10th Sep 2007 07:01
HaiKe Chemical Group Ltd.10 September 2007 HaiKe Chemical Group Ltd. UNAUDITED RESULTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED 30 JUNE 2007 HaiKe Chemical Group Ltd ("HaiKe" or the "Company"), the AIM quoted (AIM: HAIK)petrochemical, speciality chemical and biochemical business based in China, ispleased to announce its unaudited results for the second quarter ("2007Q2") andsix months ended 30 June 2007 ("2007H1"). The results for the second quarter ("2006Q2") and first six months ended 30 June2006 ("2006H1"), which are set out below, are those of the Company and itssubsidiaries. First Half 2007 Highlights - Total revenues increased 85% to US$ (or "$") 171.4m (2006H1: $92.5m) - Petrochemical revenues increased 87% to $134.9m (2006H1: $72.0m) - Speciality chemical revenues increased 75% to $35.3m (2006H1: $20.2m) - Biochemical revenues increased 333% to $1.3m (2006H1: $0.3m) - Gross margin improved to 10.1% (2006H1: 6.9%) - Profit before tax and AIM Admission costs of $1.8m increased 410% to $10.2m (2006H1: $2.0m) - Profit after tax and AIM Admission costs increased 600% to $8.4m (2006H1: $1.2m) - Profit (after minority interests) increased 743% to $5.9m (2006H1: $ 0.7m) - Basic earnings per share increased from US 3 cents to US 17 cents - Diluted earnings per share increased from US 3 cents to US 16 cents - Construction of heavy oil catalytic cracking production facilities continues as scheduled Mr. Yang Xiaohong, Executive Chairman, said: "I am pleased to present an encouraging set of results for the second quarterand the first half of 2007. While we have continued to see strong growth in bothrevenues and profits within the speciality chemicals business, the globalincreases in the price of crude oil during the second quarter of 2007 hasimpacted on the profits generated from our petrochemical sector. However, we areconfident that the gross margin for the current quarter will improve as theCompany increases operational efficiency and lowers overall processing costs,through our intended cost controls. In addition, we have established newenvironmentally friendly and energy saving water treatment facilities which willhelp lower the cost of waste management. We will also continue to focus on thehigh-margin areas of speciality chemical and biochemical businesses, where wesee considerable opportunity to deliver further growth and value." For further information please contact: HaiKe Johnson Lau, Chief Financial Officer +86 (0) 546 8289173 HansonWesthouse Tim Metcalfe / Anita Ghanekar +44 (0) 20 7601 6100 Cardew Group Rupert Pittman / Shan Shan Willenbrock +44 (0) 20 7930 0777 First Half 2007 Results Operating profit increased 226% from $3.5m in 2006H1 to $11.4m in 2007H1, with600% growth in profit after tax of $8.4m (2006H1: $1.2m). The gross marginimproved from 6.9% in 2006H1 to 10.1% in 2007H1. Total revenue increased 85% from $92.5m in 2006H1 to $171.4m in 2007H1. On asegmental basis, the sales of petrochemical products increased from $72.0m in2006H1 to $134.9m in 2007H1, as a result of increased selling price and salesvolume while sales of speciality chemicals grew from $20.2m in 2006H1 to $35.3min 2007H1, due to increased market demand. The growth in biochemical revenue issignificant in percentage terms, having increased by 333% from $0.3m in 2006H1to $1.3m in 2007H1. Cost of sales increased from $86.1m in 2006H1 to $154.1m in 2007H1, reflectingthe sales volume increase. The incremental selling prices of the petrochemicalproducts were higher and this contributed to an improved gross margin of 10.1%in the first half. Sales and distribution expenses increased 25% from $1.2m in2006H1 to $1.5m in 2007H1 as a result of the increased freight charges andpromotion costs for speciality chemical products. Administrative expensesincreased 113% from $2.4m in 2006H1 to $5.1m in 2007H1. The increase included anon-recurring share-based (non-cash) payment to the Chief Financial Officerwhich amounted to $0.2m and one-off costs of $1.8m as a result of the Company'sAdmission