Keyuan Petrochemicals Inc. Announces Second Quarter 2010 Financial Results
NINGBO, China, Aug. 17 /PRNewswire-Asia-FirstCall/ --
-- Q2 2010 revenues increased 12% from Q1 2010 to $132.0 million in the
Company's second quarter of production.
-- Keyuan is estimated to sell 66,000 MT of product in August at higher
prices
-- Net income was $4.9 million in Q2 2010 and $10.7 million in the first
half of 2010
-- Company increased full year 2010 revenue guidance of $550.0 million
-- Increases total production to 660,000 MT of petrochemical products in
2010
Keyuan Petrochemicals Inc. (OTC Bulletin Board: KYNP), ("Keyuan" or "the Company"), a leading independent manufacturer and supplier of various petrochemical products in China, today announced the Company's financial results for the second quarter of 2010.
Second Quarter 2010 Financial Results
Revenue for the second quarter ended June 30, 2010 totaled $132.0 million, based on the sale of 155,955 metric tons (MT) of petrochemical products, up 12% versus the first quarter. Total production was 169,386 MT in the second quarter. Due to lower market pricing, we decided to hold 24,000 MT of product in inventory, which we anticipated selling in the third quarter, at a higher price. We also held over 27,400 tons of production as a result of a 15-day production shutdown in the second quarter due to a power grid upgrade by a local utility agency. The Company had no revenue in the quarter ended June 30, 2009, having commenced production in October 2009. In the first quarter of 2010, Keyuan generated revenue of $117.4 million, based on the sale of 144,746 MT of a variety of petrochemical products.
For the three months ended June 30, 2010, cost of goods sold was $123.4 million compared to $108.6 million in the first quarter of 2010, with gross profit of $8.6 million compared to gross profit of $8.8 million in the first quarter of 2010. Second quarter 2010 gross margins were 6.6% compared to 7.5% in first quarter due to lower market conditions caused by the European debt crisis, production start up carry over expenses, and a temporary mandated plant shutdown by the local utility agency partially offset by a positive contribution from selling more higher margin products (See "Operating Review" below for further details).
Operating expenses for the second quarter of 2010 were approximately $1.3 million, consisting of $0.2 million in selling expenses and $1.1 million in general and administrative expenses. In the first quarter of 2010 operating expenses totaled $0.9 million, consisting of $84,512 in selling expenses and $0.8 million in general and administrative expenses. General and administrative expenses were higher in the second quarter of 2010 mainly due to the introduction of public company costs. Operating income for the second quarter of 2010 totaled $7.3 million compared to operating income of $7.9 million in the first quarter of 2010, representing an operating margin of 5.5% and 6.8%, respectively.
Net income for the second quarter of 2010 was $4.9 million, net of $1.6 million in interest expense and $0.9 million in current tax provision, compared to first-quarter 2010 net income of $5.7 million, net of $1.1 million in interest expense and $1.0 million in tax provision.
"Our performance during the second quarter of 2010 reflects continued strong demand for our products," stated Mr. Chunfeng Tao, founder, chairman and chief executive officer of the Company. "With a healthy backlog and a clear growth strategy, we are doubling our storage capacity from 100,000 tons to 200,000 tons, building a raw material pre-treatment facility and an asphalt production facility in order to meet growing customer demand. Once completed, our new facilities will allow us to reduce raw material costs, improve production yield and maximize profits from all stages of production. We also believe this expansion will position Keyuan to achieve significant growth in cash flows and profits and establish ourselves as a leading producer of refined petrochemical products in China."
Six Months 2010 Financial Results
Revenue for the six months ended June 30, 2010 totaled $249.4 million, based on the sale of 300,700 metric tons (MT) of a variety of petrochemical products. The Company had no revenue for the six months ended June 30, 2009.
For the first six months of 2010, cost of goods sold was $231.9 million, with gross profit of $17.5 million. Gross margin was 7.0% in the first half of 2010.
Operating expenses for the first six months of 2010 were approximately $2.2 million, consisting of $0.3 million in selling expenses and $1.9 million in general and administrative expenses. Operating income totaled $15.2 million.
Net income for the first six months of 2010 was $10.7 million, net of $2.7 million in interest expense and $1.9 million in current tax provision.
The Company had $39.3 million of cash and restricted cash at June 30, 2010 compared to $20.0 million at December 31, 2009. For the first six months of 2010, the Company generated $14.4 million in cash flow from operations. Inventories were $67.5 million at June 30, 2010 and advance payments for the purchase of raw materials amounted to $13.7 million. The Company had no accounts receivable at the end of the quarter. The Company has sufficient funds available to finance all of its capital projects and working capital needs.
Financial Outlook for 2010
Management now expects the Company to generate revenue of approximately $550.0 million with net income of approximately $36.3 million for the full year 2010, excluding public company expenses. This guidance assumes average annual sales volume of 660,000 MT of petrochemical product sales in 2010.
