Final Results

HaiKe Chemical Group Limited 

UNAUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011

HaiKe Chemical Group Ltd ("HaiKe" or the "Company", together with its subsidiaries as the "Group" or "HaiKe Group"), the AIM quoted (AIM: HAIK) petrochemical, speciality chemical and biochemical business based in China, is pleased to announce its unaudited preliminary results for the year ended 31 December 2011.

Focusing on speciality chemicals to deliver profitable growth

Financial Highlights

l Total revenue increased by 46.4% to CNY13.6 billion (or £1.3 billion, 2010: CNY9.3 billion or £902 million)

l Petrochemical products revenue grew by 46.5% to CNY12.1 billion (or £1.2 billion, 2010: CNY8.3 billion or £806 million)

l Chemical products (including speciality, salt and biochemical) revenue increased by 45.9% to CNY1.5 billion (or £146 million, 2010: CNY1.0 billion or £97 million)

l Profit for the year was CNY41.9 million (or £4.1 million, 2010:CNY12.0 million, or £1.2 million)

l Loss attributable to the Group was CNY7.1 million (or -£0.7 million, 2010: profit of CNY42.6 million or £4.2 million)while pro-forma profit was CNY19.9 million on the basis that the acquisition of the non-controlling interests had happened as at 1 January 2011

l EPS was -CNY0.19 (or -£0.018, 2010: CNY1.11 or £0.108) while pro-forma EPS was CNY0.52 on the basis that the acquisition of the non-controlling interests had happened as at 1 January 2011.

l Recommended final dividend of £0.012 (2010: £0.026)based on pro-forma EPS

l Cash and cash equivalents balance grew by CNY28.3 million to CNY210.0 million as at end of 2011 while total loans balance grew by CNY1.1 billion to CNY3.9 billion, when compared to the previous year. The increase in the loan balance was mainly due to capital expenditure in relation to the construction of Dongying Hebang Chemical Co., Ltd. ("Hebang"), and the acquisition of non-controlling interests in three subsidiaries during the year. The Group is in continuous dialogue with its debt providers and they are fully supportive of the management's strategies

Operational Highlights

l Refinery division profitable in 2011 due to increases in both volume and price

l Good progress made in strategic move towards speciality chemicals

l Acquisitions of non-controlling interests in profitable subsidiaries of Shandong Hi-Tech Shengli Electrochemical Co., Ltd. ("Hi-Tech Shengli"), Dongying Hi-Tech Spring Chemical Industry Co., Ltd. ("Hi-Tech Spring") and Dongying Hi-Tech Ruilin Chemical Co., Ltd. ("Hi-Tech Ruilin") during the year were good value at CNY167.1 million

l Tightened monetary policy and higher inflation increased operational costs

l Marketing and production innovation reduced effects of price volatility and cost inflation

l Continued focus on internal management team, cost controls and intra-Group synergies to generate cost savings

Outlook

l Domestic price control for refined products expected to ease but assurance of feedstock purchase remains key

l In line with the strategy to increase exposure to higher margin speciality chemicals, capex expected to rise in the short to medium term

l Demand for biochemical products expected to remain strong

l Volatile global political and domestic economic environment continue to make trading challenging

Mr. Xiaohong Yang, Executive Chairman, said:

"We are pleased to have achieved record turnover and a significant increase in post tax profitability, despite a challenging trading environment. Our success is driven by our strategic move towards speciality chemicals and continued focus on technology innovation and stringent cost controls.

Looking forward, we believe market conditions will remain tough. However, our business is well placed to continue to benefit from the anticipated relaxation of control over the refinery industry and growth in the speciality chemicals sector. We are confident that HaiKe will continue to make good progress throughout the year.¡±

For further information please contact:

Chairman'sStatement

Review of 2011 performance

The Group made good progress in growing both turnover and profitability in 2011. During the year, unaudited sales turnover grew substantially by 46.4% to CNY13.6 billion as compared with the previous year. Profit for the year amounted to CNY41.9 million, grew 249.2% year-on-year. Net loss attributable to owners of the Group was CNY7.1 million while pro-forma profit attributable to owners of the Group was CNY19.9 million, compared with profit of CNY42.6 million in 2010. Loss per share was CNY0.19, while a pro-forma earnings per share was CNY 0.52, compared with earnings per share of CNY1.11 in 2010. The pro-forma figures are calculated on the basis that the acquisition of the non-controlling interests happened as at 1 January 2011.

Refinery

The international crude oil price fluctuated with an upward trend, and average price hit a historic high in 2011. The average price of Brent crude oil was approximately $111 per barrel, a 40% increase year-on-year from $79 per barrel in 2010. Meanwhile, the international fuel oil price remained high following Japan's tsunami and nuclear accident in H1 2011.

