17th Sep 2008 07:00
HaiKe Chemical Group Ltd.
UNAUDITED RESULTS FOR THE SECOND QUARTER AND SIX MONTHS ENDED
30 JUNE 2008
HaiKe Chemical Group Ltd ("HaiKe" or the "Company"), the AIM quoted (AIM: HAIK) petrochemical, speciality chemical and biochemical business based in China, is pleased to announce its unaudited results for the second quarter ("2008Q2") and six months ended 30 June 2008 ("2008H1").
The results for the second quarter ("2007Q2") and six months ended 30 June 2007 ("2007H1"), which are set out below for comparative purposes, are those of the Company and its subsidiaries.
First Half 2008 Highlights
Total revenues increased 85% to US$ ("$") 317.5m (2007H1: $171.4m)
Petrochemical revenues increased 98% to $266.8m (2007H1: $134.9m)
Speciality chemical and biochemical revenues increased 39% to $50.7m (2007H1: $36.6m)
Gross margin decreased to 3.6% (2007H1: 10.1%)
Loss after tax of $1.0m (2007H1: profit of $8.4m)
Loss after minority interests of $3.0m (2007H1: profit of $5.9m)
Construction of the speciality chemical facilities completed
Second Quarter 2008 Highlights
Total revenues increased 80% to $175.8m (2007Q2: $97.6m)
Petrochemical revenues increased 90% to $150.1m (2007Q2: $78.8m)
Speciality chemical and biochemical revenues increased 37% to $25.8m (2007Q2: $18.8m)
Gross margin decreased to 2.4% (2007Q2: 8.6%)
Loss after tax of $2.0m (2007Q2: profit of $4.5m)
Loss after minority interests of $2.9m (2007Q2: profit of $3.3m)
As announced on 20 June 2008, the Company has decided that it will be moving to half yearly reporting with effect from this announcement.
Mr. Yang Xiaohong, Executive Chairman, said:
"I am pleased to present our results for the second quarter and the first half of 2008. While these results reflect the current challenging market conditions that have been experienced by the Group, I would like to highlight that these conditions are beginning to improve. The price of crude oil is steadily dropping from its record high in July 2008 and we have entered into a major production contract with Sinopec Shandong Petroleum Branch, a subsidiary of one of the largest Chinese state-owned oil companies, on 5 September 2008, I am confident that this will have a positive impact on our margins going forward.
Recognising its potential, and until there is a significant improvement in the market conditions being experienced in the petrochemical sector, our focus going forward will be on the development of our speciality chemical facilities and improving the flexibility and scale of our petrochemical activities. This will ensure the Company continues to increase both its speciality chemical sales and the manufacture of the Company's high-margin products. This is expected to benefit overall margins and ultimately profit."
For further information please contact:
|
HaiKe |
Johnson Lau, Chief Finance Officer |
+86 (0) 546 8289173 +852 37520631 |
|
Evolution Securities Limited (Nominated adviser) |
Stuart Andrews |
+44 (0) 20 7071 4300 |
|
Evolution Securities China Limited (Financial adviser and broker) |
Barry Saint / Esther Lee |
+44 (0) 20 7220 4850 |
|
Cardew Group |
Rupert Pittman / Shan Shan Willenbrock / Catherine Maitland |
+44 (0) 20 7930 0777 |
First Half 2008 Results
Operating profit decreased 52% from $11.4m in 2007H1 to $5.5m in 2008H1, and the loss after tax was $1.0m (2007H1: profit after tax of $8.4m). The gross margin dropped from 10.1% in 2007H1 to 3.6% in 2008H1.
Cost of sales increased from $154.1m in 2007H1 to $306.2m in 2008H1, reflecting the significant increase of material costs and sales volume. The incremental selling prices of the petrochemical products were lower than the increases in material costs for the petrochemical sector and this contributed to the lower gross margin and fall in profit in the first half. Conversely however, the shift towards the higher-margin speciality chemical and biochemical products resulted in an improved gross margin and profit for the chemical side of the business, with profit before tax for the speciality chemical and biochemical businesses increasing 51% to $6.6m (2007H1: $4.4m) and gross margin for these divisions increasing from 19.3% to 20.1%. Nonetheless, the reduction in the petrochemical margins still outweighed the increases in speciality chemical and biochemical margins and the overall gross margin declined to 3.6% in 2008H1 from 10.1% in 2007H1.
Sales and distribution expenses increased 44% from $1.5m in 2007H1 to $2.2m in 2008H1 as a result of the increased freight charges and promotion costs resulting from the significant increase in sales of the speciality chemical products compared to the prior period. Other administrative expenses increased slightly from $3.6m in 2007H1 to $4.5m in 2008H1 as a result of additional personnel costs. Finance costs increased 85% from $3.2m in 2007H1 to $6.0m in 2008H1 due to the increase of the average loan balance and increase of the prime rate in China from 6.57% to 7.47% during the period.
As a result of the above, operating profit decreased by $5.9m to $5.5m in 2008H1 from $11.4m in 2007H1. Profit before income tax also decreased from $8.4m in 2007H1 to a loss of $0.2m in 2008H1.
The loss attributable to the shareholders of HaiKe in 2008H1 was $2.9m compared with a profit of $5.9m in 2007H1.
Basic and diluted loss per share were both US 7.5 cents in 2008H1, as compared with earnings per share of US 17 cents and US 16 cents in 2007H1, respectively.
Capital expenditure
Investment in property, plant and equipment increased from $19.0m in 2007H1 to $28.6m in 2008H1, mainly due to the construction works for the capacity expansion projects of dimethyl carbonate and caustic soda (in the speciality chemical segment). The Company incurred costs of $18.1m on the construction of the heavy oil catalytic cracking facility in 2007H1, which was completed in November 2007.
Cash flows
In 2008H1, cash used for operating activities amounted to $2.5m whereas the cash generated from operating activities amounted to $20.6m in 2007H1 in line with the decrease in operating profit.
The capital expenditure of $28.6m was mainly funded from the increase in bank borrowings, from $86.1m as at 31 December 2007 to $147.4m as at 30 June 2008. Within the Chinese banking system, it is common to provide bank borrowings on a short-term renewal basis to most non-government controlled enterprises. It is expected that the facilities will be renewed when they fall due.
Cash and cash equivalents increased from $24.3m as at 31 December 2007 to $42.9m as at 30 June 2008.
Liquidity and financial risk
We believe that the Company has sufficient funds to meet foreseeable business requirements due to a number of factors including the entry into a major production contract with Sinopec Shandong Petroleum Branch on 5 September 2008, the fact that raw material costs are currently dropping, resulting in an anticipated improvement in market conditions in the petrochemical sector and the unutilised banking facilities of approximately $3m. Any surplus funds may be used for further investments, although we will not undertake any speculative treasury transactions.
Operational Review
During the first half of 2008, the petrochemical sector continued to experience challenging market conditions, with crude oil prices rising across the globe. The ongoing rise in oil prices continued to put pressure on the Company's residual oil and petrolatum oil feedstock and had a direct negative impact on overall petrochemical margins and profit. Unfortunately, in the first half, these reductions were not offset by increases in the selling prices of diesel products.
The Board believes that there will be further changes in the domestic oil pricing policy by the Chinese government. These changes were partially carried out on 19 June 2008 when the guiding prices of refined products were increased by an average of 18%. It is expected that further changes, as and when they occur, will allow the Company to sell certain refined products at higher prices, which will help to offset the reduction in margins and profit.
As a result of the ongoing challenging market conditions within the petrochemical sector, the Company is increasing its focus on the speciality chemical sector. Despite the petrochemical business being the largest contributor to group revenue, the speciality chemical business is now the largest contributor to group profit. The focus for the Company going forward is therefore to increase speciality chemical production with selective production of petrochemical products, mainly focusing on higher-margin products to enhance profit.
The testing phase of the dimethyl carbonate and caustic soda expansion projects was completed in July 2008 and these facilities are expected to become fully operational during the third quarter. These facilities are expected to increase the percentage of sales coming from the speciality chemical business and increase the proportion of sales coming from high-margin products.
The biochemical business, being part of the speciality chemical segment, remains the Company's smallest contributor to group revenue and profit, although revenue increased by 65% (from $1.3m to $2.2m) and gross profit increased by 62% (from $0.3m to $0.5m) compared to 2007H1. Although its results do not have a significant impact on the Group's overall results, the biochemical market is still a market where good gross margins can be achieved. In February 2008, there were several fatalities resulting from contaminated heparin-based products, which were being exported from China to the United States and Germany. Although HaiKe's products were not involved in these fatalities, . the Chinese government imposed a temporary restriction on the export of heparin-based products for the entire biochemical industry, which resulted in our lower than expected biochemical sales for 2008Q1. The temporary restriction applied to all exporters, even though our products did not breach any safety standards. The Company subsequently passed all quality assurance testing and the restriction was lifted in April 2008. Despite this temporary restriction, demand for our biochemical products was strong for the rest of the period during 2008H1.
Outlook
Market conditions for the petrochemical sector remain difficult but demand for our products continues to increase. As a result of consistently high oil prices, and in the absence of further price adjustment notices for the refined oil products in China, the margins of the petrochemical side of the business reduced to a level at which those operations were not profitable. We therefore determined to carry out the essential maintenance of the refinery facilities in July and August 2008, which involved a complete shut-down of the refining operations to help reduce the Company's exposure to further risk.
Given that raw material costs are currently decreasing and the award of a major new contract with Sinopec Shandong Petroleum Branch, a subsidiary of one of the largest Chinese state-owned oil companies, on 5 September 2008, we reopened the refinery facilities on 4 September 2008.
The speciality chemical business is showing strong improvements on the comparable period last year and, again, we are continuing to experience increasing demand for our products.
The focus for the second half of 2008 is to continue the expansion of the dimethyl carbonate and caustic soda production facilities whereby the new facilities will be completed in the third quarter of 2008. We continue to explore a number of other capacity expansion projects, in particular within the speciality chemical sector, together with other potential applications and revenue streams both in our existing and related new markets.
We are confident of achieving further growth in revenues for the remainder of 2008 despite the high oil prices. We anticipate that this growth will be driven by our existing areas of business, including the speciality chemical business, and will be supported by increased domestic demand for all our products. In addition, we will continue to explore opportunities in the oil refinery business to ensure that we are operating with positive margins.
CONSOLIDATED INCOME STATEMENT
|
Three months ended 30 Jun 2008 |
Three months ended 30 Jun 2007 |
Six months ended 30 Jun 2008 |
Six months ended 30 Jun 2007 |
||||||
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
||||||
|
(Restated) |
|||||||||
|
Unaudited |
Unaudited |
Unaudited |
Unaudited |
||||||
|
Revenue |
175,820 |
97,558 |
317,524 |
171,428 |
|||||
|
Cost of sales |
(171,550) |
(89,168) |
(306,230) |
(154,133) |
|||||
|
Gross profit |
4,270 |
8,390 |
11,294 |
17,295 |
|||||
|
Other operating income |
680 |
650 |
924 |
996 |
|||||
|
Selling and distribution expenses |
(903) |
(928) |
(2,195) |
(1,520) |
|||||
|
AIM admission expenses |
- |
- |
- |
(1,772) |
|||||
|
Other administrative expenses |
(2,629) |
(1,865) |
(4,527) |
(3,587) |
|||||
|
Total administrative expenses |
(2,629) |
(1,865) |
(4,527) |
(5,359) |
|||||
|
Profit from operations |
1,418 |
6,247 |
5,496 |
11,412 |
|||||
|
Finance income |
213 |
151 |
406 |
191 |
|||||
|
Finance costs |
(3,231) |
(2,012) |
(5,983) |
(3,231) |
|||||
|
Share of results of associate |
(24) |
45 |
(135) |
45 |
|||||
|
(Loss)/profit before income tax |
(1,624) |
4,431 |
(216) |
8,417 |
|||||
|
Income tax benefit (expense) |
(326) |
41 |
(736) |
(1) |
|||||
|
(Loss)/profit for the period |
(1,950) |
4,472 |
(952) |
8,416 |
|||||
|
Attributable to: |
|||||||||
|
Equity holders of the parent |
(2,857) |
3,274 |
(2,975) |
5,862 |
|||||
|
Minority interest |
907 |
1,198 |
2,023 |
2,554 |
|||||
|
(1,950) |
4,472 |
(952) |
8,416 |
||||||
|
(Loss)/earnings per share |
|||||||||
|
Basic |
$(0.075) |