Operating Overview
Gross margin is expected to improve in the second half of the year due to improved production yields and favorable product mix and is expected to average 10% for the full year of 2010. First half gross margin was impacted by three factors:
1. Lower market prices due to a general economic slowdown.
The European debt crisis that began in mid-May and extended to June drove down prices for all petrochemical products. The lower market prices together with higher historical inventory costs put the downward pressure on our margin. We have seen prices start to rebound in late July.
2. Startup cost carryover.
We have been ramping our production lines since the fourth quarter of 2009. We had 2009 startup costs carried over, resulting in approximately $1.8 million higher cost of goods sold at beginning of 2010. In addition, because the equipment, processes and workers are new, we have not been operating at optimal efficiency levels. The company continues to optimize product mix and improve efficiency and yield.
3. Temporary mandatory factory shutdown.
In the months of March, May and June, we were forced to shut down all production lines due to a mandatory shutdown ordered by the local utility agency for power grid upgrade. Because we were forced to power down and subsequently power up our manufacturing facilities over several days, we lost a combined 23 days of production (8 days in the first quarter, 15 days in the second quarter), equating to 42,000 MT of production, approximately $33.8 million of revenues, $2.4 million in gross profit and $1.5 million in net income.
As previously stated, we decided to sell less than 100% of our production in the second quarter because we received lower prices during certain periods in the quarter. Up to date, we have sold over half of the inventory from the second quarter at higher prices than would have received had we sold toward the end of last quarter. We expect to sell the remainder of the inventory by the end of the third quarter. With a low-cost, flexible manufacturing facility and 100,000 MT of storage capacity, we will continue to adjust our selling strategies to maximize returns to our shareholders.
Despite a recent slowdown in economic activity, excess demand for refined petrochemical products persists in China. Because of this phenomenon, China imported 3.1 million tons of petrochemical products per month in 2009. Robust demand is being driven by healthy economic growth across dozens of industries around the world, not solely by the housing or infrastructure expansion in China. As more companies build more factories and open new offices in China, we expect strong demand for our products to persist for the foreseeable future. Additionally, China's demand for asphalt continues to outpace supply, which will likely result in a sixth consecutive year in which China imports more asphalt than it consumes. We will capture our share of this opportunity once our state-of-the-art asphalt production facility comes on line in 2012.
We have focused and efficient capital expansion plans. Due to our low-cost and flexible manufacturing process, we are able to change the mix of raw materials we use and quality of products we produce based on market conditions. We have recently started using a greater amount of lower grade light oil in three of our seven production lines. This will allow us to significantly increase the amount of higher margin light aromatic products we can produce without spending any additional capital expenditures to expand our production capacity. As a result of this shift, we expect to increase capacity to 660,000 MT, or by 20%, by the end the year. The Company also plans to double its storage capacity to 200,000 MT by the end of 2011 and to add a new raw material pre-treatment facility and an asphalt production facility in 2012. The total cost of the expansion is projected to be approximately $78 million including $8 million for purchasing land, $20 million for facility construction, $40 million for new equipment and $10 million for working capital. We expect to fund expansion with cash on hand, bank loans, cash flows generated by our business and potential equity financing.
Conference Call
The Company will conduct a conference call at 10:00 a.m. ET on Tuesday, August 17, 2010. Interested participants should call 1-877-941-2321 when calling within the United States or 1-480-629-9714 when calling internationally (passcode 4344212).
This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on this link: http://viavid.net/dce.aspx?sid=0000793B , or visiting http://www.viavid.net , where the webcast can be accessed through August 31, 2010.
A playback will be available through August 31, 2010. To listen, please call 1-877-870-5176 within the United States or 1-858-384-5517 when calling internationally (passcode 4344212).
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 2009, Keyuan's operations include a designed annual petrochemical manufacturing capacity of 550,000 MT of 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 raw material pre-treatment facility, additional storage capacity and an asphalt 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 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:
Investor Relations:
HC International, Inc.
Ted Haberfield
Executive VP
Tel: +1-760-755-2716
Email: Email Contact
Mr. Andrew Haag, Managing Partner, USA
Hampton Growth, LLC
Tel: +1-877-368-3566
Email: [email protected]
Web: http://www.hamptongrowth.com
-- Financial Tables to Follow --
Balance Sheet June 30, December 31,
Keyuan Petrochemicals, Inc. 2010 2009
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $5,522,675 $14,030,655
Restricted cash 33,808,001 6,012,690
Trade notes receivable 10,338,534 400,491
Inventories 67,500,925 32,595,045
Advance payments 13,663,490 7,417,202
Prepaid taxes 26,555,299 15,263,949
Due from unrelated parties -- 1,068,741
Deferred tax assets 1,578,274 3,486,922
Other current assets 476,672 581,706
Total current assets 159,443,870 80,857,401
Property, plant and equipment, net 130,367,038 131,824,617
Other assets
Intangibles, net 6,408,044 6,378,316
Total assets $296,218,952 $219,060,334
Liabilities and stockholders' equity
Current liabilities:
Accounts payable - trade and
accrued expenses $60,422,125 $2,888,860
Accounts payable - construction
related 30,633,675 45,374,656
Short-term bank loans 83,961,000 82,885,500
Current portion of long-term debt 20,180,100 7,628,400
Trade notes payable 19,001,700 13,719,134
Advances from customers 13,526,054 16,549,644
Due to former shareholder -- 733,500
Due to unrelated parties -- 953,550
Other current liabilities 311,718 290,631
Total current liabilities 228,036,372 171,023,875
Long-term debt 23,568,000 37,408,500
Total liabilities 251,604,372 208,432,375
Stockholders' equity:
Series A preferred stock, $0.001
par value, 20,000,000 shares
authorized, 6,738,336 shares
issued and outstanding at June 30,
2010 6,738
Series M preferred stock, $0.001
par value, 47,658 shares
authorized, issued and outstanding
at June 30, 2010 48 48
Common stock, $0.001 par value,
50,000,000 shares authorized,
3,181,504 issued and outstanding
at June 30,2010 3,182 --
Additional Paid-in Capital 43,352,118 20,229,949
Retained Earnings (deficit) (9,543) (10,664,819)
Accumulated Other Comprehensive
Income 1,262,037 1,062,781
Total stockholders' equity 44,614,580 10,627,959
Total liabilities and
stockholders' equity $296,218,952 $219,060,334
For The Three Months For The Six Months
Income Statement Ended June 30, Ended June 30,
Keyuan Petrochemicals,
Inc. 2010 2009 2010 2009
Sales $131,997,217 $0 $249,369,103 $0
Cost of sales $123,351,375 0 $231,907,817 0
Gross profit 8,645,842 0 17,461,286 0
Operating expenses
Selling expenses 258,901 0 343,413 0
General and
administrative
expenses 1,088,256 709,161 1,893,788 1,236,593
Total operating
expenses 1,347,157 709,161 2,237,201 1,236,593
Income (loss) from
operations 7,298,685 (709,161) 15,224,085 (1,236,593)
Other income
(expenses):
Interest income
(expense), net (1,589,937) (274,460) (2,663,462) (253,179)
Non-operating
expenses 118,802 (138,257) 9,599 (140,906)
Total other income
(expenses) (1,471,135) (412,717) (2,653,863) (394,085)
Income (expenses)
before provision
income taxes 5,827,550 (1,121,878) 12,570,222 (1,630,678)
Provision income taxes
Current tax
provision 903,546 (280,470) 1,914,946 (407,670)
Deferred tax benefit -- 0 -- 0
Total Provision
income taxes 903,546 (280,470) 1,914,946 (407,670)
Net Income (loss) 4,924,004 (841,408) 10,655,276 (1,223,008)
Other comprehensive
income (loss)
Foreign currency
translation
adjustment 196,958 9,160 199,256 (4,478)
Comprehensive
Income (loss) 5,120,962 (832,248) 10,854,532 (1,227,486)
Basic earnings (loss)
per common share 2.06 -- 8.88 --
Diluted earnings
(loss) per common
share 0.11 -- 0.49 --
Weighted average
number of common
shares outstanding
Basic 2,387,451 -- 1,200,321 --
Diluted 43,408,945 -- 21,824,387 --
Statement of Cash Flow For the Six Months Ended June 30,
2010 2009
Cash flows from operating activities:
Net income (loss) $10,655,276 (1,223,008)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 4,204,754 177,867
Deferred tax assets 1,914,946 (407,669)
Changes in current assets and current
liabilities:
Trade notes receivable (9,895,257) (14,657)
Inventories (34,628,566) (10,531,710)
Advance payments for raw materials (6,190,211) --
Prepaid taxes (11,182,419) (4,121,387)
Other current assets 106,766 (557,250)
Accounts payable - trade and
accrued expenses 57,283,692 (44,988)
Trade notes payable 5,204,811 7,328,500
Advances from customers (3,078,476) --
Other current liabilities 19,826 3,978,757
Total adjustments 3,759,866 (4,192,535)
Net cash provided by (used in)
operating activities 14,415,142 (5,415,543)
Cash flows from investing activities:
Advance payments for construction
in progress -- (817,846)
Due from unrelated parties 1,068,668 --
Additions to property and equipment (2,076,103) (24,250,885)
Additions to intangible assets (143,806) (51,300)
Accounts payable - construction
related (14,864,749) (650,608)
Net cash used in investing
activities (16,015,990) (25,770,639)
Cash flows from financing
activities:
Restricted Cash (27,655,715) (2,543,491)
Proceeds from short-term bank loans 733,450 29,314,000
Due to former shareholder (733,450) 4,236,529
Due to unrelated parties (953,485) --
Repayment of long-term bank loans (1,466,900) --
Additional paid in capital 23,132,089 9,650,000
Net cash provided by financing
activities (6,944,011) 40,657,038
Effect of foreign currency
translation on cash 36,879 (4,090)
Net decrease in cash and cash
equivalents and restricted cash (8,507,980) 9,466,766
Cash and cash equivalents and
restricted cash-beginning 14,030,655 9,094,537
Cash and cash equivalents and
restricted cash - ending $5,522,675 $18,561,303
SOURCE Keyuan Petrochemicals Inc.
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