Keyuan Petrochemicals Inc. Announces Second Quarter 2014 Financial Results

Three months revenues increased 96% or $90 million YOY to approximately $185 million

NINGBO, China, August 28, 2014 /PRNewswire/ — 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 quarter ended June 30, 2014.

“We are pleased that our sales have increased significantly year over year due to an increase in sales and production volume in the last quarter compared with the same period of 2013,” stated Mr. Chunfeng Tao, Chairman and the Chief Executive Officer of the Company. “I believe the Company will continue to keep sustainable growth while we are preparing the launching of some new products late this year. In addition, it is expected that the petrochemical market in China will become more stabilized soon and Keyuan’s core earnings potential will continue to improve.”

Financial Summary

Q2 2014

Q2 2013

Chg.

1H 2014

1H 2013

Chg.

Sales

$184.5M

$94.3M

96%

$38.4

$303.8M

27%

Gross Profit

$9.7M

$2.6M

269%

$16.8

$11.5M

47%

Net Income/(Loss) (a)

$(1)M

$(0.5)M

-105%

$(3.8)M

$2.4M

-255%

EPS (Diluted)

$(0.02)

$(0.01)

-100%

$(0.07)

$0.04

-275%

Diluted Shares O/S

57.4M

57.6M

57.4M

63.0M

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

Sales for the three months ended June 30, 2014 were approximately $185 million, compared to $94 million for the three months ended June 30, 2013, an increase of $90 million, or 96%. The increase was mainly due to the increase in sales and production volume in the second quarter of 2014, compared with the 40 days of production interruptions in the second quarter of 2013. During the three months ended June 30, 2014, we sold 170,979 metric tons of petrochemical products at an average price of $1,079 per metric ton, compared to 85,999 metric tons of petrochemical products at an average price of $1,096 per metric ton in the three months ended June 30, 2013. The average sales price per MT in the second quarter of 2014 dropped 1.5% compared with the same period of 2013, mainly due to the stagnant condition of the overall SBS market.

Sales for the six months ended June 30, 2014 were approximately $386 million, compared to $304 million for the six months ended June 30, 2013, an increase of $82 million, or 27%. The increase in our sales was due to the increase in sales and production volume in the second quarter of 2014, compared with the 40 days of production interruptions in the second quarter of 2013. Compared with the average sales price for the six months ended June, 30, 2013, the average sales price in the same period of 2014 decreased 3.5% from $1,123 to $1,084 per MT.

Cost of sales was approximately $175 million for the three months ended June 30, 2014, or 95% of sales, as compared to approximately $92 million, or 97 % of sales for the three months ended June 30, 2013. Cost of sales are primarily composed of the costs of direct raw materials (mainly heavy oil, benzene, butadiene and carbinol), and labor. The decrease in the percentage of cost of sales was mainly due to the average unit cost of raw material dropped from $1,065 for three months ended June 30 2013 to $1,021 for the comparable period of 2014.

The Company commenced heavy oil trading in April 2013, whereby the Company functions as an agent on behalf of a Hong-Kong based customer. For the three months ended June 30, 2014 and 2013, the heavy oil trading consists of purchases of approximately $70.1 million and $130.0 million, respectively, and sales of approximately $69.8 million and $129.4 million, respectively, resulting in a loss of $0.3 million and $0.6 million, respectively.

Cost of sales was approximately $370 million for the six months ended June 30, 2014, or 95.64% of sales, as compared to approximately $292 million, or 96.44% of sales for the six months ended June 30, 2013. In the six months ended June 30, 2014, the average cost of finished product was $1,034 per metric ton, as compared to $1,080 per metric ton in the six months ended June 30, 2013, a decrease of 4.3%.

For the six months ended June 30, 2014, the heavy oil trading consists of purchases of $170.1 million, and sales of $169.0 million, resulting in a loss of $1.1 million.

Gross profit for the three months ended June 30, 2014 was approximately $9.7 million as compared to $2.6 million for the comparable period in 2013, an increase of approximately $7.1 million or 269%. The increase was mainly due to the improved sales and production volume during the period compared with the production suspension in the comparable period in 2013.

Gross profit for the six months ended June 30, 2014 was approximately $17 million as compared to $11 million for the comparable period in 2013. Our gross margin increased from 3.6% for the six months ended June 30, 2013 to 4.4% for the six months ended June 30, 2014. The main reason for the increase in the gross margin is mainly due to the improved production and lower unit costs.

