals, Inc., and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements" including statements regarding the impact of the proceeds from the private placement on the Company's short term business and operations, the general ability of the Company to achieve its commercial objectives, including the ability of the Company to sustain growth; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward looking statements are 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 months 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 more information, please contact:

US Contact Information:

Jim Jiang
Keyuan Petrochemicals, Inc
Phone: +001-1-646-705-1386
Email: jzm0580@gmail.com
Web: www.keyuanpetrochemicals.com

Company Contact Information:

Angel Gu
Keyuan Petrochemicals, Inc
Phone: +0086-1-381-986-4827
Email: angelgu@keyuanpetrochemicals.com
Web: www.keyuanpetrochemicals.com

 

 

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

             
   

September 30,

 

December 31,

 

2012

 

2011

   

(Unaudited)

   

ASSETS

       

Current assets:

       

Cash

 

$

7,255,600

 

$

7,325,017

Pledged bank deposits

   

200,972,578

   

156,318,066

Bills receivable

   

633,200

   

1,574,000

Accounts receivable

   

2,419,301

   

2,226,288

Inventories

   

69,292,607

   

38,945,968

Prepayments to suppliers

   

29,063,792

   

15,781,294

Consumption tax refund receivable

   

37,273,246

   

55,809,560

Amounts due from related parties

   

39,575

   

39,350

Other current assets

   

54,979,033

   

45,978,428

Deferred income tax assets

   

37,561

   

37,348

             

Total current assets

   

401,966,493

   

324,035,319

             

Property, plant and equipment, net

   

210,836,395

   

190,867,621

Intangible assets, net

   

903,959

   

978,503

Land use rights

   

10,794,017

   

11,068,762

VAT recoverable

   

1,390,582

   

2,893,635

             

Total assets

 

$

625,891,446

 

$

529,843,840

             

LIABILITIES AND STOCKHOLDERS' EQUITY

           

Current liabilities:

           

Short-term bank borrowings

 

$

325,320,242

 

$

225,969,421

Bills payable

   

107,327,400

   

63,550,250

Current portion of long-term bank borrowings

   

6,173,700

   

15,740,000

Accounts payable

   

43,882,748

   

97,588,137

Advances from customers

   

31,359,642

   

7,821,623

Accrued expenses and other payables

   

27,129,341

   

30,287,946

Income taxes payable

   

241,409

   

186,326

Dividends payable

   

2,381,759

   

2,381,759

Amounts due to related parties

   

-

   

621,077

             

Total liabilities, all current

   

543,816,241

   

444,146,539

             

Series B convertible preferred stock:

           

  Par value: $0.001; Authorized: 8,000,000 shares

           

  6% cumulative dividend with liquidation preference

           

  over common stock

           

  Issued and outstanding: 5,333,340 shares,

           

  liquidation preference of $20,000,000

   

16,451,552

   

16,451,552

Commitments and contingencies

   

-

   

-

             

Stockholders' equity:

           

Common stock:                                                                                                    

           

Par value:$0.001; Authorized: 100,000,000 shares;

           

Issued and outstanding: 57,646,160 shares as at September 30, 2012 and

           

December 31,2011

   

57,646

   

57,646

Additional paid-in capital

   

50,303,562

   

49,198,278

Statutory reserve

   

3,744,304

   

3,744,304

Accumulated other comprehensive income

   

5,848,820

   

6,545,811

Retained earnings

   

5,669,321

   

9,699,710

             

Total stockholders' equity

   

65,623,653

   

69,245,749

             

Total liabilities and stockholders' equity

 

$

625,891,446

 

$

529,843,840

             

See accompanying notes to the consolidated financial statements.

 

 

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF  COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

                         
   

Three Months Ended

 

Nine Months Ended

   

September 30,

 

September 30,

   

2012

 

2011

 

2012

 

2011

Sales

               

External parties

 

$

164,347,259

 

$

123,429,226

 

$

532,097,663

 

$

362,865,970

Related parties

   

-

   

41,225,747

   

-

   

99,443,224

                         

Total Sales

   

164,347,259

   

164,654,973

   

532,097,663

   

462,309,194

                         

Cost of sales

                       

External parties

   

160,472,369

   

126,185,505

   

512,329,534

   

351,055,636

Related parties

   

-

   

41,846,664

   

-

   

100,123,349

                         

Total Cost of sales

   

160,472,369

   

168,032,169

   

512,329,534

   

451,178,985

                         

Gross profit (loss)

   

3,874,890

   

-3,377,196

   

19,768,129

   

11,130,209

                         

Operating expenses

                       

Selling expenses

   

251,399

   

91,607

   

892,522

   

846,287

General and administrative expenses                

   

2,127,023

   

5,220,525

   

7,393,838

   

12,985,350

                         

Total operating expenses

   

2,378,422

   

5,312,132

   

8,286,360

   

13,831,637

                         

Income (loss)  from operations

   

1,496,468

   

-8,689,328

   

11,481,769

   

-2,701,428

Other income expense

                       

Interest income

   

1,518,802

   

1,497,644

   

4,340,849

   

3,186,530

Interest expense

   

-5,863,569

   

-5,963,264

   

-13,172,551

   

-11,798,628

Foreign exchange gain (loss), net

   

331,405

   

1,466,275

   

-33,113

   

