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HaiKe Chemical Group Ltd. Half-year Report

27/09/2016 7:36am

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HaiKe Chemical Group Ltd.

27 September 2016

HAIKE CHEMICAL GROUP LIMITED

INTERIM CONSOLIDATED RESULTS FOR THE SIX MONTHSED 30 JUNE 2016

(UNAUDITED)

HaiKe Chemical Group Ltd. ("HaiKe" or "the Company" or "the Group"), the AIM quoted (AIM: HAIK) specialty chemical company based in Shandong Province, China, today announces its unaudited consolidated results for the six months ended 30 June 2016.

In order to better position the business in a fiercely competitive market, the Board in Q3 of 2015 took the decision to focus on higher margin speciality chemical products, product innovation and cost controls. These actions began to have a positive impact in Q4 2015 and have enabled the Group to deliver a satisfactory, profitable performance for the first half of 2016.

Financial highlights

   --       Total revenues decreased by 9.0% to CNY350.7million (H1 2015: CNY385.4 million) 
   --       Gross profit increased by 47.6% to CNY61.2million (H1 2015: profit of CNY41.5 million) 

-- Profit for the period from continuing operations was CNY11.4 million (H1 2015: profit of CNY95,000)

-- Cash and cash equivalents balance as at 30 June 2016 was CNY73.5 million (31 December 2015: CNY CNY35.4 million)

-- Total borrowings as at 30 June 2016 were CNY80.0 million (31 December 2015: CNY80.0 million)

Operational highlights

   --       Move to focus on higher-end specialty chemical products has enhanced business performance 

-- Significant rise in gross margins enhanced by increased sales of higher margin product mix and decline in prices of raw materials

-- Stringent cost controls and a reduction in the average balance of loans outstanding reduced interest expenses by 68.0% year-on-year to CNY1.9 million for H1 2016 (H1 2015: CNY5.9 million)

Outlook

   --       Trading conditions expected to remain challenging 

-- Optimization of product mix and new product development continues to be a core focus to drive business performance

   --       Focus on domestic and international marketing campaigns to grow revenue 

-- Trading in July has continued to be profitable, however an expected loss was recorded in August due to a planned shutdown of its DiMethyl Carbonate ("DMC") facility for routine annual maintenance

Mr. Xiaohong Yang, Executive Chairman, said:

"I am pleased to report the satisfactory performance for the Group over the first half of 2016, especially given the challenging trading environment. The improvement in profitability was driven by the decisive actions taken by the Board last year to better position the business in the current environment and improve performance. We are pleased these are starting to bear fruit and we will continue our efforts in this area. The Group has entered the second half of the year in a strong position and while we believe market conditions will remain difficult, we are well-positioned and look to the future with confidence."

For further information, please contact:

 
 HaiKe Chemical          Yolanda Zhang 
  Group                   yolanda.zhang@haikegroup.com    +86 158 0546 2695 
                          Richard Johnson / 
 Stockdale Securities      Antonio Bossi                  +44 (0) 20 7601 6100 
                         Shan Shan Willenbrock 
                          / 
                          Emma Crawshaw 
 Cardew Group             HaiKe@cardewgroup.com           +44 (0) 20 7930 0777 
 

CHAIRMAN'S STATEMENT

   1.   Review of operating results 

In H1 2016, the Group sold 68,000 tons of specialty chemicals, representing a volume gain of 10.2% when compared to the same period in the previous year. Sales of high-end specialty chemicals accounted for 3.4% of total sales in H1 2016, compared to 2.7% in H1 2015. While both overall sales volumes and the proportion of high-end speciality chemicals sold in H1 2016 increased, when compared to the prior year period, the fall in crude oil prices over the same period had a negative effect on selling prices, as detailed below. This contributed to lower average realized prices for the period.

The price of crude oil fell significantly in H1 2016, achieving an average barrel price of $41.2 over the period, 30.6% lower than in H1 2015. This decline affected Group selling prices in two ways: depressing selling prices of downstream derivative products, which affected our specialty chemical products; and, by benefitting rival manufacturers of Isopropyl alcohol, who adopt a different production process which is more sensitive to oil price fluctuations. These rival manufacturers initiated a price war during 2015, as the oil price began to fall, and this continued into the first half of 2016 in an attempt to gain market share in what had become an oversupplied market of mid to lower-end specialty chemicals, chiefly due to the slowing Chinese economy.

In order to maintain market share we continued to suppress our selling prices over the period, with the shift towards more high-end speciality chemicals to address the oversupply of the mid to lower-end speciality chemicals market.

 
                                                           Average Realized 
                          Sales Volume                           Price 
                      ('000 ton)                          (CNY/ton) 
                  6 months     6 months   Change     6 months     6 months   Change 
                     ended        ended    y-o-y        ended        ended    y-o-y 
                 30-Jun-16    30-Jun-15      (%)    30-Jun-16    30-Jun-15      (%) 
 DiMethyl 
  Carbonate             24           23    +4.4%        3,782        3,872    -2.3% 
 Propylene 
  glycol                19           17    +7.5%        6,618        8,496   -22.1% 
 Isopropyl 
  alcohol               24           19   +23.7%        4,705        5,726   -17.8% 
 Diisopropyl 
  ether                  1            2   -30.0%        9,688       11,319   -14.4% 
               -----------  -----------  -------  -----------  -----------  ------- 
 Total                  68           62   +10.2%        5,013        6,008   -16.6% 
 
   2.   Financial Analysis 

Turnover

The Group's turnover decreased by 9.0% to CNY350.7 million for the first half of 2016 (H1 2015: CNY385.4 million) as a result of a reduction in selling prices. Trading revenues from HaiKe Trading, the trading arm of the Company, decreased to CNY1.8 million in the period (H1 2015: CNY21.7 million).

Gross Profit

Gross profit was CNY61.2 million for H1 2016, up 47.6% compared with the same period in 2015 (H1 2015: CNY41.5 million). The growth in gross profit was mainly attributable to increased sales of higher margin product mix and a decline in sales cost. Sales of high-end specialty chemicals accounted for 3.4% of total sales in H1 2016, compared to 2.7% in H1 2015. The cost of sales decreased 15.8% compared to the same period in the previous year. Cost of materials accounted for 81% of total cost. The Company correctly judged price trends through analysis of the raw material market, reducing inventory when the price of raw materials was high and taking advantage of lower prices to increase stock. The price of Propylene Oxide and Propylene, the two main raw materials, deceased 24.7% and 31.6% respectively in the period under review.

Selling, General and Administrative Expenses

Selling and distribution expenses increased by 19.0% to CNY20.8 million in H1 2016 (H1 2015: CNY17.5 million) as we continued with aggressive sales and marketing efforts to counteract sluggish market conditions. General and administrative expenses increased to CNY25.2 million (H1 2015: CNY20.4 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 decreased by 68.4% year-on-year to CNY0.9 million for H1 2016 (H1 2015: CNY2.9 million) due to exchange rate gains.

Interest expenses decreased by 68.0% year-on-year to CNY1.9 million for H1 2016 (H1 2015: CNY5.9million). This was mainly due to a decrease in the average balance of loans outstanding.

Profit Before Taxation

Profit before taxation was CNY13.8 million for H1 2016 (H1 2015: CNY666,000). In order to maintain market share the Company increased its sales volume. The Company improved earnings although the average realized price decreased. Interest expenses decreased as a result of a decrease in the average balance of loans outstanding compared with the same period in 2015.

Income Tax

Income tax charge was CNY2.4 million for H1 2016, as compared to CNY571,000 for the same period in the previous year.

Profit from Continuing Operations

Profit for the half year was CNY11.4 million (H1 2015: profit of CNY95,000).

Cash and Cash Equivalents

Cash and cash equivalents increased to CNY73.5 million as at 30 June 2016 compared to CNY35.4 million as at 31 December 2015. The increase in cash and cash equivalents was due to the decline of working capital and profit improvement.

Bank Loans

Bank loans were CNY80.0 million as at 30 June 2016, unchanged from31 December 2015 (CNY 80.0 million).

Cash Flow from Continuing Operations

Cash flow from operating activities was CNY68.0 million for the six months ended 30 June 2016, compared to CNY531.9 million for the same period in 2015. In H1 2015 working capital was used to repay a net loan of CNY 520.5 million.

   3.   Outlook 

The Group recorded an unaudited profit of CNY1.4 million and loss of CNY3.0 million for July and August 2016 respectively. The expected loss incurred in August was due to a planned one-month shutdown of a production facility which manufactures DMC for routine annual maintenance, however we expect the improvement in product mix and cost saving initiatives will continue to drive profitability from September. We expect market conditions to remain 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 the Group is well positioned to continue to deliver a profitable performance in a tough operating environment, management efforts will remain focused on:

   --      improving the product mix towards higher margin speciality chemical products 
   --      continued stringent cost controls 
   --      strengthen sales efforts to speed up product inventory turnover 

-- developing and introducing new products to the domestic market to diversify our product offering

   4.   People 

On behalf of the Board, I would like to sincerely thank Mr. George Zeng for his commitment and outstanding contribution to the business over the last five years. The Board has initiated a comprehensive search for a new Chief Financial Officer, who would be expected to join the Board, and a further announcement will be made in due course.

Xiaohong Yang

Executive Chairman

Condensed consolidated statement of comprehensive income

For the six months ended 30 June 2016

 
                                         6 months     6 months ended   Year ended 
                                           ended 
                                         30-Jun-16      30-Jun-15      31-Dec-15 
                                 Note   (Unaudited)    (Unaudited)     (Audited) 
                                          CNY'000        CNY'000        CNY'000 
                                       ------------  ---------------  ----------- 
 
 Revenue                                    350,706          385,427      727,521 
 Cost of sales                            (289,521)        (343,960)    (643,092) 
                                       ------------  ---------------  ----------- 
 Gross profit                                61,185           41,467       84,429 
 Other operating 
  income                                      (387)              112          485 
 Administrative expenses                   (25,160)         (20,392)     (41,175) 
 Selling and distribution 
  expenses                                 (20,843)         (17,514)     (34,749) 
                                       ------------  ---------------  ----------- 
 Profit from operations                      14,795            3,673        8,990 
 
 Finance expenses                           (1,877)          (5,872)     (20,742) 
 Finance income                                 906            2,865       17,529 
                                       ------------  ---------------  ----------- 
 
 Profit / (loss) 
  before tax                                 13,824              666        5,777 
 
 Tax expense                      7         (2,435)            (571)      (1,709) 
 Profit/(Loss) for 
  the period                                 11,389               95        4,068 
                                       ------------  ---------------  ----------- 
 
 Other comprehensive 
  profit, net of tax 
 Items that will 
  be reclassified 
  subsequently to 
  profit or loss 
  Exchange difference 
   arising from consolidation                     -                -            - 
                                       ------------  ---------------  ----------- 
 Total comprehensive 
  profit for the period, 
  net of tax                                 11,389               95        4,068 
                                       ------------  ---------------  ----------- 
 
 Profit / (loss) 
  for the period attributable 
  to: 
  Owners of parent                           11,372               94        4,059 
  Non-controlling 
   interest                                      17                1            9 
                                       ------------  ---------------  ----------- 
                                             11,389               95        4,068 
                                       ------------  ---------------  ----------- 
 
 Total comprehensive 
  profit for the period 
  attributable to:                           11,372               94        4,059 
  Owners of parent                               17                1            9 
                                       ------------  ---------------  ----------- 
  Non-controlling 
   interests                                 11,389               95        4,068 
                                       ------------  ---------------  ----------- 
 
 Earnings per share 
  for profit attributable 
  to the 
 ordinary equity 
  holders of the parent 
  during the period 
 
 
 Basic                                     CNY0.297         CNY0.002     CNY0.106 
 Diluted                                   CNY0.297         CNY0.002     CNY0.106 
                                       ------------  ---------------  ----------- 
 

Condensed consolidated Statement of Financial Position

As at 30 June 2016

 
                                             6 months                           6 months               Year ended 
                                               ended                              ended 
                                            30-Jun-16                          30-Jun-15                31-Dec-15 
                         Notes             (Unaudited)                        (Unaudited)               (Audited) 
                                             CNY'000                            CNY'000                  CNY'000 
                                ---------------------------------  ---------------------------------  ------------ 
 ASSETS 
 Non-current assets 
 Property, plant 
  and equipment                                           148,632                            136,533       135,164 
 Intangible assets                                         11,465                                           12,111 
 Investments in 
 equity-accounted 
 associates 
 Deferred tax assets       7 
                                                          160,097                            136,533       147,275 
                                ---------------------------------  ---------------------------------  ------------ 
 Current assets 
 Inventories                                               33,296                             41,296        28,595 
 Trade and other 
  receivables                                             105,941                            174,598       101,307 
 Amounts due from 
  related parties                                         580,931                            364,803       402,535 
 Income tax receivable                                                                                           - 
 Restricted cash                                            7,612                             24,471        13,259 
 Cash and cash 
  equivalents                                              73,541                             43,628        35,405 
                                --------------------------------- 
                                                          801,321                            648,796       581,101 
                                ---------------------------------  ---------------------------------  ------------ 
 Total assets                                             961,418                            785,329       728.376 
                                ---------------------------------  ---------------------------------  ------------ 
 
 LIABILITIES 
 Current liabilities 
 Short-term loan                                           80,000                            182,362        80,000 
 Trade and other 
  payables                                                180,202                            343,058        89,182 
 Income tax payable                                         6,749                                            4,668 
                                ---------------------------------  ---------------------------------  ------------ 
 Amounts due to 
  related parties                                         568,654                            158,778       440,029 
                                ---------------------------------  --------------------------------- 
                                                          835,605                            684,198       613,879 
                                ---------------------------------  ---------------------------------  ------------ 
 Non-current 
 liabilities 
 Long-term loan 
 Deferred income                                            2,192                              1,200         2,250 
                                ---------------------------------  --------------------------------- 
                                                            2,192                              1,200         2,250 
                                ---------------------------------  ---------------------------------  ------------ 
 Total liabilities                                        837,797                            685,398       616,129 
                                ---------------------------------  ---------------------------------  ------------ 
 
 CAPITAL AND RESERVES 
 Share capital                                                598                                598           598 
 Share premium                                          1,564,667                          1,564,686     1,564,667 
 Other reserves                                             1,818                              1,818         1,818 
 Foreign currency 
  translation reserve                                       (587)                              (587)         (587) 
 Statutory reserves                                        32,268                             31,575        32,268 
 Accumulated losses                                   (1,475,228)                        (1,498,208)   (1,486,585) 
                                ---------------------------------  ---------------------------------  ------------ 
 Equity attributable 
  to equity holders 
  of the parent                                           123,536                             99,882       112,179 
 Non-controlling 
  interest                                                     85                                 49            68 
                                ---------------------------------  --------------------------------- 
 Total equity                                             123,621                             99,931       112,247 
                                ---------------------------------  ---------------------------------  ------------ 
 Total liabilities 
  and equity                                              961,418                            785,329       728,376 
                                ---------------------------------  ---------------------------------  ------------ 
 

Condensed consolidated Statement of Changes in Equity

For the 6 months ended 30 June 2016

 
                                                                          Attributable to equity holders of the parent 
                            For the 6 months                                                                         Foreign 
                            ended 30 June 2016                              Share        Share         Other         currency      Statutory        Accumulated                            Non-controlling       Total 
                                Unaudited                                  capital       premium      reserves     translation      reserves           losses              Total               interest          equity 
                                                                           CNY'000       CNY'000      CNY'000        reserve        CNY'000           CNY'000              CNY'000             CNY'000           CNY'000 
                                                                         ---------  --------------  ----------  ---------------  -----------  ---------------------  ----------------  ---------------------  ---------- 
 Balance as at 1 January 
  2016                                                                         598       1,564,667       1,818            (587)       32,268            (1,486,585)           112,179                     68     112,247 
 Transfer to statutory 
  reserves 
 Previous year adjustment                                                                                                                                      (15)              (15)                               (15) 
 Transactions with 
  owners                                                                                         -           -                -            -                   (15)              (15)                      -        (15) 
 Profit for the year                                                                                                                                         11,372            11,372                     17      11,389 
 Other comprehensive 
  profit                                                                         -               -           -                             -                                                               - 
  - Foreign currency 
   translation                                                                   -               -                                         - 
 Total comprehensive 
  profit for the year                                                            -               -           -                -            -                 11,372            11,372                     17      11,389 
 Balance as at 30 June 
  2016                                                                         598       1,564,667       1,818            (587)       32,268            (1,475,228)           123,536                     85     123,621 
                                                                         ---------  --------------  ----------  ---------------  -----------  ---------------------  ----------------  ---------------------  ---------- 
 
 
 
 
 
 
                                                                            Attributable to equity holders of the parent 
                            For the 6 months                                                                         Foreign 
                            ended 30 June 2015                              Share        Share         Other         currency      Statutory        Accumulated                            Non-controlling       Total 
                                Unaudited                                  capital       premium      reserves     translation      reserves           losses              Total               interest          equity 
                                                                           CNY'000       CNY'000      CNY'000        reserve        CNY'000           CNY'000              CNY'000             CNY'000           CNY'000 
                                                                         ---------  --------------  ----------  ---------------  -----------  ---------------------  ----------------  ---------------------  ---------- 
 Balance as at 1 January 
  2015                                                                         598       1,564,686       1,818            (587)       31,575            (1,498,313)            99,777                     48      99,825 
 Transfer to statutory 
  reserves                                                                                                                                                                          - 
 Transactions with 
  owners                                                                         -               -           -                -                                                     -                      -           - 
 Profit for the year                                                                                                                                             94                94                      1          95 
 Other comprehensive 
  profit                                                                                                                                                         11                11                      -          11 
  - Foreign currency 
   translation                                                                   -               -           -                -            -                                        -                                  - 
 Total comprehensive 
  profit for the year                                                            -               -           -                -            -                    105               105                      1         106 
 Balance as at 30 June 
  2015                                                                         598       1,564,686       1,818            (587)       31,575            (1,498,208)            99,882                     49      99,931 
                                                                         ---------  --------------  ----------  ---------------  -----------  ---------------------  ----------------  ---------------------  ---------- 
 
 
 
                           For the year ended                              Attributable to equity holders of 
                             31 December 2015                                           the parent 
                                 Audited 
                                                                                                                     Foreign 
                                                                            Share        Share         Other         currency      Statutory        Accumulated                            Non-controlling       Total 
                                                                           capital       premium      reserves     translation      reserves           losses              Total               interest          equity 
                                                                           CNY'000       CNY'000      CNY'000        reserve        CNY'000           CNY'000              CNY'000             CNY'000           CNY'000 
                                                                         ---------  --------------  ----------  ---------------  -----------  ---------------------  ----------------  ---------------------  ---------- 
 Balance as at 1 January 
  2015                                                                         598       1,564,686       1,818            (587)       31,575            (1,498,313)            99,777                     48      99,825 
 Transfer to statutory 
  reserves                                                                       -            (19)           -                           693                  (674)                 -                     11          11 
 Previous year adjustment                                                                                                                                     8,343             8,343                              8,354 
 Transactions with 
  owners                                                                         -            (19)           -                -          693                  7,669             8,343                     11       8,354 
 Profit for the year                                                                                                                                          4,059             4,059                      9       4,068 
 Other comprehensive 
  profit                                                                         -               -           -                             -                                        -                                  0 
  - Foreign currency 
   translation                                                                   -               -                            -            -                                        -                               (64) 
 Total comprehensive 
  profit for the year                                                            -               -           -                -            -                  4,059             4,059                      9       4,068 
 
                                                               Balance 
                                                               as at 31 
                                                               December 
                                                               2015            598       1,564,667       1,818            (587)       32,268            (1,486,585)           112,179                     68     112,247 
                                                                         ---------  --------------  ----------  ---------------  -----------  ---------------------  ----------------  ---------------------  ---------- 
 
 

Condensed consolidated Statement of Cash Flow

For the 6 months ended 30 June 2016

 
                                                 6 months      6 months       Year 
                                                   ended         ended        ended 
                                               ------------  ------------  ---------- 
                                                 30-Jun-16     30-Jun-15    31-Dec-15 
                                               ------------  ------------  ---------- 
                                                (Unaudited)   (Unaudited)   (Audited) 
                                               ------------  ------------  ---------- 
                                                  CNY'000       CNY'000      CNY'000 
                                               ------------  ------------  ---------- 
 
 Profit /(loss) before tax                           13,824           666       5,777 
                                               ------------  ------------  ---------- 
 Adjustments for:                                         -             - 
                                               ------------  ------------  ---------- 
  Amortisation of intangible 
   assets                                               646           201         802 
                                               ------------  ------------  ---------- 
  Provisions for doubtful 
   debts                                                136                       136 
                                               ------------  ------------  ---------- 
  Depreciation of property, 
   plant and equipment                               12,860        12,104      24,413 
                                               ------------  ------------  ---------- 
  Loss on disposal of property, 
   plant and equipment                                (472)          (28)        (51) 
                                               ------------  ------------  ---------- 
  Amortisation of deferred 
   capital grants                                       250                     1,000 
                                               ------------  ------------  ---------- 
  Interest income                                     (114)         (284)    (12,790) 
                                               ------------  ------------  ---------- 
  Finance expense                                       953         5,906      20,742 
                                               ------------  ------------  ---------- 
 Operating cash flows before 
  working capital changes                            28,083        18,565      40,029 
                                               ------------  ------------  ---------- 
 
 Working capital changes: 
                                               ------------  ------------  ---------- 
  (Increase)/decrease in: 
                                               ------------  ------------  ---------- 
     Inventories                                    (4,701)      (10,098)       2,603 
                                               ------------  ------------  ---------- 
    Trade and other receivables                     (4,634)      (50,945)      22,346 
                                               ------------  ------------  ---------- 
    Movement in related parties' 
     balances                                      (49,803)       577,234     809,285 
                                               ------------  ------------  ---------- 
    Restricted cash                                   5,647       (7,851)       3,361 
                                               ------------  ------------  ---------- 
  Increase/(decrease) in: 
                                               ------------  ------------  ---------- 
    Trade and other payables                         91,020         5,025   (238,707) 
                                               ------------  ------------  ---------- 
 Cash generated from operations                      65,612       531,930     638,917 
                                               ------------  ------------  ---------- 
  Income tax paid                                     2,388             -         283 
                                               ------------  ------------  ---------- 
 Net cash generated from 
  operating activities                               68,000       531,930     639,200 
                                               ------------  ------------  ---------- 
 
                                                 6 months      6 months       Year 
                                                   ended         ended        ended 
                                               ------------  ------------  ---------- 
                                                 30-Jun-16     30-Jun-15    31-Dec-15 
                                               ------------  ------------  ---------- 
                                                (Unaudited)   (Unaudited)   (Audited) 
                                               ------------  ------------  ---------- 
                                       Notes        CNY'000       CNY'000     CNY'000 
                                               ------------  ------------  ---------- 
 
 Cash flow generated from 
  operating activities                               68,000       531,930     639,200 
                                               ------------  ------------  ---------- 
 Cash flow from investing 
  activities 
                                               ------------  ------------  ---------- 
  Purchase of property, 
   plant and equipment                             (29,085)       (1,971)    (12,818) 
                                               ------------  ------------  ---------- 
  Purchase of intangible 
   assets                                                                           - 
                                               ------------  ------------  ---------- 
  Interest received                                     114           284      12,790 
                                               ------------  ------------  ---------- 
  Government grant received                              60           414         459 
                                               ------------  ------------  ---------- 
  Purchase of shares in 
   subsidiary from minorities                                                       - 
                                               ------------  ------------  ---------- 
 Cash flow (used in) / generated 
  from investing activities                        (28,911)       (1,273)         431 
                                               ------------  ------------  ---------- 
 
 Cash flow from financing 
  activities 
                                               ------------  ------------  ---------- 
  Capital injection from 
   minority shareholders in 
   subsidiaires 
                                               ------------  ------------  ---------- 
  Proceeds from bank borrowings                      80,000        40,000      80,000 
                                               ------------  ------------  ---------- 
  Repayment of bank borrowings                     (80,000)     (560,526)   (702,888) 
                                               ------------  ------------  ---------- 
  Loans(from)/to related 
   parties 
                                               ------------  ------------  ---------- 
  Interest paid                                       (953)       (5,906)    (20,742) 
                                               ------------  ------------  ---------- 
  Dividends paid to non-controlling 
   interest                                               -             - 
                                               ------------  ------------  ---------- 
 Cash flow (used in) /generated 
  from financing activities                           (953)     (526,432)   (643,630) 
                                               ------------  ------------  ---------- 
 
 Net (decrease) /increase 
  in cash and cash equivalents                       38,136         4,225     (3,999) 
                                               ------------  ------------  ---------- 
 Cash at beginning of period                         35,405        39,404      39,404 
                                               ------------  ------------  ---------- 
 Foreign currency translation 
  differences 
                                               ------------  ------------  ---------- 
 Cash at end of year                                 73,541        43,628      35,405 
                                               ------------  ------------  ---------- 
 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL INFORMATION

FOR SIX MONTHSED 30 JUNE 2016

(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 Company's ultimate parent company is HiTech Chemical Investment Ltd, a company incorporated in the British Virgin Islands.

The principal activities of the Company are manufacturing of specialty chemical products.

The principal place of business of the Company is Shengli Industrial Park, Dongying City, Shandong Province, China.

The interim consolidated financial information of the Company for the six months ended 30 June 2016 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 2016.

Financial information for the six months ended 30 June 2016 and 30 June 2015 is unaudited and does not constitute the Company's financial statements for these periods.

Comparative financial information for the full year ended 31 December 2015 has been derived from the audited financial statements for that period. The Board of Directors approved the interim statements on 19 September 2015.

   3.   Related Party Transactions 

The Company undertook a restructuring in 2014 which resulted in the divestment of the Group's refinery and biochemical assets to leave a smaller, more focused specialty chemicals business. The disposed companies and HaiKe are members of the group controlled by HiTech Chemical Investment Ltd. Therefore, in accordance with IAS24, the disposed companies and Haike are related parties.

On 20 July 2016 the Company announced an unaudited revenue figure of CNY 526.9 million for H1 2016, which did not incorporate a net-off of transactions between Haike and two companies, Shandong Hi-Tech Chemical Group Ltd. and Haiyuan Trading Pte. Ltd., which were disposed companies in the restructuring. Revenue recognition is applied in line with IAS 18 - transactions between Haike and related parties, where Haike acts in a capacity as an agent and gross inflows do not result in increases in equity are not recognised as revenue. The Company made a corrective announcement on 6 September 2016.

The immediate and ultimate parent company is HiTech Chemical Investment Ltd., a company incorporated in British Virgin Islands. Related parties include companies that fall under the common control provisions of IAS24. Details of transactions with related parties are as follows:

Sales, purchase of goods and loans

In H1 2016, the Group made the following sales, purchase and funds transfer with related parties:

 
                                                   Sales   Purchase   Loan from   Loan to   Loan repayment       Total 
----------------------------------------------  --------  ---------  ----------  --------  ---------------  ---------- 
 30-06-2016                                      CNY'000    CNY'000     CNY'000   CNY'000          CNY'000     CNY'000 
----------------------------------------------  --------  ---------  ----------  --------  ---------------  ---------- 
 Shareholder                                           -          -           -         8                -           8 
 Bright Century Global Holdings Limited                -          -     189,704         -                -     189,704 
 Haike Holding Hongkong Limited                        -          -          10    87,250                -      87,260 
 Haike International Holding Limited                   -          -           -        10                -          10 
 Haiyuan Trading Pte.Ltd                               -          -           -   173,513                -     173,513 
 HiTech Chemical Investment Ltd.                       -          -           -       396                -         396 
 Jumbo Light Hong Kong Limited                         -          -           -   211,660                -     211,660 
 Dongying Hi-tech Qifen Co., Ltd                       -     71,576           -   101,068                -     172,644 
 Shandong Hi-tech Ruilin Chemical Co., Ltd           284      8,821      59,069         -                -      68,174 
 Dongying He-bang Chemical Co., Ltd                    -        587      40,392         -                -      40,979 
 Dongying Tiandong Biochemical Co., Ltd                -          -       7,344     3,209                -      10,553 
 Shandong Hi-tech Chemical Group Ltd                   -      3,810     266,500     3,477                -     273,787 
 Shanghai Yuanchuan Chemical Ltd                       -          -       5,552         -                -       5,552 
 Dongying Hi-tech Transport Co.,Ltd.                   -        554          83         -                -         637 
 Shandong Hi-Tech Shengli Electrochemical Co., 
  Ltd                                                  -          -           -       340                -         340 
----------------------------------------------  --------  ---------  ----------  --------  ---------------  ---------- 
                                                     284     85,348     568,654   580,931                -   1,235,217 
----------------------------------------------  --------  ---------  ----------  --------  ---------------  ---------- 
 

