Preliminary Results

Sorbic International Plc

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

Preliminary Unaudited Results

Sorbic International plc, (AIM:SORB), the third largest sorbates producer in China, today announces its preliminary unaudited results for the year ended 30 September 2011.

Summary

John McLean, Non-Executive Chairman of Sorbic International, commented: "This year has been a period of significant development for the Group, with construction at the new facility in Inner Mongolia now largely complete. Despite challenges in the wider economy, Sorbic has made good progress and continues to manage raw material prices where possible.

"The Company is poised to become more sales oriented and expand its market share in China as part of the strategy to build sustainable long-term growth. With the new facility now close to commencing full production, the Group will soon be in a position to capitalise on the significantly increased capacity."

- Ends-

For further information:

Media enquiries:

Notes to Editors:

Sorbic International's principal activity is the production and sale of the food preservatives Sorbic Acid and Potassium Sorbate from its base in Linyi City, Shandong Province, People's Republic of China. Approximately half of Sorbic International's production is sold to overseas markets, across 46 countries and half into the Chinese domestic market.

Sorbic Acid is a naturally occurring organic compound that is used in all kinds of foods for its anti-decomposition and anti-fungus function and also in grains, medicines, cosmetics, toothpaste, tobacco, animal feed, latex, paper-manufacturing and pesticides. Potassium Sorbate is used to inhibit moulds and yeasts in many foods, such as cheese, wine, yogurt, dried meat, baked goods, cosmetics and pharmaceuticals.

CHAIRMAN'S STATEMENT

Introduction

2011 proved to be an exciting yet challenging year for the Group.

I am pleased to say that the Group has remained focused and has continued with its expansion in Inner Mongolia where cheaper resources will improve margins and give Sorbic a competitive edge. The project has now entered the final phase of its development with the soft launch of the Group's sorbate line having taken place on 4 November 2011.

The results for year ended 30 September 2011 show a significantly improved revenue of £14.7 million (2010: £12.1 million), although profit before tax was lower at £0.3 million (2010: £0.6 million) and profit after tax and exchange differences of £0.9 million (2010: £0.8 million). The Group achieved earnings per share of 0.36 pence (2010: 1.04 pence).

Gross margin decreased from 18.5% to 10.2% due to the rising costs of raw materials. The Group has made a conscious effort to reduce the number of long-term contracts for the current year to less than 40% of total sales in order to provide a degree of flexibility for price adjustment. Although raw material price inflation was factored in during pricing negotiations, the inflationary impact was much higher than anticipated. China's consumer price index ("CPI"), the main gauge of inflation, rose 4.2% year-on-year in November 2011, according to data released by the National Bureau of Statistics ("NBS"). Though still high, the figure marked the slowest surge from July's three-year peak of 6.5%. The Company's average gross margin dropped significantly below 10% during the second quarter of the financial year (January-March 2011). The Company was only able to raise prices slightly and therefore passed some of the increased costs to customers not on long-term contracts. Accordingly, price increases were not achieved at the same rate as the cost increases with a consequent reduction in margins. The Company faces resistance from customers to move from long-term contracts, but will, over time, look to reduce the proportion of such contracts.

Despite the Group's capital commitment for the facility in Inner Mongolia being affected by rising steel and construction costs, the Company's decision to locate to Inner Mongolia has been reaffirmed by the ready availability of low cost resources; the cost of coal and electricity are halved, and water is free, and these cost savings are expected to improve both production efficiency and margins.

The Chinese Yuan has appreciated by more than 27.5% since 2005 or approximately 4.5% per annum. The market's expectation for the Chinese Yuan appreciation in 2011 is between 4.5 and 5.5% and will continue to follow a gradual pace going forward. Its appreciation has benefited the Group's China investment in sterling value.

The Group is now well positioned to increase the scale of its production. This will broaden Sorbic's competitive position as the Company is poised to become more sales oriented and expand its market share in China as part of the strategy to build sustainable long-term growth.

2012 Economic outlook and the domestic Chinese market

Despite the possibility that the Chinese economic growth rate may continue to slow down in 2012, it is still projected to deliver an impressive 8% growth rate (source: Marketwatch). Rising disposable income and urbanisation will continue to drive the Chinese economy in the foreseeable future. The food processing industry will benefit from these factors. Between 2001 and 2006 the industry grew at a compound annual growth rate of 20% to reach approximately US$288 billion1. As consumers increasingly value the convenience and variety of processed foods, the industry is expected to continue to expand. Currently only approximately 30% of food in China is processed, compared to 60-80% in Western countries2. The current level of adoption suggests significant room for growth in the domestic market, especially in urban areas.

In addition, recent food safety scandals have drawn unwanted international attention and have become a growing public concern in China. In the latest four-month campaign, government investigators have inspected nearly six million food and additive producers and the authorities have arrested more than 2,000 people and closed down 5,000 businesses since concerns over the use of harmful ingredients peaked in the spring of 2011. The latest enforcement campaign shows the seriousness with which the Chinese government takes the country's food safety concerns.

Government intervention will continue to play a large role in the short-term, by forcing domestic firms to comply with new improved standards. In the long-term, as consumers become more aware and are less willing to accept substandard quality, producers will in turn increasingly invest in better practices and products to ensure quality, thus generating new opportunities for the Group's products.

1Source: New Zealand China Trade Association ("NZCTA")

 2 Source: New Zealand China Trade Association ("NZCTA")

New Production Lines - Inner Mongolia

Construction of the new plant in Ulanqab City, Inner Mongolia, which will double the Group's production capacity to 15,000 tonnes per annum, is on schedule and is expected to be fully operational by summer 2012. Once they are operating at full capacity, the two new lines have capacity of £38 million at current prices and at higher margins than the existing facilities.

The stable power supply at the Inner Mongolia facility will be a significant factor for the future growth of the Company given the challenges that have been faced due to the power outages experienced at the Linyi factory over recent years that have impacted on production. The additional land available in Inner Mongolia for future expansion will also be of great importance going forward.

The Board expects the financial benefit of the two new lines to be fully reflective by FY 2013.

The Board

As announced on 31 October 2011, Ray Ang, stepped down as a Non-Executive Director of Sorbic International due other work and travel commitments. However, his experience will still be available as a consultant to Sorbic International. The Board joins me in thanking Ray for his valuable contributions to the Group over the last three years.

The Group is seeking to recruit another Non-Executive Director who will bring the appropriate skills and industry experience to the Board.

Operational outlook for 2012

With the soft opening ceremony at the new facility held earlier this month, the next phase of development for the Group will be for the potassium sorbate line to become operational in spring 2012 and the sorbic acid line to commence production in summer 2012.

In anticipation of the expanded production capacity next year, the Group's sales team has been regularly engaging and updating existing and potential new clients on the development of the new facility in Inner Mongolia at recent trade fairs. The Board will continue to monitor and manage the speed at which the facility operates depending on the availability of capital. With the ongoing global economic uncertainty, the main challenge for FY 2012 will be to improve margin stability and market share in existing markets, while building up relationships with domestic and Asian clients where demand is growing.

A fall in commodity prices due to slow world economic growth is expected to help stabilise China's inflation to within 4% for 2012 (source: Marketwatch) and ease inflationary pressure on the Company's raw material prices.

The Board would like to thank the management and the employees for their hard work and continued dedication to the Group. On completion of the new facility, Sorbic will be well placed to benefit from further growth in the demand for food additives, both internationally and from an increasingly important domestic market.

John McLean

Chairman

14 December 2011

Unaudited Consolidated Statement of Comprehensive Income 

Unaudited Consolidated Cash flow statement

For year ended 30 September 2011

Basis of Presentation and Summary of Significant Accounting Policies

1. General information and principal activities

The Group's principal activities include the production and sale of food preservatives, Sorbic Acid and Potassium Sorbate. The Group's main operations are in the People's Republic of China ("PRC").

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

2. Basis of preparation

The Group's financial statements for the year ended 30 September 2011 will be prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS").

Whilst the financial information included in this preliminary announcement has been computed in accordance with IFRS this announcement does not itself contain sufficient information to comply with IFRS. The Company will publish full-consolidated financial statements that comply with IFRS by the end of March 2012.

This financial information has been prepared in accordance with applicable IFRS and using accounting policies which are consistent with those applied in the financial statements for the year ended 30 September 2010 other than as set out below.

The Group has adopted the following new interpretations, revisions and amendments to IFRS issued by the International Accounting Standards Board, which are relevant to and effective for the Group's financial statement for the financial year beginning 1 October 2010:

- IFRS 3 Business Combinations (Revised 2008)

- IAS 27 Consolidated and Separate Financial Statements (Revised 2008)

- Improvements to IFRS 2009 and 2010

a. IFRS 3 - Business Combinations (Revised 2008)

The revised standard on business combination (IFRS 3) introduced major changes to the accounting requirement for business combinations. It retains the major features of the purchase method of accounting, now referred to as the acquisition method. The most significant changes in IFRS 3 that will have an impact on the Group's acquisition in future are as follows:

·; Acquisition-related costs of the combination are recorded as an expense in the income statement. Previously, these costs would have been accounted for as part of the cost of the acquisition

·; Any contingent consideration is measured at fair value at the acquisition date. If the contingent consideration arrangement gives rise to a financial liability, any subsequent changes are generally recognised in profit or loss. Previously, contingent consideration was recognised only once its payment was probable and changes were recognised as an adjustment to goodwill

·; The measurement of assets acquired and liabilities assumed at their acquisition-date fair values is retained. However, IFRS 3R includes certain exceptions and provides specific measurement rules.

For the year ended 30 September 2011, the adoption of IFRS 3R has no effect on the Group's financial statements, as there was no acquisition during the year.

3. Segmental information

The Group has adopted IFRS 8, Operating Segments for the year ended 30 September 2011. IFRS 8 requires that segments represent the level at which financial information is reported to the Board of directors ("The Board") of the Group, being the chief operating decision maker as defined in IFRS 8. The Board consists of the Chairman, the President, the Chief Executive Officer, the Chief Financial Officer and the Non Executive Director. The Board determines the operating segments based on reports reviewed and used by the Board for strategic decision-making and resource allocation.

Segment information is presented in respect of the Group's geographical and operating segments.

The Group's operating segments are as follows:

(i) Sorbic acid

(ii) Potassium sorbate

(iii) Head office and other adjustments, which incorporates a measure of assets and liabilities not included in the other segments

4. Income tax expense

* The Company is subject to a United Kingdom Tax rate of 28% from April 2008. No tax provision is provided at the Company level, as all current profits are foreign derived income.

The Company's subsidiary Honour Field International Limited is a BVI registered company and has tax-exempt status.

The Company's subsidiary Linyi Van Science and Technique Co., Limited ("LVST") is subject to a PRC Enterprise Income Tax rate of 25% (2010: 25%).

The tax charge on profits assessable has been calculated at the rates of tax prevailing in China, in which the Group through its China subsidiaries operate, based on existing legislation, interpretation and practices in respect thereof.

LVST has had the benefit of a tax holiday from 2004 in which it is entitled to exempt the Enterprise Income Tax ("ETI") for two years starting from first profit making year following by a 50% tax relief for the next three years. The tax relief ended on the 31 December 2009.

Deferred income tax assets are recognised for tax loss carried forward 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 £450,048 (2010: £267,507) at the year-end in respect of losses amounting to £1,607,314 (2010: £955,382) that can be carried forward against future taxable income since future profits were not considered probable.

5. Earnings per share

Basic

Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has two categories of dilutive potential ordinary shares: share options and convertible loan notes. For the convertible loan notes, a calculation is done to determine the number of shares that could have been acquired based on the monetary value of the subscription rights attached to outstanding share options and convertible loan notes. The number of shares calculated as above is adjusted for the number of shares that would have been issued assuming the exercise of the convertible loan notes. The contingently issuable shares included within the share options are anti-dilutive and are not included in the calculation.

6. Convertible loan notes

The convertible loan notes were issued on 27 August 2010 and 25 February 2011. The notes are convertible into ordinary shares of the Company at any time between the date of issue of the notes and their maturity date of 26 February 2013. The loan notes are convertible at £0.26 per share. The effective interest rate used to calculate the interest charged to the income statement was 12%.

If the notes have not been converted, they will be redeemed on their maturity date at par. Interest of 10 % per annum will be paid biannually up until that date.

The net proceeds received from the issue of the convertible loan notes have been split between the liability element and an equity component, representing the fair value of the embedded option to convert the liability into equity of the Group as follows:

The directors estimate the fair value of the liability component of the convertible loan notes at 30 September 2011 to be approximately £2,267,881 (2010: £1,408,969).

7. Share capital

The movement on the share capital account was as follows:

The principal amount of the convertible loan notes issued on 27 August 2010 and 25 February 2011 can be converted into such number of new fully paid ordinary shares of the Company at a conversion price of 26 pence per share at any time up to the final redemption date of 26 February 2013. As at 30 September 2011, 9,376,923 ordinary shares are reserved for issue. No conversion took place during the year.

The movement on the share premium account was as follows:

Costs of £79,792 were incurred during the year for the issuance of new shares while £112,798 was reversed out when the Company derecognised the amount due to Hermes Capital during the year.

8. Non-statutory financial information

The financial information set out in this preliminary announcement does not constitute the Group's statutory financial statements as defined in Section 435 of the Companies Act 2006 for the years ended 30 September 2011 and 2010.

The financial information for the year ended 30 September 2010 is derived from the statutory financial statements for that year prepared in accordance with IFRS, which have been delivered to the Registrar of Companies. The auditors reported on those financial statements; their report was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain a statement under Sections 498(2) or (3) Companies Act 2006.

The audit of the statutory financial statements for the year ended 30 September 2011 is not yet complete. These financial statements will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual general meeting.

The directors do not propose a dividend in respect of the year ended 30 September 2011 (2011: nil).

The Board of Directors approved this announcement on 14 December 2011.

- Ends -