Interim Results

28th May 2009 07:00



Embargoed Release: 07:00hrs Thursday 28 May 2009

Sorbic International Plc

("Sorbic International" or "the Group" or "the Company")

Interim Results

For the six months ended 31 March 2009

Sorbic International, (ticker: SORB.L), the food preservative group, is pleased to announce its interim results for the six months period ended 31 March 2009.

Summary

Commenting, John McLean, Chairman of Sorbic International, said:

"Whilst the results for the first six months of the year were encouraging, Sorbic has seen reduced levels of order visibility and de-stocking over the last few months and expects this to continue for the next quarter. Accordingly, the Board expects the third quarter to be weaker, but is also aware that a key indicator, the Purchasing Manager Index, points towards the worst of the recession having already been felt in the PRC. Despite the challenging economic climate, Sorbic International continues to occupy a very strong position to grow its business"

Enquiries: www.sobicinternational.com

Sorbic International plc, John McLean, Chairman  Tel: +44 (0)7768 031 454

FinnCap, Geoff Nash/Ed Frisby Tel: +44 (0) 20 7600 1658

Hansard Group, John Bick  Tel: +44 (0) 7872 061007

Interim Statement

Operational Overview

Strong demand filled the order books of the Group and pushed production to its highest level for the first three months of the year. Despite the global recessionary environment, the Group maintained favourable margins although these came under pressure due to destocking and increased levels of competition in the second quarter of the period.

During the period under review, revenue increased by 26.4% to £8.52m (six months ended 31 March 2008: £6.74m) while pre-tax profit increased to £2.59m. The growth in turnover reported is in part attributable to the appreciation of RMB against sterling (average rate for six months ended 31 March 2009 of £0.09780 compared with the average rate in the six months ended 31 March 2008 of £0.07183) However, on a currency neutral basis, the Company's net operating profit in the period was 16% ahead of 2008.

The global economic crisis has not spared China, the world's fastest growing economy. It has brought many operational challenges to the industry as well as to the Group which has seen many competitors discount heavily in an attempt to maintain sales. Sales prices have started to recover, although margins and sales were affected in the latter part of the period.  Sorbic has a strong balance sheet and a reputation for quality of product and sees the current competitive pressures as an opportunity to strengthen the Group's competitive position.

 

A new production facility is currently being built on newly acquired factory site of 14,700sqm. The Company has engaged the service of Shanghai SemHQ Project management Co., Ltd to manage the project and are pleased with the progress to date. When this plant is fully operational at the end of 2009, production capacity will reach 15,000 tonnes per annum or double the existing production capacity of the Group's operations.

The Company has invested £3.71m (circa RMB36.2m), mainly from internal resources, in the expansion project which has a total estimated cost of £9.72m (circa RMB95m). The Board believes that in the current economic environment, the cost of such a project would be a significant barrier of entry to other players and completion of the production facility as planned will strengthen the position of the Group as a leading company in the industry. 

Outlook

In response to the global economic recession, the PRC government has announced expansionary fiscal measures to stimulate the domestic economy. With its abundant reserves, the government put together a RMB4 trillion fiscal stimulus package to boost domestic investment and demand. The effects of the stimulus are reflected in recent market indicators such as Purchasing Manager Index (PMI) that shows China entering an expansionary mode.

Whilst the food additive industry in PRC remains highly competitive in a challenging business environment, Sorbic International is well placed compared to its competitors, which is due to the Group's long-standing emphasis on the quality of its product. This unique market situation presents opportunities for the Group to increase the scale of its production so as to entrench our competitive position and expand our market share in the PRC for sustainable long term growth.

Despite the challenging economic climate, Sorbic International continues to occupy a very strong position to grow its business and the Board is delighted with the performance in the first half. Going forward, Sorbic will continue to monitor the business environment closely, while at the same time explore various expansion options and opportunities to attain long term sustainable profit and growth.

Whilst the results for the first six months of the year were encouraging, Sorbic has seen reduced levels of order visibility and de-stocking over the last few months and expects this to continue for the next quarter. Accordingly, the Board expects the third quarter to be weaker, but is also aware that a key indicator, the Purchasing Market Index, points towards the worst of the recession having already been felt in the PRC. Based on the Group's current trading, Sorbic anticipates that profitability in the second half will be significantly weaker than that in the first six months of the year.

Sorbic is currently in the process of building its new production facilities which will add 7,500 tonnes of Sorbates to the Group's existing production capacity. To take advantage of the new production facility and the premium product quality, the Group has intensified its branding activities. This process includes price revision, re-designing product packaging and a revised advertising and marketing strategy. 

