Half Yearly Report

HAIKE CHEMICAL GROUP LIMITED

INTERIM CONSOLIDATED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2015

(UNAUDITED)

HaiKe Chemical Group Ltd. ("HaiKe" or "the Company" or "the Group"), the AIM quoted (AIM: HAIK) specialty chemical based in Shandong Province, China, today announces its unaudited consolidated results for the six months ended 30 June 2015.

Financial highlights

· Total revenues decreased by 16.2% to CNY385.4 million (H1 2014: CNY460.0 million)

· Gross profit decreased by 11.8% to CNY41.5 million (H1 2014: profit of CNY 47.0 million)

· Profit for the period from continuing operations was CNY95,000 (H1 2014: loss of CNY361,000) despite economic slowdown and increased competition

· Cash and cash equivalents balance as at 30 June 2015 was CNY43.6 million (31 December 2014: CNY CNY39.4 million)

· Bank loans decreased significantly by 77.3% to CNY182.4 million at 30 June 2015 (31 December 2014: CNY702.9 million) reflecting an improvement in operating cash; bank loans further reduced post period end to CNY152.4 million as at 31 August 2015

Operational highlights

· Despite improvements in product mix and cost control, the collapse of the crude oil price in H1 2015 has depressed the selling prices of downstream derivative products and affected most of HaiKe's specialty chemical products

· Lower selling prices and increased competition in a highly price-sensitive market has reduced margins, particularly for mid to lower-end specialty chemicals

· Planned shutdown of the Group's principal production facility for maintenance and upgrade to counteract increased competition

Outlook

· Continued focus on increasing our sales and marketing campaign and tightening costs further

· Optimization of product mix in the short-term is under way

· External economic factors have affected revenues and margins for HaiKe's principal products, in particular DiMethyl Carbonate and Isopropyl Alcohol. As previously announced, the Directors believe the Group is at risk of not achieving a profit for the full year 2015

· The Board is considering options to counteract recent economic and market developments in order to optimise performance

Mr. Xiaohong Yang, Executive Chairman, said:

"The Group has delivered a modest profit despite facing a number of challenges in the period, many of which are outside our control. The weak crude oil price reduced our selling prices which, in turn, eroded our margins and we faced stiff competition for our mid to lower-end products. During the period, we shut down our major production facility for essential maintenance and upgrade works in order to ensure we retain our competitive advantage against a difficult backdrop. Looking forward, we are focused on increasing our sales and marketing campaigns and tightening costs further, as well as improving our product mix and formulating a sustainable earnings model in the long run. In light of difficult market conditions, the Board is evaluating options to optimise performance and will announce more detailed plans on this in due course.

Indicative exchange rates as at 24 September 2015: GBP(£)1: CNY 9.75

Source:www.oanda.com

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The Interim Results are being sent to shareholders and will be available shortly from the Company's website www.haikechemical.com.CHAIRMAN'S STATEMENT

1. Review of operating results

The price of crude oil fell dramatically in H1 2015 and average price was approximately $59.4 per barrel, 45.4% lower than that one year previously. The resultant negative impact on the selling prices of derivative products, including most of HaiKe's specialty chemical products, in turn led to margin erosion, particularly for mid to lower-end products.

In H1 2015, the Group sold 63,000 tons of specialty chemicals, representing a volume gain of 5.1% when compared to the same period in the previous year. However, the average realized price for specialty products decreased by 18.9% year-on-year.

2. Financial Analysis

Turnover

The Group's sales turnover decreased by 16.2% to CNY385.4 million for the first half of 2015 (H1 2014: CNY460.0 million) as a result of a reduction in selling prices and trading activity. Trading revenues from HaiKe Trading decreased to CNY21.7 million in the period (H1 2014: CNY29.1 million).

Gross Profit

Gross profit was CNY41.5 million for H1 2015, down 11.8% compared with the same period in 2014 (H1 2014: CNY47.0 million). The fall in gross profit was mainly attributable to the reduction in selling prices despite a gain in sales volume.

