Half-year Report

HAIKE CHEMICAL GROUP LIMITED

INTERIM CONSOLIDATED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2017

(UNAUDITED)

HaiKe Chemical Group Ltd. ("HaiKe" or "the Company" or "the Group"), the AIM quoted (AIM: HAIK) specialty chemical company based in Shandong Province, China, announces its unaudited consolidated results for the six months ended 30 June 2017.

The Group has delivered a profitable performance despite facing challenging market conditions and a reduction in output as a result of the planned annual plant shutdown and upgrades. The Board continues to be mindful of the difficult trading environment and expects to make further technical upgrades and develop new products in H2 2017 to ensure continued profitability.

Financial highlights*

· Total revenues increased by 14.9% to CNY402.8 million / GBP46.6 million (H1 2016: CNY350.7 million / GBP37.5 million)

· Gross profit increased slightly to CNY61.6 million / GBP7.1 million (H1 2016: CNY61.2 million / GBP6.5 million)

· Profit for the period decreased by 10.7% to CNY10.2 million / GBP1.2 million (H1 2016: CNY11.4 million / GBP1.3 million)

· Cash and cash equivalents balance as at 30 June 2017 was CNY44.7 million / GBP5.1 million (31 December 2016: CNY CNY55.0 million / GBP6.5 million)

· Total borrowings at 30 June 2017 were CNY80.0 million / GBP9.1 million (31 December 2016: CNY80.0 million / GBP9.4 million)

* As at 30 June 2017 the GBP/CNY exchange rate was 1:8.8144. The arithmetic average of the exchange rate for the first half of 2017 was 1:8.6483

Operational highlights

· Selling price of products increased significantly, driven by the increase in price of raw materials, while sales volumes decreased due to the planned annual plant shutdown for maintenance and upgrade of the Company's principal production facility

· Profit for the period decreased due to costs associated with the annual shutdown of the aforementioned production facility

· Investment in a new electrolyte solvent plant which produces higher-end battery grade products

· One high-end product of the new electrolyte solvent plant has passed acceptance testing and been successfully sold to customers since May

Outlook

· Continue to focus on product innovation and enhancing customer service to mitigate difficult trading conditions, which are expected for the remainder of the year

· Investment in a new pulverized coal stove to meet increased heating demand for higher-end products; this will also reduce shutdown frequency and meet enhanced environmental regulations

· July 2017 recorded a loss of CNY0.98m due to lower than expected sales. Upgrades required by enhanced environmental regulations meant downstream companies have had to shut down operations in recent weeks, impacting sales. The Group therefore expects August 2017 to be a loss-making month.

Mr. Xiaohong Yang, Executive Chairman, said:

 "The Board is pleased with the performance of the Group and, despite facing challenging market conditions and a reduction in output as a result of the planned annual plant shutdown, HaiKe has made good progress in its long-term strategy of focusing on the higher margin specialty chemicals business. The Company is planning further technical upgrades and expects to develop new products in H2 to ensure continued profitability."

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A copy of this half yearly financial report is available on the Company's website www.haikechemical.com.

CHAIRMAN'S STATEMENT

1. Review of operating results

In H1 2017, the Group sold 58,000 tons of specialty chemicals, representing a volume decrease of 14.2% when compared to the same period in the previous year. The sales of high-end specialty chemicals accounted for 14.5% of total sales in H1 2017, compared to 3.4% in H1 2016.

The IPA plant was shut down for annual maintenance from 11 May to 13 June 2017. During this period, the Company carried out additional upgrades to support the planned focus on higher-end products and in compliance with enhanced environment regulations. As a result of increased heating demand for higher-end products, the Company is building a new pulverized coal stove. In order to manage the heating capacity prior to the completion of the stove, the Board, as previously announced on 26 June 2017, has decided to reduce the operating capacity of the DMC plant which produces lower margin products. The DMC plant is expected to be fully operational by the year end, in line with the completion of the coal stove.

As previously stated in the final results, the Company is focused on upgrading various products and supplying multiple types of supporting products. To facilitate the upgrade, the Company has invested CNY 62 million, funded from existing cashflow, in a new electrolyte solvent plant which is expected to produce a range of higher-end battery grade products including DiMethyl Carbonate (DMC), battery grade Propylene Carbonate (PC), battery grade Ethyl Methyl Carbonate (EMC), battery grade Diethyl Carbonate (DEC), and battery grade Ethylene Carbonate (EC). DEC, one of new high-end products produced from the new electrolyte solvent plant has passed the acceptance testing and has been sold to customers since May.

