Keyuan Petrochemicals Inc. Announces Third Quarter 2011 Financial Results

NINGBO, China, November 22, 2011 /PRNewswire-Asia-FirstCall/ -- 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 nine months ended September 30, 2011.

"Our first nine months 2011 revenues benefitted from solid customer demand and expanded production capacity," declared Mr. Chungfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "Although our margins were negatively impacted by higher raw materials costs and one-time legal and administrative expenses related to the investigation, we generated strong cash flows, which allow us to continue funding our growth initiatives. With our new SBS production facility ramping into commercial production later this month, I believe Keyuan's core earnings potential continues to improve."

Financial Summary

Third Quarter 2011 Financial Results

Sales for the third quarter ended September 30, 2011 were $151.3 million, an increase of $13.3 million, or 8.9%. The Company sold 162,552 metric tons (MT) of petrochemical products at an average price of $1,013 per metric ton compared to 181,282 MT and $835 per MT, respectively, in the third quarter of 2010.

In third quarter of 2011, Keyuan incurred production interruptions related to an unexpected power grid upgrade conducted by a local government utility agency. This resulted in 19 days of lost production, equating to approximately 41,000 tons of production, approximately $40 million of revenues. In addition, as a result of the power shutdown, we were forced to hold onto raw materials that we had already purchased during the period of production suspension during which time the sale price of our products decreased as a result of decreased raw material prices following the shutdown.

Cost of goods sold was $168.0 million compared to $118.6 million in the third quarter of 2010, with a gross margin loss of $3.4 million compared to a gross profit of $32.7 million in the same period a year ago. The loss was mainly due to the higher cost of sales and the increase in legal, consulting and investigation expenses, in addition to a 19 day suspension of production caused by the upgrade of the local power grid. The higher cost of sales was mainly caused by the timing of the Company's procurement of raw materials.

Operating expenses for the third quarter of 2011 were approximately $5.3 million, consisting of $0.1 million in selling expenses and $5.2 million in general and administrative expenses. General and administrative expenses were higher by approximately $3.1 million year-over-year due to $0.4 million of non-cash stock compensation expenses and $1.8 million related to the independent investigation. The Company incurred a $8.7 million loss from operations in the three months ended September 30, 2011 compared to a $30.5 million operating income in the corresponding period a year ago.

Net loss attributable to common shareholders was $11.0 million for the third quarter of 2011, with diluted loss per share of $0.19 compared to $21.2 million and $0.37 in the third quarter of 2010. Non-GAAP adjusted net loss and net loss per share for were $7.1 million and $0.12, respectively, for the third quarter of 2011. The weighted average shares outstanding decreased slightly from 57.9 million a year ago to 57.6 million in the third quarter of 2011.

Year-to-Date 2011 Financial Results

For the nine months ended September 30, 2011, sales were approximately $462.3 million compared to $400.7 million for the nine months ended September 30, 2010. The Company sold 447,147 metric tons (MT) of petrochemical products, down 7.2% from 481,983 MT of products sold in the corresponding period in 2010. The average sales price per metric ton was $1,034 during the first nine months of 2011, a 24.4% increase from $829 per metric ton in the first nine months of 2010.

Cost of goods sold increased 41.7% in the nine months ended September 30, 2011 to $168 million. Gross margin fell to 2.4% from 12.5% in the corresponding period a year ago due to higher raw material prices.

Operating expenses for the nine months of 2011 were approximately $13.8 million compared to $4.6 million a year ago due to $1.7 million of non-cash stock compensation expenses and $3.5 million of expenses related to the independent investigation.

Keyuan had an operating loss of $2.7 million compared to $45.6 million operating profit during the nine months of 2010. Excluding the above-mentioned non-cash and one-time expenses related to the independent investigation, operating income and operating margin in the first nine months of 2011 were $2.5 million and 0.5%, respectively.

GAAP net income attributable to common stockholders for the nine months of 2011 was a $8.2 million loss with corresponding net loss per share of $0.14. Non-GAAP adjusted net income attributable to common shareholders was $0.3 million and non-GAAP adjusted EPS was $0.01 in the first nine months of 2011.

Liquidity and Capital Resources

The Company had $162.5 million of cash and restricted cash at September 30, 2011 compared to $127.4 million at December 31, 2010. For the nine months of 2011, the Company generated $20.7 million in cash flow from operations. Inventories were $47.5 million at September 30, 2011 and advance payments for the suppliers amounted to $19.6 million.

Keyuan had approximately $217.2 million of bank loans outstanding at September 30, 2011 with maturity dates from December 2011 to October 2012 and interest rates from 2.97% to 8.13% per annum. Management expects all unpaid loan balances will be extended at their due date.

Full Year 2011 Guidance

Management reiterates its prior guidance for $625.0 million of revenues and 570,000 MT of production for the twelve months ending December 31, 2011. This assumes approximately $30.0 million of revenue contribution from its SBS production facility.

Business Updates

The Company completed construction of its new 70,000 MT Styrene-Butadiene-Styrene ("SBS") production facility in September 2011. Trial production commenced in October and is expected to continue through the end of November before the facility will be ready for commercial production. Management expects to generate between $100 and $110 million in net revenues from SBS in 2012 with a net income between $10 and $11 million.

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 and is currently on trial production, additional storage capacity, a raw material pre-treatment facility, and an asphalt production facility.

About Non-GAAP Financial Measures

To supplement our consolidated financial statements, which statements are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: adjusted net income and adjusted EPS (basic and diluted). The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our "recurring core business operating results". We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. We believe these non-GAAP financial measures are useful to investors because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income (Unaudited):

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:

Investor Relations:

Ted Haberfield, President
MZ North America, IR
Tel: +1-760-755-2716
Email: thaberfield@hcinternational.net
Web: www.mz-ir.com

Mr. Andrew Haag, Managing Partner, USA
Hampton Growth, LLC
Tel: +1-877-368-3566
Email: andrew@hamptongrowth.com
Web: www.hamptongrowth.com