Keyuan Petrochemicals Inc. Announces First Half 2012 Financial Results

- First half 2012 revenue increased 24% YOY to approximately $367.8 million- Gross profit in the second quarter of 2012 up 237% YOY- Receives $95.1 million consumption tax refund in August, 2012- Reaffirms FY 2012 revenue and production guidance of $880.0 million and 760,000 MT, respectivelyPR Newswire

NINGBO, China, Aug. 21, 2012 /PRNewswire-Asia-FirstCall/ -- 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 six months ended June 30, 2012.

"We are pleased that our first half 2012 revenue benefitted from solid customer demand and the improvement of production efficiency," declared 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

Q2 2012

Q2 2011

Chg.

Net Revenues

$184.4 M

$150.9 M

22%

Gross Profit

6.4M

1.9M

237%

Net Income (loss) (a)

1.1M

(2. 1M)

152%

EPS (Diluted)

0.02

(0.04)

150%

Diluted Shares O/S

63.0M

57.6M

-

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

First Half 2012 Financial Results

Six months ended June 30, 2012

1H 2012

1H 2011

Chg.

Net Revenues

$367.8M

$297.7 M

24%

Gross Profit

$15.9M

$14.5M

9.7%

Net Income (loss) (a)

$2.9M

$2.8M

3.6%

EPS (Diluted)

$0.05

$0.05

-

Diluted Shares O/S

63.0M

57.6M

-

(a) Net Income attributable to KEYP common stockholders.

Sales for the six months ended June 30, 2012 were approximately $367.8 million compared to sales of $297.7 million for the six months ended June 30, 2011. The Company sold 326,961 metric tons (MT) of petrochemical products, an increase of 14.9% from 281,595 MT of products sold in the corresponding period in 2011. The average sales price per metric ton was $1,125 during the first half of 2012, a 7.5% increase from $1,046 per metric ton in the first half of 2011.

Cost of goods sold was $351.9 million in the six months ended June 30, 2012 compared to $283.1million in the first half of 2011, with a gross profit of $15.9 million, or 4.3%, in the first half of 2012, compared to a gross profit of $14.5 million, or 4.9%, in the same period a year ago. The main reason for the decrease in the gross margin is due to delays in passing raw material price increases onto our customers.

Operating expenses for the first six months of 2012 were approximately $5.9 million, consisting of $0.6 million in selling expenses and $5.3 million in general and administrative expenses compared to approximately $0.8 million and $7.8 million, respectively, in the first half of 2011. The decrease in expense was due to decreases in share-based compensation and various legal, consulting and internal expenses related to the independent investigation.

Net income attributable to common shareholders for the six months ended June 30, 2012 was approximately $2.9 million, as compared to net income of approximately $2.8 million in the same period in 2011, an increase of $0.1 million. The diluted net income per share of $0.05 for the six months ended June 30, 2012 was relatively unchanged from the same period in 2011.

Full Year 2012 Guidance

The profits of most enterprises in Ningbo declined in the first half of 2012 due to the complex and volatile global economic environment and the slower growth in the Chinese economy. Management has adjusted our guidance and forecasts $880 million of revenues, $20 million of net income and 760,000 MT of production for 2012.

Business updates

In the first six months of 2012, the extreme fluctuation in international oil prices has caused a significant negative impact on the petrochemical industry and most petrochemical companies including Keyuan. To address this issue, Keyuan engaged research institutes in Shanghai and in Zhejiang province to study the possibility and feasibility of diversifying its products, developing high value-added products and improving the Company's production efficiency to create more stable long-term development, and to optimize product structures, which will effectively reduce the adverse effects of oil price fluctuations and the outside environment.

On June 15, 2012, Ningbo Keyuan and Ningbo Keyuan Petrochemicals established a subsidiary in the People's Republic of China ("PRC"), Ningbo Keyuan Synthetic Rubbers Co., Limited ("Keyuan Synthetic Rubbers"), which is engaged in the sales and marketing of various petrochemical products, specifically synthetic rubbers.