to AIM in February 2007. The finance costs increased from $1.6m in 2006H1 to $3.2m in 2007H1, whichresulted from the increased average loan balance and increase in interest ratesduring the period. During the second quarter, the Company acquired additionalinventories and increased prepayments to secure crude oil suppliers and othermaterials, which resulted in a temporary increase in short-term loans. Tax exemptions were granted for three subsidiaries (Hi-Tech Chemical, Hi-TechSpring and Hi-Tech Shengli) following the restructuring of the Company into aforeign owned entity in late 2006. This resulted in no material income taxpayments in 2007H1. Profit (after minority interests) attributable to equity holders increased from$0.7m in 2006H1 to $5.9m in 2007H1. Basic earnings per share increased from US 3 cents in 2006H1 to US 17 cents in2007H1. Diluted earnings per share increased from US 3 cents in 2006H1 to US 16cents in 2007H1. We have commenced construction phases of the previously detailed heavy oilcracking project. It is expected that the construction and testing phases willbe completed by the end of 2007 and these facilities are expected to generatefurther revenues and profits to the Company in 2008. Second Quarter 2007 Highlights - Total revenues increased 182% to $97.6m (2006Q2: $34.6m) - Petrochemical revenues increased 237% to $78.8m (2006Q2: $23.4m) - Speciality chemical revenues increased 634% to $18.3m (2006Q2: $11.2m) - Biochemical revenues increased 400% to $0.5m (2006Q2: $0.1m) - Gross margin improved to 8.6% (2006Q2: 6.5%) to $8.4m (2006Q2: $2.3m) - Profit before tax and listing costs increased 4,200% to $4.3m (2006Q2: $0.1m) - Profit after tax increased 550% to $2.6m (2006Q2: $0.4m) - Profit (after minority interests) increased 1,300% to $1.4m (2006Q2: $0.1m) - Basic and diluted earnings per share increased from US 0 cents to US 4 cents Second Quarter 2007 Results and Outlook Results for 2007Q2 compare favourably with the same period in 2006 and providefurther evidence of the Company's ability to grow revenue and profit. However,trading conditions in 2007Q2, compared to 2007Q1, have been challenging owing tothe recent rises in oil prices. On 1 August 2007, Crude oil prices reached$78.77 per barrel. The rising oil price has impacted on operations in thepetrochemical division and slowed profit growth in 2007Q2. The NationalDevelopment and Reform Commission PRC has not issued any price adjustment noticefor oil products, therefore, with the price of oil products in China remainingsteady, but with crude oil prices increasing, margins for the oil refiningbusiness are being squeezed. To protect profits should oil prices continue to rise, we have adopted a numberof countermeasures to minimise any impact on the oil-refining operations goingforward. The Company intends to decrease production capacity in the one-timeprocess of Regular and Decompressing Pressure Facilities and increase theproduction capacity of Catalysis and Cracking Facilities and Coking Facilitiesin order to produce higher value-added products and enhance profits. The Companyhas also adopted a series of cost control measures such as purchasing rawmaterials domestically and in bulk-buying, thereby reducing transportation fees.These countermeasures mean that despite challenging market conditions, weanticipate our petrochemical operations to perform as expected. We are also making every effort to speed up the construction of the heavy oilcatalytic cracking project in order to bring it into production as soon aspossible. The feeding materials for this are mainly residual oil and petrolatumoil, the prices of these products is far less volatile than crude oil.Consequently higher margin products can be produced this way. The speciality chemical and biochemical industries also remain a core focus forthe Company, both of which produce higher-margin products and have rapidlyexpanding markets. We will continue our efforts to increase the weighting ofsales for these businesses. We are confident of achieving our