Become a Member

Track your favourite stocks
Create & monitor portfolios
Daily portfolio value

Company	Chg	Chg %
Quickpicks
£	%
Add shares to your quickpicks to display them here!

Final Results

24th Jun 2010 07:00

RNS Number : 1556O

HaiKe Chemical Group Ltd.

24 June 2010

HaiKe Chemical Group Ltd.

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2009

HaiKe Chemical Group Ltd. ("HaiKe" or the "Company"), the AIM quoted (AIM: HAIK) petrochemical and speciality chemical business based in China, is pleased to announce its audited results for the year ended 31 December 2009.

Mr. Xiaohong Yang, Executive Chairman, said:

"The recent turbulence in global economic markets presented a difficult operational environment for HaiKe. We experienced severe feedstock pricing pressure in China for our products and fluctuation in oil prices impacted our ability to manage purchase prices. These were however offset by the relaxation of regulated selling prices initiated by the Chinese government, which adjusted the retail price of gasoline and diesel seven times to reflect international crude oil price fluctuations, in the year under review. This positive change together with our strict cost controls and production efficiency led to an improved performance for the group in 2009.

The first half of 2010 has continued to be challenging with unpredictable market conditions and technical issues with Ruilin in the first quarter which have now been resolved. As a consequence, Ruilin is now fully operational and we have moved back into profitability in the last two months. We have a strong business and the production capabilities to take advantage of increased demand. We expect the government's stimulus measures to maintain economic growth will have a long term positive effect on the local economy, but not withstanding this and given the economic uncertainly, we remain cautiously optimistic."

Enquiries

HaiKe

Nick Su, Chief Finance Officer

+86 (0) 546 8289175

Westhouse Securities

Tim Metcalfe / Martin Davison / Xu Zhining

+44 (0) 20 7601 6100

Cardew Group

Rupert Pittman / Shan Shan Willenbrock / Catherine Maitland

+44 (0) 20 7930 0777

AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2009 ARE AS FOLLOWS:

Highlights

l Total revenue decreased by 6% to US$ ("$") 591.3m (2008: $631.5m)

l Petrochemical revenue decreased by 8% to $486.3m (2008: $526.9m)

l Speciality chemical (including biochemical) revenue increased by 0.4% to $105.0m (2008: $104.6m)

l Biochemical revenue increased by 146% to $18.2m (2008: $7.4m)

l Loss after tax, before non-controlling interest, decreased by 94% to $1.8m (2008: loss of $30.7m)

l Profit after non-controlling interest of $0.2m (2008: loss of $29.2m)

l Dongying Hi-Tech Ruilin Chemical Ltd., ("Ruilin"), the joint venture refinery facility completed on schedule in early 2010 and is now fully operational

Mr. Xiaohong Yang, Executive Chairman, said:

CHAIRMAN'S STATEMENT

Introduction

In 2009, the global financial crisis, coupled with intense pricing pressure in China, presented a challenging operational environment for the Company. In particular, China experienced a reduction in both price and demand for refined products which had an adverse impact on our overall revenue. Crude oil prices fluctuated between $40 and $70 per barrel during the year in comparison with a record high of $147 per barrel reached in 2008. The volatility and continuous fluctuation of the oil price has meant purchasing prices were difficult to manage. However, the Chinese government has now relaxed its strict control over selling prices of refined products in China, and this positive change has also played an important role in the improved financial performance of the Company's petrochemical business. Market conditions for speciality chemicals were challenging, particularly in the export market, but our biochemical subsidiary performed strongly and achieved sales growth of 146% in 2009 after successfully obtaining certification in several countries.

Performance review

These challenging market conditions, combined with the volatility of oil prices, resulted in a revenue decrease of 6% to $591.3m in 2009 (2008: $631.5m). We have made rigorous efforts to control the cost of sales and adjusted the product mix which has resulted in a 10% decrease in the cost of sales to $567.7m (2008: $633.5m). Profit margins therefore improved in both the petrochemical and speciality chemical segments. During 2009, the Company generated profit from operations of approximately $7.1m which compared to a loss of $16.4m in 2008. The loss after tax was $1.8m during the year under review, a reduction of 94% from the previous year (2008: loss of $30.7m). Excluding non-controlling interest, HaiKe successfully generated $0.2m profit for shareholders in 2009 with earnings per share of $0.005 compared to a loss attributable to shareholders of $29.2m in 2008, and a loss per share of $0.762.

The Company's petrochemical business benefited from the Chinese government's new price control mechanism from the beginning of 2009 as it took decisive action in response to international crude oil price fluctuations. From January to November 2009, the Chinese government adjusted the retail price of gasoline and diesel seven times, with six increases and one decrease. Excluding the newly built Ruilin refinery, the petrochemical business recorded a $4.1m profit before minority interests (2008: loss of $36.8m).

Our speciality chemicals business generated revenue of $105.0m (2008: $104.6m). Within this division, the biochemical business, which manufactures and markets heparin products, grew 71% by volume and 146% by revenue.

Outlook

The Chinese government's economic stimulus measures have benefited the domestic economy and as a result we have witnessed stronger demand for our products in the second half of 2009 and into 2010. However, technical issues at the Ruilin refinery, coupled with remaining difficult and unpredictable market conditions led the business to record a loss in the first quarter of 2010. Trading has improved in the last two months, with the business moving back into profitability. However, this improved performance is unlikely to be sufficient to offset the losses from earlier in the year and we expect to report a loss for the first half of 2010.

The outlook for the remainder of 2010 remains uncertain, but the issues with Ruilin have now been resolved and we are cautiously optimistic that the second half of 2010 will see an improved business performance.

HaiKe's long-term development strategy is to look at ways to take advantage of the increasing demand and growth in the domestic economy to achieve profitable growth in every segment of the business. In the past few years, the Company has completed the expansion of its production facilities in petrochemical, speciality chemical and biochemical businesses and has focused on continuing to improve productivity. The newly built Ruilin refinery will give the Company additional refinery capacity to meet the growth in market demand. Ruilin is located three miles from Dongying Port, an important economic hub, where it has access to cheap and efficient transportation to Southern China which is more developed and has limited refinery capacity.

Xiaohong Yang

Executive Chairman

23 June 2010

CHIEF EXECUTIVE OFFICER'S REPORT

In spite of the difficult market conditions, we successfully improved our production efficiency. Our strategy going forward is to improve the utilisation in both our refinery and speciality chemicals facilities. During 2009, HaiKe invested $87.1m in purchasing fixed assets, an increase of 119% as compared to 2008. (2008: $39.8m)

We are confident that, with continued improvements in production efficiency, the reduction in production costs, increased refinery capacity and equipment utilisation, we will be well positioned to take advantage of the increasing demand for our products and look to the future with confidence.

Our market

Refinery business

Revenue from the petrochemical business decreased by 7.7% from $526.9m in 2008 to $486.3m in 2009. Profit before non-controlling interest of $1.1m was generated during 2009 as compared to a loss of $36.8m for 2008.

Despite the division delivering a slight decrease in revenue in 2009, the profitability of the refinery business has improved due to lower oil prices during the year and our stringent cost control. The sales volume increased 5% in the year which is the third year of continuous growth. The Chinese government's newly introduced refined product pricing mechanism has helped the Company respond quickly to the movement of overall feedstock prices.

In 2009, China's Gross Domestic Product ("GDP") grew by 8.7% (2008: 9.0%). The Chinese government has successfully maintained economic growth by introducing stimulus measures, including infrastructure investment and national expenditure programmes. One important sector to benefit from the stimulus package is the automobile industry. Total car sales reached 13.4 million units in 2009, exceeding that in the United States, which makes China the world's largest automotive consumer. As this market is forecast to grow even further in the coming years, demand for refined products is expected to increase accordingly.

The Company has completed the construction and commission of the Ruilin refinery which is a joint venture between HaiKe and two local investors, both of whom are well established regional companies. Ruilin, ideally located near Dongying Port, will produce and sell in the domestic market; gasoline, diesel, liquefied gas, asphalt and heavy oil refined from heavier feedstocks. With a full production capacity of 2.7 million metric tonnes per annum, Ruilin will bring HaiKe's total refinery capacity to 4.5 million metric tonnes per annum. We believe the increased capacity will help accelerate the overall growth of our refinery business.

Speciality chemical business

Revenue decreased by 10% from $97.2m in 2008 to $86.9m in 2009. Operating loss before non-controlling interest was $1.5m (2008: profit of $8.3m). HaiKe operates the following two subsidiaries in the speciality chemical business.

Dongying Hi-tech Spring Chemical Industrial Co., Ltd. ("Hi-Tech Spring")

Revenue decreased by 17% from $66.3m in 2008 to $54.9m in 2009.

Hi-Tech Spring focuses on the production of dimethyl carbonate ("DMC") and pharmacy grade propylene glycol. DMC is widely used in medical applications, agricultural pesticides and for the manufacture of synthetic materials. The DMC produced by the Group is sold primarily in the Guangdong and Jiangsu provinces of China and exported to key markets in Europe. In the period under review, the Company had an annual production capacity of circa 45,000 tonnes of DMC, an increase of 200% since 2007.

Propylene glycol is used in the medical industry as well as the food industry for flavours and fragrances. Production is largely for Chinese domestic consumption. In the period under review, the annual production capacity of propylene glycol was 36,000 tonnes, an increase of 200% since 2007. Hi-Tech Spring also manufactures isopropyl alcohol for the food, medical and electronics sectors.

Shandong Hi-Tech Shengli Electrochemical Co., Ltd. ("Hi-Tech Shengli")

Revenue increased by 3% from $30.9m in 2008 to $32.0m in 2009.

Hi-Tech Shengli's main products are sodium hydroxide based products, such as caustic soda, and a range of chlorine based chemical products. In the period under review, the Company had an annual production capacity of 300,000 tonnes of chlor-alkali chemicals and 60,000 tonnes of chlorine, an increase of 58% and 20% since 2007 respectively.

Although overseas demand for some speciality chemical products such as DMC and propylene glycol had slowed throughout the year, the Chinese government's implementation of economic stimulus measures has increased the demand of sodium hydroxide and chlorine based products in the local market. HaiKe's key focus for this business has been to move up the value chain and target higher margin markets. In 2009, Hi-Tech Shengli developed food-grade hydrochloric acid, which the Company expects will contribute to increased volume and revenue in the future.

Biochemical business

Dongying Tiandong Biochemical Industry Co., Ltd. ("Tiandong Biochemical")

Revenue of Tiandong Biochemical increased by 146% from $7.4m in 2008 to $18.2m in 2009. The business has contributed to triple digit growth for three consecutive years.

Tiandong Biochemical continues to obtain entry certifications for countries outside China. Both sodium heparin and crude heparin have experienced strong demand from the market. A new injection version of heparin manufacturing facility has already entered into equipment installation phase with the assistance of US FDA experts. In 2012, the sodium heparin patent will expire in both the U.S. and European markets and this importantly will give Tiandong Biochemical further growth opportunities.

Outlook

During past years, the Chinese economy has managed to grow steadily despite the negative impact of the slowdown in the global economy. Following the Chinese government's quick response and effective measures in stimulating the economy, we are optimistic that demand for our products will increase. We will improve our utilisation of invested facilities in both refinery and speciality chemical divisions, and explore additional sales channels in both the domestic and overseas markets.

Zaizhong Zhang

Chief Executive Officer

23 June 2010

CHIEF FINANCE OFFICER'S REPORT

Results

Overall group revenue decreased by $40.2m, or 6%, from $631.5m in 2008 to $591.3m in 2009. On a segmental basis, sales of petrochemical products decreased from $526.9m in 2008 to $486.3m in 2009, as a result of a lower average selling price in 2009. Sales of speciality chemical (including biochemical) grew from $104.6m in 2008 to $105.0m in 2009 with a lower average selling price but at a higher volume.

Sales to domestic customers decreased by 8.2% to $563.8m in 2009 as compared to $614.4m in 2008. Exports increased by 61.4% from $17.1m in 2008 to $27.6m in 2009. The high increase in export sales is largely contributed to by heparin products from our Tiandong Biochemical.