Selling, General and Administrative Expenses

Selling and distribution expenses increased by 5.4% to CNY17.5 million in H1 2015 (H1 2014: CNY16.6 million) as we continued with aggressive sales and marketing efforts to counteract sluggish market conditions. General and administrative expenses increased to CNY20.0 million (H1 2014: CNY13.9 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 increased by 118.4% year-on-year to CNY2.9 million for H1 2015 (H1 2014: CNY1.3 million) due to exchange rate gains.

Interest expenses decreased by 61.8% year-on-year to CNY6.3 million for H1 2015 (H1 2014: CNY16.4million). This was mainly due to a decrease in the average balance of loans outstanding.

Profit Before Taxation

Profit before taxation was CNY666,000 for H1 2015 (H1 2014: CNY1.4 million).

Income Tax

Income tax charge was CNY571,000 for H1 2015, as compared to CNY1.8 million for the same period in the previous year.

Profit from Continuing Operations

Profit for the half year was CNY95,000 for H1 2015 (H1 2014: loss of CNY361,000).

Cash and Cash Equivalents

Cash and cash equivalents increased to CNY43.6 million as at 30 June 2015 compared to CNY39.4 million as at 31 December 2014. The increase in cash and cash equivalents was mainly due to the movement in working capital, which was more than enough to offset the reduction of bank loans.

Bank Loans

Bank loans decreased significantly to CNY182.4 million as at 30 June 2015, as compared to CNY702.9 million as at 31 December 2014. The decrease in bank loans was an encouraging step forward in order to reduce financial risk on the back of a positive move of operating cash flow in H1 2015.

Cash Flow from Continuing Operations

Cash flow from operating activities was CNY531.9million for the six months ended 30 June 2015, compared to a negative cash flow of CNY562.8 million for the same period in the previous year. This was mainly attributable to improvements in working capital.

3. Outlook

The macro economy remains challenging. The collapse in the crude oil price has made conditions difficult for the specialty chemicals industry in China and the domestic economy has had a negative impact on demand. At the industry level we are facing increasing competition, particularly at the mid to lower end of the market, and we believe companies will increasingly have to develop their own niche through technological innovation to deliver growth.

To ensure we are able to deliver positive earnings, the Company intends to continue to

· upgrade current production facilities in order to retain its competitive edge

· improve product mix, tighten cost control, and strengthen sales and marketing efforts

· introduce new lines of products and formulate a viable earnings model from technological innovation.

As previously indicated in a trading statement announcement on 14 September 2015, The Group recorded a loss in July and August 2015 as a result of continuing challenging conditions and a planned shutdown of a production facility which manufactures DMC. The Group recorded a loss of CNY1.3 million and CNY3.0 million for July and August respectively.

However, the Group continued to generate cash and the bank loan balance has been further reduced to CNY152.4 million as at 31 August 2015.  

Xiaohong Yang

Executive Chairman

Consolidated statement of comprehensive income

For the six months ended 30 June 2015

Consolidated Statement of Financial Position

As at 30 June 2015

Consolidated Statement of Changes in Equity

For the 6 months ended 30 June 2015

Consolidated Statement of Cash Flow

For the 6 months ended 30 June 2015

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL INFORMATION

FOR SIX MONTHS ENDED 30 JUNE 2015

(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 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 interim consolidated financial information of the Company for the six months ended 30 June 2015 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 2014.

Financial information for the six months ended 30 June 2015 and 30 June 2014 is unaudited and does not constitute the Company's financial statements for these periods.

Comparative financial information for the full year ended 31 December 2014 has been derived from the audited financial statements for that period. The Board of Directors approved the interim statements on 25 September 2015.

3. Taxation

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:

Deferred tax assets

Deferred income tax relates to the following:

4.  (Loss)/earnings per share from continuing operations

Earnings for the purpose of basic and diluted earnings per share are the net profit for six months ended 30 June 2015 attributable to equity holders of the parent of CNY94,000 (for the six months ended 30 June 2014: loss of CNY343,404,000; for the year ended 31 December 2014: loss of CNY326,890,000).

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