In 2011, the Group's refineries processed 2.3 million tons of feedstock (including crude oil, fuel oil and residual oil). The oil processing load was close to 100% of capacity for the existing facilities in Shandong Hi-Tech Chemical Group Ltd. ("Hi-Tech Chemical") and more than 75% in Hi-Tech Ruilin. The Group produced approximately 1.4 million tons of gasoline, diesel, Liquefied Petroleum Gas ("LPG"), petroleum coke and other products, representing a 12.6% growth year-on-year.

Turnover from the refinery business grew 46.5% to CNY12.1 billion for the 12 months ended 31 December 2011 (2010: CNY8.3 billion). The significant rise in revenue is due to the higher utilization rate in Hi-Tech Ruilin and increased selling prices of refined products. Gross margin was 2.3% (2010: 2.7%) when growth in refined product prices slightly fell behind that of feedstock prices. The refinery division generated a profitable performance in 2011, with net profit at CNY13.8 million, compared with a loss of CNY8.7 million in 2010.

Speciality/salt chemical products

In 2011, the performance of the Group's speciality and salt chemical products was mixed.

For speciality chemical products, sales volumes grew significantly while the price of some of the lower-margin products fell slightly as a result of fiercer competition and oversupply in the domestic and global markets. Accordingly, turnover grew but margins fell. The Group strategically adjusted its marketing plan to focus more on the sale of higher margin products, such as medical grade Propylene Glycol. This action ensured the division remained profitable.

In salt chemicals, sales volumes remained stable but price movement varied: the average price of caustic soda rose by 64.0% year-on-year but liquefied chlorine fell by 53.0% year-on-year.

In 2011, the Group sold 116,323 tons and 501,010 tons of speciality and salt chemical products, representing increases of 49.1% and 4.4% respectively, compared with that in the previous year.

Turnover from speciality/salt chemical products grew by 47.1% to CNY1.3 billion for the 12 months ended 31 December 2011 compared with CNY887 million in the previous year. The strong volume increases more than compensated for the slight shortfall in price. Gross margin fell to 11.8% from 13.8% in the previous year due mainly to higher costs as a result of increased feedstock prices and inflation. Net profit from chemical products was CNY55.9 million, comparable to CNY56.1 million in 2010.

Biochemical

Demand for biochemical products grew in 2011. The Group strengthened its marketing efforts and relationships with its customers and as a result, sales volumes of heparin sodium and enoxaparin sodium grew by 22.4% and 97.2% respectively. The average price of heparin sodium fell slightly while the price of enoxaparin remained stable. The strong growth in sales volume was more than enough to compensate for the slight shortfall in price. The utilization rate improved and comfortably covered fixed costs. As a result, the biochemical division delivered a profitable performance in 2011.

Turnover from biochemical products grew by 43.9% to CNY201.4 million for the twelve months ended 31 December 2011 compared with CNY140.0 million in the preceding year due to strong volume increase. Gross margin increased sharply to 23.6% from 9.2% in the preceding year due to a higher utilization rate. Net profit from biochemical products was CNY17.8 million, compared with loss of CNY4.2 million in 2010.

M&A

HaiKe paid a total cash consideration of CNY167.1 million to buy non-controlling interests in Hi-Tech Shengli, Hi-Tech Spring and Hi-Tech Ruilin in May, June and November 2011 respectively. The Group's interest in Hi-Tech Shengli, Hi-Tech Spring and Hi-Tech Ruilin is now 91.45%, 91.52% and 65.7% respectively. The acquisitions of Hi-Tech Shengli and Hi-Tech Spring stakes were made at a discount to net asset value and the Board expect the acquisitions to be value enhancing.

EPS and pro-forma EPS

To demonstrate the effect on our profitability of the three acquisitions of minority interests, we are setting out the pro-forma profit after deduction of minority interests, and the pro-forma EPS, on the basis that the acquisitions had been effective from 1 January 2011.

Outlook

For the first three months of 2012, the Group recorded unaudited turnover of CNY2,343.3 million, down 33.0% year-on-year. Gross profit amounted to CNY46.8 million, decreased by 67.7% when compared to profit of CNY144.5 million in the first three months of 2011. Net loss was CNY83.5 million, compared with profit of CNY63.0 million in the same period of 2011. As expected, the performance was mainly attributable to lower utilization rate on the refinery side as a result of the scheduled annual overhaul at Hi-Tech Chemical and Hi-Tech Ruilin.

Looking forward, it remains uncertain that the European debt crisis could ease in near term and China has just revised downwards its forecast of GDP growth rate for 2012 to 7.5%. The slowing domestic and global economy together with the threat of inflation and tightening monetary policy in China, as well as geopolitics and market speculation around the world has created greater challenges for both refinery and chemical industries. As a result, prices and earnings are more difficult to forecast.