Cost of sales decreased by $65.8m, or 10%, from $633.5m in 2008 to $567.7m in 2009. The decrease was mainly due to the reduction in crude oil costs. As a result, HaiKe made a profit of $7.1m at the operating level, compared with an operating loss of $16.4m in 2008. Loss after tax before non-controlling interest was $1.8m in 2009 (2008: loss after tax of $30.7m).

In the petrochemical business, despite the increase in sales volume, it was not enough to off-set the decrease in selling price. As a result, the division reported lower revenues than the previous year. However, the government's new pricing mechanism and relatively more stable feedstock costs protected refinery margins, resulting in a profit of $4.1m in 2009. The newly built Ruilin refinery, as a result of pre-operational expenses, made a loss of $2.7m in 2009.

The speciality chemical business made a loss before tax of $1.5m. The biochemical business performed strongly and generated a profit before tax of $2.2m, driven by the doubling of both volume and price in 2009.

Sales and distribution expenses increased by 27%, from $3.5m in 2008 to $4.5m in 2009, as a result of increased transportation costs and business development costs due to a rise in sales volume of biochemical and speciality chemicals compared to the previous year. Other administrative expenses increased by 33% from $11.8m in 2008 to $15.6m in 2009 as a result of additional personnel costs. Finance costs decreased from $15.3m in 2008 to $11.5m in 2009 due to lower interest rates and interest expenses in the construction project being capitalised.

The three-year 50% income tax exemption from January 2008 to December 2010 was granted to three operating subsidiaries, Hi-Tech Chemical, Hi-Tech Spring and Hi-Tech Shengli. As a result of a loss in Hi-Tech Spring this year, the Company recorded a tax credit of $0.1m in 2009 in comparison with a tax expense of $1m in 2008.

During 2009, HaiKe made a loss before non-controlling interest of $1.8m, and a profit attributable to our shareholders of $0.2m. In 2008, the Company recorded a loss before non-controlling interest of $30.7m and loss attributable to our shareholders of $29.2m.

Basic and diluted earnings per share was $0.005 in 2009, compared to loss per share of $0.762 in 2008.

Cash flows

In 2009, we made a significant investment in purchasing raw materials and other inventories, resulting in an increase of inventories of $48.1m as compared to a decrease of $8.9m in 2008. In addition, during 2009 we had a cash outflow of $28.1m due to the increase of trade and other receivables as compared to a cash inflow of $0.5m in 2008.

To further strengthen our production capability, we invested heavily in purchasing property, plant and equipment. In 2009, $87.1m was invested for this purpose compared with $39.8m in 2008.

As at 31 December 2008, balances of both short and long-term borrowings were $153.5m and $2.9m respectively. During the twelve months ended 31 December 2009, HaiKe raised $543.2m from banks and repaid $328.8m. As at 31 December 2009, balances of both short and long term borrowings were $318.7m and $52.0m respectively.

In addition, to improve cash flow, HaiKe has also entered into a $5.9m sale and lease back agreement with China Hua Rong Asset Management Company ("Hua Rong") on some of the Company's machinery assets, of which $1.9m was classified as a short term liability and $4.0m was classified as long term loan. To complete this transaction, the Group has deposited $1.2m with Hua Rong and paid an arrangement fee of $0.2m.

Cash and cash equivalents increased to $51.8m as at 31 December 2009 from $34.7m as at 31 December 2008.

Liquidity and financial risk

The board believes that HaiKe has sufficient funds to meet its financial obligations in the foreseeable future. HaiKe enjoys good relationship with the local banks which are supportive of its business.

Nick Su

Chief Finance Officer

23 June 2010

DIRECTORS AND SENIOR MANAGEMENT PROFILE

Executive Directors

Mr. Xiaohong Yang, Executive Chairman, aged 44

Mr. Yang has been involved in the petrochemical and chemical industries for over 21 years. He started his career as a technician in the Dongying Chemical factory (the predecessor to Hi-Tech Chemical Group) in 1988 and was subsequently promoted to director of Dongying Chemical in 1990. From 1991 to 1996, he served as a director in the production department of the Dongying Chemical factory and later as deputy factory director. In 2000, Mr. Yang was appointed as the Chairman of Hi-Tech Chemical Co., Ltd, now known as Hi-Tech Chemical, before he became the Chairman of HaiKe in 2006. Mr. Yang is a senior engineer and holds MBA certificates from Beijing University and Tsinghua University.

Mr. Zaizhong Zhang, Chief Executive Officer, aged 43

Mr. Zhang, a senior engineer, has nearly 21 years' experience in technology management. After graduating in 1988, Mr. Zhang started his career as a technician in the Dongying Chemical factory in 1988. From 1990 to 1995, he served as a plant manager for the Dongying Chemical factory and was promoted to vice president in 2000. In 2000, Mr. Zhang was appointed as the Chief Executive Officer. He holds an MBA certificate from Tsinghua University.

Non-Executive Directors

Mr. Raymond Wong, Non-Executive Director, aged 38

Mr. Raymond Wong is 38 years old and is a qualified solicitor of the Supreme Court of England & Wales and of the High Court of Hong Kong. Raymond has over 12 years of experience in corporate finance, mergers and acquisitions, securities regulatory and compliance and general corporate work gained within investment banking and various international law firms.

Raymond has a B.Eng. (Electrical Engineering) ACGI from Imperial College, University of London, a Postgraduate Diploma in Legal Practice from Oxford University, a MA (Law) from City University, London and an LL.M. (Chinese law) from the University of Hong Kong. Raymond is a Director of Forever Rise Group Limited and a board member of the China-Britain Business Council. He is also a committee member of the British Chinese Law Association, a member of the Institution of Engineering and Technology (MIET) and an associate of the Chartered Institute of Bankers (ACIB). Currently, he is an Executive Director of Jetion Solar Holdings Limited, a company quoted on AIM in 2007.

Mr. Eugene Wong, Non-Executive Director, aged 43

Mr. Wong has considerable financial experience, having founded the Sirius Group (a boutique venture capital and entrepreneurial finance consultancy business) as well as being on the board of several private and public listed companies, including Ajisen China Holdings Limited listed on HKSE, Jason Machinery Group Limited and Japan Food Holding listed in SGX. He is currently the chairman of the Singapore Venture Capital and Private Equity Association. Mr. Wong acts as an adjunct lecturer at a number of universities, the National University of Singapore, teaching entrepreneurial finance.

Mr. Wong obtained an MBA degree from Imperial College, University of London. He graduated from National University of Singapore Business School with a First Class Honours BBA degree. Mr. Wong has also completed the Venture Capital Institute Graduate Program organised by the US National Venture Capital Association and NASBIC and attended the Executive Program for Growing Companies from the Graduate School of Business, Stanford University. He is a qualified Chartered Financial Analyst (CFA) and is a member of the Singapore Institute of Directors (MSID), the UK Institute of Directors (MIoD).

Mr. Derek Marsh CVO, Non-Executive Director, aged 63

Mr. Marsh has 38 years' Government experience, including a number of years in the British Diplomatic Service in East Asia. He specialised in: Government to Government relations, export promotion, trade policy, the aerospace industry, large-scale information business, defence procurement and military operations. Mr. Marsh has also been a Non-Executive Director of Bovis Homes Ltd and Felixstowe Dock and Railway Company. Currently, he is a Non-Executive Director of China Food Company Plc, a company quoted on AIM since 2007. Mr. Marsh graduated from the Royal College of Defence Studies, London and the NATO Defence College, Rome; and has an MA from The Queen's College, Oxford.

Senior Management Team

Mr. Nick Su, Chief Finance Officer, aged 41

Mr. Su has over 19 years of relevant accounting and industry experience at leading international blue chip companies in China. Most recently, he was the financial controller at several business units of Chinese subsidiaries of Ciba Specialty Chemicals, a global leader in plastic additives, coating effects and water and paper treatment. He also held the position of deputy general manager and chief accountant at Danisco Ingredients (China) Co. Ltd. Danisco is a world leader in food ingredients, enzymes and bio-based solutions. The company is quoted on the OMX Nordic Exchange.

Mr. Su graduated from the People's University, Beijing, with a Bachelor of Arts in Accounting and attended the Canadian General Accountant Training Courses with International Business and Economics University, Beijing.

Mr. Dongguang Liu, Group Finance Manager, aged 40

Mr. Liu has over 19 years' experience in finance and accounting. From 1990 to 1993, he worked as an accountant in the Guangyao Food Bureau and from 1994 to 1996, he was an accountant at the Guanyao Beer Company. From 1997 to 1999, he was the financial officer of Shandong Dongying Petrochemical Group. From 2000 to 2004, he was the vice General Manager of Hi-Tech Chemical and, from 2005 to the present, he has been serving as the Group Finance Manager of Hi-Tech Chemical. Mr. Liu is the associate secretary of the Dongying Audit Committee.

Mr. Hualan Zhang, General Manager of Hi-Tech Spring, aged 44

Mr. Zhang holds a masters degree in engineering from China Petroleum University. He began his career as an engineer in the design and development department of China Petrochemical Shengli Oil Management Bureau. He then became the vice president and engineer of Hai Tong Group Company and Dongying Petrochemical Technology Developing Ltd. Co. In May 2004, he joined Hi-Tech Chemical as a senior engineer and in April 2005 he was appointed to the position of deputy manager. He was appointed General Manager of Hi-Tech Spring in 2006.

Mr. Hailun Zhang, General Manager of Hi-Tech Shengli, aged 37

Mr. Zhang holds a bachelors degree in engineering from Tianjin University of Technology. He was a director of Yellow River Chlor - Alkali factory from 1996 to 1998 before he joined Shengli Galvanic in 1999. In 2002, he was appointed as an associate manager, followed by promotion to General Manager in 2006.

Mr. Lin Guo, General Manager of Tiandong Biochemical, aged 37

Mr. Guo is an associate engineer. He began his career as a technician in Dongying Shengli Electrochemical Co., Ltd after he graduated from Shandong Salt Industry School in 1994. From 1996 to 1999, he worked as a plant director in that company and was promoted to the vice General Manager in 2000. He was appointed as the general manager of Tiandong Biochemical in May 2006.

DIRECTORS' REPORT

The Directors present their report on the affairs of the Company, together with the financial statements and auditors' report, for the year ended 31 December 2009.

Principal Activities

The Company was incorporated in the Cayman Islands on 20 June 2006. The address of the registered office is at c/o Scotia Centre, 4th Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands. The principal activity of the Company is that of a holding company. The principal activities of the Company's subsidiaries (hereinafter, together with the Company, collectively referred to as the "Group") are the manufacturing of petrochemical, specialty and biochemical products in China.

Review of Business

Detailed reviews of activities, business development and projects are included within the Chairman's Statement and the Operating Review on pages 3 to 10.

Results and Dividend

The profit attributable to shareholders for the year is set out in the Consolidated Statement of Comprehensive Income on page 29. No dividend was declared in the year ended 31 December 2009 or the year end 31 December 2008, and Directors do not recommend the payment of a final dividend.

Directors and Officers

The names of the Directors are set out below (as of 20 May 2010):

Director	Date of appointment
Mr. Xiaohong Yang	15 February 2009
Mr. Zaizhong Zhang	15 February 2009
Mr. Raymond Wong	01 July 2009
Mr. Eugene Wong	15 February 2009
Mr. Derek Marsh	15 February 2009

Professor Chunming Xu and Mr. Johnson Lau resigned from the Board on 12 February 2010 and 16 January 2010 respectively.

The Company does not have a company secretary nor is one required under Cayman Islands law.

Retiring Directors

In accordance with the articles 84 and 85 of the Company's Articles of Association, at each annual general meeting, one third of the Directors (or if their number is not a multiple of three, then the number nearest to but not greater than one third) will retire from office by rotation. The Directors to retire every year will be those who have been longest in office since their last re-election or appointment but as between persons who became or were last re-elected Directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot.

This year, Mr. Xiaohong Yang and Mr. Zaizhong Zhang will retire at the forthcoming annual general meeting of the Company and all of them, being eligible, offer themselves for re-election.