expectations for revenues and profits in thesecond half of 2007 driven in particular by the performance of our specialitychemical business. CONSOLIDATED INCOME STATEMENT Three months ended Three months ended Six months ended Six months ended 30 Jun 2007 30 Jun 2006 30 Jun 2007 30 Jun 2006 US$'000 US$'000 US$'000 US$'000 Unaudited Unaudited Unaudited Unaudited Revenue 97,558 34,624 171,428 92,504Cost of sales (89,168) (32,368) (154,133) (86,106) ------- ------- ------- -------Gross profit 8,390 2,256 17,295 6,398Other operating income 650 464 996 1,042Selling and distribution expenses (928) (524) (1,520) (1,227)Administrative expenses (3,531) (1,196) (5,113) (2,419) Other operating expenses (214) (118) (246) (294) ------- ------- ------- -------Profit from operations 4,367 882 11,412 3,500Finance income 151 9 191 48Finance costs (2,012) (783) (3,231) (1,617)Share of results of associate 45 24 45 24 ------- ------- ------- -------Profit before income tax 2,551 132 8,417 1,955Income tax benefit (expense) 41 314 (1) (749) ------- ------- ------- -------Profit for the period 2,592 446 8,416 1,206 ------- ------- ------- ------- Attributable to: Equity holders of the parent 1,394 79 5,862 653Minority interest 1,198 367 2,554 553 ------- ------- ------- ------- 2,592 446 8,416 1,206 ------- ------- ------- -------Earnings per share Basic $0.04 $0.00 $0.17 $0.03 ------- ------- ------- -------Diluted $0.04 $0.00 $0.16 $0.03 ------- ------- ------- ------- CONSOLIDATED BALANCE SHEET 30 Jun 2007 30 Jun 2006 31 Dec 2006 ---------- --------- ---------- US$'000 US$'000 US$'000 Unaudited Unaudited Audited ASSETS Non-current assetsProperty, plant and equipment 71,152 54,776 54,220Intangible assets 2,651 1,827 1,886Investments in associates 171 135 188Other investments 644 638 628Deferred tax assets 1,100 1,338 1,074 ---------- --------- ---------- 75,718 58,714 57,996 ---------- --------- ----------Current assetsInventories 19,850 23,870 17,024Trade and other receivables 22,623 12,174 25,344Amounts due from related parties 2,384 1,977 839Short-term investment 1,576 100 -Cash and cash equivalents 36,840 2,719 2,528 ---------- --------- ---------- 83,273 40,840 45,735 ---------- --------- ----------Total assets 158,991 99,554 103,731 ---------- --------- ----------LIABILITIESCurrent liabilitiesShort-term loan 71,266 49,672 49,836Trade and other payables 37,164 34,205 30,260Deferred income 131 125 128Income tax payable 2,351 3,283 3,078Amounts due to related parties 194 - 189 ---------- --------- ---------- 111,106 87,285 83,491 ---------- --------- ----------Non-current liabilitiesLong-term loan 2,705 4,119 2,638Deferred income 1,006 1,084 1,046 ---------- --------- ---------- 3,711 5,203 3,684 ---------- --------- ----------Total liabilities 114,817 92,488 87,175 ---------- --------- ---------- 30 Jun 2007 30 Jun 2006 31 Dec 2006 ---------- --------- ---------- US$'000 US$'000 US$'000 Unaudited Unaudited AuditedCAPITAL AND RESERVESShare capital 77 - 50Share premium 18,338 - -Consolidation reserve 4,259 4,259 4,259Share option reserve 251 - -Statutory reserves 2,351 1,319 2,351Foreign currency translation reserve 1,147 181 433Retained earnings 11,015 (1,270) 5,105 ---------- --------- ----------Equity attributable to equity holders of the parent 37,438 4,489 12,198Minority interest 6,736 2,577 4,358 ---------- --------- ----------Total equity 44,174 7,066 16,556 ---------- --------- ----------Total liabilities and equity 158,991 99,554 103,731 ---------- --------- ---------- CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to equity holders of the parent Share Share Other Statutory Retained Foreign capital premium reserves reserve earnings currency Minority Total translation interests equity reserve US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Balance as at 1 January 2006 - - 4,259 1,319 (816) 113 2,915 7,790 Share issued in the financial period 50 - - - - - - 50 Profit for the financial period - - - - 653 - 553 1,206 Transfer from minority interest - - - - 246 - (246) - Dividend