Half Yearly Report

27 September 2011

HAIKE CHEMICAL GROUP LIMITED

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2011

(UNAUDITED)

HaiKe Chemical Group Ltd. ("HaiKe" or the "Company"), the AIM quoted (AIM: HAIK) petrochemical, specialty chemical and biochemical business based in China, is pleased to announce its unaudited results for the six months ended 30 June 2011.

Strong financial performance in H1 2011

l 71% increase in external sales to RMB5,441.0 million (H1 2010: RMB3,187.4 million)

l Gross profit increased significantly to RMB248.3 million (H1 2010: RMB9.6 million)

l Profit from operations rose to RMB153.9 million (H1 2010: loss of RMB69.1 million)

l Profit for the period was RMB46.2 million (H1 2010: loss of RMB144.7 million)

l The Board does not propose to pay an interim dividend in 2011 but will consider a final dividend in light of the performance for the rest of this year.

Profit drivers in H1 2011

l Major sales contract with a national retailer partly guaranteed margins on refinery side

l Buyout of minority interests in Dongying Hi-Tech Spring Chemical Industry Co., Ltd ('Hi-tech Spring') and Hi-Tech Shengli Electrochemical Co., Ltd.('Hi-tech Shengli') - immediately earnings enhancing

l Newly setup subsidiary Dongying Hebang Chemical Co., Ltd ('Hebang') is expected to further enhance the profitability of chemical business as it will focus on higher-margin products

Outlook

l Global economy still weak and international oil market remains volatile creating some uncertainty on refinery business. The price spread between refined products and feedstock will be key to our performance

l Chemical products business continues to expand but selling prices deteriorated due to a weakening global economy

l Q3 underperformed and Q4 is traditionally a busy season for refineries and Haike's full year performance will be largely dependent on business generated in this quarter.

Mr. Xiaohong Yang, Executive Chairman, said:

"This is an excellent H1 performance for HaiKe. Revenue grew substantially as a result of volume and price increases across most products within the Company. Margins have improved and consequently we have delivered a profitable performance which compares well with losses experienced in the same period of the previous year.

The global economy continues to be tough and industry profitability is under pressure. Our actions to tighten costs, improve intra-Company synergies and a strategic move towards the less regulated and more profitable chemicals business will put us in a good stead to weather these issues".

For further information please contact:

CHAIRMAN'S STATEMENT

I am pleased to announce the Company's half yearly results for the six months ended 30 June 2011. Group revenue for the six months ended 30 June 2011 increased by 71% to RMB5.4 billion (H1 2010: RMB3.2 billion). Net profit rose significantly to RMB46.2 million (H1 2010: loss of RMB144.7 million).

Refinery operations contributed 87% of the Company's total revenue and 15% of total profit. Chemical products (include specialty, salt and bio-chemical), which operated at higher margins, contributed 13% of total turnover and a significant 85% of total profit.

HaiKe has made excellent progress in the strategic move towards specialty chemicals and the buyouts of Hi-Tech Spring and Hi-Tech Shengli were immediately earnings enhancing. The establishment of a new subsidiary, Hebang, focusing on the production of specialty and salt chemicals will further enhance intra-Company synergies.

1. Review of operating results

(1) Refinery

During the first half of 2011, due to the weakening global economy and imbalance of supply and demand in the global oil market, the international crude oil price continued to fluctuate significantly with an overall upward trend. Brent crude oil price averaged approximately $110 per barrel, a 46% increase year-on-year and WTI crude oil price averaged approximately $98 per barrel, a 26% increase year-on-year.

According to information supplied by the State Statistics Bureau, domestic crude oil output increased a further103 million tons in H1 2011, representing an increase of 4.6% year-on-year. Net crude oil imports amounted to 126 million tons in H1 2011, representing an increase of 7.0% as compared with H1 2010.

The domestic demand for refined products remained strong in 2010. The State Statistics Bureau suggests consumption of domestic refined products was 118 million tons in H1 2011, representing 7.2% growth year-on-year. In particular, consumption of gasoline grew 8.7% year-on-year to 35 million tons and diesel grew 6.0% year-on-year to 74 million tons.