 John McLean, Non-executive Chairman

27 May 2009

Unaudited consolidated income statement 

For the 6 month period ended 31 March 2009

		Notes	Six months ended 31 March  2009	Six months ended 31 March  2008	Nine months ended 30 September 2008
			Unaudited	Unaudited	Audited
			£	£	£
Revenue			8,522,328	6,740,900	11,661,255
Cost of sales			(5,044,005)	(4,339,482)	(7,288,363)
Gross profit			3,478,323	2,401,418	4,372,892
Distribution and selling expenses			(121,759)	(93,087)	(131,172)
Administrative expenses			(694,173)	(206,947)	(849,667)
Operating profit			2,662,391	2,101,384	3,392,053
Finance income			20,757	4,238	57,312
Finance costs			(97,051)	(159,171)	(184,370)
Profit before taxation			2,586,097	1,946,451	3,264,995
Income tax expense		4	(375,311)	(276,286)	(465,414)
Profit attributable to equity holders of the Company			2,210,786	1,670,165	2,799,581
Earnings per share (£):		5
Basic			0.10	0.10	0.17
Diluted			0.09	0.10	0.17

Unaudited consolidated balance sheet 

As at 31 March 2009

				Notes	As at 31 March 2009	As at 31 March 2008	As at 30 September 2008
					Unaudited	Unaudited	Audited
					£	£	£
Assets
Non-current assets
Property, plant and equipment					4,737,415	3,641,729	4,143,381
Land use rights					2,522,822	1,352,015	1,541,067
Construction in progress					3,707,368	-	-
Prepayments					-	109,679	477,013
					10,967,605	5,103,423	6,161,461
Current assets
Inventories					501,749	574,930	391,358
Trade receivables					1,150,154	1,319,512	1,774,080
Prepayments, deposits and other receivables					181,094	3,141	94,898
Amount due from related company				6	301,625	-	2,216,383
Cash and cash equivalents					5,170,829	1,851,402	6,501,950
					7,305,451	3,748,985	10,978,669
Total assets					18,273,056	8,852,408	17,140,130
Equity and liabilities
Current liabilities
Trade payables					90,537	259,544	520,769
Accruals and other payables					644,333	170,888	513,903
Amount due to shareholders					-	768,296	-
Amount due to directors					870,000	-	3,163,418
Borrowings					2,446,189	1,863,911	2,096,952
Current tax liabilities					132,880	280,620	315,436
Amount due to related company- Hermes Cap				6	124,952	-	72,444
Amount due to related company- Albany Cap					-	-	222,271
					4,308,891	3,343,259	6,905,193
Total liabilities					4,308,891	3,343,259	6,905,193
Capital and reserves
Share capital					2,003,310	-	1,385,310
Share premium					21,111,196	-	14,274,196
Capital reserve					2,834,643	1,989,271	2,290,956
Surplus reserve					505,312	354,613	408,393
Retained earnings					6,421,045	2,405,335	4,210,259
Share based payment reserve					30,000	-	30,000
Reverse acquisition reserve					(20,911,925)	730,973	(20,911,925)
Shares to be issued- Escrow scheme					-	-	7,725,000
Foreign currency translation reserve					1,970,584	28,957	822,748
Total equity					13,964,165	5,509,149	10,234,937
Total equity and liabilities					18,273,056	8,852,408	17,140,130

Unaudited consolidated cash flow statement

For the 6 month period ended 31 March 2008

		Six months ended  31 March 2009	Six months ended  31 March 2008	Nine months ended 30 September 2008
		Unaudited	Unaudited	Audited
		£	£	£
Cash flows from operating activities
Profit for the period		2,586,097	1,946,451	3,264,995
Adjustments for:
Amortisation of prepaid land lease payments		22,336	8,462	21,360
Depreciation		242,642	176,048	270,043
Interest income		(20,757)	(4,234)	(57,312)
Interest expense		97,051	157,309	184,370
Operating profit before working capital changes:		2,927,369	2,284,036	3,683,456
Changes in working capital
(Increase)/ decrease in inventories		(17,514)	19,486	314,436
Decrease/ (increase) in trade receivables		747,865	(187,940)	(658,738)
Decrease/ (increase) in other receivables		70,221	1,100,047	(70,691)
(Decrease) in amount due to shareholders		-	-	(3,473,464)
(Decrease)/ increase/ in trade payables		(472,189)	(25,447)	130,573
(Decrease)/ Increase/ in other payables		(405,883)	92,500	590,639
Decrease/ (increase) in amount due from related company - Hermes Capital		1,914,758	-	(2,216,383)
Increase in amount due to related company - Hermes Capital		52,506	-	72,444
(Decrease)/ increase in amount due to related company- Albany		(222,271)	-	222,271
(Decrease)/increase in amount due to directors		(3,163,418)	-	3,163,418
(Increase) in amount due from directors		(61,195)	-	-
Cash generated from operating activities		1,370,249	3,282,682	1,757,961
Interest received		20,757	4,234	(184,370)
Income tax paid		(279,850)	(276,285)	(393,971)
Net cash generated from operating activities		1,111,156	3,010,631	1,179,620
Cash flows from investing activities
Acquisition of subsidiaries		-	-	1,973,913
Acquisition of property, plant and equipment		(3,621,224)	(2,482)	(63,281)
Acquisition of land use rights		-	(1,084,249)	-
Interest received		-	-	57,312
Additions to prepaid lease payment		-	-	(438,548)
Net cash used in investing activities		(3,621,224)	(1,086,731)	1,529,396
Cash flows from financing activities
Share issue costs		-	-	(195,618)
Shareholders loan raised		870,000	-	-
Loan from Financial Institution raised		1,985,609	-	-
Repayment of loan from Financial Institution		(2,134,018)	(165,202)	-
Interest paid		(97,051)	(157,309)	-
Dividend		-	(2,887,681)	(2,734,443)
Proceeds from issue of ordinary shares		-	-	3,490,124
Net cash from financing activities		624,540	(3,210,192)	560,063
Net increase in cash and cash equivalents		(1,885,528)	(1,286,292)	3,269,079
Cash and cash equivalents at the beginning of the period		6,501,950	3,137,694	3,685,380
Effect of foreign exchange rate changes		554,407	-	(452,509)
Cash and cash equivalents at the end of the period		5,170,829	1,851,402	6,501,950

