Haike Chemical Group Regulatory News (HAIK)

12 Nov 2008 13:39



HaiKe Chemical Group Ltd.

Correction - Trading update

The following announcement replaces the announcement released on 11 November 2008 at 8.44am under RNS Number 8854H. It includes a correction in the first paragraph of the section entitled 'Overview'. The 26pc decrease in overall sales relates to the decrease in overall sales during the third quarter of 2008 compared to the second quarter of 2008, not the third quarter of 2007, as previously stated. All other details remain unchanged.

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 provide an update on current trading and highlights from the Company's unaudited trading results for the third quarter of 2008 which ended on 30 September.

Overview

Overall group revenues increased by 74% for the first nine months of 2008 compared with the same period in 2007. However, there was a 26% decrease in overall sales during the third quarter of 2008 compared to the second quarter of 2008, primarily due to the temporary shut down of the group's oil refinery facilities in July and August 2008.

As announced on 8 September 2008, following the award of a major new contract with Sinopec Shandong Petroleum Branch, a subsidiary of one of the largest oil companies in China, the Company reopened the oil refinery facilities on 4 September 2008 and these have continued to operate.

Throughout the current year, the cost of sales of the petrochemical business has been affected by the volatile raw material costs which have had and continue to have an adverse impact on our overall profitability. This has been exacerbated in recent weeks by the rapid decrease in the price of crude oil, and consequently in the selling prices of refined products, at a time when the Company has committed to taking a large volume of crude oil at a price which is now higher than the prevailing market price.

As a result of this, the Company now expects that group revenues will be at the lower end of expectations, and the Company will report an overall net loss for the year ended 31 December 2008. 

Despite the difficulties in the petrochemical business, demand for speciality chemicals and biochemicals has remained robust and is expected to remain so for at least the remainder of the year.

Petrochemical 

The petrochemical business has experienced challenging market conditions during the course of the current financial year, with crude oil prices initially rising across the globe and subsequently declining rapidly. The rise in oil prices had an adverse impact on the overall petrochemical margin and profit because the Chinese Government cap on selling prices did not rise in step with the increase in oil prices. 

More recently crude prices have dropped from a peak of US$147 per barrel in July.  As stock was purchased while prices continued to fall the reduction in prices did not fully or immediately feed through to the costs of production.  Selling prices however, did decline rapidly as the market price for crude continued to drop. Consequently, the Company now expects to incur higher net losses in the petrochemical business in the current financial year than previously expected which is likely to lead to the Group as a whole experiencing a net loss for the year.

Market conditions for the petrochemical business remain exceptionally difficult as a result of the global financial crisis and the Directors continue to monitor the situation carefully. 

Speciality chemical

The speciality chemical business continued to perform strongly and has grown significantly during the first nine months of 2008. During this period, the revenues in the speciality chemical business have increased by 17% and the gross margin has increased by one percentage point to 20%, when compared with the same period in 2007.

We have completed the expansion of the dimethyl carbonate and caustic soda production facilities during the third quarter of 2008 and they are now fully operational. 

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. 

Biochemical 

The biochemical business also showed strong growth during the first nine months of 2008. In respect of this period, revenues increased by 44% and the gross margin has improved from 19% to 22%, making the biochemical business a stronger contributor to group profits, when compared with the same period in 2007.

Outlook 

HaiKe's speciality chemical and biochemical businesses continue to trade in line with expectations and further growth is expected for the remainder of the year. The outlook for 2008 and beyond for the speciality and biochemical businesses remains very positive, boosted by the capacity expansion projects we have completed and the robust demand for our products. HaiKe will continue to shift the weighting of its operations to these areas where the management foresees significant opportunity to deliver further growth and to enhance shareholder value.

With respect to the petrochemical business, the Company will continue to explore different sales opportunities and to closely manage the purchase of crude oil and the production process to ensure that the impact of the volatility of the crude oil and the petrochemical product selling prices will be minimised. 

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