22nd Dec 2008 07:00
Embargoed Release: 07:00hrs Monday 22 December 2008
Sorbic International plc
("Sorbic International" or "the Group" or "the Company", previously known as Ninety plc)
Preliminary Results
For the period ended 30 September 2008
Sorbic International, the food preservatives group, is pleased to announce preliminary results for the nine month period ended 30 September 2008.
Summary
|
Nine month period ended 30 September 2008 |
Year ended 31 December 2007 (Pro forma) |
Annualised percentage change |
|
|
£ |
£ |
||
|
Revenue |
11,661,255 |
11,653,928 |
33.4% |
|
Profit before tax |
3,264,995 |
3,079,955 |
41.3% |
|
Profit after tax |
2,799,581 |
2,565,346 |
45.5% |
|
Gross profit margin |
37.5% |
32.5% |
5.0% |
|
Net profit margin |
28.0% |
26.4% |
1.6% |
In September 2008, Ninety plc successfully completed a reverse acquisition of Honour Field International Limited and subsequent change of its name to Sorbic International plc
Commenting, John McLean, Chairman of Sorbic International plc, said:
"We are delighted with the progress that the Company has made in the current financial year to date which is in line with management expectations and look forward to the new production facility coming on stream at the end of 2009 which will provide a solid platform for the continued prosperous growth of Sorbic International."
|
Enquiries: |
|
|
Sorbic International plc, John McLean, Chairman |
Tel: +44 (0)7768 031 454 |
|
FinnCap, Geoff Nash |
Tel: +44 (0) 20 7600 1658 |
|
Hansard Group, John Bick |
Tel: +44 (0) 7872 061007 |
www.sorbicinternational.com
Chairman's Statement
Overview
On 29 September 2008, following shareholders' approval, the Company successfully completed its reverse acquisition of Honour Field International Limited ("Honour Field"), together with its subsidiary (the "Honour Field Group"), following which the Group's core business became the manufacture and distribution of food preservatives, namely Sorbic Acid and Potassium Sorbate, in Shandong province, the People's Republic of China (the "PRC"). Reflecting this change in principal activity, and the successful implementation of its investment strategy, the Company aptly renamed itself Sorbic International plc.
The Honour Field Group was acquired for a consideration of up to £20.12 million, excluding acquisition costs of £0.86 million, which equated to an historic price to earnings multiple of approximately 7.1 times. The consideration was satisfied through the issuance of 9,860,000 new ordinary shares in the Company and up to a further 10,300,000 shares to be issued conditional upon Honour Field meeting certain profit targets. The total consideration includes 6,666,666 New Ordinary Shares issued on conversion of the Albany Convertible Loan and the Hermes Convertible Loan. As a consequence, the vendors of the Honour Field Group became the majority shareholders of the Company. In accordance with the reverse acquisition accounting policy adopted by the Company (further details of which are set out in Note 8 below), the financial statements include the results of Honour Field and its subsidiary, as if it were the acquirer, for the entire nine month period ended 30 September 2008 and the results of Sorbic International, as if it were the acquired company, from 29 September 2008 to 30 September 2008.
The Group produces food preservatives namely Sorbic Acid and Potassium Sorbate under Honour Field's "Goldvan" brand names from its current 33,000 square metre factory site in Linyi City. In order for Sorbic International to be better positioned to service anticipated growth in demand for its products, it has acquired land immediately adjacent to its present site with a total area of approximately 14,700 square metres. A new manufacturing facility for the Company is currently in the course of construction and is expected to be completed and commissioned during the 4th quarter of 2009. With the new plant, production capacity will almost double to 15,000 tonnes per annum.
Sorbic International is a well established and proven business in the PRC with customers in 46 countries. It is a profitable business with the opportunity for continued commercial development and sustainable long term growth.
Global demand for Sorbic Acid and Potassium Sorbate has increased as a result of the increase in the world's population and higher demand for food. With the steady growth of the global population, increased production of food products is essential to ensure adequate food supply. This increase in food production has significantly increased the importance of, and demand for, food preservatives.
