Keyuan Petrochemicals Inc. Announces Full Year 2013 Financial Results

NINGBO, China, May 23, 2014 /PRNewswire/ -- Keyuan Petrochemicals Inc. (OTC: 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 twelve months ended December 31, 2013.

"I am pleased to report positive net income for 2013. Our 2013 financial results benefitted from solid customer demand, our realignment of product profiles, along with the general stabilization of the petrochemical industry in China," declared Mr. Chunfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "I believe Keyuan's core earnings potential continues to improve as a result of the operation of the SBS facility and a series of initiatives on major projects."

Financial Summary

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

Full Year 2013 Financial Results

Sales for the year ended December 31, 2013 were $646,549 compared to sales of $750,628 for the year ended December 31, 2012, a decrease of $104,078, or 13.9%. The substantial decrease in sales is a result of 41 days production suspension for a routine maintenance of the production facilities which is standard and necessary in the petrochemical production industry and is undertaken every two years, depending on the condition of the facilities.

In 2013, the Company sold 529,957 MT of chemical products at an average price of $1.167 per MT, as compared to sales of 646,753 MT of chemical products at the average price of $1.051 per MT in 2012. This represents a reduction of 116,796 MT, or a decrease of approximately 18.1% in products sold. Compared with 15 days of production suspension for inspection in 2012, the Company lost 41 days of production for system maintenance during 2013.

In 2013, SBS production was 36,959 MT of finished products at an average sale price of $2.110 per MT generating sales of $77,984. In 2012, the SBS facility produced 28,730 MT of finished products at the average sale price of $2.471 per MT generating total sales of $70,992. The sales for SBS products increased $6,992 or 9.8%. The main reason for the increase is that the Company became more experienced in stabilizing the facility operating conditions and reducing interruptions, as well as increasing the output after the first year's trial operation.

Cost of sales was $620,040 for the year ended December 31, 2013, or 96% of sales, compared to cost of sales of $721,519, or 96% of sales for the year ended December 31, 2012, a decrease of $101,479 or 14.06%. The cost of sales are primarily composed of the costs of direct raw materials (mainly heavy oil, benzene and carbinol), labor cost, depreciation and amortization of manufacturing equipment and facilities, and other overhead.

In addition to primary components of cost of sales, cost of sales includes energy costs. Energy required for production of our products consists of water, electricity and steam, the costs of which are attributed to cost of sales rather than operating expense. The supply prices of these energy sources in China have been very stable historically as a result of PRC government policy. Accordingly, the potential impact of changing energy costs to our production is minimal. Total energy cost was approximately $16,262 for the year ended December 31, 2013, which constitutes approximately 2.52 % of sales. Total energy cost was approximately $14,118 for the year ended December 31, 2012, which constitutes approximately 1.88 % of sales.

Gross profit for the year ended December 31, 2013 was $26,509, compared to $29,109 for the year ended December 31, 2012. The decrease of $2,600 in gross profit in 2013 is due to the decrease in sales of products and the higher fixed cost and maintenance cost compared to fiscal year 2012. In addition, the Company also recorded a gross loss of $ 1,637 in connection with the trading of heavy oil in 2013, which also contributed to the decrease of gross profit.

Operating expenses, including selling expenses, and general and administrative expenses, were $16,299, or 2.5 % of sales for the year ended December 31, 2013 as compared to $13,642, or 1.8% of sales for the fiscal year 2012, an increase of $2,657. The increase is due to the outsourcing of our SBS products packing service, which results in an increase of $0.4 million in selling expense. The Company also incurred research and development expense of approximately $ 1.6 million for the purpose of meeting the requirements for our subsidiary, Keyuan Synthetic Rubbers, to apply as a "National High-Tech Enterprise." Once approved, Keyuan Synthetic Rubbers will benefit from a reduced income tax rate of 15% versus 25%. Consequently, the Company will be able to increase the investment in R&D and expansion toward the long-term growth of the Company.

