HaiKe Chemical Group Limited : Trading Update

HaiKe Chemical Group Ltd

Trading Update

HaiKe Chemical Group Limited ("HaiKe" or the "Company"), the AIM quoted (AIM: HAIK) petrochemical, specialty chemical and biochemical business based in China, today provides an update on trading ahead of its final results for the year ended 31 December 2012.

The following represents the key points in the Company's trading performance:

·     The market for refined oil products changed significantly in 2012.  A sluggish economy and weakened demand presented difficult challenges for domestic refineries across China.

·     While trading began positively in H2, a deterioration in market conditions significantly impacted trading in last quarter, particularly in December, and as a result the Company will report a loss for the year.  

·     Other factors which affected performance included tighter margins, lower utilisation rates in the refinery division, and negative contribution from Hebang in its first year in operation.  

·     To mitigate the effects of the broader market changes, the Company has enhanced its sales and marketing efforts in refined oil products, which has helped HaiKe achieve record high group turnover. The growth in trading of oil products has also been a major contributing factor to the increase in turnover. 

·      Speciality, salt and biochemical divisions all recorded volume gains but prices have fallen in 2012. Group companies in these divisions remained profitable with the exception of Hebang. Hebang's lossis attributed to a much lower than expected utilisation rate, a consequence of the dramatic change in the market environment for its first product, Trichloroethylene, which suffered both price drop and cost rise. The second phase of construction at Hebang is ongoing and is expected to complete in March of this year.  Upon completion, Hebang will produce two new products, caustic soda and epichlorohydrin, which are used to produce aluminium and epoxy resin respectively.

·     HaiKe's gross margin halved in 2012 when compared with that in 2011. In addition, selling, general and administrative expenses surged in the year due to enhanced marketing efforts.  Financial costs grew significantly as a result of increased working capital needs on the back of higher turnover.

·     The Company anticipates the refined product pricing mechanism to ease in the near term. The current 22-day reference period is expected to be shortened and the Chinese Government will intervene less in relation to price adjustments. The change in the pricing mechanism will be favorable to HaiKe as the refined product price will react more quickly to the feedstock price, thereby reducing the operating risk of the refineries.

·      In line with its strategy, the Company continues to make good progress in developing niche speciality chemical products to generate higher margins. The Company has tightened costs by centralizing a number of business units, improving technological innovations and funding working capital from overseas financial markets. 

Mr. Xiaohong Yang, Executive Chairman said:

"2012 was a difficult year for the refinery industry in China. Despite the anticipated easing of the pricing mechanism, we expect the operating environment and domestic economy to remain challenging for refineries in the current year. The speciality/salt and biochemicals divisions, our core growth businesses, delivered a profitable performance and looking forward, the Board remains focused on the Company's long term growth by continuing to develop and expand its higher margin speciality chemicals which we believe will improve the profitability of the group."

Further enquiries