Operating expenses, including selling expenses, and general and administrative expenses, were approximately $3.6 million, or 1.9% of sales for the three months ended June 30, 2014, as compared to $2.9 million, or 3% of sales for the comparable period in 2013, an increase of approximately $0.7 million or 25%. The increase was mainly due to increases in loan guarantee fees of $0.1 million and increased R&D expenses of $0.4 million related to Ningbo Keyuan Synthetic Rubbers’ application for the national high-tech enterprise.

Operating expenses were approximately $7.4 million, or 1.9% of sales for the six months ended June 30, 2014, as compared to $6 million, or 2% of sales for the comparable period in 2013, an increase of approximately $1.4 million. The increase in the expenses was due to general increases in R&D, and welfare expense.

Net Loss was approximately $1 million for the three months ended June 30, 2014, as compared to net loss of approximately $0.5 million in the same period in 2013, an increase of $0.5 million, or 105%. This increase in loss was mainly due to the foreign exchange loss of $1.7 million from the depreciation of RMB, compared to an exchange gain of $4.7 million in the same period of 2013.

Net loss was approximately $3.8 million for the six months ended June 30, 2014, as compared to net income of approximately $2.4 million in the same period in 2013, a decrease of $ 6.2 million, or 255%. This decrease was mainly due to the foreign exchange loss of $4.1 million, compared to a foreign exchange gain of $6.2 million in the same period of 2013. The exchange rate for USD to RMB appreciated from 6.31 to 1 on January 1, 2013, to 6.17 to 1 on June 30, 2013, however, the exchange rate for USD to RMB depreciated from 6.11 to 1 on January 1, 2014, to 6.16 to 1 on June 30, 2014.

About Keyuan Petrochemicals, Inc.

Keyuan Petrochemicals, Inc., established in 2007, through its PRC operating subsidiaries, Ningbo Keyuan Plastics Co., Ltd, Ningbo Keyuan Petrochemicals Co., Ltd, Keyuan Synthetic Rubbers Co., Ltd and Guangxi Keyuan Co., Ltd, is engaged in the manufacture and sale of various petrochemical products in the PRC. 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. Keyuan also completed the construction of a Styrene-Butadience-Styrene (the “SBS”) production facility with an annual production capacity of 70,000 MT in September 2011. One SBS production line began commercial production in December 2011 and the second line began commercial production in August 2012. In order to meet increasing market demand, Keyuan adjusted its original expansion project and is currently working to refine its manufacturing capacity to include an ABS production facility, an oil catalytic cracking processing facility, an increased annual design capacity of its ethylene-styrene facility from 80,000 MT to 200,000 MT, a transformer oil facility and an SSBR (Solution Polymerized Styrene Butadiene Rubber) production facility.

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:

Bill Bai
Keyuan Petrochemicals, Inc.
Phone: +0086-138-0588-7777
Email: baih@krcc.cn
Web: www.keyuanpetrochemicals.com

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIAIRES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

Note

June 30,

December 31,

2014

2013

(Unaudited)

ASSETS

Current assets:

Cash

$

8,880

$

12,309

Pledged bank deposits

488,964

336,363

Bills receivable

2,112

25

Accounts receivable

9,235

7,517

Inventories

3

69,550

69,914

Prepayments to suppliers

45,066

33,842

Consumption tax recoverable

4

16,202

46,072

Amounts due from related parties

13

41

43

Other current assets

5

71,978

65,189

Deferred income tax assets

8

3,219

2,641

Total current assets

715,247

573,915

Property, plant and equipment, net

307,985

285,506

Intangible assets, net

905

986

Land use rights

10,353

10,663

VAT recoverable

3,010

3,012

Total assets

$

1,037,500

$

874,082

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Short-term bank borrowings

6

$

601,601

$

424,436

Bills payable

241,270

261,524

Accounts payable

57,199

59,043

Amounts due to related parties

381

Advances from customers

16,794

10,820

Accrued expenses and other payables

31,001

23,767

Income tax payable

8

997

1,849

Dividends payable

2,382

2,382

Total liabilities, all current

951,625

783,821

Series B convertible preferred stock:

16,868

16,868

Par value: $0.001; Authorized: 8,000,000 shares issued and outstanding:

5,333,340 shares, liquidation preference $20,250

Commitments and contingencies

7

Stockholders’ equity:

Common stock:

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

58

58

Issued: 57,646,160 Shares as at June 30, 2014 and December 31, 2013;
outstanding: 57,335,736 and 57,520,012 shares, as at June 30, 2014 and
December 31, 2013, respectively

Additional paid-in capital

51,555

51,555

Statutory reserve

5,749

5,749

Accumulated other comprehensive income

9,785

10,245

Retained earnings

2,170

5,929

Treasury stock, at cost, 310,424 and 126,148 shares at June 30,2014 and
December 31, 2013, respectively

(310)

(143)

Total stockholders’ equity

69,007

73,393

Total liabilities and stockholders’ equity

$

1,037,500

$

874,082

See accompanying notes to the consolidated financial statements.