Directors' Interests

The Directors' interests in Company shares were as follows:

Director	As at 31 December 2009 Ordinary shares	As at 22 June 2010 Ordinary shares
Mr. Xiaohong Yang(1)	61,678	61,678
Mr. Zaizhong Zhang(2)	61,678	61,678
Mr. Raymond Wong	Nil	Nil
Mr. Eugene Wong	Nil	Nil
Mr. Derek Marsh(3)	45,054	45,054

(1) At 31 December 2008 and 22 June 2010, Mr. Xiaohong Yang owned 1.62% of the issued share capital of Dongying Hi-Tech Spring Chemical Industry Co., Ltd, a subsidiary of the Company. Further, Mr. Xiaohong Yang owns 6,120 ordinary shares (12.24% of the issued share capital) in HiTech Chemical Investment Limited ("BVICo"), the majority shareholder of the Company. In addition, Mr. Xiaohong Yang acquired 19,108 ordinary shares from Mr. Junping Bai, an existing shareholder of the Company, upon the Admission and 21,658 ordinary shares on 17 December 2007.

(2) At 31 December 2008 and 22 June 2010, Mr. Zaizhong Zhang owned 1.35% of the issued share capital of Dongying Hi-Tech Spring Chemical Industry Co., Ltd and 13% of the issued share capital of Dongying Hi-Tech Propylene Co., Ltd., an associate entity of the Company which holds 11.44% of the equity interest. Further, Mr. Zaizhong Zhang owns 2,921 ordinary shares (5.84% of the issued share capital) in BVICo. In addition, Mr. Zaizhong Zhang acquired 19,108 ordinary shares from Mr. Junping Bai, upon the Admission and 21,658 ordinary shares on 17 December 2007.

(3) At 31 December 2008 and 22 June 2010, Mr. Derek Marsh held 45,054 shares under the joint brokerage account with his spouse.

Full details of Directors' service contracts and letters of appointment and remuneration can be found in the Report of the Remuneration Committee on page 22.

Related Party Transactions

Details of related party transactions are provided in Note 23 to the Financial Statements.

Substantial Shareholdings

As at 22 June 2010, the latest practicable date prior to the publication of this report, the Company's share registrar recorded the following shareholdings in excess of 3% of the ordinary share capital:

	Number of ordinary shares	% of issued share capital
BVICo(1)	21,219,042	55.33
Capita IRG Trustee Limited	11,256,155	29.35
Junping Bai(2)	1,870,131	4.88
Barclays Stockbroker Limited	1,826,152	4.76
Ashcourt Nominees Limited	1,378,573	3.59

(1) The current issued share capital of BVICo is held by an aggregate of 44 employees of the Group, including Mr. Xiaohong Yang and Mr. Zaizhong Zhang, directors of the Company.

(2) Mr. Junping Bai is a former director of Hi-Tech Chemical, an indirect subsidiary of the Company.

Financial Risk Management

Details of the Group's financial risk management policies are provided in Note 24 to the Financial Statements.

Donations

The Company made no charitable donations during the year.

Post-Balance Sheet Events

There are no post-balance sheet events that would require an adjustment to the carrying value of the Group's assets and liabilities or that would need to be disclosed.

Annual General Meeting

The notice of the Company's annual general meeting will be distributed to shareholders together with the Annual Report. Full details of the resolutions proposed at the meeting can be found in the Notice of annual general meeting on page 86.

Auditors

The financial statements were audited by BDO LLP who will retire at the conclusion of the forthcoming annual general meeting and offer itself for re-appointment.

A resolution for the re-appointment of BDO LLP as auditor of the Company is to be proposed at the forthcoming annual general meeting.

Disclosure of Information to Auditors

All of the current Directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company's auditors for the purposes of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any relevant audit information of which the auditors are unaware.

On behalf of the Board

Xiaohong Yang	Zaizhong Zhang
Chairman	Chief Executive Officer
23 June 2010

CORPORATE GOVERNANCE

The Board of Directors is accountable to the Company's shareholders for the good corporate governance of the Group. The Directors acknowledge the importance of the Combined Code and will comply with all aspects of the Code's requirement so far as is practicable and appropriate given the size of the Group and the constitution of the Board. In addition, the Group also intends to comply with the principles of the Corporate Governance Guidelines for AIM Companies published by the Quoted Companies Alliance.

The Company has adopted a model code for dealing in Ordinary Shares by its Directors and employees which is appropriate for an AIM quoted company.

The Board and its Committees

The composition of the Board is set out on page 11. The Board comprises an executive chairman, chief executive officer and three non-executive directors. The non-executive directors are independent of management and free from any business or other relationship, which could materially interfere with the exercise of their independent judgment.

The Audit and Remuneration Committees consist exclusively of non-executive directors under the chairmanship of Mr. Eugene Wong and Mr. Raymond Wong, respectively.

The Audit and Remuneration Committees have both been formally delegated duties and responsibilities by the Board of Directors.

The Audit Committee, which meets at least twice a year, receives and reviews reports from management and the auditors relating to the annual and interim accounts and the accounting and internal control systems. The Audit Committee has unrestricted access to the Company's auditors. Executive Directors' attendance is required where appropriate.

The Remuneration Committee, which also meets at least twice a year, sets and reviews the scale and structure of the executive directors' and the senior management's remuneration and the terms of their service contracts with due regard to the interests of the shareholders. The remuneration and terms and conditions of appointment of the non-executive directors are set by the Remuneration Committee. The relevant Director or member of the senior management is consulted by the Remuneration Committee, where appropriate, in discussions or decisions concerning his or her own remuneration.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

The Directors are required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the AIM. The Directors have elected to prepare the Group and company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. .

In preparing these financial statements, the directors are required to:

l select suitable accounting policies and then apply them consistently;

l make judgements and accounting estimates that are reasonable and prudent;

l state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements;

l prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and company. They are also responsible for safeguarding the assets of the Group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Website publication

The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements are published on the company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

Internal Control

The Board is responsible for the Group's system of internal financial controls, which is designed to provide reasonable, but not absolute, assurance against material misstatement or loss. The Group's system of internal controls includes, but is not limited to:

l the Board, which now includes three non-executive directors, has overall responsibility for the decision making in the Group, including the review and approval of major capital expenditure and treasury policies;

l an annual budget is prepared in advance of the start of the financial year against which the Group's actual performance is monitored by the Directors;

l the Directors have put in place an organisational structure with clearly defined lines of responsibility and delegation of authority;

l the Group's management has a clear responsibility for identifying risks facing the business and for putting in place procedures to mitigate and monitor those risks; and

l there are clearly defined control policies and

l procedures for all transactions including appropriate authorisation levels; and the Directors review the monthly and quarterly management accounts.

The Group has an internal audit department that reports to the Board and Audit Committee.

The Directors have reviewed the effectiveness of the Group's internal control systems for the year ended 31 December 2009.

Steps continue to be taken to embed internal control and risk management further into the operations of the business and to deal with areas of improvement which come to management's and the Board's attention.

Relations with shareholders

The Board supports the principle of clear reporting of financial performance to the Company's shareholders. All shareholders receive copies of the annual report and interim report which provide information on operations and financial positions. Shareholders are given opportunities to stay informed and involved with the Company's decisions by speaking and voting on the annual general meeting's resolutions in person or by proxy. The proxy vote results of each resolution will be made available by the Chairman after the meeting. All Directors attending the annual general meeting will be available to answer questions from shareholders present or via proxy votes. The Board actively encourages feedback and shareholder dialogue, whether verbal or written.

Going concern

After making enquiries and reviewed the Company's profit and cash flow forecast for the next 12 months, the Directors consider that the Group has adequate resources and support from its banks to continue in operational existence for the foreseeable future. Consequently, they have continued to adopt the going concern basis in preparing the financial statements.

By order of the Board

Yuan Xu

Secretary to the Board

23 June 2010

REPORT OF THE REMUNERATION COMMITTEE

The Remuneration Committee (the "Committee"), comprising Mr. Eugene Wong and Mr. Derek Marsh with Professor Chunming Xu who retired on 14 February 2010 as Chairman, convene as required during the year. Mr. Raymond Wong took the position as Chairman of Remuneration Committee after Professor Chunming Xu's retirement. Executive Directors may also be invited to attend meetings but may not vote and are not involved in any matter relating to themselves.

Remuneration policy

The policy of the Committee is to ensure that the remuneration packages offered to the executive Directors are competitive and designed to attract, retain and motivate executive Directors and senior executives of a high calibre. These packages are reviewed regularly and independent advice is taken when appropriate. They are structured to include both short and longer term incentives. No member of the Committee has any personal financial interest (other than as shareholders), conflicts of interest or day-today involvement in running the business. No Director plays a part in deciding his own remuneration.

The remuneration of the non-executive Directors is determined by the Committee. The non-executive Directors do not participate in the bonus scheme, nor do they receive any other benefits.

There are two main elements of the remuneration package for executive Directors:

l basic salary (including retirement benefit); and

l bonuses.

Basic salary

The basic salaries of the executive Directors are determined after a review of the performance of the individual. It is the aim of the Committee to reward Directors competitively and commensurate with their responsibilities and experience.

Bonuses

The basis of bonus payments is at the discretion of the Committee and is based on financial performance targets. The bonuses are paid annually in arrears.

Service Contracts

(a) Directors' service agreements and letters of appointment:

The Company's two executive Directors entered into service contracts with the Company and/or its subsidiaries dated 15 January 2007, and subsequently entered into further service contracts dated 15 February 2009. The Company entered into letters of appointment dated 15 February 2009 and 01 July 2009 with Mr. Johnson Lau and Mr. Raymond Wong to appoint them as non-executive Directors with an initial term of one year.

The Company also had entered into letters of appointment dated 15 January 2007 concerning the appointment of Mr. Eugene Wong and Mr. Derek Marsh as non-executive Directors of the Company, which had an initial term of one year from Admission. The Company entered into new letters of appointment with the two non-executive Directors with effect from 15 February 2008 and 2009, which are capable of termination by either the Company or the Director giving three months' notice. The Company will reimburse each non-executive Director, in full, for all reasonable out of pocket expenses which he properly incurs in the course of performing his duties as a non-executive Director.

(b) Save as set out above there are no contracts providing for benefits upon termination of the employment of any Director.

The remuneration per annum of the Directors in 2010 is as follows:

	Fee	Salaries, bonus and benefits
	US$	US$
Executive Directors
Xiaohong Yang	Nil	55,245
Zaizhong Zhang	Nil	51,282


Non-Executive Directors
Eugene Wong(Note 1)	65,876	Nil
Derek Marsh(Note 1)	50,353	Nil
Raymond Wong	58,548	Nil
Total	174,777	106,527

The emoluments of Directors serving during the year ended 31 December 2009 are disclosed below:

	Fee	Salaries, bonus and benefits
	US$	US$
Executive Directors
Xiaohong Yang	Nil	55,245
Zaizhong Zhang	Nil	51,282

Non-Executive Directors
Professor Chunming Xu	19,851	Nil
Eugene Wong	65,876	Nil
Derek Marsh	50,353	Nil
Johnson Lau(Note 2)	36,227	17,564
Raymond Wong(Note 3)	29,274	Nil
Total	201,581	124,091

(Note 1): Mr. Eugene Wong and Mr. Derek Marsh are paid in Sterling. For the purposes of comparison, an exchange rate of £1: US$1.439 is applied.

(Note 2): Mr. Johnson Lau served as an executive director and chief finance officer until March 2009. He changed the role from executive director and chief finance officer to non-executive director in March 2009. The remuneration for him prior to the changing of his role is recorded as salaries, bonus and benefits. The remuneration from March 2009 to December 2009 was recorded as service fee.

(Note 3): Mr. Raymond Wong was appointed as on 1 July 2009 and received his non-executive director fee from July to December 2009.