For the year ended December 31, 2013, interest income and expense was approximately $8,422 and $18,809, respectively; as compared to interest income and expense of approximately $5,940 and $25,065, respectively for the year ended December 31, 2012. The increased interest income is mainly from the increased pledged bank deposits for bank borrowings. The decrease in interest expense is mainly due to the decreased rate of discounted bills as well as the decrease in the weighted average interest rate for short term borrowings from 6.21% in 2012 to 5.63% in 2013.

Net Income for the year ended December 31, 2013 was approximately $4,632, as compared to a net loss of approximately $5,850 for the year ended December 31, 2012, an increase of $10,482 or 179.2%. The increase in net income was mainly due to the exchange gain of $10,712 from the appreciation of the RMB.

Balance Sheet and Cash Flows

As of December 31, 2013 and 2012, cash of $12.3 million and $23.3 million, respectively, was held in major financial institutions located in the PRC. Management performs periodic evaluations of the relative credit standings of those financial institutions, and believes that they have high credit ratings.

Net cash used in operating activities was $52,961 for the year ended December 31, 2013, as compared to $7,095 used in operating activities for the same period in 2012. The increase in cash used in operating activities is primarily due to the increase in accounts payable, the prepaid VAT, inventories and prepayment to suppliers. The Company also obtained less advances from customers in 2013 which further contributed to the increase in net cash used in operating activities in 2013.

Net cash used in investing activities was approximately $73,341 and $54,417 for the years ended December 31, 2013 and 2012, respectively. The increase in net cash used in investing activities is primarily due to our increasing investments for the construction of infrastructures and facilities in accordance with our expansion plan.

Net cash provided by financing activities amounted to $115,231 for 2013 and $77,488 for 2012. The increase of $37,743 in net cash provided by financing activities in 2013 is primarily due to the increase in short-term bank borrowings for our operations and expansion plan.

Business Expansion Plan

The Company has been focusing on the following improvements to its infrastructure to expand its manufacturing capacity and profit margin:

a) an ABS production facility in Guangxi Province (the "Guangxi Project") with an annual production capacity of 400,000 MT of ABS;

b) an oil catalytic cracking processing facility to reduce production costs and the market risk in the purchase of raw materials, and to improve the stability and efficiency of project production to 200,000 MT of heavy oil per year;

c) an increased annual design capacity of our ethylene-styrene facility from 80,000 MT to 200,000 MT as a bridge between original products and high-value added products;

d) a transformer oil facility using hydrogen from the ethylene-styrene facility to complete a double hydrogenation process on original products (BTX Aromatic) for refining transformer oil and producing high value transformer oil with a design capability of 100,000 MT per year. Construction of the main facility column was completed at the end of October 2013. We are aiming to finish the assembly and installation by the end of May 2014 and start trial operations at the end of June 2014; and

e) a SSBR production facility with a designed capacity of 150,000 MT per year. SSBR can be used as raw material for tires, instead of imported hexakis (methoxymethy) melamine ("HMMM").

The estimated cost of our expansion plan is approximately $491.8 million, including $300 million for the Guangxi Project, $19.8 million for the catalytic cracking processing equipment, $30 million for the transformer oil facility, $99.5 million for the SSBR production facility, $40 million for the increased annual design capacity of our ethylene-styrene production lines, and $2.5 million for additional storage capacity. Upon full completion of our expansion, the Company's total production capacity will reach 1,723,000 MT per year including, but not limited to, the current petrochemical production of 720,000 MT, styrene of 200,000 MT, catalytic cracking oil of 200,000 MT, ABS of 400,000 MT, SSBR of 150,000 MT and transformer oil of 100,000 MT.

The Company's current estimate of the expansion schedule is as follows which is subject to further evaluation and adjustments based on our financial situation and market conditions.

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: +1-1-646-705-1386
Email: jzm0580@gmail.com

Company Contact Information:
Bill Bai
Keyuan Petrochemicals, Inc.
Phone: +86-138-0588-7777
Email: baih@krcc.cn
Web: www.keyuanpetrochemicals.com

Financial Statements