4,666,631

Liquidated damages expense

   

-

   

-1,424,609

   

-

   

-2,725,339

Other

   

-5,439,250

   

-159,370

   

-5,656,289

   

2,409,165

                         

Total other (expenses)

   

-9,452,612

   

-4,583,324

   

-14,521,104

   

-4,261,641

                         

Loss before income taxes

   

-7,956,144

   

-13,272,652

   

-3,039,335

   

-6,963,069

                         

Income tax (benefit) expense

   

-1,018,411

   

-2,613,449

   

991,058

   

304,529

Net  loss attributable to Keyuan

                       

Petrochemicals Inc. stockholders

   

-6,937,733

   

-10,659,203

   

-4,030,393

   

-7,267,598

Dividends to Series B convertible

                       

preferred stockholders

   

-

   

306,247

   

-

   

908,753

Net loss attributable to Keyuan

                       

Petrochemicals Inc. common stockholders

 

$

-6,937,733

 

$

-10,965,450

 

$

-4,030,393

 

$

-8,176,351

Net loss attributable to Keyuan

                       

Petrochemicals Inc. stockholders

 

$

-6,937,733

 

$

-10,659,203

 

$

-4,030,393

 

$

-7,267,598

                         

Other comprehensive (loss) income

                       

Foreign currency translation adjustment

   

-827,671

   

942,212

   

-696,991

   

2,674,383

                         

Comprehensive loss

 

$

-7,765,404

 

$

-9,716,991

 

$

-4,727,384

 

$

-4,593,215

                         

Loss  per share

                       

Attributable to common stock

                       

- Basic

 

$

-0.12

 

$

-0.19

 

$

-0.07

 

$

-0.14

- Diluted

 

$

-0.12

 

$

-0.19

 

$

-0.07

 

$

-0.14

                         

Weighted average number of shares of common stock used in calculation

                       

Basic

   

57,646,160

   

57,579,490

   

57,646,160

   

57,579,096

Diluted

   

57,646,160

   

57,579,490

   

57,646,160

   

57,579.10

                         

See accompanying notes to the consolidated financial statements.

   

 

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

             
             
   

Nine Months Ended

September 30,

   

2012

 

2011

Cash flows from operating activities:

         

Net loss

 

$

-4,030,393

 

$

-7,267,598

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

           

Loss on disposal of property and equipment

   

-

   

3,528

Depreciation

   

7,341,232

   

6,994,230

Amortization

   

80,251

   

78,033

Land use rights amortization

   

338,504

   

329,183

Share-based compensation expense

   

1,206,126

   

1,695,078

Changes in operating assets and liabilities:

           

Bills receivable

   

951,117

   

6,972,884

Account receivable

   

-180,533

   

-

Inventories

   

-30,165,815

   

41,427,530

Prepayments to suppliers

   

-13,210,595

   

-9,138,576

Consumption tax refund receivable

   

18,881,633

   

-12,669,298

Other assets

   

-6,491,085

   

-9,613,538

Accounts payable

   

-54,641,410

   

13,727,663

Accounts payable-related parties

   

-625,497

   

505,542

Advances from customers

   

23,525,946

   

7,750,302

Income taxes payable

   

-409,611

   

-12,780,611

Accrued expenses and other payables

   

-2,134,091

   

-7,281,521

             

Net cash (used in) provided by operating activities

   

-59,564,221

   

20,732,831

             

Cash flows from investing activities:

           

Proceeds from property disposal of property and equipment

   

-

   

10,582

Purchase of property, plant and equipment,

   

-27,415,396

   

-23,631,456

             

Net cash used in investing activities

   

-27,415,396

   

-23,620,874

             

Cash flows from financing activities:

           

Pledged bank deposits used for bank borrowings

   

-43,821,515

   

-56,821,639

Proceeds from short-term bank borrowings

   

663,720,065

   

189,192,525

Repayment of short-term bank borrowings

   

-565,966,718

   

-130,501,038

Proceeds from bills payable

   

172,786,800

   

85,470,630

Repayment of bills payable

   

-129,312,690

   

-94,796,100

Repayments of long-term bank borrowings

   

-9,669,720

   

-13,101,900

Short-term financing from related parties

   

-

   

13,232,658

Short-term financing to related parties

   

-

   

-13,118,390

Proceeds from warrant exercise

   

-

   

7,332

Dividends paid

   

-

   

-2,585,647

             

Net cash provided by (used in) financing activities

   

87,736,222

   

-23,021,569

             

Effect of foreign currency exchange rate changes on cash

   

-826,022

   

316,817

             

Net decrease in cash

   

-69,417

   

-25,592,795

             

Cash at beginning of the period

   

7,325,017

   

29,336,241

             

Cash at end of the period

 

$

7,255,600

 

$

3,743,446

             

Supplemental disclosure of cash flow information:

           

Income taxes paid

 

$

1,820,668

 

$

13,085,140

Interest paid, net of capitalized interest

 

$

9,264,849

 

$

11,798,628

Dividends accrued

 

$

-

 

$

4,436,753

Non-cash financing activities:

           

Payable for purchase of property, plant and equipment

 

$

8,816,043

 

$

14,668,112

             

See accompanying notes to the consolidated financial statements.

     

 

 

SOURCE Keyuan Petrochemicals, Inc.

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