Trading Statement

HaiKe Chemical Group Ltd

Trading Update

HaiKe Chemical Group Limited ("HaiKe" or the "Company"), the AIM quoted (AIM: HAIK) petrochemical, specialty chemical and biochemical business based in China, today provides an update on trading ahead of its interim results for the six months period ended 30 June 2012.

The following represent the key points in the Company's trading performance:

·; The Company recorded slight turnover growth year-on-year in 1H, mainly driven by a price increase in the refinery division. Nevertheless, diesel sales volume fell by 15% year-on-year as a consequence of the weakening economy. The refinery division made a gross profit but a net loss in 1H 2012.

·; Both specialty and salt chemicals recorded volume increases in 1H, however prices have fallen as a result of a sluggish domestic economy. Both Dongying Hi-Tech Spring Chemical Co., Ltd. ("Hi-Tech Spring") and Shandong Hi-Tech Shengli Electrochemical ("Hi-Tech Shengli") remained profitable. Biochemicals recorded a strong increase in sales and generated its largest profit yet.

·; Dongying Hebang Chemical Co., Ltd. ("Hebang"), which produces specialty and salt chemical products, commenced commercial operation in late March of this year. The sale of its first product, Trichloroethylene ("TCE"), was disappointing in 2Q due a reduction in market demand. Hebang is currently breaking even at the gross margin level. New products, including caustic soda, come on stream later this year and are expected to improve Hebang's performance.

·; The gross margin at group level fell from 4.6% in 1H 2011 to 1.1% in 1H 2012. Selling, general and administration expenses increased due to more aggressive marketing efforts and a one-off internal departmental restructuring. As a result, the margins are negative at the operating level compared with a positive 2.8% margin in 1H 2011. 

·; The Company acquired the minority interest in Shandong Hi-Tech Ruilin Chemical Co., Ltd. ("Hi-Tech Ruilin") in 1H 2012. Management expects the buyout to benefit the Company's overall profitability in the medium to long run by improving internal synergies.

·; The Company continues to improve internal efficiency and technological innovation. During the period, several key departments were centralised and managerial staff of several key subsidiaries were rotated in order to enhance control and improve internal efficiency. There were breakthroughs on technology innovation in 1H: Hi-Tech Ruilin's "Dry Gas Recovery" technique, which substitutes the fuel coal outsourced with self-generated dry gas, was rewarded a one-off government subsidy of RMB7.6 million by the National Development and Reform Commission. This new technique is expected to generate cost savings of RMB20 million per annum for the Company.

Mr. Xiaohong Yang, Executive Chairman said:

"The weakening domestic economy and lower demand presents us with a challenging operating environment and to this end, our main priorities will be to generate further cost savings and stabilise our earnings by streamlining our operations and improving internal synergies. We have made good progress in our strategic move to speciality chemicals and will continue to focus on growing this higher margin business which will be key to improving our overall profitability."

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