We are faced with both excellent opportunities and challenges. The relaxation of retail oil price control will benefit the refining industry by ensuring refineries are able to maintain a reasonable level of profit margin. There are favourable government policies in place for companies like HaiKe which can demonstrate that they are energy efficient and willing to make progress to become more environmentally friendly. Our challenges are macroeconomic; slowing growth in the domestic market and volatile global economy will create greater uncertainties for the future.

In the medium to long term, we expect HaiKe's performance to be further enhanced by the strategic move to more profitable chemical products and continued focus on costs controls. The newly established Hebang facility has completed construction for its first product line of Trichloroethylene ("TCE") with capacity of 40,000 tons per annum, and commenced mass production in late March. In addition, the strategic change of product mix to focus more on higher end speciality chemical products will further enhance the overall profitability. Furthermore, intra-Group synergies and technical improvements will also contribute to performance. Elsewhere, the new ERP system and outsourced management consultants are expected to help improve overall operational efficiencies. Finally, we will continue to focus on improving internal cashflow and treasury management and seek alternative sources of funding with an aim to reduce our major operating and financial costs.

People

On behalf of the Board I would like to take this opportunity to thank all of the 2200 employees at HaiKe for their collective hard work. The positive performance of the business is due to the dedication and commitment of our team.

During the year, HaiKe launched an Employee Share Option Plan ("ESOP") which granted a total of 536,950 Options and 3,298,407 Phantom Options to Directors and senior management. We expect the ESOP to further incentivise the existing management team.

Dividend

We recognise the importance of the payment of dividends to our shareholders. To this end, based on the positive performance and pro-forma EPS in 2011, the Board recommend a final dividend of £0.012 per share, which subject to approval at the forthcoming Annual General Meeting scheduled in June 2012, the dividend will be paid in early July to shareholders on the register on 29 June 2012 (ex-dividend date: 27 June 2012).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2011 (UNAUDITED)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2011 (UNAUDITED)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2011 (UNAUDITED)

Attributable to equity holders of the parent

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2011 (UNAUDITED)

NOTES TO THE PRELIMINARY RESULTS FOR THE YEAR ENDED 31 December 2011 (UNAUDITED)

1. General information

HaiKe Chemical Group Ltd. (the "Company") is a public limited company in Cayman Islands incorporated on 20 June 2006, and is quoted on AIM. 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 Company 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 preliminary consolidated financial information of the Company for the year ended 31 December 2011 comprises HaiKe Chemical Group Ltd. and its subsidiary undertakings (the "Group").

2. Accounting policies

Basis of preparation

These unaudited consolidated preliminary financial statements ('preliminary financial statements') have been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations issued by the International Accounting Standards Board ('IASB') as adopted for use in the European Union (collectively 'EU IFRS'). However, it should be noted that these preliminary financial statements are neither required, nor themselves contain sufficient information, to comply fully with EU IFRS.

The principal accounting policies adopted in the preparation of the interim financial statements have been consistently applied in the Company's latest annual audited financial statements and are expected to be used for Group's annual financial statements for the year ending 31 December 2011.

Financial information for year ending 31 December 2011 is unaudited and does not constitute the Group's statutory financial statements for the year. Comparative financial information disclosed in US dollar for the full year ended 31 December 2010 has been derived from the audited financial statements for that period. The auditors' report on those accounts was unqualified, did not include references to any other matters to which the auditors drew attention by way of emphasis without qualifying their report. The audit report for the year ended 31 December 2011 has not yet been signed and is expected to be unqualified.

These preliminary financial statements consolidate the accounts of the parent company and all its subsidiary undertakings drawn up to the relevant period end and have been prepared on a going concern basis, as in the opinion of the directors at the time of their approval, there is a reasonable expectation that the Group will continue its operations for the foreseeable future.

After making enquiries and reviewed the Group'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.

The Board of Directors approved the preliminary financial statements on 3 May 2012.

3. Revenue

4. Taxation

The major components of income tax expense are as follows:

5. Earnings per share from continuing operations

Loss per share / pro-forma earnings per share was calculated by dividing the net profit / pro-forma profit for the year ended 31 December 2011 attributable to equity shareholders of the parent of CNY7,099,000 / CNY19,941,000 (2010: CNY42,573,000) by the weighted average number of ordinary shares. To demonstrate the effect on our profitability of the three acquisitions of minority interests, we are setting out the pro-forma EPS on the basis that the acquisitions had been effective from 1 January 2011.

The (loss)/profit from continuing operations for the financial year attributable to equity holders of the parent was as follows:

6. Contingencies

Up to 31 December 2011, as a warrantor, the Company has guaranteed the bank loans of third parties to aggregate amount of CNY1,980 million (31 December 2010: CNY1,799 million or $271 million). 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 liability to arise in respect of the guarantees at the date of these financial statements.