paid to shareholders - - - - (1,353) - (703) (2,056) Foreign currency translation - - - - - 68 58 126 ------ ------ ------ ------- ------- ------- ------- -------Balance as at 30 June 2006 (unaudited) 50 - 4,259 1,319 (1,270) 181 2,577 7,116 Profit for the financial period - - - - 7,093 - 2,012 9,105 Transfer to statutory reserves - - - 1,032 (1,032) - - - Transfer from minority interest - - - - 314 - (314) - Foreign currency translation - - - - - 252 83 335 ------ ------ ------ ------- ------- ------- ------- ------- Balance as at 31 December 2006 50 - 4,259 2,351 5,105 433 4,358 16,556 Attributable to equity holders of the parent Share Share Other Statutory Retained Foreign capital premium reserves reserve earnings currency Minority Total translation interests equity reserve US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Balance as at 1 January 2007 50 - 4,259 2,351 5,105 433 4,358 16,556 Share issued in the financial period 27 20,154 - - - - - 20,181 Share issue costs - (1,816) - - - - - (1,816) Transfer from minority interests - - - - 48 - (48) - Dividend paid in the financial period - - - - - - (278) (278) Share based payment expenses - expenses of flotation - - 251 - - - - 251 Profit for the financial period - - - - 5,862 - 2,554 8,416 Foreign currency translation - - - - - 714 150 864 ------ ------ ------ ------- ------ ------- ------- ------ Balance as at 30 June 2007 77 18,338 4,510 2,351 11,015 1,147 6,736 44,174 ------ ------ ------ ------- ------ ------- ------- ----- Other reserves comprise the consolidation reserves and the options issued. CONSOLIDATED CASH FLOW STATEMENTS Note Three Three Six Six months months months months ended 30 ended 30 ended 30 ended 30 Jun 2007 Jun 2006 Jun 2007 Jun 2006 ------- -------- ------- ------- US$'000 US$'000 US$'000 US$'000 Unaudited Unaudited Unaudited UnauditedCash flow from operating activities a 15,062 2,907 20,557 5,669 ------- -------- ------- -------Cash flow from investing activities Purchase of property, plant and equipment (12,730) (4,192) (19,071) (5,519) Purchase of intangible assets (851) - (851) - Purchase of short-term investment (268) (100) (1,558) (100) Proceeds from disposal of short-term investment - 108 - 150 Purchase of shares in subsidiary from minorities (15) - (15) - Proceeds from disposal of property, plant and equipment (9) (159) 49 - ------- -------- ------- -------Cash flow used in investing activities (13,873) (4,343) (21,446) (5,469) ------- -------- ------- ------- Cash flow from financing activities Issuance of ordinary shares for public offering - - 20,134 - Share issue expenses - - (1,816) - Increase in long-term loan - 5 - 2,567 Increase in/(repayment of) short-term loan 8,336 1,626 19,937 (1,132) Interest paid (2,012) (783) (3,231) (1,617) Dividends paid to shareholders - 68 - (1,027) Dividends paid to minorities (278) (131) (278) (484) ------- -------- ------- -------Cash flow from/(used in) financing activities 6,046 785 34,746 (1,693) ------- -------- ------- ------- Net increase/(decrease) in cash and cash equivalents 7,235 (651) 33,857 (1,493) Cash at beginning of period 29,393 3,387 2,528 4,203 Foreign currency translation differences 212 (17) 455 9 ------- ------- ------- -------Cash at end of period 36,840 2,719 36,840 2,719 ------- ------- ------- ------- NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS (a) Cash from operating activities Three Three Six Six months months months months ended 30 ended 30 ended 30 ended 30 Jun 2007 Jun 2006 Jun 2007 Jun 2006 ------- -------- -------- -------- US$'000 US$'000 US$'000 US$'000 Unaudited Unaudited Unaudited Unaudited Profit before income tax 2,551 132 8,417 1,955 Adjustments for: Amortization of intangible assets 73 115 142 177 Allowance for doubtful trade receivables (18) 51 21 51 Allowance for non-trade receivables 84 (130) (216) (95) Depreciation of property, plant and equipment 1,723 1,609 3,525 2,986 Loss/(gain) on disposal of property, plant and equipment (27) (5) 4 (9) Amortization of deferred capital grants (97) (42) (65) (42) Share-based payment 251 - 431 - AIM Admission expenses 1,762 - - - Gain from debt restructuring (378) (424) (378) (424) Share of results of associate (45) (24) (45) (24) Loss on disposal of short-term investment - 17 - - Interest Income (151) (9) (191) (48) Interest expense 2,012 783 3,231 1,617 ------- -------- -------- --------Operating cash flows before working capital changes 7,740 2,073 14,876 6,144 Working capital changes: (Increase)/decrease in: Inventories 639 696 (2,367) (5,302) Trade and other receivables 5,515 6,029 (165) 4,649 Amounts due from related parties 4,645 3,799 (1,461) 2,034 Increase/(decrease) in: Trade and other payables (2,833) (8,405) 10,278 (715) Amounts due to related parties - (261) - (15) ------- ------- -------- --------Cash generated from operations 15,706 3,931 21,161 6,795 Interest received 151 9 191 48 Income tax paid (795) (1,033) (795) (1,174) ------- ------- -------- --------Net cash generated from operating activities 15,062 2,907 20,557 5,669 ------- ------- -------- -------- NOTES TO THE FINANCIAL STATEMENTS 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES The financial information comprises the unaudited consolidated results for thethree and six month periods ended 30 June 2007 and 2006 and the consolidatedbalance sheets at 30 June 2007 (unaudited), 31 March 2007 (unaudited) and 31December 2006 (audited). The Company's published financial statements for theyear ended 31 December 2006 have been reported on by the Company's auditors. Theauditors' report on those financial statements was unqualified and did notinclude references to any matters to which the auditors drew attention by way ofemphasis without qualifying their report. The financial information has been prepared in accordance with the basis ofpreparation and accounting policies set out in the full financial statements forthe year ended 31 December 2006. Full details of the basis of preparation andaccounting policies are available in our annual report issued on 27 April 2007.This report has been prepared in compliance with IAS 34 'Interim FinancialReporting'. 2. TAXATION The tax charge for the period is close to nil due to the tax exemptions andavailability of tax losses. The income tax expense shown in the income statementis arising from the recognition of deferred tax assets. 3. SEGMENTAL ANALYSIS (a) Business segments The following table presents information about the Company's revenues andresults by business segment for the three and six month periods ended 30 June2007 and 2006, respectively. Three Three Six Six months months months months ended 30 ended 30 ended 30 ended 30 Jun 2007 Jun 2006 Jun 2007 Jun 2006 ------- ------- ------- ------- US$'000 US$'000 US$'000 US$'000 Unaudited Unaudited Unaudited UnauditedSales to external customers Petrochemical 78,796 23,351 134,873 71,979 Chemical products 18,762 11,273 36,555 20,525 ------- ------- ------- ------- 97,558 34,624 171,428 92,504 ------- ------- ------- -------Profit (loss) for the period Petrochemical 2,337 (985) 6,229 552 Chemical products 2,231 1,117 4,385 1,403 Unallocated expenses (2,017) - (2,197) - ------- ------- ------- ------- Profit from operation beforeincome tax 2,551 132 8,417 1,955 Income tax benefit (expense) 41 314 (1) (749) ------- ------- ------- -------Profit for the period 2,592 446 8,416 1,206 ------- ------- ------- ------- Three Three Six Six months months months months ended 30 ended 30 ended 30 ended 30 Jun 2007 Jun 2006 Jun 2007 Jun 2006 US$'000 US$'000 US$'000 US$'000 Unaudited Unaudited Unaudited UnauditedOther segment information Capital expenditure on property, plant and equipment and intangible assets Petrochemical 17,209 263 18,070 1,549 Chemical products 260 2,413 1,852 3,970 ------- ------- ------- ------- 17,469 2,676 19,922 5,519 ------- ------- ------- ------- Depreciation and amortization Petrochemical 584 608 1,217 1,093 Chemical products 1,212 1,116 2,450 2,070 ------- ------- ------- ------- 1,796 1,724 3,667 3,163 ------- ------- ------- ------- 30 Jun 30 Jun 31 Dec 