$0.088 |
$(0.078) |
$0.170 |
|||||
|
Diluted |
$(0.075) |
$0.079 |
$(0.078) |
$0.160 |
|||||
CONSOLIDATED BALANCE SHEET
|
30 Jun 2008 |
30 Jun 2007 |
31 Dec 2007 |
||||
|
US$'000 |
US$'000 |
US$'000 |
||||
|
Unaudited |
Unaudited |
Audited |
||||
|
ASSETS |
||||||
|
Non-current assets |
||||||
|
Property, plant and equipment |
131,090 |
71,152 |
105,162 |
|||
|
Intangible assets |
4,455 |
2,651 |
3,099 |
|||
|
Investments in equity-accounted associates |
187 |
171 |
354 |
|||
|
Available-for-sale investments |
544 |
644 |
496 |
|||
|
Deferred tax assets |
734 |
1,100 |
661 |
|||
|
137,010 |
75,718 |
109,772 |
||||
|
Current assets |
||||||
|
Inventories |
67,941 |
19,850 |
44,858 |
|||
|
Trade and other receivables |
33,183 |
22,623 |
30,169 |
|||
|
Amounts due from related parties |
- |
2,384 |
- |
|||
|
Financial assets at fair value through profit or loss |
- |
1,576 |
274 |
|||
|
Cash and cash equivalents |
42,943 |
36,840 |
24,319 |
|||
|
144,067 |
83,273 |
99,620 |
||||
|
Total assets |
281,077 |
158,991 |
209,392 |
|||
|
LIABILITIES |
||||||
|
Current liabilities |
||||||
|
Short-term loan |
144,529 |
71,266 |
86,093 |
|||
|
Trade and other payables |
63,808 |
37,164 |
56,763 |
|||
|
Deferred income |
146 |
131 |
185 |
|||
|
Income tax payable |
2,124 |
2,351 |
1,630 |
|||
|
Amounts due to related parties |
7,532 |
194 |
7,223 |
|||
|
218,139 |
111,106 |
151,894 |
||||
|
Non-current liabilities |
||||||
|
Long-term loan |
2,916 |
2,705 |
- |
|||
|
Deferred income |
1,264 |
1,006 |
1,412 |
|||
|
4,180 |
3,711 |
1,412 |
||||
|
Total liabilities |
222,319 |
114,817 |
153,306 |
CONSOLIDATED BALANCE SHEET continued
|
30 Jun 2008 |
30 Jun 2007 |
31 Dec 2007 |
||||
|
US$'000 |
US$'000 |
US$'000 |
||||
|
Unaudited |
Unaudited |
Audited |
||||
|
CAPITAL AND RESERVES |
||||||
|
Share capital |
77 |
77 |
77 |
|||
|
Share premium |
18,338 |
18,338 |
18,338 |
|||
|
Consolidation reserve |
4,259 |
4,259 |
4,259 |
|||
|
Share option reserve |
251 |
251 |
251 |
|||
|
Statutory reserves |
3,996 |
2,351 |
3,996 |
|||
|
Foreign currency translation reserve |
6,116 |
1,147 |
2,911 |
|||
|
Retained earnings |
13,221 |
11,015 |
16,196 |
|||
|
Equity attributable to equity holders of the parent |
46,258 |
37,438 |
46,028 |
|||
|
Minority interest |
12,500 |
6,736 |
10,058 |
|||
|
Total equity |
58,758 |
44,174 |
56,086 |
|||
|
Total liabilities and equity |
281,077 |
158,991 |
209,392 |
|||
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
||||||||||||||||||
|
Share capital |
|
Share premium |
|
Other reserves |
|
Statutory reserve |
|
Retained earnings |
|
Foreign currency translation reserve |
Total |
|
Minority interests |
|
Total equity |
|||
|
(Restated) |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|||||||||
|
Unaudited |
||||||||||||||||||
|
Balance as at 1 January 2007 (Audited) |
50 |
- |
4,259 |
2,351 |
5,105 |
433 |
12,198 |
4,358 |
16,556 |
|||||||||
|
Foreign currency translation |
- |
- |
- |
- |
- |
714 |
714 |
150 |
864 |
|||||||||
|
Net income recognised directly in equity |
- |
- |
- |
- |
- |
714 |
714 |
150 |
864 |
|||||||||
|
Net profit for the financial period as restated |
- |
- |
- |
- |
5,862 |
- |
5,862 |
2,554 |
8,416 |
|||||||||
|
Total recognised income and expense for the financial period |
- |
- |
- |
- |
5,862 |
714 |
6,576 |
2,704 |
9,280 |
|||||||||
|
Dividend paid this year |
- |
- |
- |
- |
- |
- |
- |
(278) |
(278) |
|||||||||
|
Issue of share capital |
27 |
20,154 |
- |
- |
- |
- |
20,181 |
- |
20,181 |
|||||||||
|
Share issue costs |
- |
(1,816) |