2008 Performance
|
Nine month period ended 30 September 2008 |
Year ended 31 December 2007 (Pro forma) |
Annualised percentage change |
|
|
£ |
£ |
||
|
Revenue |
11,661,255 |
11,653,928 |
33.4% |
|
Profit after tax |
2,799,581 |
2,565,346 |
45.5% |
|
Gross profit margin |
37.5% |
32.5% |
5.0% |
|
Net profit margin |
28.0% |
26.4% |
1.6% |
The consolidated results for the nine month period ended 30 September 2008 show turnover of £11.66 million (pro forma year to 31 December 2007: £11.65 million) and profit after tax of £2.80 million (pro forma year to 31 December 2007: £2.57 million). This represents annualised growth (on a pro rata basis) of approximately 33.4 per cent. in turnover and 45.5 per cent. in profit after tax respectively.
Gross margins improved from 32.5 per cent. to 37.5 per cent., while the net profit margin increased from 26.4 per cent. to 28.0 per cent.
In summary, the Group performed well achieving earnings per share of 16.9 pence (2007: 15.5 pence), representing growth (on an annualised basis) of approximately 45.4 per cent.
Strategy and Outlook
The food additive industry in the PRC is highly competitive. However, Sorbic International is well placed compared to its competitors due to its long-standing emphasis on the quality of its products. The quality and process certifications gained have given Sorbic International competitive advantages over its competitors. Hence it is able to price its products at a slight premium to the average market price.
The Group's existing manufacturing facility is currently running at near 100 per cent. of its designed production capacity. Accordingly, the Group's primary strategy is to increase the production capacity and raise the brand positioning of its products. To address the Group's capacity constraints, the Board intends to introduce two new state-of-the-art production lines with a total production capacity of 7,500 tonnes per annum, thereby doubling the current capacity. The production lines are expected to be operational in the last quarter of 2009.
To take full advantage of the new factory and the Group's range of premium products, the Group has intensified its branding activities. This process includes price revisions, re-designing product packaging and a revised advertising and marketing strategy. The Group also intends to strengthen its sales and marketing team as it begins to more aggressively target expansion.
While construction and commissioning of our new production lines will continue into 2009, we expect to maintain current operating level during the period as we implement our strategy to improve the brand positioning of our products and further develop our range of premium items. Our aim is to maximise revenue and profit generation from our existing production facilities and prepare the market for the higher volume of our premium products when the new production facilities become fully operational.
Corporate Developments
Following completion of the reverse takeover on 29 September 2008, the board of directors was reconstituted. In addition to the appointment of an international set of executive directors associated with Honour Field comprising Wang Yan Ting (President), Ray Ang (CEO) and Susan Chong (CFO), we also invited Nicholas Smith to join the Board as a non-executive director. Nicholas has extensive experience in Asia and in particular in both the commercial and political sectors in China. Michael Gretton and Thomas Vaughan stepped down from the board and I take this opportunity to thank each of them for their support and dedication in assisting Ninety in successfully implementing its investment strategy.
To complement and support the new Board, we have also introduced a new team of professional advisers. In particular, with the appointment of our auditors, Mazars LLP, the Board is committed to maintaining a high standard of corporate governance, financial controls and reporting systems.
Outlook
We are delighted with the progress that the Group has made in the current financial year to date which is in line with management expectations and look forward to the new production facility coming on stream at the end of 2009 which will provide a solid platform for the continued prosperous growth of Sorbic International.
John McLean
Chairman
22 December 2008
|
|
|
Nine month period ended 30 September 2008
|
|
Year ended 31 December 2007
(pro forma)
|
|
|
Notes
|
£
|
|
£
|
|
Continuing operations
|
|
11,661,255
|
|
11,653,928
|
|
Turnover
|
|
(7,288,363)
|
|
(7,861,680)
|
|
|
|
|
|
|
|
Gross profit
|
|
4,372,892
|
|
3,792,248
|
|
Distribution and selling expenses
|
|
(131,172)
|
|
(218,798)
|
|
Administrative expenses
|
|
(849,667)
|
|
(296,250)
|
|
|
|
|
|
|
|
Profit from operations
|
|
3,392,053
|
|
3,277,200
|
|
Finance income
|
|
57,312
|
|
25,630
|
|
Finance costs
|
|
(184,370)
|
|
(222,875)
|
|
|
|
|
|
|
|
Profit before tax
|
|
3,264,995
|
|
3,079,955
|
|
Income tax expense
|
3
|
(465,414)
|
|
(514,609)
|
|
|
|
|
|
|
|
Profit for the period attributable to
|
|
|
|
|
|
equity holders of the Company
|
|
2,799,581
|
|
2,565,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning per share
|
|
|
|
|
|
- Basic
|
4
|
0.17
|
|
0.16
|
|
|
|
|
|
|
|
- Diluted
|
4
|
0.17
|
|
0.16
|
Consolidated Balance Sheet
|
|
Notes
|
As at
30 September
2008
£
|
|
As at
31 December
2007
(pro forma)
£
|
|
Assets
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
Property, plant and equipment
|
|
4,143,381
|
|
3,693,185
|
|
Land use rights
|
|
1,541,067
|
|
1,307,173
|
|
Other receivables
|
|
477,013
|
|
-
|
|
|
|
|
|
|
|
|
|
6,161,461
|
|
5,000,358
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
Inventories
|
|
391,358
|
|
705,794
|
|
Trade receivables
|
|
1,774,080
|
|
1,115,342
|
|
Prepayments, deposits and other receivables
|
|
94,898
|
|
3,708
|
|
Amount due from related company – Hermes Financial
|
|
2,216,383
|
|
-
|
|
Cash and cash equivalents
|
|
6,501,950
|
|
3,685,380
|
|
|
|
|
|
|
|
|
|
10,978,669
|
|
5,510,224
|
|
|
|
|
|
|
|
Total assets
|
|
17,140,130
|
|
10,510,582
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
Trade payables
|
|
520,769
|
|
390,196
|
|
Advanced payments
|
|
63,540
|
|
43,041
|
|
Accruals and other payables
|
|
450,363
|
|
106,908
|
|
Amount due to shareholders
|
|
-
|
|
3,473,464
|
|
Amount due to directors
|
|
3,163,418
|
|
|
|
Borrowings
|
|
2,096,952
|
|
1,913,793
|
|
Current tax liabilities
|
|
315,436
|
|
186,960
|
|
Amount due to related company – Hermes Capital
|
|
72,444
|
|
-
|
|
Amount due to related company – Albany Capital
|
|
222,271
|
|
-
|
|
|
|
|
|
|
|
|
|
6,905,193
|
|
6,114,362
|
|
Equity
|
|
|
|
|
|
Capital and reserves attributable to equity
|
|
|
|
|
|
holders of the company
|
|
|
|
|
|
Share capital
|
5
|
1,385,310
|
|
-
|
|
Share premium
|
|
14,274,196
|
|
-
|
|
Capital reserves
|
6
|
2,290,956
|
|
1,913,469
|
|
Surplus reserves
|
6
|
408,393
|
|
341,100
|
|
Retained earnings
|
|
4,210,259
|
|
1,282,411
|
|
Share based payment reserve
|
6
|
30,000
|
|
-
|
|
Reserve acquisition reserve
|
6
|
(20,911,925)
|
|
730,973
|
|
Shares to be issued – Escrow scheme
|
|
7,725,000
|
|
-
|
|
Foreign currency translation reserve
|
|
822,748
|
|
128,267
|
|
|
|
|
|
|
|
Total equity
|
|
10,234,937
|
|
4,396,220
|
|
|
|
|
|
|
|
Total equity and liabilities
|
|
17,140,130
|
|
10,510,582
|
Consolidated Statement of Changes in Equity
|
Share capital £ |
Share premium £ |
Capital reserve £ |
Surplus reserve £ |
Retained earnings £ |
Share based payment reserve £ |
Foreign currency translation reserve £ |
Reverse acquisition reserve £ |
Shares to be issued-Escrow scheme £ |
Total equity £ |
|
|
At 1 January 2007 |
- |
- |
1,913,469 |
341,100 |
2,487,858 |
- |
- |
730,973 |
- |
5,473,400 |
|
Profit for the year |
- |
- |
- |
- |
2,565,346 |
- |
- |
- |
- |
2,565,346 |
|
Foreign currency translation differences |
- |
- |
- |
- |
- |
- |
128,267 |
- |
- |
128,267 |
|
Dividends |
- |
- |
- |
- |
(3,770,793) |
- |
- |
- |
- |
(3,770,793) |
|
At 31 December 2007 |
- |
- |
1,913,469 |
341,100 |
1,282,411 |
- |
128,267 |
730,973 |
- |
4,396,220 |
Consolidated Statement of Changes in Equity (continued)
|
Share capital £ |
Share premium £ |
Capital reserve £ |
Surplus reserve £ |
Retained earnings £ |
Share based payment reserve
£ |
Foreign currency translation reserve