Raymond Wong

Chairman of the Remuneration Committee

23 June 2010

DIRECTORS AND ADVISERS

Directors

Mr. Xiaohong Yang, Executive Chairman

Mr. Zaizhong Zhang, Chief Executive Officer

Mr. Eugene Wong, Non-Executive Director

Mr. Derek Marsh, Non-Executive Director

Mr. Raymond Wong, Non-Executive Director

Audit Committee

Mr. Eugene Wong, Chairman

Mr. Derek Marsh

Mr. Raymond Wong

Remuneration Committee

Mr. Raymond Wong, Chairman

Mr. Derek Marsh

Mr. Eugene Wong

Registered Office and Place of Domicile

c/o Scotia Centre

4th Floor, P.O. Box 2804

George Town

Grand Cayman

Cayman Islands

Secretary to the Board

Mr. Yuan Xu

Nominated Adviser and Broker

Westhouse Securities Limited

1 Angel Court,

London EC2R 7HJ

Auditors

BDO LLP

Emerald House

East Street

Epsom

Surrey KT17 1HS

Bankers

ICBC (London) Limited, London

36 King Street

London EC2V 8BB

Registrars

Capita Registrars (Jersey) Limited

Victoria Chambers

Liberation Square

1/3 The Esplanade

St Helier

Jersey JE4 0FF

INDEPENDENT AUDITOR'S REPORT

TO THE SHAREHOLDERS OF HAIKE CHEMICAL GROUP LTD.

We have audited the group and company financial statements (the "financial statements") of HaiKe Chemical Group Ltd. for the year ended 31 December 2009 which comprise the consolidated statement of comprehensive income, the consolidated and parent statement of financial position, the consolidated and parent statement of cash flow, the consolidated and parent statement of changes in equity and the related notes. These financial statements have been prepared under the accounting policies set out therein.

Respective responsibilities of directors and auditors

The directors' responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the statement of directors' responsibilities.

Our responsibility is to audit the financial statements in accordance with relevant regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view in accordance with International Financial Reporting Standards. We also report to you if, in our opinion, the company has not kept proper accounting records, or if have not received all the information and explanations we require for our audit, or if the information given in the Directors' Report is inconsistent with those financial statements.

We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the chairman's statement, the chief executive officer's report, the chief finance officer's report, the directors and senior management profile, the directors' report, the corporate governance statement and the report of the remuneration committee. We consider the implications for our report if we became aware of any apparent misstatement or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Our report has been prepared pursuant to the terms of our engagement letter with the Company and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of the engagement letter or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and company's circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion

In our opinion:

·; the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group's affairs as at 31 December 2009 and of its loss for the year then ended; and the information given in the Directors' Report is consistent with the financial statements.

·; the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by European Union, of the state of the parent company's affairs as at 31 December 2009.

BDO LLP

Chartered Accountants and Registered Auditors

Epsom

United Kingdom

23 June 2010

HAIKE CHEMICAL GROUP LTD.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2009
	Note	2009	2008
		$'000	$'000

Revenue	3	591,329	631,533
Cost of sales		(567,653)	(633,494)

Gross profit / (loss)		23,676	(1,961)

Other operating income	3	3,531	868
Administrative expenses		(15,618)	(11,770)
Selling and distribution expenses		(4,463)	(3,510)

Profit / (loss) from operations	5	7,126	(16,373)

Finance expenses	6	(11,461)	(15,349)
Finance income	3	2,442	2,104
Share of results of associates		(60)	(77)

Loss before tax		(1,953)	(29,695)

Tax credit / (expense)	19	123	(992)

Loss for the year		(1,830)	(30,687)

Other comprehensive income
Exchange difference arising from consolidation		43	3,361

Total comprehensive loss		(1,787)	(27,326)

Profit / (loss) for the year attributable to:
Owners of parent		187	(29,234)
Non-controlling interest		(2,017)	(1,453)

		(1,830)	(30,687)

Total comprehensive income / (loss) attributable to:
Owners of parent		230	(25,873)
Non-controlling interest		(2,017)	(1,453)

		(1,787)	(27,326)
Earnings / (loss) per share for profit / (loss) attributable to the
ordinary equity holders of the parent during the year

Basic	7	$0.005	($0.762)
Diluted	7	$0.005	($0.762)

The accompanying policies and explanatory notes form an integral part of the financial statements.

HAIKE CHEMICAL GROUP LTD.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2009
	Notes	2009	2008
		$'000	$'000
ASSETS
Non-current assets
Property, plant and equipment	8	233,718	145,545
Intangible assets	9	18,835	5,082
Investments in equity-accounted associates	11	66	204
Available-for-sale investments	12	-	544
Deferred tax assets	19	908	791
		253,527	152,166
Current assets
Inventories	13	86,957	38,887
Trade and other receivables	14	61,991	25,240
Amounts due from related parties	23	-	299
Income tax receivable	19	6,508	-
Restricted cash	15	120,637	56,313
Cash and cash equivalents	15	51,844	34,728
		327,937	155,467
Total assets		581,464	307,633

LIABILITIES
Current liabilities
Short-term loan	16	320,632	153,475
Trade and other payables	18	118,763	74,991
Deferred income	17	-	202
Income tax payable	19	-	1,385
Amounts due to related parties	23	27,647	43,637
		467,042	273,690
Non-current liabilities
Long-term loan	16	56,021	2,926
Deferred income	17	1,729	1,739
		57,750	4,665
Total liabilities		524,792	278,355

CAPITAL AND RESERVES
Share capital	20	77	77
Share premium	20	18,338	18,338
Other reserves	20	6,145	6,145
Statutory reserves	20	2,800	2,722
Foreign currency translation reserve	20	6,315	6,272
Accumulated losses	20	(13,759)	(13,834)
Equity attributable to equity holders of the parent		19,916	19,720
Non-controlling interest		36,756	9,558
Total equity		56,672	29,278
Total liabilities and equity		581,464	307,633

The financial statements were approved and authorised for issue by the Board of Directors on 23 June 2010 and were signed on its behalf by:

Xiaohong Yang Nick Su

The accompanying policies and explanatory notes form an integral part of the financial statements.

HAIKE CHEMICAL GROUP LTD.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2009

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - Attributable to equity holders of the parent - - - - - - - - - - - - - - - - - - - - - - - -

Share Capital $'000

Share premium

$'000

Other reserves $'000

Statutory reserves $'000

Retained earnings / (accumulated losses)

$'000

Foreign currency translation reserve

$'000

Total

$'000

Non-controlling interest

$'000

Total equity

$'000

Balance as at 1 January 2008

18,338

4,510

3,996

16,196

2,911

46,028

10,058

56,086

Capital injection to subsidiary from minority shareholder

518

Total comprehensive loss for the year

(29,234)

3,361

(25,873)

(1,453)

(27,326)

Transfer from statutory reserves

1,635

(1,635)

Transfer to statutory reserves

440

(440)

Transfer to non-controlling interest

(79)

(874)

(953)

953

Balance as at 31 December 2008

18,338

6,145

2,722

(13,834)

6,272

19,720

9,558

29,278

Capital injection to subsidiary from minority shareholder

29,861

Total comprehensive loss for the year

187

230

(2,017)

(1,787)

Dividen paid to non-controlling interest

(680)

Transfer to statutory reserves

112

(112)

Transfer to non-controlling interest

(34)

Balance as at 31 December 2009

18,338

6,145

2,800

(13,759)

6,315

19,916

36,756

56,672

77.00

18,338.00

6,145.00

2,800.00

-13,759.00

6,315.00

19,916.00

36,756.00

56,672.00

The accompanying policies and explanatory notes form an integral part of the financial statements.

HAIKE CHEMICAL GROUP LTD.

CONSOLIDATED STATEMENT OF CASH FLOW

FOR THE YEAR ENDED 31 DECEMBER 2009


	Notes	2009	2008
		$'000	$'000

Cash flow from operating activities	a	(105,071)	(15,240)
Cash flow from investing activities
Purchase of property, plant and equipment		(87,079)	(39,775)
Purchase of intangible assets		(13,923)	(1,894)
Interest received		1,649	804
Government grant received		438	425
Proceeds on sales of available-for-sale financial assets		961	-
Purchase of available-for-sale financial assets		-	(13)
Sales of financial assets held for trading		-	308
Dividend income from available-for-sale financial assets		-	62
Proceeds from disposal of property, plant and equipment		661	115
Cash flow used in investing activities		(97,293)	(39,968)

Cash flow from financing activities
Capital injection from minority shareholders in subsidiaries		29,861	518
Proceeds from bank borrowings		547,690	270,524
Repayment of bank borrowings		(328,814)	(207,184)
Loans from/(to) related parties		(17,900)	35,333
Interest paid		(11,461)	(15,349)
Dividends paid to non-controlling interest		(680)	-
Cash flow from financing activities		218,696	83,842

Net increase in cash and cash equivalents		16,332	28,634
Cash at beginning of year		34,728	5,585
Foreign currency translation differences		784	509
Cash at end of year		51,844	34,728

The accompanying policies and explanatory notes form an integral part of the financial statements.

HAIKE CHEMICAL GROUP LTD.

NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOW

FOR THE YEAR ENDED 31 DECEMBER 2009

(a) Cash flow from operating activities

	2009	2008
	$'000	$'000

Profit before income tax	(1,953)	(29,695)
Adjustments for:
Amortisation of intangible assets	181	153
Provisions for doubtful debts	195	(231)
Depreciation of property, plant and equipment	13,812	15,422
Loss on disposal of property, plant and equipment	299	227
Amortisation of deferred capital grants	(650)	(195)
Share of results of associates	-	77
Dividend income from investment securities	-	(62)
(Gain)/loss on disposal of investment securities	(417)	(20)
Foreign exchange gain	(793)	(1,237)
Interest income	(1,649)	(804)
Finance expense	11,461	15,349
Operating cash flows before working capital changes	20,486	(1,016)

Working capital changes:
(Increase)/decrease in:
Inventories	(48,070)	8,909
Trade and other receivables	(28,061)	531
Amounts due from related parties	299	(294)
Restricted cash	(64,324)	(35,701)
Increase/(decrease) in:
Trade and other payables	20,575	13,960
Amounts due to related parties	1,910	-
	(97,185)	(13,611)
Cash used in operations
Income tax paid	(7,886)	(1,629)
Net cash utilised in operating activities	(105,071)	(15,240)

The accompanying policies and explanatory notes form an integral part of the financial statements.

HAIKE CHEMICAL GROUP LTD.

COMPANY STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2009


		2009	2008
	Notes	$'000	$'000
ASSETS
Non-current assets
Investment in subsidiary undertakings	10	3	3
Amount due from related parties	23	12,662	14,323
		12,665	14,326
Current assets
Cash and cash equivalents		108	107
Total assets		12,773	14,433


CAPITAL AND RESERVES
Share capital	20	77	77
Share premium	20	18,338	18,338
Other reserve	20	251	251
Accumulated losses	20	(5,893)	(4,233)
Total equity		12,773	14,433

The financial statements were approved and authorised for issue by the Board of Directors on 23 June 2010 and were signed on its behalf by:

Xiaohong Yang Nick Su

The accompanying policies and explanatory notes form an integral part of the financial statements.

HAIKE CHEMICAL GROUP LTD.

COMPANY STATEMENT OF CHANGE IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2009

	Share capital	Share premium	Other reserve	Accumulated losses	Total
	$'000	$'000	$'000	$'000	$'000

Balance as at 1 January 2008	77	18,338	251	(3,139)	15,527
Total comprehensive loss for the year	-	-	-	(1,094)	(1,094)
Balance as at 31 December 2008	77	18,338	251	(4,233)	14,433
Total comprehensive loss for the year	-	-	-	(1,660)	(1,660)
Balance as at 31 December 2009	77	18,338	251	(5,893)	12,773

The accompanying policies and explanatory notes form an integral part of the financial statements.

HAIKE CHEMICAL GROUP LTD.

COMPANY STATEMENT OF CASH FLOW

FOR THE YEAR ENDED 31 DECEMBER 2009


	2009	2008
	$'000	$'000
Cash flow from operating activities
Loss before income tax	(1,660)	(1,094)
Decrease in amounts due from related parties	1,661	1,103
Cash flow from operating activities	1	9


Net increase in cash and cash equivalents	1	9
Cash at beginning of year	107	98
Cash at end of year	108	107

The accompanying policies and explanatory notes form an integral part of the financial statements.

