Haike Chemical Group Regulatory News (HAIK)

HaiKe Chemical Group Ltd

Trading Update

HaiKe Chemical Group Limited ("HaiKe" or the "Company" or the "Group"), the AIM quoted (AIM: HAIK) specialty chemical business based in Shandong Province, China, today provides an update on trading and the restructuring completed in June 2014 ahead of its Final Results for the twelve-month period ended 31 December 2014.

The Group is expected to report a profit for its continuing operations for the period. For the period ended 31 December 2014, total turnover was marginally below the FY 2013 figure of RMB 981.5 million, reflecting the Group's strategy of adjusting its product mix towards higher-end products which has resulted in a minor reduction in volumes sold. Average selling prices and margins have improved as a result and EBITDA is expected to be broadly in line with last year (2013: RMB 54.1 million), despite some one-off expenses in relation to the restructuring which completed in June 2014. Selling expenses increased by 12% year-on-year ("y-o-y") due to more aggressive sales and marketing activities in sluggish market conditions. General and administrative expenses and interest costs decreased by 39% and 44% respectively y-o-y.

High-Tech Spring, the manufacturing arm of the Company which produces and sells specialty chemicals products, has improved its profitability in H2 compared to H1 in 2014. The Company's strategy of focusing on the more profitable, higher-end products has increased and stabilised margins. HaiKe Trading, a Hong Kong based company set up in 2014 which trades feedstock on behalf of the Group, has made good progress by developing different trading opportunities as well as sourcing alternative financing at a lower cost outside Mainland China. These actions, together with the Group's cost saving initiatives, have delivered a profitable performance from the Group's continuing operations for the twelve-month period ended 2014.

Total shareholders' equity turned positive following the disposal of the loss-making assets. Trade debtors' and trade creditors' balance grew by 2.5X and 2.1X respectively y-o-y. Short-term borrowings rose by 80% compared to one year ago, which was necessary to finance the working capital shortfall and the increase in trading activities of the recently established HaiKe Trading. The Company expects its short-term borrowings to reduce over the course of the year.

The 2014 consolidated income statement and cash flow statement will include the operational results of the discontinued businesses (including the loss-making refinery division) from January to May 2014, which overall incurred an unaudited loss of RMB 373.8 million. The Board expects that the continuing operations will reflect the real status of the specialty chemical business from 2015 onwards.

Mr Xiaohong Yang, Executive Chairman, said:

"2014 was a transitional year for HaiKe. We completed a major restructuring by stripping out the Group's loss-making assets and a large proportion of our financial liabilities which has provided us with a strong foundation from which to focus on specialty chemicals. I am pleased to report steady progress has been made in our recovery plan and the continuing business has delivered an improved performance, despite the drop in oil price and sluggish market conditions, and our strategy to produce higher-end products is beginning to yield positive results. Going forward, we will continue to focus on cost control and operational efficiencies and look to investment opportunities in higher-end specialty chemicals which we believe will put us in a stronger position to deliver greater margins."

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