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES

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

(Amounts in thousands, except share and per share data)

Three Months Ended

Six Months Ended

June 30,

June 30,

2014

2013

2014

2013

Sales

$

184,536

$

94,257

$

386,430

$

303,811

Cost of sales

174,845

91,628

369,596

292,360

Gross profit

9,691

2,629

16,834

11,451

Selling expenses

307

236

625

403

General and administration expenses

3,266

2,621

6,748

5,591

Total operating expenses

3,573

2,857

7,373

5,994

Income (loss) from operations

6,118

(228)

9,461

5,457

Other income (expense):

Interest income

3,089

3,151

5,880

3,902

Interest expense

(6,620)

(7,045)

(11,588)

(10,441)

Foreign exchange (loss) gain, net

(1,694)

4,652

(4,139)

6,205

Other expense, net

(1,402)

(715)

(2,862)

(1,095)

Total other (expense) income, net

(6,627)

43

(12,709)

(1,429)

(Loss) income before income taxes

(509)

(185)

(3,248)

4,028

Income tax expense

511

312

511

1,607

Net (loss) income attributable to Keyuan Petrochemicals Inc.
stockholders

(1,020)

(497)

(3,759)

2,421

Dividends to Series B convertible preferred stockholders

Net (loss) income attributable to Keyuan Petrochemicals Inc. common
stockholders

$

(1,020)

$

(497)

$

(3,759)

$

2,421

Net (loss) income attributable to Keyuan Petrochemicals Inc.
stockholders

$

(1,020)

$

(497)

$

(3,759)

$

2,421

Other comprehensive income:

Foreign currency translation adjustment

381

1,101

(459)

1,632

Comprehensive (loss) income

$

(639)

$

604

$

(4,218)

$

4,053

(Loss) earnings per share:

Attributable to common stock:

-Basic

$

(0.02)

$

(0.01)

$

(0.07)

$

0.04

-Diluted

$

(0.02)

$

(0.01)

$

(0.07)

$

0.04

Weighted average number of shares of common stock used in calculation:

-Basic

57,404,048

57,646,160

57,404,048

57,646,160

-Diluted

57,404,048

57,646,160

57,404,048

62.979,500

See accompanying notes to the consolidated financial statements.

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands, except share data)

Six months ended

June 30,

2014

2013

Cash flows from operating activities:

Net (loss) income

$

(3,759)

$

2,421

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

Depreciation

6,514

6,047

Amortization

74

48

Land use rights amortization

233

234

Deferred income tax (benefit) expense

(598)

1,086

Share-based compensation expense

764

Changes in operating assets and liabilities:

Bills receivable

(2,093)

(8,116)

Accounts receivable

(1,740)

3,988

Inventories

(148)

(6,339)

Prepayments to suppliers

(11,519)

(7,645)

Consumption tax refund receivable

29,600

(40,834)

Other current assets

(7,108)

3,359

Accounts payable

(1,062)

(19,970)

Accounts payable – related parties

28

Advances from (to) customers

6,029

(18,593)

Income taxes payable

(840)

(2,595)

Accrued expenses and other payables

1,416

(646)

Net cash provided by (used in) operating activities

15,027

(86,791)

Cash flows from investing activities:

Purchase of property, plant and equipment

(25,176)

(28,318)

Net cash used in investing activities

(25,176)

(28,318)

Cash flow from financing activities:

Pledged bank deposits used for bank borrowings

(155,429)

(90,005)

Proceeds from short-term bank borrowings

734,791

646,075

Repayment of short-term bank borrowings

(554,094)

(504,884)

Proceeds from bank notes

342,394

130,724

Repayments of bank notes

(360,773)

(87,644)

Repurchase of treasury stock

(168)

Net cash provided by financing activities

6,721

94,266

Effect of foreign currency exchange rate changes on cash

(1)

(225)

Net decrease in cash

(3,429)

(21,068)

Cash at beginning of period

12,309

23,378

Cash at end of period

$

8,880

$

2,310

Supplemental disclosure of cash flow information:

Income tax paid

$

1,941

$

3,056

Interest paid, net of capitalized interest

$

$

10,441

Non cash investing and financing activities:

Payable for purchase of property, plant and equipment (net of VAT)

$

925

$

6,068

See accompanying notes to the consolidated financial statements.

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