The NDRC made adjustments to the domestic prices of refined products twice in H1 2011, both upwards, by circa 5% each time. The increased selling price has improved the company's margins and contributed to a profitable performance.

In the period under review, the Company's refineries processed 973,000 tons of feedstock including crude oil and fuel oil. In addition, approximately 592,000 tons of gasoline, diesel, Liquefied Petroleum Gas ("LPG") and petroleum coke were produced representing a 24% growth year-on-year.

Turnover from the refinery business grew 71% to RMB4.7 billion for the six months ended 30 June 2011(H1 2010: RMB2.8 billion). Operating margin increased to 0.2% (H1 2010: -5.5%) as a result of an improvement in the selling price. Profit from the refinery business was RMB8.7 million, compared with a net loss of RMB153.8 million in H1 2010.

(2) Specialty/salt chemical products

In the first half of 2011, the domestic market for specialty and salt chemical products continued to grow in terms of both volume and price. Volume growth was driven by strong domestic demand while the price increase was the result of crude oil price appreciation.

In the first half of 2011, the Company sold 52,749 tons of specialty chemicals and 242,141 tons of salt chemical products, representing a volume increase of 11.1% and 4.5% compared to the first half of the previous year. Meanwhile, the average price for specialty and salt chemical products grew modestly by 4.7% and 18.8% respectively.

Turnover from specialty/salt chemical products grew by 87% to RMB606 million for the six months ended 30 June 2011 (H1 2010: RMB 324 million). Operating margin improved to 7.7% from 4.3% in the previous year driven by rapid growth in the price of chemical products. Profit from specialty/salt chemical products H1 2011 was RMB46.3 million (H1 2010: RMB 13.9 million).

During the period, the Company acquired a 26% stake in one of its major subsidiaries, Hi-tech Shengli, at a 48% discount to its net assets at 31 December 2010. This acquisition creates substantial opportunities for HaiKe to enhance its profitability and to further develop its specialty chemical business in line with HaiKe's overall strategy. Shengli has been a source of stable income to the Company, and this strategic move increases exposure in the production of caustic soda and chlorine based chemical products.

Meanwhile, a new subsidiary, namely Hebang, was established during the period. Hebang will mainly focus on production of specialty and salt chemical products. It is expected to commence production in December 2011.

(3) Biochemical

Despite volume gain, the price of heparin sodium weakened in the first half of 2011. Sales volume of heparin sodium in H1 2011 remained static on the comparable period last year while that of Enoxaparin sodium grew 1.8 times off a small base. The price of heparin sodium and Enoxaparin sodium fell by 20.1% and 5.0% year-on-year.

Turnover from biochemical products grew slightly by 7% to RMB87.2 million for the period under review (H1 2010: RMB81.5 million). We achieved a reasonable operating margin of 4.6% (H1 2010: 0.1%). Profit from biochemical products increased substantially toRMB4.0 million (H1 2010: RMB0.1million).

2. Financial Analysis

Turnover

The Group's external sales grew by 71% in the first half of 2011 to RMB5.4 billion (H1 2010: RMB3.2 billion). Variance from the previous estimation (doubled y-o-y as set out in trading update on 22 July 2011) was derived from intra-Company transactions. These transactions were identified later and netted off.

Intra-Company revenue grew significantly to RMB810 million and accounted for c.13% of total turnover (H1 2010: 5%), reflecting enhanced intra-Company synergies. Moreover, Hi-Tech Ruilin, which commenced operations in May 2010, contributed RMB1,043 million of turnover to the Company; the selling prices and sales volumes of major products including gasoline, diesel and chemical goods also recorded significant improvements in H1 2011.

Profit from operations

Profit from operations was RMB153.9 million for the six months ended 30 June 2011, compared with a loss of RMB69.1 million for the same period in 2010. The significant turnaround was mainly attributable to growth in both volume and price in the specialty/salt chemical sector.

Selling, General and Administrative Expenses

Selling and distribution expenses increased by 53% to RMB25.7 million for the six months ended 30 June 2010 (H1 2010: RMB63.5 million), mainly due to an increase in freight costs. General and administrative expenses increased by 21% to RMB76.8 million (H1 2010: RMB63.5 million), due to an annual incentive bonus paid to the executive management for their better performance.