Other Events

On August 15, 2012, the Company received a consumption tax refund of $95,124,967 as a result of new consumption tax policies of the PRC issued in October 2011. The Company anticipates that consumption tax claims procedures will be more efficient and less time-consuming in the future.

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.

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:

Angel GuKeyuan Petrochemicals, IncPhone: +0086-1-381-986-4827Email: angelgu@keyuanpetrochemicals.comWeb: www.keyuanpetrochemicals.com

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIAIRES

CONDENSED CONSOLIDATED BALANCE SHEETS

June30,

December31,

2012

2011

(Unaudited)

ASSETS

Current assets:

Cash

$

9,879,169

$

7,325,017

Pledged bank deposits

239,816,494

156,318,066

Bills receivable

3,309,663

1,574,000

Accounts receivable

4,014,076

2,226,288

Inventories

73,048,249

38,945,968

Prepayments to suppliers

44,507,626

15,781,294

Consumption tax refund receivable

107,023,606

55,809,560

Amounts due from related parties

39,625

39,350

Other current assets

60,646,615

45,978,428

Deferred income tax assets

37,609

37,348

Total current assets

542,322,732

324,035,319

Property, plant and equipment, net

209,768,917

190,867,621

Intangible assets, net

931,847

978,503

Land use rights

10,920,476

11,068,762

VAT recoverable

2,541,216

2,893,635

Total assets

$

766,485,188

$

529,843,840

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Short-term bank borrowings

$

393,534,612

$

225,969,421

Bills payable

111,267,000

63,550,250

Current portion of long-term bank borrowings

15,850,000

15,740,000

Accounts payable

79,936,476

97,588,137

Advances from customers

41,202,535

7,821,623

Accrued expenses and other payables

30,254,525

30,287,946

Income taxes payable

1,224,165

186,326

Dividends payable

2,381,759

2,381,759

Amounts due to related parties

768,313

621,077

Totalliabilities, all current

676,419,385

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 June 30, 2012 and December 31,2011

57,646

57,646

Additional paid-in capital

49,951,346

49,198,278

Statutory reserve

3,744,304

3,744,304

Accumulated other comprehensive income

7,253,902

6,545,811

Retained earnings

12,607,053

9,699,710

Total stockholders' equity

73,614,251

69,245,749

Total liabilities and stockholders' equity

$

766,485,188

$

529,843,840

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES

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

Three Months Ended

Six Months Ended

June 30,

June 30,

2012

2011

2012

2011

Sales

External parties

$184,425,717

$115,281,945

$367,750,405

$239,436,744

Related parties

0

35,607,658

0

58,217,477

Total Sales

184,425,717

150,889,603

367,750,405

297,654,221

Cost of sales

External parties

178,005,456

111,055,933

351,857,165

224,870,131

Related parties

0

37,977,326

0

58,276,685

Total Cost of sales

178,005,456

149,033,259

351,857,165

283,146,816

Gross profit

6,420,261

1,856,344

15,893,240

14,507,405

Operating expenses

Selling expenses

388,217

215,548

641,123

754,680

General and administrative expenses

2,656,620

4,529,744

5,266,815

7,764,824

Total operating expenses

3,044,837

4,745,292

5,907,938

8,519,504

Income (loss) from operations

3,375,424

(2,888,948)

9,985,302

5,987,901

Other income (expense):

Interest income

1,882,812

781,941

2,822,046

1,688,885

Interest expense

(2,930,281)

(2,638,734)

(7,308,982)

(5,835,364)

Foreign exchange (loss) gain, net

(542,352)

3,200,356

(364,518)

2,052,713

Liquidated damages expense

-

(1,300,730)

-

(1,300,730)

Other income (expense), net

147,022

1,689,404

(217,039)

3,716,178

Total other expense (income)

(1,442,799)

1,732,237

(5,068,493)

321,682

Income (loss) before income taxes

1,932,625

(1,156,711)

4,916,809

6,309,583

Income tax expense

870,277

665,828

2,009,469

2,917,979

Net income (loss) attributable to Keyuan

Petrochemicals Inc. stockholders

1,062,348

(1,822,539)

2,907,340

3,391,604

Dividends to Series B convertible

preferred stockholders

-

306,247

-

602,507

Net income (loss) attributable to Keyuan

Petrochemicals Inc. common stockholders

$1,062,348

($2,128,786)

$2,907,340

$ 2,789,097

Net income (loss) attributable to Keyuan

Petrochemicals Inc. stockholders

$1,062,348

($1,822,539)

$2,907,340

$3,391,604

Other comprehensive income

Foreign currency translation adjustment

130,680

617,550

708,091

1,174,874

Comprehensive Income (loss)

$1,193,028

($1,204,989)

$3,615,431

$ 4,566,478

Earnings (loss) per share:

Attributable to common stock:

- Basic

$0.02

($0.04)

$0.05

$0.05

- Diluted

$0.02

($0.04)

$0.05

$0.05

Weighted average number of shares of

common stock used in calculation

Basic

57,646,160

57,579,239

57,646,160

57,578,896

Diluted

62,979,500

57,579,239

62,979,500

63,836,892

KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Six Months Ended June 30,

2012

2011

(Unaudited)

(Unaudited)

Cash flows from operating activities:

Net income

$

2,907,340

$

3,391,604

Adjustments to reconcile net income to net cash

(Used in) provided by operating activities:

Loss on disposal of property and equipment

3,504

Depreciation

5,452,134

4,671,566

Amortization

53,548

51,675

Land use rights amortization

225,868

217,999

Share-based compensation expense

819,496

1,285,185

Changes in operating assets and liabilities:

Bills receivable

(1,726,404)

5,665,046

Account receivable

2,244,109

Inventories

(33,864,254)

(14,517,420)

Prepayments to suppliers

(25,882,018)

11,118,823

Consumption tax refund receivable

(50,875,322)

5,455,515

Other current assets

(16,565,560)

(23,036,081)

Accounts payable

(18,462,125)

44,000,832

Advances from customers

29,341,763

4,320,196

Income taxes payable

879,675

(9,427,659)

Accrued expenses and other payables

(1,483,151)

1,500,872

Net cash(used in) provided by operating activities

(106,934,901)

34,701,657

Cash flows from investing activities:

Proceeds from property disposal of property and equipment

10,512

Purchase of property, plant and equipment,

(21,295,703)

(11,574,245)

Net cash used in investing activities

(21,295,703)

(11,563,733)

Cash flows from financing activities:

Pledged bank deposits used for bank borrowings

(82,489,175)

(52,211,458)

Proceeds from short-term bank borrowings

457,866,240

74,477,809

Repayment of short-term bank borrowings

(291,149,318)

(45,167,450)

Proceeds from bills payable

111,379,320

51,215,295

Repayment of bills payable

(64,058,975)

(60,784,670)

Repayments of long-term bank borrowings

(13,014,350)

Short-term financing from related parties

13,144,234

Short-term financing to related parties

(13,144,234)

Repayment to Ningbo Litong

(95,094)

Proceeds from warrant exercise

7,332

Dividends paid

(1,396,964)

Net cash provided by (used in) financing activities

131,548,092

(46,969,550)

Effect of foreign currency exchange rate changes on cash

(763,336)

278,395

Net increase (decrease) in cash

2,554,152

(23,553,231)

Cash at beginning of the period

7,325,017

29,336,241

Cash at end of the period

$

9,879,169

$

5,783,010

Supplemental disclosure of cash flow information:

Income taxes paid

$

1,028,792

$

12,345,638

Interest paid, net of capitalized interest

$

588,578

$

5,835,363

Non-cash financing activities:

Payable for purchase of property, plant and equipment

$

4,433,893

$

24,433,051

SOURCE Keyuan Petrochemicals, Inc.