The selling price of products increased significantly, driven by the increase in the price of raw materials and the rise in oil prices.

2. Financial Analysis

Turnover

The Group's turnover increased by 14.9% to CNY402.8 million in the first half of 2017 (H1 2016: CNY350.7 million). Selling prices of DMC and IPA rose 36.9% and 37% respectively. This was attributable to the rise in raw materials.

The price of propylene is closely related to that of crude oil which increased 26% compared with H1 2016. In addition, some companies producing propylene as a main product shut down for maintenance which reduced the supply of propylene sharply, resulting in the Company not producing any new propylene products in the period. For propylene oxide, the average operating rate was 79% for H1 2017, down by 4% compared to the same period last year. The government has implemented more stringent environment inspections and regulation, causing some factories to cease operation.

While the overall average realized price increased by 31.5% in the period, total sales volumes decreased by 14.2% due to the shutdown of some of the Company's plants. The IPA plant was closed for annual maintenance for one month. The smaller 15,000 tons per annum DMC plant which produces lower margin products was shut down from 24 April until the end of this year to manage the heating capacity prior to the completion of the coal stove. The larger 30,000 tons per annum DMC plant continues to operate normally.

Gross Profit

Gross profit increased slightly to CNY61.6 million compared with the same period in 2017 (H1 2016: CNY61.2 million). The price of propylene and propylene oxide increased by 29% and 28% respectively. This led to a rise in the cost of sales of 17.8%. The Company maintains a reasonable stock of raw materials.

Selling, General and Administrative Expenses

Selling and distribution expenses decreased to CNY20.4 million in H1 2017 (H1 2016: CNY20.8 million). Freight costs decreased by 14.5% and commission fell by 68.3% due to a reduction in sales volume.

General and administrative expenses increased to CNY28.4 million in H1 2017 (H1 2016: CNY25.2 million) which was mainly attributable to an increase in labour cost as a result of an increase in domestic inflation.

Net Interest Expenses

Interest income decreased by 5% year-on-year to CNY0.87 million for H1 2017 (H1 2016: CNY0.91 million).

Interest expenses were CNY1.9 million for H1 2017 (H1 2016: CNY1.9 million). Bank loans remained unchanged.

Profit Before Tax

Profit before taxation was CNY12.1 million for H1 2017 (H1 2016: CNY13.8 million). A lower profit was achieved in the period compared to H1 2016 as a result of a 4.6% increase in total expenses. This is attributable to shutdown costs of the IPA plant and start-up expenses of the new electrolyte solvent plant which accounted for CNY4.5 million.

Income Tax

Income tax charge was CNY1.9 million for H1 2017, as compared to CNY2.4 million for the same period in the previous year.

Profit for the Period

Profit for the half year was CNY10.2 million (H1 2016: CNY11.4 million).

Cash and Cash Equivalents

Cash and cash equivalents decreased to CNY44.7 million as at 30 June 2017 compared to CNY55.0 million as at 31 December 2016. The reduction in cash and cash equivalents was due to the investment in the new electrolyte solvent plant, associated start-up expenses and shutdown costs of the IPA plant.

Bank Loans

Bank loans were CNY80.0 million as at 30 June 2017, unchanged from 31 December 2016 (CNY 80.0 million).

Cash Flow from Operations

Cash flow from operating activities was CNY86.7 million for the six months ended 30 June 2017, compared to CNY68.0 million for the same period in 2016. This was mainly attributable to positive movements of working capital.

3. Outlook

The Group recorded an unaudited loss of CNY0.98 million for July due to demand being lower than expected. The output product of the operating DMC plant, propylene glycol, was used as raw material for the new electrolyte solvent plant, which reduced sales volume of propylene glycol. Sales of Diisopropyl ether were lower than expected due to weak market conditions.

In order to facilitate upgrades required by enhanced environmental regulations, some downstream companies have had to shut down operations in recent weeks, impacting sales. The Group therefore expects August 2017 to be a loss-making month.