Net Interest Expenses

Interest income increased to RMB22 million for the six months ended 30 June 2010 (H1 2010: RMB3.5 million).

Interest expenses increased to RMB122.7 million for the six months ended 30June 2010 (H1 2010: RMB78.1 million), representing an increase of 57%. The increase in interest expense was mainly attributable to (1) the increase in interest rates due to tightening monetary policies; (2) increase in bank charges on discounting bank notes.

Profit Before Taxation

Profit before taxation was RMB53.2 million for the six months ended 30 June 2011, compared to a loss of RMB143.7 million for the same period in the previous year.

Income Tax

Income tax charge was RMB7.0 million for the six months ended 30 June 2011 as compared to RMB1.0 million for the same period in the previous year. The increase in tax charge was mainly attributable to (1) tax holidays expired for all subsidiaries in the Company; and (2) in some subsidiaries the taxable income generated in 2010 was more than enough to make up the accumulated losses in previous years as we started to pay tax in 2011.

Profit for the year

Profit for the year was RMB46.2 million for the six months ended 30 June 2011(H1 2010: net loss of RMB144.7 million).

Profit attributable to non-controlling interest of the Company

The profit attributable to minority interests was RMB22.5 million for the six months ended 30 June 2011 (H1 2010: loss of RMB43.6 million). The increase in profit attributable to minority interests was mainly attributable to the profit earned by Hi-tech Spring and Hi-tech Shengli in H1 2011.

Net profit attributable to owners of the Company

Due to the composite effects described above, net profit attributable to the owners of the Company was RMB23.7 million for the six months ended 30 June 2011(H1 2010: loss of RMB101.1 million).

Cash and cash equivalents

Cash and cash equivalents increased to RMB347.5 million as at 30 June 2011 compared to RMB181.7 million as at 31 December 2010. The increase in cash and cash equivalents was mainly due to the increase in short-term bank loans.

Bank loans

Bank loans increased to RMB3,057 million as at 30 June 2011 compared to RMB2,763 million as at 31 December 2010. The short-term portion of bank loans increased by RMB308 million while the long-term portion decreased by RMB14 million. The increase in bank loans was mainly due to increased financing demand for procuring feedstock when most subsidiaries resumed production at the end of June.

Cash flow from operating activities

Cash flow from operating activities was negative at RMB89.2 million for the six months ended 30 June 2011 as compared to a negative RMB347.9 million for the same period in the previous year. This was mainly attributable to improved profit and change in working capital.

3. Outlook

(1) Refinery

The international crude oil price continued to fluctuate significantly as a result of an uncertain global economy and the unstable situation in North Africa which affected the balance of demand and supply. However, we have not experienced any immediate benefits from a fall in the crude oil price which began in May 2011 for the following reasons:

·; HaiKe's earnings are derived from the price spread between refined products and feedstock;

·; HaiKe's feedstock price is more dependent on fuel oil and residual oil price. Crude oil accounts for less than half of HaiKe's total feedstock mix and its price movement sometimes diverges from that of the remaining part (i.e. fuel oil and residual oil etc.), e.g. whilst the crude oil price fell substantially in Q3 compared with Q1, the fuel oil price actually rose by circa 10% during the same period;

·; There is a time lag before HaiKe benefits from lower feedstock costs as it adopts "First In, First Out" costing; and

·; HaiKe's revenue stream is more dependent on wholesale prices of refined products (although this will be reduced to circa two thirds in H2 2011); in China, wholesale prices are more dependent on international crude oil price than retail prices as the former is market-driven and the latter are controlled by NDRC.

During the period the Company entered into an agreement with a major Chinese retailer of refined products for sale of its diesel and gasoline. Under the agreement, this retailer will buy a total of 180,000 tons and 300,000 tons of gasoline and diesel respectively from the Company in the twelve-month period from July 2011 to June 2012. This is a significant contract and equates to one third of the Company's output in the last year. The selling prices are higher than those sold to current wholesale clients which should therefore enhance the Company's profitability.This partnership represents significant progress for HaiKe as we pursue our objectives to grow the refinery business organically. The new alliance will create mutual benefits for both parties and increase HaiKe's presence in the domestic refined oil market.