- |
- |
- |
- |
(1,816) |
- |
(1,816) |
|||||||||
|
Expenses of flotation |
- |
- |
251 |
- |
- |
- |
251 |
- |
251 |
|||||||||
|
Transfer from minority interest |
- |
- |
- |
- |
48 |
- |
48 |
(48) |
- |
|||||||||
|
Balance as at 30 June 2007 (unaudited ) |
77 |
18,338 |
4,510 |
2,351 |
11,015 |
1,147 |
37,438 |
6,736 |
44,174 |
|||||||||
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY - continued
|
|
|
|
|
|
|
|||||||||||||
|
Share capital |
|
Share premium |
|
Other reserves |
|
Statutory reserve |
|
Retained earnings |
|
Foreign currency translation reserve |
Total |
|
Minority interests |
|
Total equity |
|||
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
||||||||||
|
Unaudited |
||||||||||||||||||
|
Balance as at 1 January 2008 |
77 |
18,338 |
4,510 |
3,996 |
16,196 |
2,911 |
46,028 |
10,058 |
56,086 |
|||||||||
|
Foreign currency translation |
- |
- |
- |
- |
- |
3,205 |
3,205 |
419 |
3,624 |
|||||||||
|
Net income recognised directly in equity |
- |
- |
- |
- |
- |
3,205 |
3,205 |
419 |
3,624 |
|||||||||
|
Net loss for the financial period |
- |
- |
- |
- |
(2,975) |
- |
(2,975) |
2,023 |
(952) |
|||||||||
|
Total recognised income and expense for the financial period |
- |
- |
- |
- |
(2,975) |
- |
(2,975) |
2,023 |
(952) |
|||||||||
|
Balance as at 30 June 2008 (unaudited) |
77 |
18,338 |
4,510 |
3,996 |
13,221 |
6,116 |
46,258 |
12,500 |
58,758 |
|||||||||
Other reserves comprise the consolidation reserves and the options issued. CONSOLIDATED CASH FLOW STATEMENTS
|
Note |
Three months ended 30 Jun 2008 |
Three months ended 30 Jun 2007 |
Six months ended 30 Jun 2008 |
Six months ended 30 Jun 2007 |
||||
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|||||
|
(Restated) |
||||||||
|
Unaudited |
Unaudited |
Unaudited |
Unaudited |
|||||
|
Cash flow from operating activities |
a |
(15,916) |
14,929 |
(2,495) |
20,565 |
|||
|
Cash flow from investing activities |
||||||||
|
Purchase of property, plant and equipment |
(14,469) |
(12,730) |
(28,579) |
(19,071) |
||||
|
Purchase of intangible assets |
(14) |
(851) |
(1,153) |
(851) |
||||
|
Purchase of investment securities |
- |
(268) |
- |
(1,558) |
||||
|
Sales of financial assets held for trading |
285 |
- |
285 |
- |
||||
|
Purchase of shares in subsidiary from minorities |
- |
(15) |
- |
(15) |
||||
|
Proceeds from disposal of property, plant and equipment |
27 |
(9) |
27 |
49 |
||||
|
Dividend income |
71 |
- |
71 |
- |
||||
|
Cash flow used in investing activities |
(14,100) |
(13,873) |
(29,349) |
(21,446) |
||||
|
Cash flow from financing activities |
||||||||
|
Issuance of ordinary shares for public offering |
- |
- |
- |
20,181 |
||||
|
Share issue expenses |
- |
- |
- |
(1,816) |
||||
|
Proceeds of short-term loan |
73,247 |
29,288 |
116,858 |
56,318 |
||||
|
Repayment in short-term loan |
(32,363) |
(20,952) |
(62,376) |
(36,381) |
||||
|
Interest paid |
(3,231) |
(2,012) |
(5,983) |
(3,231) |
||||
|
Dividends paid to minorities |
- |
(278) |
- |
(278) |
||||
|
Cash flow from financing activities |
37,653 |
6,046 |
48,499 |
34,793 |
|
Net increase in cash and cash equivalents |
7,637 |
7,102 |
16,655 |
33,912 |
||||
|
Cash at beginning of period |
34,402 |
29,393 |
24,319 |
2,528 |
||||
|
Foreign currency translation differences |
904 |
345 |
1,969 |
400 |
||||
|
Cash at end of period |
42,943 |
36,840 |
42,943 |
36,840 |
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS
(a) Cash flow from operating activities
|
Three months ended 30 Jun 2008 |
Three months ended 30 Jun 2007 |
Six months ended 30 Jun 2008 |
Six months ended 30 Jun 2007 |
|||||
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|||||
|
(Restated) |
||||||||
|
Unaudited |
Unaudited |
Unaudited |
Unaudited |
|||||
|
(Loss)/profit before income tax |
(1,624) |
4,431 |
(216) |
8,417 |
||||
|
Adjustments for: |
||||||||
|
Amortisation of intangible assets |
31 |
73 |
84 |
142 |
||||
|
Allowance for doubtful trade receivables |
(86) |
(18) |
(4) |
21 |
||||
|
Allowance for non-trade receivables |
81 |
84 |
121 |
(216) |
||||
|
Depreciation of property, plant and equipment |
2,936 |
1,723 |
5,594 |
3,525 |
||||
|
Loss/(gain) on disposal of property, plant and equipment |
6 |
(27) |
6 |
4 |
||||
|
Amortisation of deferred capital grants |
(35) |
(33) |
(71) |
(65) |
||||
|
Share-based payment |
- |
- |
- |
439 |
||||
|
Gain from debt restructuring |
- |
(378) |
- |
(378) |
||||
|
Share of results of associates |
24 |
(45) |
135 |
(45) |
||||
|
Dividend income from investment securities |
(71) |
- |
(71) |
|||||
|
Finance Income |
(213) |
(151) |
(406) |
(191) |
||||
|
Finance expense |
3,231 |
2,012 |
5,983 |
3,231 |
||||
|
Operating cash flows before working capital changes |
4,280 |
7,671 |
11,155 |
14,884 |
||||
|
Working capital changes: |
||||||||
|
(Increase)/decrease in: |
||||||||
|
Inventories |
(7,534) |
639 |
(19,706) |
(2,367) |
||||
|
Trade and other receivables |
(4,063) |
5,515 |
(1,390) |
(165) |
||||
|
Amounts due from related parties |
- |
4,645 |
- |
(1,461) |
||||
|
Increase/(decrease) in: |
||||||||
|
Trade and other payables |
2,368 |
(2,897) |
7,693 |
10,278 |
||||
|
Amounts due to related parties |
(10,684) |
- |
(157) |
- |
||||
|
Cash (used for)/generated from operations |
(15,633) |
15,573 |
(2,405) |
21,169 |
||||
|
Interest received |
213 |
151 |
406 |
191 |
||||
|
Income tax paid |
(496) |
(795) |
(496) |
(795) |
||||
|
Net cash (used for)/generated from operating activities |
(15,916) |
14,929 |
(2,495) |
20,565 |
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL INFORMATION
BASIS OF PREPARATION AND ACCOUNTING POLICIES
This unaudited consolidated interim financial information has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standards and Interpretations adopted for use in the European Union (collectively "IFRSs"). The principal accounting policies used in preparing the interim results are unchanged from those disclosed in the Company's annual report for the year ended 31 December 2007. While the financial information included in this interim financial information has been prepared in accordance with the recognition and measurement criteria of IFRSs, this interim financial information does not itself contain sufficient information to comply fully with IFRSs.
The financial information for the three and six month periods ended 30 June 2008 and 30 June 2007 is unreviewed and unaudited and does not constitute the Company's statutory financial statements for those periods. The comparative financial information for the full year ended 31 December 2007 has, however, been derived from the audited financial statements for that period. The auditors' report on those accounts was unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report.
The results for the first quarter 2007 have been restated to show certain listing fees as an expense. Previously these fees had been capitalised. The adjustment reduced reported profits by $1,880,000. This adjustment was made in 2007Q2 and so no adjustment has been necessary to subsequent income statements or balance sheets.