As previously announced, the Company expects a further shutdown of the IPA plant in the second half of 2017 to fit a new catalyst which is anticipated to take no longer than one month. As a result of increased heating demand for our higher-end products, the Company is building a new pulverized coal stove. This action is intended to reduce shutdown frequency and allow the Company to meet enhanced environment regulations. Construction of the stove has begun, with completion expected toward the year end.

In order to continue to deliver a profitable performance for H2 in a challenging operating environment, our efforts will remain focused on:

· Establishing strategic partnerships with customers for higher-end products

· Providing specialist technical services to enhance product value and improve overall customer service

· Continuing to increase marketing investment

· Product innovation to introduce new higher-end products to diversify our product portfolio

Xiaohong Yang

Executive Chairman

Condensed consolidated statement of comprehensive income

For the six months ended 30 June 2017

Condensed consolidated Statement of Financial Position

As at 30 June 2017

Condensed consolidated Statement of Changes in Equity

For the 6 months ended 30 June 2017

Condensed consolidated Statement of Cash Flow

For the 6 months ended 30 June 2017

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL INFORMATION

FOR SIX MONTHS ENDED 30 JUNE 2017

(UNAUDITED)

1. General information

HaiKe Chemical Group Ltd. ("the Company") is a public limited company, incorporated in the Cayman Islands on 20 June 2006, and is quoted on AIM. The address of the registered office is Scotia Center 4th Floor, P.O. Box 2804, George Town, Grand Cayman, Cayman Islands.

The Company's ultimate parent company is HiTech Chemical Investment Ltd, a company incorporated in the British Virgin Islands.

The principal activities of the Company are manufacturing of specialty chemical products.

The principal place of business of the Company is Shengli Industrial Park, Dongying City, Shandong Province, China.

The interim consolidated financial information of the Company for the six months ended 30 June 2017 comprises the Company and its subsidiary undertakings ("the Group").

2. Accounting policies

The consolidated financial statements of the Company have been prepared in accordance with those International Financial Reporting Standards and Interpretations in force ("IFRS"), as adopted by the European Union.

The principal accounting policies adopted in the preparation of the interim financial statements have been consistently applied in the Company's latest annual audited consolidated financial statements and are expected to be used for Company's annual consolidated financial statements for the year ending 31 December 2017.

Financial information for the six months ended 30 June 2017 and 30 June 2016 is unaudited and does not constitute the Company's financial statements for these periods.

Comparative financial information for the full year ended 31 December 2016 has been derived from the audited financial statements for that period. The Board of Directors approved the interim statements on 31 August 2017.

3. Related Party Transactions

The Company undertook a restructuring in 2014 which resulted in the divestment of the Group's refinery and biochemical assets to leave a smaller, more focused specialty chemicals business. The disposed companies and HaiKe are controlled by HiTech Chemical Investment Ltd and therefore, in accordance with IAS24, the disposed companies are deemed to be related parties of the Group.

The immediate and ultimate parent company is HiTech Chemical Investment Ltd., a company incorporated in British Virgin Islands. Related parties include companies that fall under the common control provisions of IAS24. Details of transactions with related parties are as follows:

Sales, purchase of goods and loans

In H1 2017, the Group made the following sales, purchase and funds transfer with related parties:

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

4. Subsequent Event

No subsequent event occurred after the reporting period.

5. Capital commitments

Capital expenditure contracted for property, plant and equipment in continuing operations as at 30 June 2017 but not recognized in the financial statements, was CNY29.7 million (31 December 2016: CNY29.4 million).

6. Acquisitions and disposals of items of property, plant and equipment

Acquisitions of items of property, plant and equipment were CNY95.4 million (H1 2016: CNY29.1million). Loss on disposals of items of property, plant and equipment was CNY0 (H1 2016: CNY472,000).

7. Tax

Major components of income tax expense/(credit)

The major components of income tax expense are as follows:

Relationship between tax expense and accounting (loss)/profit

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

8. Profit per share from operations

Earnings for the purpose of basic and diluted earnings per share are the net profit for six months ended 30 June 2017 attributable to equity holders of the parent of CNY10,152,000 (for the six months ended 30 June 2016: profit of CNY11,372,000; for the year ended 31 December 2016: profit of CNY16,921,000).

The profit from operations for the financial periods attributable to equity holders of the parent was as follows: