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) petrochemical, speciality 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 2013.

The final results announced on 20 May 2013 noted that the Group performance has been impacted by lower utilisation rates and unfavourable feedstock prices in the refinery division and sluggish demand in the chemical business. In the first six months of 2013, these factors continued to have significant negative effects on the business, resulting in losses widening to approximately CNY327 million (H1 2012: CNY212.8 million) and further increases in bank borrowings. The banks continue to be supportive of the Group.

In the refinery business, the new pricing mechanism which has relaxed pricing controls over refined products in the domestic market has been implemented and we observed that most of the price adjustments were made on time. However, since the aim of the new pricing mechanism is to improve the transparency and predictability of the retail price of refined products and reduce the misalignment between the feedstock price and the retail price, the mechanism itself does not guarantee a positive average industry margin.

The performance of chemical products in H1 was mixed. Most products recorded an increase in sales volume as a result of more aggressive marketing efforts, but falling prices as a result of sluggish domestic demand have led to falling margins. Biochemicals delivered a comparable sales turnover but a decrease in profit as a result of a reduction in margins.

The difficult operating environment has impacted gross margins at Group level which fell further to approximately 0.3% in H1 2013 from 1.2% in H1 2012. Selling, general and administration expenses increased significantly due increased marketing spend. Balance sheet and cash flow positions have deteriorated as a result of increased losses. During the first half of this year, the Company's short-term debt increased by approximately CNY575 million to CNY6.6 billion as a result of an increase in bank borrowings. Negative operating cashflow before working capital changes was CNY102.1 million (2012: CNY28.3 million) and working capital has tightened.

The Board of HaiKe is disappointed by the performance of the business. The Company is considering its options given the difficult operating environment and will update shareholders when appropriate.

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