2. TAXATION
Major components of income tax expense
The major components of income tax expense are as follows:
|
Three months ended 30 Jun 2008 |
Three months ended 30 Jun 2007 |
Six months ended 30 Jun 2008 |
Six months ended 30 Jun 2007 |
|||||
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|||||
|
Unaudited |
Unaudited |
Unaudited |
Unaudited |
|||||
|
Current income tax |
325 |
- |
765 |
- |
||||
|
Deferred income tax: |
||||||||
|
Origination and reversal of temporary differences |
1 |
(41) |
(29) |
(1) |
||||
|
Income tax recognised in income statement |
326 |
(41) |
736 |
(1) |
Relationship between tax expense and accounting profit
A reconciliation between tax expense and the accounting profit multiplied by the applicable corporate tax rate is as follows:
|
Three months ended 30 Jun 2008 |
Three months ended 30 Jun 2007 |
Six months ended 30 Jun 2008 |
Six months ended 30 Jun 2007 |
|||||
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|||||
|
(Restated) |
||||||||
|
Unaudited |
Unaudited |
Unaudited |
Unaudited |
|||||
|
Accounting (loss)/profit before income tax |
(1,624) |
4,431 |
(216) |
8,417 |
||||
|
Tax at respective companies' domestic income tax rate |
(371) |
1,186 |
(54) |
2,143 |
||||
|
Effect of partial tax exemption |
(566) |
(1,240) |
(1,006) |
(2,638) |
||||
|
Tax effect of expenses not deductible for taxation purposes |
540 |
(6) |
583 |
496 |
||||
|
Unrecognised tax loss |
760 |
- |
1,266 |
- |
||||
|
Utilisation of previously unrecognised tax loss |
(37) |
19 |
(53) |
- |
||||
|
Income tax expense recognised in income statement |
326 |
(41) |
736 |
1 |
Deferred tax assets
Deferred income tax assets relates to the following:
|
30 Jun 2008 |
30 Jun 2007 |
31 Dec 2007 |
||||
|
US$'000 |
US$'000 |
US$'000 |
||||
|
Unaudited |
Unaudited |
Audited |
||||
|
Provision for doubtful debts |
704 |
1,065 |
632 |
|||
|
Allowance for long-term investment |
30 |
22 |
29 |
|||
|
Pre-trading expenses |
- |
13 |
- |
|||
|
734 |
1,100 |
661 |
Unrecognised tax losses
As at 30 June 2008, the Group has tax losses of approximately $5,761,000 (30 June 2007: $1,593,000; 31 December 2007: $1,425,000) that are available to offset against future taxable profits of the companies in which the losses arose and for which no deferred tax asset is recognised due to uncertainty of its recoverability. The use of these tax losses is subject to the agreement of the tax authorities and compliance with certain provisions of the tax legislation of China.
3. SEGMENTAL ANALYSIS
(a) Business segments
The following table presents information about the Company's revenues and results by business segment for the three and six month periods ended 30 June 2008 and 2007, respectively.
|
Three months ended 30 Jun 2008 |
Three months ended 30 Jun 2007 |
Six months ended 30 Jun 2008 |
Six months ended 30 Jun 2007 |
|||||
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|||||
|
(Restated) |
||||||||
|
Unaudited |
Unaudited |
Unaudited |
Unaudited |
|||||
|
Sales to external customers |
||||||||
|
Petrochemical |
150,055 |
78,796 |
266,840 |
134,873 |
||||
|
Speciality chemical |
25,765 |
18,762 |
50,684 |
36,555 |
||||
|
175,820 |
97,558 |
317,524 |
171,428 |
|||||
|
(Loss)/profit for the period |
||||||||
|
Petrochemical |
(4,128) |
2,337 |
(6,235) |
6,229 |
||||
|
Speciality chemical |
2,952 |
2,231 |
6,618 |
4,385 |
||||
|
Unallocated expenses |
(448) |
(137) |
(599) |
(2,197) |
||||
|
(Loss)/profit from operation before income tax |
(1,624) |
4,431 |
(216) |
8,417 |
||||
|
Income tax benefit (expense) |
(326) |
41 |
(736) |
(1) |
||||
|
(Loss)/profit for the period |
(1,950) |
4,472 |
(952) |
8,416 |
||||
|
30 Jun 2008 |
30 Jun 2007 |
31 Dec 2007 |
||||||
|
US$'000 |
US$'000 |
US$'000 |
||||||
|
Unaudited |
Unaudited |
Audited |
||||||
|
Segment assets |
||||||||
|
Petrochemical |
222,772 |
110,122 |
163,205 |
|||||
|
Investment in associate |
187 |
171 |
179 |
|||||
|
222,959 |
110,293 |
163,384 |
||||||
|
Speciality chemical |
107,798 |