£ |
Reverse acquisition reserve
£ |
Shares to be issued-Escrow scheme £ |
Total equity
£ |
|
|
At 1 January 2008 |
- |
- |
1,913,469 |
341,100 |
1,282,411 |
- |
128,267 |
730,973 |
- |
4,396,220 |
|
Foreign currency translation differences |
- |
- |
377,487 |
67,293 |
128,267 |
- |
694,481 |
- |
- |
1,267,528 |
|
Issue of Ordinary shares |
393,710 |
3,096,414 |
- |
- |
- |
- |
- |
- |
- |
3,490,124 |
|
Share-options granted |
- |
- |
- |
- |
- |
30,000 |
- |
- |
- |
30,000 |
|
Reverse acquisition of Honour Field |
991,600 |
11,403,400 |
- |
- |
- |
- |
- |
(21,642,898) |
7,725,000 |
(1,522,898) |
|
Share issue costs |
- |
(225,618) |
- |
- |
- |
- |
- |
- |
- |
(225,618) |
|
Profit for the period |
- |
- |
- |
- |
2,799,581 |
- |
- |
- |
- |
2,799,581 |
|
At 30 September 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 |
Consolidated Cash flow statement
|
Nine month period ended 30 September 2008 £ |
Year ended 31 December 2007 (pro forma) £ |
||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|||
|
Profit for the period before tax |
3,264,995 |
3,079,955 |
|
|
Adjustments for: |
|||
|
Amortisation of prepaid land lease payments |
21,360 |
5,572 |
|
|
Depreciation |
270,043 |
320,654 |
|
|
Interest income |
(57,312) |
(26,790) |
|
|
Interest expense |
184,370 |
183,714 |
|
|
Changes in working capital: |
|||
|
Increase in advance payments |
20,499 |
33,025 |
|
|
Increase in trade receivables |
(658,738) |
(196,701) |
|
|
Decrease/(increase) in inventories |
314,436 |
(93,382) |
|
|
Decrease in amounts due to shareholders |
(3,473,464) |
- |
|
|
Increase in trade payables |
130,573 |
306,099 |
|
|
Increase in accruals and other payables |
343,455 |
10,907 |
|
|
(Increase)/decrease in prepayments, deposits and other receivables |
(91,190) |
191,169 |
|
|
Increase in wages payable |
- |
3,388 |
|
|
Increase in current position of interest-bearing borrowings |
183,159 |
- |
|
|
Increase in amounts due from related companies - Hermes Capital |
(2,216,383) |
- |
|
|
Increase in amounts due to related company - Hermes Capital |
72,444 |
- |
|
|
Increase in amounts due to related company - Albany |
222,271 |
- |
|
|
Increase in other tax payables |
57,025 |
- |
|
|
Increase in amounts due to directors |
3,163,418 |
- |
|
|
Cash generated from operations |
1,750,961 |
3,817,610 |
|
|
Income tax paid |
(393,971) |
(540,339) |
|
|
Interest paid |
(184,370) |
(222,875) |
|
|
Net cash generated from operating activities |
1,179,620 |
3,054,396 |
|
|
Nine month period ended 30 September 2008 £ |
Year ended 31 December 2007 £ |
||
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|||
|
Net cash flow arising from acquisitions |
1,973,913 |
- |
|
|
Additions to prepaid lease payments |
(438,548) |
- |
|
|
Purchases of property, plant and equipment |
(63,281) |
(162,742) |
|
|
Interest received |
57,312 |
25,630 |
|
|
Net cash from/(used in) investing activities |
1,529,396 |
(137,112) |
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|||
|
Bank and other loans raised |
- |
2,988,142 |
|
|
Repayment of bank and other loans |
- |
(3,191,958) |
|
|
Dividend paid |
(2,734,443) |
(1,036,350) |
|
|
Proceeds from issue of ordinary shares |
3,490,124 |
- |
|
|
Share issue costs |
(195,618) |
- |
|
|
Net cash from/(used in) financing activities |
560,063 |
(1,240,166) |
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
3,269,079 |
1,677,118 |
|
|
Exchange gains on cash and cash equivalents |
(452,509) |
308,961 |
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
3,685,380 |
1,699,301 |
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
6,501,950 |
3,685,380 |
|
|
ANALYSIS OF CASH AND CASH EQUIVALENTS |
|||
|
Cash at bank and in hand |
6,501,950 |
3,685,380 |
|
|
6,501,950 |
3,685,380 |
Notes to the Financial Information
1. General information and principal activities
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 ("RTO"), Sorbic International and its subsidiaries' (the "Group") principal activities include 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.
The financial information set out in this announcement does not constitute the Company's statutory accounts as defined in Sections 240 of the Companies Act 1985 for the period ended 30 September 2008. Whilst the financial information included in this announcement has been prepared in accordance with International Financial Reporting Standards (IFRS) this announcement itself does not contain sufficient financial information to comply with IFRS. A copy of the statutory financial statements for the period ended 30 September 2008 will be issued to shareholders prior to the Company's Annual General Meeting. The announcement has been agreed with the auditors and was approved by the Board of Directors on 19 December 2008. Whilst the auditors have not yet reported on the financial statements for the period ended 30 September 2008, they anticipate issuing an unqualified report which will not contain statements under section 237 (2) or (3) of the Companies Act 1985. The auditors of the Honour Field Group, the subsidiary of Sorbic International, have reported on the 2007 financial statements; their report was unqualified.
The directors do not recommend the payment of a dividend for the period.
2. Significant accounting policies
The financial statements for the period ended 30 September 2008 have been prepared on a basis which is consistent with those disclosed in the Company's AIM admission document published on 4 September 2008 and which is available on the Company's website at www.sorbicinternational.com
2.1 Basis of preparation
The financial information has been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted for use by the European Union, and effective, or issued and early adopted, as at the date of these statements, and on the historical cost convention, unless otherwise indicated in this summary of significant accounting policies. The financial information has been prepared in accordance with the accounting policies adopted by its subsidiaries in the Company's AIM admission document dated 4 September 2008 as well as applying the following key accounting policy.
Reverse acquisition accounting
(a) Sorbic International plc acquisition
In September 2008, the Company successfully completed the acquisition of Honour Field and its subsidiary for a total purchase consideration of up to £20,120,000, excluding expenses, as fulfilled by an immediate issuance of 16,526,667 new Ordinary shares of the company upon completion of the acquisition and up to a further 10,300,000 new Ordinary shares to be issued conditional upon Honour Field meeting its profit target under a deferred consideration scheme known as the Escrow share scheme.
Due to the relative values of the companies, the former Honour Field shareholders became majority shareholders with 68.15 per cent. of the enlarged ordinary share capital in Sorbic International, and hence hold the majority of the voting rights. Further, the executive management of the Honour Field Group became that of Sorbic International. A qualitative and quantitative analysis of these factors leads the Directors to conclude that in this transaction Honour Field has the controlling interest and should be treated as the accounting acquirer.
In determining the appropriate accounting treatment for the reverse acquisition, the Directors have considered the Application Supplement to IFRS 3, Business Combinations. However, they have concluded that this transaction falls outside of the scope of IFRS 3, since Sorbic International, whose activities prior to the acquisition were limited to the management of cash resources and the maintenance of its listing, did not constitute a business. It has therefore been determined that the transaction should be accounted for in a manner that is similar to the reverse accounting as described in IFRS 3, but without recognising goodwill.
In accordance with IAS 8 Accounting Policies, changes in Accounting Estimates and Errors, in developing an appropriate accounting policy the Directors have considered the pronouncements of other standard-setting bodies and specifically looked to accounting principles generally accepted in the United States of America ("US GAAP") for guidance (FAS 141, Business Combinations) as well as SEC rules. Under US GAAP, in a reverse acquisition, the target company (Honour Field) is treated as the acquiring company for financial reporting purposes (no purchase accounting adjustments) and the fair value of the issuing company's common shares (Sorbic International) is recognised, together with adjustments necessary to reflect the net tangible and identifiable intangible assets at their fair value with any remainder assigned to goodwill (full application of purchase accounting).