As of 1 July 2011, the tariffs of imported gasoline and diesel have been reduced to 1% and zero respectively with the objective to relax high demand for refined oil in the domestic market. We view this move as neutral in the short term as:

·; this is a measure which will not change the fundamental balance between domestic demand and supply;

·; refined oil is not suitable for long distance freight i.e. the impact of increased import to domestic market will not be as significant.

In addition, it is expected that the NDRC will soon lower the retail price to reflect the decreased crude oil price and shorten the adjustment period to 10 days from the current 22 days. The implication of these changes is that China's refined oil market will be less isolated and will align itself more to the international market.

Moreover, domestic refinery industry consolidation is underway: both Sinopec and Petro China are setting up alliances with local refineries and we expect such actions to be positive for HaiKe as cooperation with refinery giants will at least guarantee the supply of our feedstock, especially crude oil.

(2) Specialty/salt chemical products

As mentioned earlier the Company further acquired a minority interest in another key subsidiary, Hi-tech Spring, at a discounted price to its net assets. The acquisition is immediately earnings enhancing and will improve synergies with our petrochemical business. This strategic move will enhance the Company's profitability.

The new subsidiary, Hebang, is under construction and will commence operation in December 2011. We expect it to contribute to the Company by H1 2013. By focusing on higher margin products, it is expected to make a significant contribution and enhance the long term profitability of the Company as a whole.

(3) Biochemical products

The market demand for heparin sodium and Enoxaparin sodium remains strong despite the price fall. The bottleneck remains in raw material procurement and production. The Company is actively seeking stable raw materials supply and to accelerate the construction of the heparin injection production line and application for GMP and FDA certification.

(4) Prospects

 HaiKe underperformed in Q3 due to weak refined product prices and high fuel oil price:

·; consumption declined

·; the market expected retail prices to fall which has meant that customers preferred to wait.

·; due to higher demand for fuel oil after Japan's earthquake, global fuel oil prices rose by circa 10% to USD660 per ton compared with an average USD 600 per ton in Q1. The rise in global fuel oil prices has squeezed margins of domestic refineries like Haike as we partially rely on fuel oil as feedstock.

Q4 is traditionally a busy season for refineries and Haike's full year performance will be largely dependent on business generated in this quarter. The performance will depend on the movements of feedstock prices (especially fuel and residual oil price) and retail prices for refined products.

4. Dividend

The Board does not propose to pay an interim dividend in 2011 but will consider the final dividend in the light of performance in the rest of this year.

Xiaohong Yang

Executive Chairman

Consolidated statement of comprehensive income

For the six months ended 30 June 2011

Consolidated Statement of Financial Position

As at 30 June 2011

Consolidated Statement of Changes in Equity

For the 6 months ended 30 June 2011

Consolidated Statement of Cash Flow

For the 6 months ended 30 June 2011

Notes to Consolidated Statement of Cash Flow

For the 6 months ended 30 June 2011

(a) Cash flow from operating activities

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL INFORMATION

FOR SIX MONTHS ENDED 30 JUNE 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 interim consolidated financial information of the Company for the six months ended 30 June 2010 comprises HaiKe Chemical Group Ltd. and its subsidiary undertakings (the "Group").

2. Accounting policies

The consolidated financial statements of the Group and 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 financial statements and are expected to be used for Group's annual financial statements for the year ending 31 December 2010.

Financial information for the six months ended 30 June 2011 and 30 June 2010 is unaudited and does not constitute the Company's financial statements for these periods.

Comparative financial information for the full year ended 31 December 2010 has been derived from the audited financial statements for that period. The Board of Directors approved the interim statements on 9 September 2011.

3. Segmental information

a) Operating segment

The following table presents revenue and profit from the Company's operating segments for the financial periods ended 30 June 2010 and 30 June 2011, and for the financial year ended 31 December 2010.

Reconciliation of reportable segment revenues, profit or loss, assets and liabilities to the

Group's corresponding amounts: