Haike Chemical Group Regulatory News (HAIK)

17 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  

	Attributable to equity holders of the parent
	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 

	Attributable to equity holders of the parent
	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. 

ENDIR XQLFFVKBEBBL