Unaudited group statement of changes in shareholders' equity

For the 6 month period ended 31 March 2009

	Share capital	Share premium	Capital reserve	Surplus reserve	Retained earning	Share based payment reserve	Foreign currency translation reserve	Reverse acquisition reserve	Shares to be issued- Escrow scheme	Total GBP
	£	£	£	£	£	£	£	£	£	£
Balance at 1 October 2007	-	-	1,989,271	354,613	735,170	-	28,957	730,973	-	3,838,984
Foreign currency translation reserve
Issue of ordinary shares
Share option granted
Reverse acquisition of Honour Field
Share issue costs
Profit for the period					1,670,165					1,670,165
Balance at 31 March 2008	-	-	1,989,271	354,613	2,405,335	-	28,957	730,973	-	5,509,149

	Share capital	Share premium	Capital reserve	Surplus reserve	Retained earning	Share based payment reserve	Foreign currency translation reserve	Reverse acquisition reserve	Shares to be issued- Escrow scheme	Total GBP
	£	£	£	£	£	£	£	£	£	£
Balance at 1 October 2008	1,385,310	14,274,196	2,290,956	408,393	4,210,259	30,000	822,748	(20,911,925)	7,725,000	10,234,937
Foreign currency translation reserve			543,687	96,919			1,147,836			1,788,442
Issue of ordinary shares	618,000	7,107,000							(7,725,000)	-
Share issue costs		(270,000)								(270,000)
Profit for the period					2,210,786					2,210,786
Balance at 31 March 2009	2,003,310	21,111,196	2,834,643	505,312	6,421,045	30,000	1,970,584	(20,911,925)	-	13,964,165

Basis of Presentation and Summary of Significant Accounting Policies

1.	General information

The Company was established to seek to acquire a controlling interest in a company located in Europe, North America or Asia. Following the change of name from Ninety plc to Sorbic International plc and the completion of the acquisition of Honour Field International Limited and its subsidiary ("Honour Field Group") on 29 September 2008, the Group's principal activities comprise the production and sale of food preservatives, namely Sorbic Acid and Potassium Sorbate. The Group's main operations are in the People's Republic of China.

Sorbic International, a public limited company, is the Group's ultimate parent company. It is incorporated and domiciled in the United Kingdom. The address of Sorbic International's registered office is 17 Hanover Square, London W12 1HU. Sorbic International's shares are traded on the AIM market of the London Stock Exchange.

2.	Basis of preparation

The financial information for the six months ended 31 March 2008 and 31 March 2009 set out in this interim financial information is unaudited and does not constitute statutory financial statements.  The financial information for the year ended 30 September 2008 set out in this interim financial information does not comprise the Group's statutory financial statements as defined in Section 240 Companies Act 1985 but has been extracted from those financial statements.

The interim financial information for the six months ended 31 March 2009 was approved by the directors on 26 May 2009.

Copies of this interim financial information will be available on the Company's website: www.sorbicinternational.com

The interim financial information has been prepared in accordance with IAS 34 "Interim financial reporting" as adopted by the European Union. The standards have been applied consistently (except as otherwise stated).

The statutory financial statements for the year ended 30 September 2008, which have been filed at Companies House, were prepared under IFRS and IFRIC interpretations as adopted by the European Union and with those parts of the Companies Act 1985 applicable to companies preparing their financial statements under IFRS. The auditors reported on those financial statements; their Audit Report was unqualified and did not contain a statement under either Section 237 (2) or 237 (3) of the Companies Act 1985.

The interim financial information for the six months ended 31 March 2009 has been prepared on the basis of the accounting policies set out in the most recently published financial statements for the Group for the year ended 30 September 2008, which are available on the Company's website; www.sorbicinternational.com, as the Company does not anticipate the addition of new standards to the Group's results for the year ending 30 September 2009.

  

3.	Segmental reporting

The directors consider that the Group's activities represent a single class of business. The analysis of the Group's turnover, profit before tax and minority interests, assets, liabilities, additions to plant, property and equipment and depreciation by geographical origin is set out below:

	Six months ended 31 March 2009	Six months ended 31 March 2008	Nine months ended 30 September 2008
	£	£	£
Turnover
PRC	4,192,449	3,606,122	6,119,085
United States	1,845,602	1,587,706	2,729,214
Russia	1,019,552	800,305	1,262,721
Netherlands	834,298	535,125	914,743
Others	630,427	211,642	635,492
	8,522,328	6,740,900	11,661,255

	Sorbic Acid			Potassium Sorbate			Consolidated Results
	Six months ended 31 March 2009	Six months ended 31 March 2008	Nine months ended 30 September 2008	Six months ended 31 March 2009	Six months ended 31 March 2008	Nine months ended 30 September 2008	Six months ended 31 March 2009	Six months ended 31 March 2008	Nine months ended 30 September 2008
	£	£	£	£	£	£	£	£	£
Segment revenue
Sales to external customer	3,730,072	2,688,476	4,716,339	4,792,256	4,052,424	6,944,916	8,522,328	6,740,900	11,661,255
Segment results	1,552,781	913,507	1,773,320	1,925,542	1,487,911	2,599,572	3,478,323	2,401,418	4,372,892
Unallocated expenses							(815,932)	(300,034)	(980,839)
Profit from operations							2,662,391	2,101,384	3,392,053
Finance income							20,757	4,238	57,312
Finance cost							(97,051)	(159,171)	(184,370)
Profit before tax							2,586,097	1,946,451	3,264,995
Taxation							(375,311)	(276,286)	(465,414)
Profit after tax							2,210,786	1,670,165	2,799,581
Assets and Liabilities
Segment assets	573,904	475,193	566,515	449,178	336,208	472,870	1,023,082	811,401	1,039,385
Unallocated assets							17,249,974	8,041,007	16,100,745
Total assets							18,273,056	8,852,408	17,140,130
Liabilities
Segment liabilities									0
Unallocated liabilities							4,308,891	3,343,259	6,905,193
Total Liabilities							4,308,891	3,343,259	6,905,193
Other Segment Information
Additions to plant, property & equipment							3,621,224	1,086,731	63,281
Depreciation and amortisation	158,072	110,069	119,451	106,906	74,441	171,952	264,978	184,510	291,403

4.

Taxation

The taxation charge for the six months ended 31 March 2009 has been based on the estimated effective rate for the full year of 12.5% (31 March 2008 - 12.5%).

The Group's subsidiary, LVST has had the benefit of a tax holiday from 2004 in which it is entitled to be exempted from the Enterprise Income Tax ("EIT") for two years starting from the first profit making year followed by a 50% tax relief for the next three years.

5.	Earnings per share

(a) Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period:

Profit attributable to equity holders of the company: £2,210,786 (2008: £1,670,165)

Weighted average number of ordinary shares in issue: 23,144,784 (2008: 16,526,666)

Basic earnings per share: £0.10 (2008: £0.10)

(b) Diluted

Diluted earnings per share is calculated by adjusting the weighted number of ordinary shares in issue to assume conversion of all potential dilutive ordinary shares during the period. 

Profit attributable to equity holders of the Company: £2,210,786 (2008: £1,670,165)

Weighted average number of ordinary shares in issue: 23,744,784 (2008: 16,526,666)

Diluted earnings per share: £0.09 (2008: £0.07)

The dilutive effect of the options granted to Hermes Capital and Finn Cap to subscribe 400,000 shares and 200,000 shares respectively at 75 pence per share has no impact on the calculation of the earnings per share. There were no potential dilutive share arrangements in place during the six months ended 31 March 2009.

6.	Amount due from/ to related companies - Hermes Financial and Hermes Capital

The balance due from Hermes Financial of £301,625 was the remaining fund that Hermes Financial owed in relation to the reverse acquisition exercise.  

The amount due to Hermes Capital of £124,952 was related to the provision of advisory and consultancy service to Honour Field International Limited for the reverse acquisition exercise. 

In respect to the work that Hermes Capital carried out for Sorbic International in relation to the reverse acquisition exercise, no fees have yet been invoiced. An accrual of £250,000, being approximately 1.0% of Sorbic's gross market capitalisation at the time of listing was provided in addition to £73,917of expenses.

ENDIR QDLFLKEBXBBZ

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Sorbic International