NOTES TO FINANCIAL STATEMENTS

1. Background and Basis of Preparation

1.1 The Company

HaiKe Chemical Group Ltd. (the "Company") was incorporated on 20 June 2006. The address of the registered office is at Scotia Center 4th Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands. The principal activity of the Company is that of investment holding. The Company's ultimate parent company is Hi-Tech Chemical Investment Limited, a company incorporated in the British Virgin Islands.

The principal activities of the Group are manufacturing of petrochemical and chemical products. The principal place of business of the Company is West of Boxin Road, Shikou County, Dongying City, Shandong Province, China.

The financial statements present information about the Company and its subsidiaries as a consolidated group of companies.

1.2 Basis of Preparation

The consolidated financial statements of the Group have been prepared in accordance with those International Financial Reporting Standards and Interpretations in force ("IFRS"), which comprise standards and interpretations issued by the International Accounting Standards Board ("IASB"), and International Accounting Standards ("IASs") and Interpretations issued by the International Financial Reporting Interpretations Committee ("IFRICs") that remain in effect, as adopted by the European Union. The parent company's income statement is not required to be presented under the laws of the Cayman Islands.

The financial statements are presented in US Dollars ("US$ or $") and all values are rounded to the nearest thousand ($'000) except when otherwise indicated.

1.3 Standards effective but not yet adopted

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the group's accounting periods beginning on or after 1 January 2010 or later periods and which the group has decided not to adopt early and are not expected to have a material impact on the group's accounts. They are:

Name	Date of issue
Improvements to IFRSs (2009 and 2010)	16 April 2009
Group Cash-settled Share-based Payment Transactions (Amendments to IFRS 2)	18 June 2009
Additional Exemptions for First-time Adopters (Amendments to IFRS 1)	23 July 2009
Classification of Rights Issues (Amendment to IAS 32)	8 October 2009
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments	26 November 2009
Amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards	28 January 2010
Revised IAS 24 Related Party Disclosures	4 November 2009
Amendments to IFRIC 14 IAS 19 - Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction	26 November 2009
IFRS 9 Financial Instruments	12 November 2009

2. Significant Accounting Policies

2.1 Management Estimates

The preparation of financial statements in conformity with IFRS requires management to exercise judgment in the process of applying the Group's accounting policies and requires the use of accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amount of revenue and expenses during the reporting period.

The following estimates that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within this financial year are disclosed below:

a) Impairment of goodwill

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating unit to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. More details are given in Note 9.

b) Depreciation of plant and equipment

The cost of plant and equipment used for the manufacturing process is depreciated on a straight line basis over its estimating useful life. Managements' estimate of the useful life of plant and equipment is within 2 to 30 years. Management believes that these are common life expectancies applied in the chemical industry. Changes in the expected level of usage and technological developments could impact the economic use life and the residual value of these assets, therefore, future depreciation charges could be revised. More details including carrying values are included in Note 8.

c) Provision for impairment of account receivables

The Group makes sales on credit. A proportion of the outstanding credit sales may prove uncollectible in due course. An estimate is made of the uncollectible portion of accounts receivables using a percentage based on the aging profile of the amounts outstanding.

Although these estimates are based on management's best knowledge of current events and actions, actual results may differ from these estimates.

2. Significant Accounting Policies (Cont'd)

2.1 Management Estimates (Cont'd)

d) Inventory

The Group reviews the net realisable value of, and demand for its inventory on a monthly basis to provide assurance that recorded inventory is stated at lower of cost or net realisable value. Factors that could impact estimated demand and selling prices include the timing and success of future technological innovations, competitor actions, suppliers' prices and economic trends. If total inventory losses differ from management estimates by 1%, the Group's consolidated net income in 2009 would have declined by an estimated of $869,570 (2008: $388,870).

2.2 Functional and Presentation Currency

a) Functional currency

The directors have determined the currency of the primary economic environment in which the Group operates, to be Renminbi ("RMB"). Sales and major costs of the providing goods and services including major operating expenses are primarily influenced by fluctuations in RMB against US$.

2.2 Functional and Presentation Currency (Cont'd)

b) Foreign currency transactions

Transactions in foreign currencies are measured in the respective functional currencies of the combined entities and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the closing rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the date of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair values are determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in the income statement except for exchange differences arising on monetary items that form part of the Group's net investment in foreign subsidiaries, which are recognised initially in a separate component of equity as foreign currency translation reserve in the consolidated balance sheet and recognised in the consolidated income statement on disposal of the subsidiary.

c) Foreign currency translation

The presentation currency of the Group is US$, being the currency in which the international oil market operates, and therefore that financial information has been translated from RMB to US$.

The results and financial position are translated into US$ using the following procedures:

Assets and liabilities for each balance sheet are presented at the closing rate ruling at that balance sheet date; and income and expenses for income statements are translated at average exchange rates for the year, which approximates to the exchange rates at the date of transactions.

All resulting exchange differences are recognised in the currency translation reserve, a separate component of equity. Goodwill and fair value adjustments arising on the acquisition of foreign operations are treated as assets and liabilities of the foreign operations and are recorded in the functional currency of the foreign operations and translated at the closing rate at the balance sheet date.

2.3 Subsidiaries and Principles of Consolidation

a) Subsidiaries

A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. The Group generally has such power when it directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of directors. In the parent company's financial statements, its investments in subsidiaries are held at cost and are reviewed annually for impairment.

b) Principles of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at the balance sheet date. The financial statements of the subsidiaries are prepared for the same reporting date as the parent company. Consistent accounting policies are applied for like transactions and events in similar circumstances.

All inter-group balances, transactions, income, expenses, profits and losses resulting from inter-group transactions that are recognised as assets, are eliminated in full.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date such control ceases.

Acquisitions of subsidiaries are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus cost directly attributable to the acquisition. Identified assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair value at the acquisition date, irrespective of the extent of any minority interest.

Any excess of the cost of the business combination over the Group's interest in the net fair value of the identified assets, liabilities and contingent liabilities represents goodwill. The goodwill is accounted for in accordance with the accounting policy for goodwill stated below.

2.3 Subsidiaries and Principles of Consolidation (Cont'd)

Any excess of the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognised in the income statement on the date of acquisition.

Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group. These are presented in the consolidated balance sheet within equity, separately from the parent shareholder's equity, and are separately disclosed in the consolidated income statement.

2.4 Investments in Associates

An associate is an entity, not being a subsidiary or a joint venture, in which the Group has significant influence. This generally coincides with the Group having 20% or more of the voting power, or has representation on the board of directors.

The Group's investments in associates are accounted for using the equity method. Under the equity method, the investment in associate is carried in the balance sheet at cost plus post-acquisition changes in the Group's share of net assets of the associate. The Group's share of the profit or loss of the associate is recognised in the consolidated income statement. Where there has been a change recognised directly in the equity of the associate, the Group recognised its share of such changes. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group's net investment in the associate. The associate is equity accounted for from the date the Group obtains significant influence until the date the Group ceases to have significant influence over the associate.

Goodwill relating to an associate is included in the carrying amount of the investment. Any excess of the Group's share of the net fair value of the associate's identifiable assets, liabilities and contingent liabilities over the cost of the investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the Group's share of the associate's profit or loss in the period in which the investment is acquired.

When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligation or made payment on behalf of the associate.

2.5 Property, Plant and Equipment

Property, plant and equipment are recorded at historic cost, less accumulated depreciation and any impairment loss where the recoverable amount of the asset is estimated to be lower than its carrying amount.

Property, plant and equipment in the course of construction for production or administrative purposes is carried at cost, less any recognised impairment loss. Depreciation of these assets commences when the assets are ready for their intended use.

Depreciation is charged so as to write off the cost of the assets over their estimated useful lives, using the straight-line method, as follows:

Buildings 20 - 30 years

Machinery equipment 2 - 18years Electronic equipment, furniture and fixtures 5 - 12 years

Motor vehicles 8 - 12 years

The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the consolidated income statement.

2.6 Intangible Assets

a) Goodwill

Goodwill arising in a business combination is initially measured at cost being the excess of the cost of the business combination over the fair value of the Group's interest in the identifiable assets, liabilities and contingent liabilities acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired, and any impairment loss arising is charged to administrative expenses in the consolidated income statement.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the Group's cash generating units which are expected to benefit from the synergies of the combination.

b) Other intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

Intangible assets are amortised through administrative expenses on a straight-line basis over their estimated useful economic lives and assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amortisation period and amortisation method for intangible assets are reviewed at least at each financial year-end.

The estimated useful economic lives of the Group's intangible fixed assets are as follows:

Land use rights - 20-50 years

Industry rights - 4-10 years

Software - 2-5 years

c) Land use rights

The up-front prepayments made for the land use rights are expensed in the consolidated income statement on a straight-line basis over the period of the lease, which ranges from 20 to 50 years, or where there is impairment, the impairment is expensed in the consolidated income statement.

2.7 Impairment of Non-financial Assets

The Group assesses at each reporting date whether there is an indication that an asset maybe impaired. If any such indication exists, or an annual impairment test for an asset is required, the Group makes an estimate of the asset's recoverable amount.

An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. In assessing value in use, the estimated future cash flow are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

As assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses recognised for an asset other than goodwill may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss is recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount can not exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Reverse of an impairment loss is recognised in the income statement. After such a reversal, the depreciation charge is adjusted for future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic base over its remaining useful life. The Group does not reverse in a subsequent period, an impairment loss recognised for goodwill.

2.8 Financial Assets

a) Classification

The Group classifies its investments in financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets.

2.8 Financial Assets (Cont'd)

b) Financial assets at fair value through profit or loss

Financial assets classified as held for trading are included in the category "financial assets at fair value through profit or loss". Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognised in the income statement.

c) Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and, in consequence, the new expected cash flows are discounted at the original effective interest rate.

Cash and cash equivalents comprise cash in hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

2.8 Financial Assets (Cont'd)

d) Available-for-sale financial assets

Non-derivative financial assets not included in the above categories are classified as available-for-sale and comprise principally the Group's strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities as well as corporate bonds. They are carried at fair value with changes in fair value recognised directly in a separate component of equity (available-for-sale reserve) other than exchange differences on corporate bonds denominated in foreign currency, which are recognised in profit or loss. Where there is a significant or prolonged decline in the fair value of an available for sale financial asset (which constitutes objective evidence of impairment), the full amount of the impairment, including any amount previously charged to equity, is recognised in the income statement. Purchases and sales of available for sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the available for sale reserve. On sale, the amount held in the available for sale reserve associated with that asset is removed from equity and recognised in the income statement. Interest on corporate bonds classified as available for sale is calculated using the effective interest method and is recognised in finance income in the income statement.

2.9 Financial Liabilities and Equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangement entered into. Significant financial liabilities include interest-bearing short-term bank loans, trade and other payables.

Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

All loans and borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

2.10 Inventories

Inventories are valued at the lower of cost and net realisable value. Cost incurred in bringing the inventories to their present location and condition is accounted for as follows:

Raw materials	- purchase cost on a weighted average basis
Finished goods and work-in-process	- costs of direct materials and labor and a proportion of manufacture overheads based on normal operating capacity but excluding borrowing costs.

Net realisable value is the estimated selling price in the ordinary course of business less estimated costs of completion and the estimated costs necessary to make the sale.

2.11 Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.

a) Sales of goods

Revenue is recognised upon the transfer of significant risk and rewards of ownership of the goods to the customer, which generally coincides with delivery and acceptance of the goods sold. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods.

b) Interest income

Interest income is accrued on a time apportioned basis, by reference to the principal outstanding and at the interest rate applicable, on an effective yield basis.

c) Dividends

Dividend income is recognised when the Group's right to receive payment is established.

2.12 Profit from Operation

Profit from operation is arrived at after charging all items of operating expenditure and before crediting all items of operating income.