The sales of goods to the related parties are based on the market price.

   4.   Subsequent Event 

No subsequent event occurred after the reporting period.

   5.     Capital commitments 

Capital expenditure contracted for property, plant and equipment in continuing operations as at 30 June 2016, but not recognized in the financial statements, was CNY10.2 million (31 December 2015: CNY3.5 million).

   6.   Acquisitions and disposals of items of property, plant and equipment 

Acquisitions of items of property, plant and equipment were CNY29.1 million (H1 2015: CNY2.0 million). Loss on disposals of items of property, plant and equipment was CNY472,000 (H1 2015: CNY28,000).

   7.   Taxation 

Major components of income tax expense/(credit)

The major components of income tax expense are as follows:

 
                               6 months      6 months     Year ended 
                                 ended         ended 
                               30-Jun-16     30-Jun-15    31-Dec-15 
                              (Unaudited)   (Unaudited)   (Audited) 
                                CNY'000       CNY'000      CNY'000 
                             ------------  ------------  ----------- 
 
 Current income tax                 2,435           571        1,709 
 Deferred tax: 
 Originating and reversal               -             -            - 
  of temporary differences 
                             ------------  ------------ 
 Income tax recognised 
  in income statement               2,435           571        1,709 
                             ------------  ------------  ----------- 
 

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:

 
                                    6 months             6 months     Year ended 
                                      ended                ended 
                                   30-Jun-16             30-Jun-15    31-Dec-15 
                                  (Unaudited)           (Unaudited)   (Audited) 
                                    CNY'000               CNY'000      CNY'000 
                          ---------------------------  ------------  ----------- 
 
 Accounting profit 
  before income tax                            13,824           666        5,777 
 Tax at respective 
  companies' domestic 
  income tax rate                               3,456           167        1,444 
 Nondeductible expenses                       (1,021)           405          265 
 Income tax expense 
  recognized in income 
  statement                                     2,435           572        1,709 
                          ---------------------------  ------------  ----------- 
 
   8.    Profit 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 2016 attributable to equity holders of the parent of CNY11,372,000 (for the six months ended 30 June 2015: profit of CNY94,000; for the year ended 31 December 2015: profit of CNY4,059,000).

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

 
 
 
   profit per share from 
   continuing operations 
 
                                   6 months      6 months   Year ended 
                                      ended         ended 
                                  30-Jun-16     30-Jun-15    31-Dec-15 
                                (Unaudited)   (Unaudited)    (Audited) 
                                    CNY'000       CNY'000      CNY'000 
                               ------------  ------------  ----------- 
 profit per share from 
  continuing operations 
 attributable to equity 
  holders of the parent              11,372            94        4,059 
                               ------------  ------------  ----------- 
 
 
 Number of ordinary shares         6 months      6 months   Year ended 
                                      ended         ended 
                                  30-Jun-16     30-Jun-15    31-Dec-15 
                                (Unaudited)   (Unaudited)    (Audited) 
                                       '000          '000         '000 
                               ------------  ------------  ----------- 
 Weighted average number 
  of ordinary shares - basic 
  & diluted 
                                     38,354        38,354       38,354 
                               ------------  ------------  ----------- 
 

This information is provided by RNS

The company news service from the London Stock Exchange

END

IR BRGDCRGDBGLL

(END) Dow Jones Newswires

September 27, 2016 02:36 ET (06:36 GMT)

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