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Sinochem HK Announced 2006 Interim Results.

HONG KONG -- Financial highlights

--Turnover of HK$ 10.306 billion, an increase of 7.08 %

--Net profit of HK$465 million, up 19.4%

--Basic earnings per share: 8.01 HK cents, an increase of 11%

Sinochem Hong Kong Holdings Limited ("Sinochem HK" or "the Company", together with its subsidiaries, collectively "the Group"; HKEx stock code: 0297) announced its interim results today for the six months ended June 30, 2006 ('the Period under Review" or "the Period").

During the Period under Review, turnover was HK$10.306 billion, up 7.08% compared to the first half of 2005. Net profit amounted to HK$465 million, up 19.4% over the last year. Basic earnings per share were 8.01 HK cents, an increase of 11% over the corresponding period in 2005.

Turnover increased 7%. Sales of potash accounted for 39% of total sales while nitrogen based and compound fertilizers accounted for 25% and 19%, respectively. Sales of phosphorous and other products accounted for 14% and 3%, respectively. Sales amount of potash decreased 14 percentage points over the corresponding period while nitrogen based fertilizers increased 10 percentage points.

Gross profit margin and net profit margin were 8.14% and 4.52% respectively and have been stable as seen over the past couple of years. Net profit growth maintained its momentum with a 19.4% increase. Net profit growth was more significant than growth in turnover. It was mainly due to the increasing operation scale of the Group generating economies of scale and the decrease in administrative expenses and finance costs.

Selling and distribution expenses increased to HK$226 million from HK$197 million for the corresponding period in 2005, an increase of 14.61% mainly attributable to the 10.06% increase in sales volume which generated proportionally higher transportation, loading and discharging expenses.

Administrative expense was HK$72 million, a decrease of 35.38% from HK$ 112 million for the corresponding period of 2005.

Financing cost decreased to HK$50 million from HK$ 56 million for the corresponding period in 2005, a decrease of 10.16%, mainly due to the decrease in the utilization of funds resulting from lower inventory and improved fund management.

The Group's total expenditure decreased to HK$349 million from HK$365 million for the corresponding period in 2005, down 4.48%. The ratio of expenditure to turnover decreased to 3.39% from 3.79%.

In the first half of 2006, the prolonged potash contract negotiations with international suppliers had caused significant affects on the Group's performance. In end 2005, China Chamber of Commerce for Metals, Minerals & Chemicals Importers & Exporters started negotiations with Belarusian Potash Corporation regarding the pricing of sea-borne potash shipments to China for the year of 2006. No conclusion was reached until June 21, 2006, 8-month period. As a result, the parties agreed an increment of US$ 25 for per ton of potash trading. During that time, sea-borne potash import to China stalled and the sales of imported potash of the Group dropped. During the period, the sales of imported potash dropped 790,000 tons, a decrease of 32.8% which had an impact on the performance.

"Despite these difficult market conditions, we were able to deliver record profits and turnover thanks to the strong support of our Board and proactively responding to the market opportunities and challenges," said Mr. Du Ke Ping, CEO of the Company. "By vigorously carrying out our strategy of "focusing on distribution and integrating production, supply and sales for synergic development, the Group achieved substantial progress in upstream resource acquisitions, domestic fertilizer operations, distribution outlets expansion, and the strengthening of strategic alliances with international and domestic suppliers. We were also able to take advantage of the Group's market leadership, its extensive distribution network, strong brand image and effective management. As a result, we delivered continuous growth and the highest 6 month profits and turnover in the Company's history."

Sales:

For the six months ended 30 June 2006, the Group sold 6.15 million tons, an increase of 10.6% year on year, further consolidating its market position as the largest fertilizer distributor in China. Among this, sales of imported fertilizers were 2.46 million tons, a drop of 22.5% and accounted for 40% of total sales. The drop was mainly due to the impact of the prolonged potash contract negotiations with international suppliers. Sales of domestically produced fertilizers reached 3.27 million tons, making up 53.17% of total sales and representing an increase of 61.58%. In the first half of 2006 the Group executed its well planned development strategy and strategically emphasized the development of its domestic fertilizer business. By initiating a series of actions the scale of the domestic fertilizer business expanded rapidly, and operating capability was continuously improved. This has laid a good foundation for realizing the three-year strategic goal of shifting from "potash being No.1" to "co-development of versified fertilizer products."

Production:

The Group increased production capacity at existing facilities. By 30 June 2006, the Group had shareholder equity in seven fertilizer production enterprises, with a total operating capacity of 3.03 million tons. This was 0.3 million tons more than that of the end of 2005, for an increase of 11%.

In addition, the Group also made significant progress in technological R&D. The "purifying technique for wet-method thin phos-acid" jointly developed by Sinochem Fuling Chemical Co., Ltd and Sichuan University successfully passed the appraisal test of the Ministry of Education. This new technique helps to reduce energy consumption and substantially improve the overall utilization efficiency of rock phosphate. Sinochem Kailin built a closed circulation phosphate-chemical plant through technological innovation, at which waste gas is used for power generation and phosphogypsum can be re-used to protect the environment and increase profitability.

Procurement:

In addition to expanding supply channels for its own production, the Group also seeks to develop multiple sourcing channels in the global marketplace for stable, long-term supply of quality fertilizers. In 2006 the Group enhanced its strategic alliances with nine major international fertilizer suppliers by establishing exclusive product distribution contracts for the China market. In sourcing domestically produced fertilizers, combined with the advantages in network, brands and capital sources, the Group established a core supplier system through such measures as supply chain management and strategic investments in large-scale producers through the capital markets. For the six months ended 30 June 2006, procurement of domestically produced fertilizers was 3.65 million tons, comprising 56% of total procurement, significantly higher than the figure of 40% for the same period of last year. By diversifying supply channels, the Group is able to provide customers with a product mix of nitrogen, phosphate, potash and compound fertilizers, reflecting needs of individual customers in different regions.

Outlook:

In the course of building a new socialist countryside, the Government and society has shown great enthusiasm for investments in the agricultural sector, rural areas and farmers. As the largest fertilizers consumption country in the world, China has maintained an average growth rate of 5% since 2000. China will open its fertilizer distribution market by the end of 2006, according to its commitments to the WTO. Meanwhile the Chinese Government will fully deregulate market prices and offer subsidies directly to farmers. China government's beneficial agriculture policies, as well as the ever-increasing demands on fertilizers as well as the favorable industry development will create a favorable external environment for the Company. Leveraging its own advantages, the Group will further enhance its leading market position and competitiveness.

In the second half of 2006, following the conclusion of potash contract negotiations, the management will seize opportunities to further consolidate the Group's leading position in China's potash fertilizer market, while growing the domestic fertilizer business, especially nitrogen fertilizers. In addition, the Group will take the advantage of integrated production and sales of phosphate and compound fertilizers to build market competitiveness in phosphate and compound fertilizer products.

Through strategic investments in production enterprises, capital use models focus on high liquidity, the Group plans to secure long-term, stable resource supplies and increase operating stability. The Group will make further efforts to expand its distribution network based on featuring five major functions of product sales, channel maintenance, brand promotion, agrichemical services, and intellectual property protection.

Mr. Liu De Shu, Chairman of the Company, said: "Looking ahead, the management team will carefully analyze both the global and domestic economic situation and industrial policy environment. We intend to make rolling revision of the Group's Three-year Development Plan in order to ensure that Group strategy reflects market reality. The Group will continue to give top priority to shareholder value, and improve internal control systems as required by the listing rules in order to promote sustained, stable and rapid growth, and bring increasingly higher returns to shareholders."

About Sinochem Hong Kong Holdings Limited

Sinochem Hong Kong Holdings Limited, a listed company of the Stock Exchange of Hong Kong ("Sinochem HK" or the "Company", together with its subsidiaries, collectively the "Group"; HKEx: 0297), is principally engaged in the fertilizer business in the PRC and overseas. The Group is the largest importer and distributor of fertilizer products in the PRC, and the flagship fertilizer company of Sinochem Corporation, which was established in 1950. Sinochem Corporation is one of the largest state-owned enterprises in terms of revenue, and a Fortune Global 500 Company., with global operations in the oil refining, chemicals and fertilizer industries.

Notice: Sinochem Hong Kong Holdings will announce the details of its financial and business review for the 6 months ended June 30, 2006 in major newspapers, including Hong Kong Economic Times and South China Morning Post, and at www.sinofert.com.hk, on September 6, 2006 (Wednesday). Information will also be available on corporate website at www.sinofert.com.hk and the website of the Stock Exchange of Hong Kong at www.hkex.com.hk.
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Date:Sep 6, 2006
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