Preliminary Unaudited 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 2010.

Summary

John McLean, Non-Executive Chairman of Sorbic, commented: "Despite a number of challenges during the year, including pressure on margins, environmental difficulties and power supply issues, Sorbic has remained a profitable business with strong growth prospects. The new production facility in Inner Mongolia is on track to commence production in late summer / early autumn 2011, and this will be key to driving growth. Strong demand for the product continues both in the global market, and also increasingly domestically, and this underpins the long-term prospects for the Group."

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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.

Sorbic International operates through its wholly owned subsidiary Linyi Van Science and Technique Co., Ltd ("LVST").

CHAIRMAN'S STATEMENT

Introduction

2010 was a year of significant challenges. The year began with very fragile consumer confidence and revenue fell with production days lost to external events such as interruptible power supplies and environmental issues, as previously announced. In response, the management team has worked hard to negotiate with the local authorities for priority to the power supplies and modified the public holiday shutdown period to reduce turnaround time and improve operational efficiency. However, it is estimated that approximately 40 days of production were lost. As a consequence, margins were reduced over the year. Despite the production challenges, the Group continues to experience significant levels of demand and ended the financial year being profitable and cash generative. I believe that this is a credible achievement in the current economic climate and a testimony to the work and commitment of both the management and employees.

The issue of convertible loan notes in August 2010 will secure approximately £3.5 million of new term facilities through the injection of £2.93 million of new funds and the conversion of shareholders loans of £0.53 million into the Group when fully received. These funds will allow Sorbic to complete its new factory and increase the Group's production capacity to capitalise on the anticipated future growth in China. As announced on 16 December 2010, one of the lenders in respect of the Loan Notes is Hermes Holdings Ltd ("Hermes") based in Seoul, Korea. Hermes entered into a legally binding agreement to lend US$2.5 million (approximately £1.6 million) under the terms of the Loan Notes and are due to pay the Company directly. Hermes requires regulatory approval to move the funds out of Korea. Representatives of the Company met with Hermes on 10 December 2010 and the regulatory matters are now expected to be resolved in early 2011 and the Company expects to receive these proceeds in Q1 2011. Following the receipt of these funds, it is the Company's intention to list the convertible loan notes on PLUS Markets.

The consolidated unaudited results for year ended 30 September 2010 show turnover of £12.05 million (2009: £14.45 million), profit before tax of £0.60 million (2009: £3.30 million) and profit after tax and exchange differences of £0.8 million (2009: £3.5 million).

Gross margin decreased from 35.0% to 18.5%, while net profit margin decreased from 24.0% to 6.7%, due to the increase in unit cost of production caused by the disruption outlined above. The effect of the production limitations in Linyi has become apparent in FY2010, which reaffirms the compelling reasons behind the Company's decision to locate to Inner Mongolia. The availability of rich resources like coal, electricity and water at a lower cost compared to the existing facilities is expected to improve production efficiency and gross margins.

The Group achieved earnings per share of 1.04 pence (2009: 9.87 pence).

The Group is now very well placed to increase the scale of its production. This will broaden Sorbic's competitive position and expand its market share in China as part of the strategy to build sustainable long term growth.

Food Preservatives Market

A primary driving force in the global food market is the consumer. Income growth, lifestyle changes brought about by urbanisation and changing family structures have resulted in dietary changes among consumers worldwide. Driven by increased purchasing power and the cost of time required for preparing food, the demand for higher value and processed food products has continued to expand globally.

In the mature markets of high-income countries, the processed food market has continued to grow while sales in eastern European countries, Latin America and developing countries in Asia are undergoing rapid growth. Markets in countries like China are at the early stages of transformation with multinational retail chains and packaged food products now penetrating the rural areas.

The US food preservatives market is estimated to be worth $7.2 billion annually and growing at 3.5% per annum while the Chinese food preservatives markets earned revenues of $370.0 million in 2007 and estimates this to reach $829.4 million in 2014. [Source: Frost & Sullivan- Chinese Food Preservatives Markets]

The scope for long term growth in food preservative market in China is significant.

Domestic Chinese Market

Domestic sales accounted for less than half of the total sales in FY2010. However it is recognised that domestic demand may, in part, drive future growth and represents a significant opportunity. For example, China currently consumes barely 2% per head of the manufactured carbonated soft drink equivalent of their American counterparts. Similarly, the penetration of Western shopping habits in China has scope to grow, offering another route for manufactured food and beverages to increase market share.

The Chinese food preservatives market is capitalising on the success of ready-to-eat foods, which are becoming increasingly popular with urbanites leading increasing busy lifestyles. These products function as additives, ensuring the safety of a variety of foods.

Rising environmental consciousness and safety concerns are driving Chinese consumers to increasingly choose natural food additives to synthetic ones. The most frequently used organic preservatives, including sorbates, are experiencing strong demand from both international and local markets.

The Group's production and quality standards are maintained at the highest level, compliant with all key international food production standards which place Sorbic at the forefront of suppliers to the major international food manufacturers.

Economic outlook for 2011

While the beginning of 2010 was dominated by concerns over the economy with the impact of the financial crisis, there are indications that the global economic outlook may now be improving. The Company has the advantage of having its operations located at the world fastest rising economy, China. Evidence of China's ascension is widespread. Three years ago, China did not have a single bank among the world's top 20, measured by market capitalisation; today the top three are Chinese.

Whilst China's growth is expected to gradually slow down as the government withdraws its anti-crisis stimulus, the expansion is still projected to be 9.6% for 2011, driven by domestic demand. The food additive industry in China remains highly competitive. Accordingly the Group will look to further strengthen its robust market position as one of the leading producers in the world with the completion of the new lines in Inner Mongolia.

New Production Lines - Inner Mongolia

Key to driving the Company's growth is its expansion into Ulanqab city, Inner Mongolia. The new facility will increase the Group's capacity from 7,500 to 15,000 tonnes per annum, with the addition of the two new lines.

Once they are operating at full capacity of 7.500 tonnes p.a., the two new lines will potentially add up to £19 million of revenue at current prices It is anticipated that production in the early stages will be more heavily weighted towards potassium sorbate as it typically generates a higher gross margin. Management expects pricing to remain stable in 2011 and operating margins from the new facility are anticipated to be significantly higher than the existing plant.

Construction of the new factory is on schedule and is expected to be completed by late summer / early autumn 2011.

Operational outlook for 2011

With the building structure almost completed, the next phase of development for the Group will be installation and getting the equipment in place for production. With Inner Mongolia entering winter and temperature below sub-zero, exterior installation work will be minimal until the Spring.

Subject to the receipt of the full funds from the convertible loan notes, the Company still expects to begin trial production at the new factory at the end of summer / autumn 2011. The additional capacity will utilise a greater level of working capital and consequently Sorbic will look to secure additional bank facilities in 2011. Management will monitor and manage the speed at which the facility operates depending on the availability of this working capital. The global recovery has been underway for some time now, although growth in many economies remains weak and uneven. Against such a background, the challenge for FY2011 will be to maintain price stability and market share, while capitalising on growing domestic demands.

The Board would like to thank the management and the employees for their hard work and their 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

23 December 2010

Unaudited Consolidated Statement of Comprehensive Income 

Unaudited Consolidated Cash flow statement

For year ended 30 September 2010

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 2010 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 2011.

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 2009 other than as set out below.

Adoption of new and revised standards

IAS 1 (revised) requires the presentation of a statement of changes in equity as a primary statement separate from the Income Statement and Statement of Comprehensive Income. As a result, a Consolidated Statement of Changes in Equity has been included in the primary statements, showing changes in equity for each period presented.

IFRS 8 - Operating Segments. This standard has been applied in the current year retrospectively. IFRS 8 concerns the disclosure and presentation of information that allows users of its financial statements to evaluate the nature and financial effects of the business activities of the Group. It has not affected the measurement of the Group's profit, assets or liabilities.

3. Segmental information

The Group has adopted IFRS 8, Operating Segments for the year ended 30 September 2010. 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

There were no inter-segment sales and transfers during the year ended 30 September 2010.

Year ended 30 September 2010

Year ended 30 September 2009

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 revenues are foreign derived income.

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

The Group's subsidiary LVST is subject to a PRC Enterprise Income Tax rate of 25% (2009: 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 £267,507 (2009: £135,939) at the year end in respect of losses amounting to £955,382 (2009: £485,497) 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 share options and 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 share options and convertible loan notes.

6. Amount due from and due to Directors

 The Company disclosed in its financial statements for the year ended 30 September 2009 that a contingent liability of up to £1 million may be due arising from the acquisition of LVST.

In order to resolve the position, a loan of approximately £4.8 million, was made by Wang Yan Ting ("WYT"), a director and shareholder in the Company and the former owner of LVST to LVST, and a contribution of the same amount was made by WYT to Honour Field International Limited. These amounts are repayable on demand. Since the legal agreements relating to the set off of the above transactions have not been executed at the date of statement of financial position, the amounts due to and due from WYT are included in current assets and current liabilities.

7. Convertible loan notes

The convertible loan notes were issued on 27 August 2010. 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, i.e. 30 months after the date of issue. The loan notes are convertible at £0.32 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:

One of the subscribers for the loan notes, Hermes Holding Ltd, based in Seoul Korea has entered into a legally binding agreement to lend US$2.5 million under the terms of the loan notes. As the Company have not received the funds as at 30 September 2010, this amount has not been recognised in this financial information.

8. 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 can be converted into such number of new fully paid ordinary shares of the Company at a conversion price of 32 pence per share at any time up to the final redemption date of 26 February 2013. As at 30 September 2010, 4,881,250 ordinary shares are reserved for issue. No conversion took place during the year.

The movement on the share premium account was as follows:

On 23 March 2009, the Company allotted and issued a further 10,300,000 Ordinary shares when Honour Field achieved the profit target for the 12 months ended 31 December 2008 of RMB60 million as stipulated in the business transfer agreement.

Costs have been deducted from the share premium account relating to the professional services associated with the issue of shares.

9. 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 2010 and 2009.

The financial information for the year ended 30 September 2009 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 2010 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 2010 (2009: nil).

This announcement was approved by the Board of Directors on 22 December 2010.

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