62,758 |
81,368 |
|||||
|
Unallocated assets |
706 |
8,951 |
1,206 |
|||||
|
Elimination |
(50,386) |
(23,011) |
(36,566) |
|||||
|
281,077 |
158,991 |
209,392 |
||||||
|
Segment liabilities |
||||||||
|
Petrochemical |
182,271 |
83,905 |
133,981 |
|||||
|
Speciality chemical |
86,606 |
50,501 |
52,322 |
|||||
|
Unallocated liabilities |
3,828 |
3,422 |
3,569 |
|||||
|
Elimination |
(50,386) |
(23,011) |
(36,566) |
|||||
|
222,319 |
114,817 |
153,306 |
|
Three months ended 30 Jun 2008 |
Three months ended 30 Jun 2007 |
Six months ended 30 Jun 2008 |
Six months ended 30 Jun 2007 |
|||||
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|||||
|
Unaudited |
Unaudited |
Unaudited |
Unaudited |
|||||
|
Other segment information |
||||||||
|
Capital expenditure on property, plant and equipment and intangible assets |
||||||||
|
Petrochemical |
3,555 |
17,209 |
3,687 |
18,070 |
||||
|
Speciality chemical |
20,247 |
260 |
21,807 |
1,852 |
||||
|
23,802 |
17,469 |
25,494 |
19,922 |
|||||
|
Depreciation and amortisation |
||||||||
|
Petrochemical |
1,571 |
584 |
3,223 |
1,217 |
||||
|
Speciality chemical |
1,396 |
1,212 |
2,455 |
2,450 |
||||
|
2,967 |
1,796 |
5,678 |
3,667 |
(b) Geographical segments
The following table provides an analysis of the Company's sales by geographical market.
|
Three months ended 30 Jun 2008 |
Three months ended 30 Jun 2007 |
Six months ended 30 Jun 2008 |
Six months ended 30 Jun 2007 |
|||||
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|||||
|
Unaudited |
Unaudited |
Unaudited |
Unaudited |
|||||
|
Sales to external customers |
||||||||
|
People's Republic of China |
170,724 |
95,040 |
310,653 |
166,077 |
||||
|
Exports |
5,096 |
2,518 |
6,871 |
5,351 |
||||
|
175,820 |
97,558 |
317,524 |
171,428 |
4. (LOSS) EARNING PER SHARE
Earnings for the purpose of basic and diluted earnings per share are the net (loss)/profit for the three and six months attributable to equity holders of the parent of $(2,857,000) and $(2,975,000) (2007: $3,274,000 and $5,862,000), respectively.
The weighted average number of ordinary shares used in the calculation of earnings per share has been derived as follows:
|
Three months ended 30 Jun 2008 |
Three months ended 30 Jun 2007 |
Six months ended 30 Jun 2008 |
Six months ended 30 Jun 2007 |
|||||
|
Unaudited |
Unaudited |
Unaudited |
Unaudited |
|||||
|
Weighted average number of ordinary shares-basic |
38,353,571 |
38,353,571 |
38,353,571 |
35,228,946 |
||||
|
Dilutive effect of share options |
160,622 |
360,213 |
160,622 |
360,213 |
||||
|
Weighted average number of ordinary shares-diluted |
38,514,193 |
38,713,784 |
38,514,193 |
35,589,159 |
A total of 767,072 share options have not been included in the calculation of diluted earnings per share because the Group has a net loss this period and they are anti-dilutive. The existence of these share options could dilute the earnings per share in the future.
5. CONTINGENCIES
As at 30 June 2008, as a warrantor, the Group has guaranteed the bank loans of third parties to an aggregate amount of $49,952,000 (30 June 2007: $39,561,000; 31 December 2007: $33,580,000). As the financial statements of the warrantees indicate that the debtors are able to pay their debts as they mature, the Company's risk of bearing significant warranty liabilities is considered low.
6. SUBSEQUENT EVENTS
On 23 July 2008, the Company temporarily shut down its oil refinery facilities for a major overhaul in response to rising oil prices and the fact that, in the absence of further price adjustment notices for the refined oil products in China, the margins of the petrochemical side of the business had reduced to a level at which operations were not profitable.
On 4 September 2008, the Company has resumed the oil refinery operations as a result of the drop in the crude oil price and entry into a new contract with Sinopec Shandong Petroleum Branch, a subsidiary of one of the largest Chinese state-owned oil companies.
Related Shares:
Haike Chemical Group