Under US GAAP, such a transaction is treated as an equity issuance by the operating entity (in this case Honour Field). As a result, the cost of the combination is deemed to equal the net monetary assets of the acquiree (Sorbic International) plus transaction costs. Only costs incurred by the "target" company can be capitalised.
(b) Honour Field Limited acquisition
In April 2008, Honour Field successfully completed the acquisition of Linyi Van Science and Technology Limited ("LVST") for a total purchase consideration of £3,624,495.
A qualitative and quantitative analysis of these factors leads the Directors to conclude that in this transaction LVST should be treated as the accounting acquirer as the executive management of LVST became that of Honour Field as well as the agreement between management and acquiring shareholders.
In determining the appropriate accounting treatment for the reverse acquisition, the Directors have considered the Application Supplement to IFRS 3, Business Combinations. However, they have concluded that this transaction falls outside of the scope of IFRS 3, since Honour Field, whose activities prior to the acquisition were limited to the management of cash, did not constitute a business. It has therefore been determined that the transaction should be accounted for in a manner that is similar to the reverse accounting as described in IFRS 3, but without recognising goodwill.
In accordance with IAS 8 Accounting Policies, changes in Accounting Estimates and Errors, in developing an appropriate accounting policy the Directors have considered the pronouncements of other standard-setting bodies and specifically looked to accounting principles generally accepted in the United States of America ("US GAAP") for guidance (FAS 141, Business Combinations) and the SEC rules. Under US GAAP, in a reverse acquisition, the target company (LVST) is treated as the acquiring company for financial reporting purposes (no purchase accounting adjustments) and the fair value of the issuing company's common shares (Honour Field) is recognised, together with adjustments necessary to reflect the net tangible and identifiable intangible assets at their fair value with any remainder assigned to goodwill (full application of purchase accounting).
Under US GAAP such a transaction is treated as an equity issuance by the operating entity (in this case Honour Field). As a result, the cost of the combination is deemed to equal the net monetary assets of the acquiree (Honour Field) plus transaction costs. Only costs incurred by the "target" company can be capitalised.
As a consequence of applying the reverse acquisition accounting policy described, the current period figures shown consist of the results of Honour Field and its subsidiaries for the entire nine month period and incorporate those of Sorbic International from 29 September 2008 to 30 September 2008. The comparative information presented comprises the consolidated results and balance sheet of the Honour Field Group for the year ended 31 December 2007.
2.2 Subsidiary undertakings
As at 30 September 2008, the Company had the following subsidiaries:
|
Name of Subsidiary
|
Date of establishment
|
Percentage of equity attributable to Sorbic International
|
Principal activities
|
Country of incorporation
|
|
|
|
|
|
|
|
Honour Field International Limited
|
3 July 2007
|
100%
|
Holding Company
|
BVI
|
|
|
|
|
|
|
|
Held by Honour Field
Linyi Van Science and Technique Co., Ltd
|
17 July 2001
|
100%
|
Production and sale of food preservatives
|
People’s Republic of China
|
3. Income tax expense
|
9 months ended 30 September 2008 £ |
Year ended 31 December 2007 £ |
||
|
Current tax |
465,414 |
514,609 |
|
|
Deferred tax |
- |
- |
|
|
465,414 |
514,609 |
||
|
Profit before tax |
3,264,995 |
3,079,955 |
|
|
Tax on profit at standard rate (25%; 2007 : 33%) |
816,249 |
1,016,385 |
|
|
Non-deductible expenditure |
- |
6,416 |
|
|
Tax effect of exempt income |
(350,835) |
(508,192) |
|
|
Current tax expense recognised in income statement |
465,414 |
514,609 |
|
|
Effective tax rate |
14.3% |
16.7% |
|
* Sorbic International is subject to a United Kingdom Tax rate of 28% from 31 April 2008. No tax provision is provided at the Sorbic International level as all current revenues are foreign derived income.
Honour Field International is a BVI registered company and therefore has tax exempt status.
LVST is subject to a PRC Enterprise Income Tax rate of 25% (2007: 33%).
The tax charge on profits assessable has been calculated at the rates of tax prevailing in China in which the Group, through its China subsidiary operates, based on existing legislation, interpretation and practices in respect thereof.
The Group's subsidiary, LVST is entitled to an exemption from the Enterprise Income Tax ("ETI") in China for two years starting from the first profit making year followed by a 50% reduction in the tax rate for the next three years. Under current legislation, there is no tax exemption from 2010 but the tax rate will be reduced from 33% to 25% from 2008 because of a change of tax law in China.
There was no material un-provided deferred tax as at each of the period ends.
Deferred income tax assets arising from tax losses carried forward are recognised to the extent that the realisation of the related tax benefit through the future taxable profits is probable. The Group did not recognise deferred income tax assets of £27,931 (2007: £nil) in respect of losses amounting to £99,755 (2007: £nil) that can be carried forward against future taxable income.
4. Earning per share and dividends
Basic
|
|
2008
|
2007
|
|
|
£
|
£
|
|
|
|
|
|
Profit attributable to equity holders of the company
|
2,799,581
|
2,565,346
|
|
Weighted average number of Ordinary shares in issue (number)
|
16,550,614
|
16,526,666
|
|
Basic earnings per share
|
0.17
|
0.16
|
Diluted
Diluted earnings per share is calculated buy adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary shares: share options. For the share options, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.
|
|
2008
|
2007
|
|
|
£
|
£
|
|
|
|
|
|
Profit attributable to equity holders of the Company
|
2,799,581
|
2,565,346
|
|
Weighted average number of Ordinary shares in issue (number)
|
16,550,614
|
16,526,666
|
|
Adjustments for:
|
|
|
|
Share options
|
2,190
|
-
|
|
|
16,552,804
|
16,526,666
|
|
|
|
|
|
Diluted earnings per share
|
0.17
|
0.16
|
5. Share capital
Following the reverse acquisition of Honour Field (see note 8) the share capital reported as at 30 September 2008 represents that of Sorbic International:
|
Authorised
|
|
£
|
|
|
|
|
|
100,000,000 Ordinary share of £0.06 each
|
|
6,000,000
|
|
|
|
|
|
Issued, called up and fully paid
|
|
£
|
|
|
|
|
|
23,088,500 Ordinary shares of £0.06 each
|
|
1,385,310
|
|
|
|
|
The movement on the share premium account was as follows:
|
|
Share premium
|
|
|
£
|
|
|
|
|
At incorporation
|
-
|
|
Issue of shares on 24 October 2007 for a consideration of £0.01
|
2,875,500
|
|
Issue of shares on 29 September 2008 for a consideration of £0.75
|
11,624,314
|
|
Share issue costs
|
(225,618)
|
|
|
|
|
At 30 September 2008
|
14,274,196
|
The Company was incorporated on 15 June 2007 with an authorised share capital of £50,000 divided into 5,000,000 ordinary shares of £0.01 each.
Following written resolutions dated 26 July 2007, the authorised share capital of the Company was increased to £500,000 and sub-divided so that the authorised share capital was 500,000,000 ordinary shares of £0.001 each.
On incorporation, the Company allotted and issued 20 ordinary shares of 0.1p each at par.
On 26 July 2007, the Company allotted and issued 55,000,000 ordinary shares of £0.001 each for a total cash consideration of £55,000.
On 24 October 2007, the Company allotted and issued 319,500,000 ordinary shares of £0.001 each for a total cash consideration after expenses of £3,195,000.
On 29 September 2008, following written resolutions, the authorised share capital of the Company was decreased to £6,000,000 and a 1 for 60 consolidation took place so that the authorised share capital was 100,000,000 Ordinary shares of £0.06 each.
On 29 September 2008, the Company allotted and issued 320,166 Ordinary shares for a cash consideration of £0.75 each, giving rise to an increased share capital of £19,210 and an increased share premium of £220,915.
On 29 September 2008, the Company allotted and issued 16,526,667 Ordinary shares for a consideration of £0.75 each, giving rise to an increased share capital of £991,600 and an increased share premium of £11,403,400. These shares were issued as consideration for the acquisition of the Honour Field Group.
The share option cost has been deducted from the share premium since the cost relates to professional services in relation to the issue of shares.
6. Reserves
(i) Capital reserve
The capital reserve comprises the surplus between the fair value of the net assets and the nominal value of shares issued when LVST was converted/acquired from a state-owned enterprise to a limited company
The capital reserve can only be used for conversion into share capital.
(ii) Statutory reserves
In accordance with the relevant PRC laws and regulations, PRC domestic companies are required to transfer 10% of their profit after income tax, as determined in accordance with PRC GAAP, to the statutory reserves, until the balance of the reserve reaches 50% of the registered capital of that company. Subject to certain restrictions as set out in the relevant PRC regulations, the statutory reserve may be used to offset against accumulated losses, if any.
Domestic PRC companies are also required to transfer 5% to 10% of net profit, as determined under PRC accounting regulations, to the statutory common welfare fund. This fund can only be used to provide staff welfare facilities and other collective benefits to the employees of that company. This fund is non-distributable other than in the event of liquidation.
(iii) Share based payment reserve
Share based payment reserve represents equity-settled share-based payments until such share options are exercised.
During the period, the Group entered into two share option agreements with the Hermes Capital and Finn Capital as settlement of the professional advisory service in relation to the RTO exercise. The fair value of the two share-based payments is as follows:
|
|
Period ended
30 September 2008
|
Year ended
30 September 2007
|
|
|
£
|
£
|
|
|
|
|
|
Share option granted to Hermes Capital for subscription of 400,000 new ordinary shares
|
20,000
|
-
|
|
Share option granted to Finn Cap for subscription of 200,000 new ordinary shares
|
10,000
|
-
|
|
|
30,000
|
-
|
Sorbic International granted Hermes Capital and Finn Capital options to subscribe for 400,000 and 200,000 new ordinary shares of the company at a subscription price of £0.75 per share. The options may be exercised at any time during the period of five years from 29 September 2008 onwards. As at 30 September 2008 the share options remained unexercised.
(iv) Shares to be issued under Escrow scheme
|
|
As at 30 September 2008
|
As at 31 December 2007
|
|
|
£
|
£
|
|
|
|
|
|
10,300,000 shares to be issued at 75p
|
7,725,000
|
-
|
|
|
7,725,000
|
-
|
The above shares would be issued to Prime Mega upon LVST achieving a profit target as stipulated in the business transfer agreement.
(v) Reverse acquisition reserve
The reverse acquisition reserve arises as a result of following the accounting method described in note 2.1 (a) in respect of the reverse acquisition.
7. Controlling party
Sorbic International is a public listed company with no single controlling party and with Prime Mega International Ltd holding 42.71% and Albany Capital holding 38.34% as the two largest shareholders.
8. Acquisitions
On 29 September 2008, Honour Field completed a reverse acquisition of Sorbic International for a notional consideration of £ 20,987,735 reflecting the fair value of net assets acquired and the transaction costs.
Sorbic International was incorporated on 15 June 2007. It was established in order to acquire a controlling interest in a company, partnership or joint venture located in Europe, North America or Asia. Sorbic International reported, in respect of the period from 15 June 2007 to 29 September 2008, turnover of £nil, operating loss of £34,667 and loss after tax of £34,667.
The fair value of net assets acquired is set out in the following table:
|
|
|
Acquisition amounts
|
|
|
|
£
|
|
|
|
|
|
Trade and other receivables
|
|
323,577
|
|
Cash and cash equivalents
|
|
2,848,637
|
|
Trade and other payables
|
|
(841,198)
|
|
|
|
|
|
Net assets
|
|
2,331,016
|
|
Acquisition costs
|
|
874,724
|
|
|
|
|
|
Total cost of acquisition
|
|
3,205,740
|
|
|
|
|
|
The net cash flow in the period arising on the acquisition were:
|
|
|
|
Acquisition costs
|
|
(874,724)
|
|
Net cash acquired
|
|
2,848,637
|
|
|
|
|
|
Net cash inflow
|
|
1,973,913
|
|
|
|
|
On 21 April 2008, Honour Field acquired the entire equity interest in Linyi Van Science at a purchase consideration of £3,624,495.
Related Shares:
Sorbic International