2.13 Government Grants

Government grants are recognised at their fair value. When a grant relates to an expense item, it is recognised in the consolidated income statement over the period necessary to match it on systematic basis to the costs that it is intended to compensate. Where a grant relates to an asset, it is included in deferred income and amortised to the consolidated income statement in equal annual installments over the expected useful life of the relevant asset.

2.14 Employee Benefits

The Group participates in national pension schemes as defined by the laws of the country in which it has operations. Contributions to national pension schemes are recognised as an expense in the period in which the related service is performed.

2.15 Borrowing Costs

With effect from 1 January 2009, borrowing costs are capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset. Other borrowing costs are expensed as incurred. Capitalisation of borrowing costs commences when the activities to prepare the asset to its intended use or sell are in process and the expenditures or borrowing costs are incurred. Other borrowing costs are capitalised until the assets are ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. Prior to 1 January 2009, borrowing costs were expensed as incurred.

2.16 Derecognition of Financial Assets and Liabilities

a) Financial assets

A financial asset is derecognised where:

² The contractual rights to receive cash flows from the assets have expired;

² The Group retains the contractual rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass-through' arrangement; or

² The Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

b) Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

2.17 Taxation

Income tax for the financial year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that is relates to items recognised directly in equity, in which case such tax is recognised directly in equity.

Current tax assets and liabilities for the current and prior period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

2.17 Taxation (Cont'd)

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base, except for differences arising on:

² the initial recognition of goodwill;

² the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and investments in subsidiaries and jointly controlled entities where the group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: the same taxable Group company; or different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

2.18 Segment reporting

The Group's report segments reflect the internal format provided to the chief operating decision maker and are as follows:

l The petrochemical segment provides the diesel oil, gasoline as well as other similar commercial oil by processing crude oil. This segment contributes 82% (2008: 83%) to Group turnover.

l The chemical segment is a diverse supplier of methyl carbonate, propylene and relating products which used in the areas of medical, agriculture, food and textile industry. This segment contributes 18% (2008: 17%) to Group turnover.

Measurement of operating segment profit or loss, assets and liabilities

The accounting policies of the operating segments are the same as those described in the summary of significant policies. The Group evaluates performance and operating segment profit or loss from operations before tax not including non-recurring losses, such as restructuring costs and goodwill impairment.

Inter-segment sales are priced along the same lines as sales to external customers. The policy was applied consistently throughout the current and prior period.

Segment assets exclude tax assets and assets used primarily for corporate purposes. Segment liabilities exclude tax liabilities. Even though loans and borrowings arise from finance activities rather than operating activities, they are allocated to the segments based are relevant factors (e.g. funding requirements). Details are provided in the reconciliations from segment assets and liabilities to the Group position.

2.19 Leased assets

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a "finance lease"), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as liability. Lease payments are analysed between capital and interest. The interest element is charged to the consolidated statement of comprehensive income over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor.

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "Operating lease"), the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.

3. Revenue

	2009	2008
	$'000	$'000

Sale of goods	591,329	631,533

Other operating income
Waste disposal and sale of by-products	1,440	143
Government grant	369	425
Amortisation of deferred capital grants	650	195
Other income	595	105
Net gain on disposal of investment securities	477	-
	3,531	868
Finance income
Interest income	1,649	804
Exchange gain	793	1,237
Dividend income from investment securities	-	63
	2,442	2,104

Total income	597,302	634,505

3. Revenue (Cont'd)

Sale of goods represents the invoiced amount of delivered goods net of discounts, returns and valued added tax. All intra-group transactions are excluded from the revenue of the consolidated Group.

4. Segmental information

a) Operating segment

The following table presents revenue and profit from the Group's operating segments for the financial years ended 31 December 2009 and 2008.

	2009	2008
	$'000	$'000

Sales to external customers
Petrochemical	486,288	526,939
Chemical products	105,041	104,594
	591,329	631,533
(loss)/profit for the year
Petrochemical	1,130	(36,761)
Share of associate	(60)	(77)
	1,070	(36,838)
Chemical products	615	8,254
Unallocated expense Head office cost		(1,411)
Consolidation adjustments	(1,233)	300

Loss from operations before tax	(1,953)	(29,695)
Income tax credit/(expense)	123	(992)
Loss for the year	(1,830)	(30,687)

4. Segmental information (Cont'd)

Reconciliation of reportable segment revenues, profit or loss, assets and liabilities to the Group's corresponding amounts:

	2009	2008
	$'000	$'000

Revenue
Total revenue for reportable segments	591,329	631,533

Loss after income tax expense
Total profit or loss for reportable segments	1,268	(28,527)
Share of associate	(60)	(77)
Gain on disposal of investment securities	477	20
Corporation taxes	123	(992)
Elimination of inter-segmental profits	-	-
Unallocated amounts:
other corporate expenses	(3,638)	(1,111)
Loss after income tax expense (continuing activities)	(1,830)	(30,687)

4. Segmental information (Cont'd)


	2009	2008
	$'000	$'000
Segment assets
Petrochemical	578,487	247,981
Investment in associate	66	61
	578,553	248,042
Chemical products	106,115	113,781
Unallocated assets	2,567	239
Less: Intersegment balance	(105,771)	(54,429)
	581,464	307,633
Segment liabilities
Petrochemical	509,422	248,040
Chemical products	117,335	80,904
Unallocated liabilities	3,806	3,840
Less: Intersegment balance	(105,771)	(54,429)
	524,792	278,355
Other segment information
Capital expenditures
Petrochemical	96,840	17,821
Chemical products	19,839	32,449
	116,679	50,270
Depreciation and amortisation
Petrochemical	6,925	9,568
Chemical products	7,068	6,007
	13,993	15,575

Finance income
Petrochemical	958	1,788
Chemical products	1,484	316
	2,442	2,104

Finance expense
Petrochemical	8,153	13,605
Chemical products	3,308	1,744
	11,461	15,349

Capital expenditures include additions to property, plant and equipment and intangible assets.

4. Segmental information (Cont'd)

b) Geographical information

The following table provides an analysis of the Group's sales by geographical market, irrespective of the origin of the goods or services.

	External	Non-current	External	Non-current
	Revenue	assets	Revenue	assets
	2009	2009	2008	2008
	$'000	$'000	$'000	$'000
Sales to external customers
People's Republic of China	563,769	253,527	614,427	152,166
Exports	27,560	-	17,106	-
	591,329	253,527	631,533	152,166

	India	Italy	Others	Total
	2009	2009	2009	2009
	$'000	$'000	$'000	$'000
Export sales to	6,502	5,166	15,892	27,560

	India	Italy	Others	Total
	2008	2008	2008	2008
	$'000	$'000	$'000	$'000
Export sales to	5,705	6,850	4,551	17,106

Revenues from one customer in the petrochemical segment represent approximately 8% (2008: 7%) of the total Group's revenue.

5. Profit / (loss) from Operations

	2009	2008
	$'000	$'000
This has been arrived at after charging/(crediting):

Cost of inventories recognised as expense	567,653	633,494
Depreciation of property, plant and equipment	13,812	15,422
Staff costs	9,568	5,874
Remuneration of auditors:
Audit of group accounts	205	201
Amortisation of intangible assets	181	153
Loss on disposal of property, plant and equipment	299	227
Allowance for doubtful trade debts/(no longer required)	195	(231)
Gain on disposal of investment securities	(477)	(20)

6. Finance expenses

	2009	2008
	$'000	$'000

Interest expenses on bank and other loans	11,799	14,985
Exchange loss	397	-
Bank charges	752	364
	12,948	15,349
Less: Interest expenses capitalised as cost of plant and
equipment	(1,487)	-
	11,461	15,349

The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation has been based on the Group's average borrowing rate as detailed in note 16.

7. Earnings / (loss) per Share

Earnings / (loss) per share has been calculated on the basis of the net earnings / (loss) attributable to equity shareholders of the parent of $187,000 (2008: Net loss of $29,234,000).

The weighted average number of ordinary shares used in the calculation of earnings per share has been derived as follows:

	2009	2008

Weighted average number of ordinary shares - basic & diluted	38,353,571	38,353,571

8. Property, Plant and Equipment

	Buildings	Machinery equipment	Electronic equipment	Motor vehicles	Total

	$'000	$'000	$'000	$'000	$'000
Cost :
At 1 January 2008	9,608	117,919	3,939	1,340	132,806
Additions	6,873	40,192	669	642	48,376
Disposals	(126)	(1,043)	(43)	(51)	(1,263)
Foreign exchange differences	772	8,755	281	103	9,911
At 31 December 2008	17,127	165,823	4,846	2,034	189,830
Additions	8,405	93,423	340	588	102,756
Disposals	(150)	(1,277)	(6)	-	(1,433)
Foreign exchange differences	22	212	4	4	242
At 31 December 2009	25,404	258,181	5,184	2,626	291,395

Accumulated depreciation:
At 1 January 2008	2,589	23,872	1,075	108	27,644
Depreciation charged for the year	549	14,568	160	145	15,422
Disposals	(41)	(831)	(31)	(17)	(920)
Foreign exchange differences	186	1,871	74	8	2,139
At 31 December 2008	3,283	39,480	1,278	244	44,285
Depreciation charged for the year	523	12,881	230	178	13,812
Disposals	(99)	(366)	(8)	-	(473)
Foreign exchange differences	(370)	416	6	1	53
At 31 December 2009	3,337	52,411	1,506	423	57,677

Net carrying amount:
At 31 December 2007	7,019	94,047	2,864	1,232	105,162
At 31 December 2008	13,844	126,343	3,568	1,790	145,545
At 31 December 2009	22,067	205,770	3,678	2,203	233,718

Assets under construction

Included in machinery equipment of the Group at 31 December 2009 was amount of $100,502,000 (2008: $13,098,000) relating to expenditure for equipment in the course of construction.

Assets pledged as security

As at 31 December 2009, machinery equipment with a carrying amount of $32,212,000 (2008: $37,478,000) are subject to a first charge to secure the Group's bank loans.

As at 31 December 2009, machinery equipment with a carrying amount of $9,328,000 (2008: Nil) have been secured against finance lease obligations (refer note 16).

9. Intangible Assets

	Goodwill	Industry rights	Land use rights	Software	Total

	$'000	$'000	$'000	$'000	$'000
Cost:
At 1 January 2008	952	753	2,463	101	4,269
Additions	-	-	1,850	44	1,894
Foreign exchange differences	65	52	201	8	326
At 31 December 2008	1,017	805	4,514	153	6,489
Additions	-	-	13,902	21	13,923
Foreign exchange differences	(1)	1	12	-	12
At 31 December 2009	1,016	806	18,428	174	20,424
Accumulated amortization:
At 1 January 2008	-	583	550	37	1,170
Amortisation	-	39	109	5	153
Foreign exchange differences	-	41	39	4	84
At 31 December 2008	-	663	698	46	1,407
Amortisation	-	40	114	27	181
Foreign exchange differences	-	1	1	(1)	1
At 31 December 2009	-	704	813	72	1,589
Net carrying amount:
At 31 December 2007	952	170	1,913	64	3,099
At 31 December 2008	1,017	142	3,816	107	5,082
At 31 December 2009	1,016	102	17,615	102	18,835

Land use rights are secured against long term loan - refer to Note 16 per details.

Impairment testing of goodwill

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. Before recognition of impairment losses, the carrying amount of goodwill has been allocated as follows:

	2009	2008
	$'000	$'000

Shandong Hi-Tech Shengli Electrochemical Co., Ltd.	1,017	1,017

9. Intangible Assets (Cont'd)

The Group tests goodwill annually for impairment or more frequently if there are indications that the goodwill might be impaired.

The recoverable amounts of the CGUs are determined from the calculation of value in use. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. The discount rates are estimated using the pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past experience and expectations of future changes in the market.

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management covering a five-year period. The pre-tax discount rate applied to the cash flow projections is 20%. The growth rate used to extrapolate the cash flows of the CGU for the following five years is nil.

This growth rate does not exceed the average growth rate for the industry in which the CGU operates. Management of the CGU believes this growth rate is justified based on the estimation of average long-term growth rate for the relevant markets.

The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill:

² Budgeted gross margins - the basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budgeted year increased for expected efficiency improvements. In this way, the expected gross margin in the budget years ranges from 35% to 40%.

² Raw materials price inflation - the basis used to determine the value assigned to the raw materials inflation is the forecast price indices during the budget year for China being where materials are sourced. The estimated price inflation of main raw materials is 2%.

Values assigned to key assumptions are consistent with external information sources.

10. Investment in Subsidiaries

The companies comprised in the Group are as follows:

Name	Place and date of incorporation	Principal activities	Proportion (%) of ownership interest activities and voting rights
Held by the Company
Profit Unit Investment	Hong Kong April 2006	Investment holding	100
Synergy Capital Group Ltd.	Hong Kong September 2006	Investment holding	100
Held through subsidiaries
Shandong Hi-Tech Chemical Group Ltd.	China January 2001	Manufacturing	88.85
Shandong Hi-Tech Shengli Electrochemical Co., Ltd	China December 2000	Manufacturing	64.67
Dongying Hi-Tech Spring Chemical Co., Ltd	China October 2002	Manufacturing	53.83
Dongying Tiandong Biochemical Co., Ltd	China December 1992	Manufacturing	62.20
Shandong Hi-Tech Hailin Trading Co., Ltd	China April 2008	Trading	88.85
Shandong Hi-Tech Ruilin Chemical Co., Ltd	China April 2008	Manufacturing	43.54

On 11 May 2009, the paid in capital of Shandong Hi-Tech Ruilin Chemical Co., Ltd was increased by $57,034,000 from $1,463,000 to $58,497,000, inclusive of the increased paid in capital, $29,861,000 and $27,173,000 were injected by third parties and Shandong Hi-Tech Chemical Group Ltd. respectively. Therefore, ownership proportion in Shandong Hi-Tech Ruilin Chemical Co., Ltd. of Shandong Hi-Tech Chemical Group Ltd decreased from 100% to 49%, but Shandong Hi-Tech Ruilin Chemical Co., Ltd is treated as a subsidiary on consolidation as the Group is able to exercise control it via the board of directors.

HaiKe (Singapore) Oil Trading company Pte. was incorporated on October 1st, 2009 by HaiKe Chemical Group subsidiary Profit United Ltd and Mr. John Ng. Profit United contributed SGD240,000 for 80% shares and Mr. John Ng paid 60,000 for 20% shares. After registration, there is no business since its establishment.

11. Investment in equity-accounted associates

	2009	2008
	$'000	$'000
Investment in associate
Shares, at cost	104	104
Share of post-acquisition reserves	(104)	(43)
	-	61
Investment in entity excluded from consolidation	66	143
Carrying amount of investments	66	204

Detail information about the investment in associate is set out below:

Name	Country of incorporation	Principal activities	Proportion (%) of ownership interest
Name	Country of incorporation	Principal activities	2009	2008

Dongying Hi-Tech Propylene Co., Ltd.	China	Manufacturing	13.04	13.04

Dongying Hi-Tech Propylene Co., Ltd. is considered to be an associated undertaking as the Group has significant influence over its financial and operating policies through representation on the Board of Directors.

The summarized financial information of the associate is as follows:

	2009	2008
	$'000	$'000
Assets and liabilities
Current assets	76,993	114,511
Non-current assets	745	839
	77,738	115,350

Current liabilities	82,004	114,884

Results:
Revenue	9,012	11,108
Loss for the year	(1,349)	(488)

The following entity has not been consolidated as the Company has entered into contracts to consign to the minority shareholders the power to operate this entity. Consequently, the minority shareholders have the full power to govern the operating and financial policies of this entity, and the Company does not have the power to exercise control over the entity. The entity is therefore accounted for using equity method. 11. Investment in equity-accounted associates (Cont'd)

Name	Country of incorporation	Principal activities	Proportion (%) of ownership interest
Name	Country of incorporation	Principal activities	2009	2008

Dongying Hi-Tech Transportation Co., Ltd.	China	Transportation service	81%	81%

			2009	2008
			$'000	$'000
Carrying amount of investment			66	143

12. Investment securities

	2009	2008
	$'000	$'000

Non-current investments
Available-for-sale investment	-	544

Included in the available-for-sale investment were equity investments not qualifying as subsidiaries, associates and joint controlled entities.

13. Inventories

	2009	2008
	$'000	$'000

Raw materials and consumables	56,939	29,235
Finished goods	16,587	8,627
Work in process	13,431	1,025
	86,957	38,887

The Group has pledged a floating charge over finished goods and raw materials as security over bank loans.

14. Trade and Other Receivables

	2009	2008
	$'000	$'000
Trade receivables:
Trade receivables	22,632	6,649
Less: provision for impairment of trade receivables	(309)	(250)
Trade receivables - Net	22,323	6,399

Other receivables:
Other receivables	18,022	9,389
Less: provision for impairment of other receivables	(2,358)	(2,220)
Other receivables - net	15,664	7,169
Total financial assets other than cash and cash equivalents and due from related parties classified as loans and receivables - Current portion	37,987	13,568
VAT receivable	5,549	-
Advance to suppliers / constructors	18,367	11,637
Prepayments	88	35
	61,991	25,240

	2009	2008
	$'000	$'000
Total financial assets other than cash and cash equivalents and due from related parties classified as loans and receivables - Current portion	37,987	13,568
Amount due from related parties	-	299
Restricted cash	120,637	56,313
Cash and cash equivalents	51,844	34,728
Total financial assets classified as loans and receivables	210,468	104,908

All trade and other receivables are current. Management considers the carrying amounts recognised in the balance sheet to be reasonable approximation of their fair value due to the short tem duration.

Other receivables

Other receivables are mainly loans to third parties, they are non-interest bearing and will be paid on demand.

The Group does not hold any collateral as security.

As at 31 December 2009, the ageing analysis of trade and other receivables is as followings:

	2009	2008
	$'000	$'000

Neither past due nor impaired	41,118	16,269
Past due and partially impaired
3 to 6 months	1,251	4,370
6 to 12 months	9,840	2,236
12 to 24 months	7,643	537
>24 months	2,139	1,828
	61,991	25,240

Trade receivables are generally on 90 days' terms

Movements on the group provision for impairment of trade and other receivables are as follows:

	2009	2008
	$'000	$'000

At beginning of the year	2,470	2,530
Unused amounts reversed	-	(231)
Accrual this year	195	-
Foreign exchange differences	2	171
	2,667	2,470

15. Restricted Cash, Cash and Cash Equivalents

	2009	2008
	$'000	$'000

Cash at banks and in hand	51,844	34,728

Cash at banks earns interest at floating rates based on bank deposit rates ranging from 0.36% to 0.70% per annum (2008: 1.98% per annum).

	2009	2008
	$'000	$'000

Restricted cash	120,637	56,313

The deposits are pledged for the credit facility of loans payable, with the predetermined rate of 1.98% per annum. The deposit is solely used for the security and settlement of the loans payable when they mature.

16. Interest Bearing Loans and Borrowings

	2009	2008
	$'000	$'000

Short term loan:
Secured bank loans	308,500	149,817
Other unsecured loans	10,252	3,658
Finance lease obligation	1,880	-
	320,632	153,475
Long-term loan:
Secured bank loans	51,990	2,926
Finance lease obligation	4,031	-
Total loans	376,653	156,401

Average interest rate and maturity of short term loans

Loans are all at fixed rates, the average interest rate and maturity is as follows:

	Short term	Long term	Short term	Long term
	2009	2009	2008	2008

Average annual interest rate	5.77%	7.05%	8.00%	11.00%
Average maturity (months)	4.3	42.0	5.8	15.0
Range of interest rate	5.31%-10.00%	5.40%-11.00%	6.00%-15.00%	11.00%

16. Interest Bearing Loans and Borrowings (Cont'd)

Finance leases

The Group leases certain machinery with a carrying value of $9,328,000 (2008: Nil). The finance lease expires on 15 November 2012 and bears interest at 5.4%.

	Minimum		Present
	lease payments	Interest	value
	2009	2009	2009
	$'000	$'000	$'000

Future lease payments are as follows:

Not later than one year	2,162	282	1,880
Later than one year but not later than five	4,324	293	4,031
	6,486	575	5,911

Secured short-term loan

Included in the secured bank loans in 2009, $4,388,000 (2008: $4,839,000) is secured on the main equipment of the Group with carrying amount of $32,212,000 (2008: $37,478,000), $4,388,000 (2008: $7,315,000) is secured on the inventories of the Group, $139,214,000 is guaranteed by third parties, and $160,510,000 is secured against bank deposits.

Long-term loan

Included in the long-term loan, $41,752,000 was guaranteed by third parties, $10,238,000 (2008: nil) is secured on the land use right of the Group. The average maturity of long-term loan is 42 months.

17. Deferred Income

	2009	2008
	$'000	$'000
Cost:
Opening balance at 1 January	2,407	1,848
Received during the year	438	425
Net foreign exchange differences	2	134
Closing balance at 31 December	2,847	2,407

Accumulated amortisation:
Opening balance at 1 January	466	251
Recognised in income statement	650	195
Net foreign exchange differences	2	20
Closing balance at 31 December	1,118	466

Net Carrying value:
Current	-	202
Non-current	1,729	1,739
	1,729	1,941

Deferred income relates to government grants received for acquisition of a new production line to upgrade the product structure.

There are no unfulfilled conditions or contingencies attached to the grants.

18. Trade and Other Payables-current

	2009	2008
	$'000	$'000
Trade payables:
Trade payables	85,543	55,013

Other payables:
Loans from third parties	230	3,840
Other payables	26,107	1,186
Accurals	1,170	5,487
	27,507	10,513

Total financial liabilities, excluding bank borrowings, due to related parties and income tax payable, classified as financial liabilities	113,050	65,526
Advance from customers	4,599	3,366
VAT payable	-	4,277
Other tax payable	1,114	1,822
	118,763	74,991

The trade payables are mainly relating to the purchase of raw materials, equipment and construction service. For the purchase of crude oil, the payment term is usually cash on delivery, for other materials, the credit period granted by the suppliers usually ranges from 30 to 90 days, for the purchase of equipment and construction service, the payment will be made according to the progress of the construction.

Advances from customers are unsecured, interest-free and repayable on demand.

Loans from third parties are interest-free and repayable on demand.

Management considers the carrying amounts of financial liabilities to be a reasonable approximation of their fair value.

	2009	2008
	$'000	$'000
Total financial liabilities, excluding bank borrowings, due to related parties and income tax payable, classified as financial liabilities	113,050	65,526
Due to related parties	27,647	43,637
Interest bearning loans and borrowings	376,653	156,401
Total financial liabilities measured at amortised cost	517,350	265,564

19. Income Tax

Major components of income tax expense

The major components of income tax expense are as follows:

	2009	2008
	$'000	$'000

Current income tax	(7)	1,075
Deferred tax:
Originating and reversal of temporary differences	(116)	(83)
Income tax recognised in income statement	(123)	992

Relationship between tax expense and accounting profit

A reconciliation between tax expense and the accounting profit multiplied by the applicable corporate tax rate is as follows:

	2009 $'000	2008 $'000
Accounting loss before income tax	(1,953)	(29,695)
Tax at respective companies' domestic income tax rate	421	(7,071)
Effect of partial tax exemption	(181)	(922)
Non-deductible expenses	345	(274)
Utilisation of previous unrecognized tax loss	(1,782)	828
Unrecognised tax losses	1,074	8,397
Share of results of associate	-	34
Income tax expense recognised in income statement	(123)	992

19. Income Tax (Cont'd)

Deferred tax assets

	2009	2008
	$'000	$'000

At beginning of the financial year	791	661
Transfer to/(from) income statement	116	83
Exchange differences	1	47
At end of the financial year	908	791

Deferred tax relates to the following:

	2009	2008
	$'000	$'000

Provision for doubtful debts	666	635
Allowance for long-term investment	26	26
Depreciation	216	130
	908	791

Unrecognised tax losses

As at 31 December 2009, the Group has tax losses of approximately $7,265,000 (2008: $8,623,000) that are available to offset against future taxable profits of the companies in which the losses arose for which no deferred tax asset is recognised due to uncertainty of its recoverability. The use of these tax losses is subject to the agreement of the tax authorities and compliance with certain provisions of the tax legislation of the country in which the companies operate.

The Company and the significant subsidiaries are subject to income tax on the following bases and at the following rates:

HaiKe Chemical Group Ltd.

Its applicable tax rate is nil.

19. Income Tax (Cont'd)

Shandong Hi-Tech Chemical Group Ltd

In March 2006, the company changed to be a foreign enterprise. According to the taxation laws, the applicable tax rate is 24% and the company is entitled to exemptions from PRC income tax for two years starting with the first profit-making year and to a 50% relief from PRC income tax for another three years thereafter. Therefore, it was fully tax exempted for 2006 and 2007. As a result of the application of new taxation laws since 1 January 2008 that introduced the new tax rate of 25%. The 50% relief income tax rate for the company must be based on the new tax rate of 25%, so the effective tax rate from 2008 to 2010 is 12.5%, the company will be subject to the applicable tax rate of 25% after the tax holiday.

Dongying Hi-Tech Spring Chemical Co., Ltd and Shandong Hi-Tech Shengli Electrochemical Co., Ltd

In September 2006, each company registered as a foreign enterprise. According to the taxation laws, the applicable income tax rate is 24% and each company is entitled to exemptions from PRC income tax for two years since October 2006 and a 50% relief from PRC income tax for another three years thereafter. In 2006, the two companies started to generate profit and utilizing the tax holiday. Therefore, it was fully tax exempted for 2006 and 2007. As a result of the application of new income taxation laws since 1 January 2008 that introduced the new tax rate of 25%, accordingly, the 50% relief income tax rate for the two companies must be based on the new tax rate of 25%, so the effective tax rate from 2008 to 2010 is 12.5%. After the tax holiday, its applicable tax rate will be 25%.

Dongying Tiandong Biochemical Co., Ltd

Its applicable tax rate is 25%.

Shandong Hi-Tech Ruilin Chemical Co., Ltd.

Its applicable tax rate is 25%.

Profit United Investment Ltd.

Its applicable tax rate is 16.5%.

20. Share capital and reserve

a) Share capital - the Company

	2009		2008
	No. of shares	$'000	No of shares	$'000
Authorised
Ordinary shares of $0.002 each	43,050,000	86.1	43,050,000	86.1

Issued and fully paid
Opening balance at 1 January & at 31 December	38,353,571	77.0	38,353,571	77.0

b) Share premium

Share premium represents the amount subscribed for shares in excess of the nominated value less expenses incurred on the issue of shares.

c) Other reserves

The other reserve represents the paid up capital of Shandong Hi-Tech Chemical Group Ltd.

d) Statutory reserve

According to the Company Law of PRC, the companies operating in China are required each year to transfer 10% of the profit after tax as reported in its PRC statutory financial statements to the statutory common reserve fund, except where the fund has reached 50% of the company's registered capital. This fund can be used to make up for any losses incurred or be converted into paid-up capital, provided that the fund does not fall below 25% of the registered capital.

e) Foreign currency translation reserve

The foreign currency translation reserve comprises the gains and losses arising on translating the net assets into US dollars.

20. Share capital and reserve (Cont'd)

f) Accumulated losses

The accumulated losses comprise the cumulative net gains and losses recognised in the consolidated income statement.

21. Staff costs

	2009	2008

Average number of employees of the Group
Management and administration	225	70
Sales	80	37
Manufacturing	1,681	1,370
	1,986	1,477

	2009	2008
	$'000	$'000

The staff costs of these employees are as follows:
Wages and salaries	7,714	5,140
Social secruity costs	1,075	526
Retirement benefits	779	208
	9,568	5,874

22. Commitments and Contingencies

Capital commitments

Capital expenditure contracted for property, plant and equipment as at 31 December 2009 but not recognised in the financial statements is $22,883,000 (2008: $8,778,000).

Contingent liabilities

Up to 31 December 2009, as a warrantor, the Group has guaranteed the bank loans of third parties to aggregate amount of $218,955,682 (2008: $57,469,000). It is unlikely that any significant liability to the Group will arise because the financial statements of the warrantees indicate that they are able to pay their debts as they mature. The directors are of the view that they do not expect any significant liability to arise in respect of the guarantee at the date of these financial statements.

23. Related Party Disclosures

The immediate and ultimate parent company is Hi-Tech Chemical Investment Limited, a company incorporated in British Virgin Islands.

The Group companies and the excluded subsidiaries in Note 10, the associated company disclosed in note 11, and the directors of the Company and its subsidiaries have been identified as related parties. Details of transactions with related parties are as follows:

Sales and purchase of goods

	2009	2008
	$'000	$'000
Related parties
Sales to associate	8,798	7,307
Purchases from associate	3,744	11,108

The sales of goods to the associate are based on the market price.

Due from/to related parties

	Group		Company
	2009	2008	2009	2008
	$'000	$'000	$'000	$'000
Amounts due from related parties
Due from subsidiaries	-	-	12,611	14,272
Due from shareholders	-	299	51	51
	-	299	12,662	14,323

Amounts due to related parties
Due to associate-non-trade	27,647	43,637	-	-

The amount due to related parties is non-interest bearing and repayable on demand.

Key management remuneration

	2009	2008
	$'000	$'000

Emoluments of the Directors of the Company	407	234
Emoluments of the Directors of subsidiaries	329	183
	736	417

Capital injections

Minority shareholders have injected capital of $29,861,000 into the Group during the year. Refer Note 10 for further details.

24. Financial Risks Management Objectives and Policies

Financial instruments - Risk Management

The group is exposed through its operations to the following financial risks:

- Credit risk

- Interest rate risk

- Foreign exchange risk

- Market risk

- Liquidity risk

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.

24. Financial Risks Management Objectives and Policies (Cont'd)

Principal financial instruments

The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

- trade and other receivables

- cash at bank and restricted cash

- available-for-sale investments

- trade and other payables

- short and long term loans

- loans from related parties

General objectives, policies and processes

The Board has overall responsibility for the determination of the Group's risk management objectives and polices and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's finance function. The Board receives monthly reports from the Group Financial Controller through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The Group's internal auditors also review the risk management policies and processes and report their findings to the Audit Committee. The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out below:

24. Financial Risks Management Objectives and Policies (Cont'd)

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or a counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts. Such credit ratings are taken into account by local business practices.

The Risk Management Committee has established a credit policy under which each new customer is analysed individually for creditworthiness before the Group's standard payment and delivery terms and conditions are offered. The Group's review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, which represents the maximum open amount without requiring approval from the Risk Management Committee. These limits are reviewed quarterly. Customers that fail to meet the Group's benchmark creditworthiness may transact with the Group on a prepayment basis.

Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, only independently rated parties with minimum rating "A" are accepted. The Group does not enter into derivatives to manage credit risk, although in certain isolated cases may take steps to mitigate such risks if it is sufficiently concentrated.

The exposure to credit risk from investing in commercial paper is not considered significant given the high credit rating of the issuers. Group policy is to limit investment in commercial paper to 50% of its surplus cash deposits.

Quantitative discloses of the credit risk are as follows:

	Loan and receivables
	2009	2008
	$'000	$'000

Current financial assets
Trade and other receivables	37,987	13,568
Restricted cash	120,637	56,313
Cash and cash equivalents	51,844	34,728
	210,468	104,609

24. Financial Risks Management Objectives and Policies (Cont'd)

The maximum exposure to credit risk for each class of asset is the balance sheet carrying value as disclosed above.

The Risk Management Committee monitors the utilisation of the credit limits regularly and at the reporting date does not expect any losses from non-performance by the counterparties.

Interest rate risk

Interest rate risk arises from the potential changes in interest rates that may have an adverse effect on the Group in the current reporting period and in future years.

Other than the bank deposits and borrowings, the Group has no other significant interest-bearing assets and liabilities. Its interest-bearing assets and liabilities are mainly current bank deposits and loan from banks and unrelated parties. The Group's income and operating cash flows are substantially independent of changes in market interest rates. The Group's policy is to secure all to its borrowings at fixed borrowing rates.

Market risk

Market risk arises from the Group's use of interest bearing, tradable and foreign currency financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) or other market factors (other price risk).

24. Financial Risks Management Objectives and Policies (Cont'd)

Foreign exchange risk

The Group's policy is, where possible, to allow group entities to settle liabilities denominated in their functional currency with cash generated from their own operations in that currency.

Foreign exchange risk refers to the risk that movement in foreign currency exchange rates against the Group's functional or reporting currency will affect the Group's financial results and cash flows. The Group has transaction currency exposures, such exposure arises from sales by an operating unit in currencies other than its functional currency. Approximately 3% of the Group's sales are denominated in US$. The Group's policy as it relates to currency risk is to limit payment to immediate letters of credit or prepayment before transporting goods to the clients.

If the exchange rate on uncovered exposure were to move significantly between the year end and the date of payment or receipt, there could be an impact on the Group's net income. As the balance of financial assets and financial liabilities denominated in US$ is small and is short term in nature, this risk is not considered to be substantial.

Liquidity risk

Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances (or agreed facilities) to meet expected requirements for a period of at least 45 days.

The Group has no any defaults or breaches on its financial liabilities.

A maturity analysis of the Group of liabilities, including loans and borrowings and interest is given below:

	2009	2008
	$'000	$'000

Repayable within 1 month	82,453	23,305
Repayable within 2-3 months	95,223	20,739
Repayable within 4-6 months	77,619	63,495
Repayable within 7-12 months	63,457	50,010
Repayable over 1 year	56,021	3,189
	374,773	160,738

Capital

The Group considers its capital to comprise its ordinary share capital, share premium, other reserves, statutory reserves, foreign currency translations reserve and accumulated retained earnings. In managing its capital, the Group's primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions.

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the 2009 annual general meeting of HaiKe Chemical Group Ltd. (the "Company") will be held at 10:00 am (China time) on Tuesday 27 July 2010 at in the conference room of the Regus Business Centre, 35th Floor, Central Plaza, Hong Kong, China. The following resolutions will be proposed to the meeting (each as ordinary resolutions):

1. To receive and consider the Directors' Report and Audited Financial Statements for the year ended 31 December 2009.

2. To re-elect BDO LLP as auditors and to authorise the Directors to fix the remuneration of the auditors.

3. To re-elect Mr. Xiaohong Yang, who retires by rotation, as an executive Director of the Company.

4. To re-elect Mr. Zaizhong Zhang, who retires by rotation, as an executive Director of the Company.

5. To transact any other ordinary business of an annual general meeting.

BY ORDER OF THE BOARD

Yuan Xu

Secretary to the Board

23 June 2010

Note:

(1)	A form of proxy is enclosed for use by shareholders and a form of direction is enclosed for use by Depository Interest holders. The form of proxy must be deposited with the Company's registrars, Capita Registrars, Proxy Department, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU not less than 48 hours before the time of the Annual General Meeting ("AGM") and the form of direction must be deposited with the Company registrars not less than 72 hours before the time of AGM. Appoitment of a proxy does not preclude a shareholder from attending the AGM and voting in person.
(2)	In respect of ordinary shareholders, a member entitled to attend and vote at the AGM may appoint one or more proxies (who need not be a member of the Company) to attend and to speak and to vote on his or her behalf whether by show of hands or on a poll. A member can appoint more than one proxy in relation to the meeting, provided that each proxy is appointed to exercise the rights attaching to different shares held by him.
(3)	To appoint more than one proxy you may photocopy the Form of Proxy. Please indicate the proxy holder's name and the number of shares in relation to which they are authorised to act as your proxy (which, in aggregate, should not exceed the number of shares held by you). Please also indicate if the proxy instruction is one of multiple instructions being given. All forms must be signed and should be returned together in the same envelope.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR SEMEFDFSSEEM

Related Shares:

FTSE 100 Latest

Value8,585.36

Change-17.56