2007 2006 2006 ------- ------- ------- US$'000 US$'000 US$'000 Unaudited Unaudited Unaudited Segment assetsPetrochemical 110,122 65,684 77,088Investment in associate 171 135 188 ------- ------- ------- 110,293 65,819 77,276Chemical products 62,758 53,310 50,060Unallocated assets 8,951 - -Elimination (23,011) (19,575) (23,605) ------- ------- ------- 158,991 99,554 103,731 ------- ------- -------Segment liabilitiesPetrochemical 83,905 62,056 59,743Chemical products 50,501 50,007 47,933Unallocated liabilities 3,422 - -Elimination (23,011) (19,575) (20,501) ------- ------- ------- 114,817 92,488 87,175 ------- ------- ------- (b) Geographical segments The following table provides an analysis of the Company's sales by geographicalmarket. Three Three Six Six months months months months ended 30 ended 30 ended 30 ended 30 Jun 2007 Jun 2006 Jun 2007 Jun 2006 ------- ------- ------- ------- US$'000 US$'000 US$'000 US$'000 Unaudited Unaudited Unaudited Unaudited Sales to external customers People's Republic of China 95,040 32,796 166,077 89,014 Exports 2,518 1,828 5,351 3,490 ------- ------- ------- ------- 97,558 34,624 171,428 92,504 ------- ------- ------- ------- 4. EARNINGS PER SHARE Earnings for the purpose of basic and diluted earnings per share are the profitfor the three and six months attributable to equity holders of the parent ofUS$1,394,000 and US$5,862,000 (2006: US$79,000 and US$653,000), respectively. The weighted average number of ordinary shares used in the calculation ofearnings per share has been derived as follows: Three months Three months Six Six ended 30 Jun ended 30 Jun months ended months ended 2007 2006 30 Jun 2007 30 Jun 2006 ------- ------- ------- ------- Unaudited Unaudited Unaudited Unaudited Weighted average number of ordinary shares-basic 38,353,571 25,500,000 35,228,946 25,500,000 Dilutive effect of share options 360,213 - 360,213 - ------- ------- ------- -------Weighted average number of ordinary shares-diluted 38,713,784 25,500,000 35,589,159 25,500,000 ------- ------- ------- ------- 5. SHARE CAPITAL The Company was incorporated on 20 June 2006 with an authorized share capital of50,000 US$1 ordinary shares. One US$1 ordinary share was issued at par onincorporation, and a further 49,999 US$1 ordinary shares were issued on the sameday as the acquisition of the Company's interest in the Group. Details of changes in share capital during the six month period ended 30 June2007 are as follows: - On 14 February 2007, the authorized share capital was increased to $51,000 by the creation of an additional 1,000 US$1 ordinary shares, and the 51,000 authorized ordinary shares were subdivided into 25,500,000 ordinary shares of US$0.002 each. - On 14 February 2007, the authorized share capital of the Company was further increased from US$51,000 to US$86,100 by the creation of an additional 17,550,000 ordinary shares of US$0.002 each. - On 14 February 2007, 12,738,854 ordinary shares of US$0.002 each were issued on the Company's Admission to AIM. - On 14 February 2007, the Company issued 114,717 ordinary shares of US$0.002 each to JSL Consulting Co., a company controlled by Mr. Johnson Lau, as part of Mr. Lau's remuneration. Pursuant to the option agreements dated 5 February 2007, Hanson WesthouseLimited and Shanghai Riemann Investment Advisory Ltd., have each been grantedoptions to subscribe for up to 383,536 ordinary shares of US$0.002 each within24 months of the Admission to AIM, exercisable at the admission price ofUS$1.57. The fair value attributed to these options in accordance with IFRS 2 isUS$251,000 (GBP 0.17 per option), which has been expensed. 6. CONTINGENCIES Up to 30 June 2007, as a guarantor, the Group has guaranteed the bank loans ofthird parties to an aggregate amount of US$39,561,000 (31 March, 2007:US$23,959,000 and 31 December 2006: US$25,010,000). The latest availablefinancial statements of the guarantees indicate that the debtors are able to paytheir debts as they mature. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Haike Chemical Group