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 2014.

Summary

John McLean, Non-Executive Chairman of Sorbic International, commented: "The Board is pleased that the Group continues to be cash generative. Demand for the Group's products remains strong and the Board remains focused in bringing the Group's operations back to a normal state of activity in 2015.

"Additionally the Board is also pleased to announce the appointment of Jay Newman as a non-executive director, alongside the appointment of an additional director which will take place in due course. The strengthened Board will contribute further to the significant progress that has been made during the year to facilitate the repayment of outstanding loan note and cash transfers from China."

- 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

The Board reports that the Group's operating subsidiary, Linyi Van Science and Technique Co., Ltd ("LVST") revenues for the year ended 30 September 2014 were £14.1 million, which was slightly down on the prior year (2013: £14.6 million), which is mainly due to foreign exchange. During the second half of the year, LVST has witnessed increased fluctuations on the selling price of potassium sorbate. This has impacted on the LVST's overall operating margin for the full year, which was 9.8% (2013: 12.9%), as well as, a reduction in the Group's EBITDA to £0.6 million compared to £1.2 million for 2013.

Revenues continue to be dominated by exports to the US (via the APAC Chemical Corporation) and Chinese domestic business, which together, account for approximately 91% (2013: 92%) of overall activity. Overall sales mix has remained practically constant at 50% each for the respective products.

Margins for Sorbic Acid have softened to 4% for 2014 from 5% in 2013, whilst for Potassium Sorbate the margins have reduced to 15% from 20% in 2013. For both products, selling prices were stronger at the beginning of the year and started to soften for the remainder of the year. Cost of sales increases have now started to decline which the Board expects to help in the recovery of gross margins.

The improvement in the cash balance at the year-end reflects the positive cash flow from the operating subsidiary in China, combined with a lower inventory level. The increase in the accruals and other payables results from the re-classification of the amount due to Inner Mongolia for the purchase of land, which was previously included as part of Mr Wang's loan balance.

UK and Singapore overheads have shown a slight year-on-year decline and are running at £220,000 per annum.

Overall, the Group has generated an operating profit of £100,000 compared to £600,000 for the previous year. In addition, loan stock interest, which was previously capitalised as part of the Inner Mongolian development, has now been expensed.

Inner Mongolia

As previously reported, a framework to determine the amount of compensation has been agreed and within that framework, preliminary indicative figures would indicate that the compensation could be sufficient to cover the current carrying costs (£2.5 million). Currently, the negotiations are on hold whilst the land audit takes place, and once this is concluded, it is expected that negotiations will restart.

In my interim results statement on 23 June 2014, I indicated that the balance sheet had previously stated that that the funding for the land purchases had been provided by the Company's CEO, Mr Wang Yan Ting ("Mr Wang"). This has proven not to be the case as the funding was provided by either loans or grants from the local industrial zone. As the documentation for the loans/grants from the local authorities is minimal, the Board have adopted a prudent approach in assuming the entire purchase was loan funded. Accordingly, the accounts have been reclassified to reflect the change in liability which has no effect on the reported net assets. Thus, a key task for the coming year is to bring the controls into line with current best practice among Chinese companies as part of our work to improve corporate governance.

Linyi

In respect of the proposed move to a new site within Linyi, an agreement has largely been reached with the new land identified and the relocation package outline agreed, with the Linyi authorities covering the cost of a new building and infrastructure as well as reimbursing expenses for moving. It is not expected that there will be any direct cash compensation, merely a substitution of an old plant for a new one. In respect of the equipment, it is expected that this will be a combination of new plant, the existing plant and the equipment purchased for Inner Mongolia. Timing for the conclusion of the negotiations and the start of building is expected to be in the first half of 2015.

Loan notes

As announced in August 2014, the outstanding loan stock of £3.6 million (including accrued interest and redemption premium) was rolled over until 31 December 2014 to allow sufficient time for the loan to be repaid. Currently, the loan notes remain outstanding and are therefore in default. The Company is in discussions with a number of the loan-note holders and has recently visited China to expedite the redemption of the outstanding loan stock. Discussions have taken place with Mr Wang and the Company's advisors and a plan has been agreed to take the necessary action to redeem the outstanding loan stock. LVST, the Group's Chinese subsidiary had approximately £6.9 million in the bank at the year-end (£7.2 million as of 30 November 2014). The timing of the process is uncertain, however, the Board anticipates that the necessary actions will be put in place within the next few months.

As I reported in the trading update last month, Mr Wang agreed in the October Board meeting for LVST's funds to be transferred and again at the Board meeting on 7 December 2014, he confirmed this statement. To ensure that the repayment happens on a timely basis, the Board have appointed eCFO, which is a business consultancy, based in China with over 20 years' experience of dealing with such issues, both to advise and to implement the Board's funds repatriation policy.

Board changes

As I mentioned in the interim statement, the Board was going to take steps to appoint two China experienced bilingual directors and as part of this process, I am pleased to report that Jay Newman has today been appointed as a non-executive director. Jay has over 20 years experience of working in China and specifically, he has been working with me over the last 18 months as the Loan Notes observer. I welcome his appointment. In respect of the appointment of the second director, the Board has agreed to appoint a particular candidate subject to certain due diligence. It is expected that in addition to these two appointments, the Board will be further strengthened.

Cash

As shareholders have been aware and in order to fund the Singapore office and the UK listing costs, cash has been raised during the year to fund the non-China costs: obviously with a net cash position of approximately of £4 million, the raising of additional cash is unsatisfactory and therefore as part of eCFO's involvement they will be reviewing the necessary processes required to fund overseas expenditure.

Going concern

Whether the Group will have sufficient resources to continue in operational existence for the foreseeable future will ultimately be dependent on the repayment of the outstanding loan notes and the successful initiation of the funds transfer out of China. On an ongoing basis, the Company will remain reliant on a regular transfer of funds out of China to meet the costs of running an AIM listed public company and to repay the outstanding convertible loan notes.

Outlook

Demand for the Group's products remains strong, but the hurdles of cash transfers, Inner Mongolian negotiations, the Linyi move and Mr Wang's reluctance to engage with the Board have all contributed to a challenging year. Significant progress has been made on all fronts, but there are challenges in the coming year which, if not resolved quickly, could prove as difficult as last year's. However, once the convertible loans have been repaid, the Board expects the Group to return to a more normal state of activity and seek opportunities to return to growth.

John McLean

Chairman

19 January 2015

Unaudited Consolidated Statement of Comprehensive Income

Unaudited Consolidated Cash flow statement

For year ended 30 September 2014

Notes to the financial information

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 2014 will be prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS").

The accounting policies adopted by the Group are consistent with those of the previous financial year except in the current financial year, the Group has adopted all the new and revised standards and Interpretations of IFRS that are effective for annual periods beginning on or after 1 October 2013 and as outlined below. The adoption of these standards and interpretations did not have any effect on the financial performance or position of the Group and the Company.

Going concern

The preparation of financial information requires an assessment on the validity of the going concern assumption. The validity of the going concern assumption is dependent on finance being available for the continuing working capital requirements of the Group and finance for the development of the Group's projects becoming available.

As discussed in the Chairman's Statement, the following key areas impact on the going concern basis:

· The Company's requirement for either further equity fund raising or the transfer of funds from the Chinese operations in order to meet its ongoing costs.

· The Company has convertible loan notes which matured on 31 December 2014, having been extended twice. The repayment, conversion or renegotiation of the loan notes is dependent on matters such as the performance of the Group and the point highlighted above.

In approving this financial information, the Board has recognised that the combination of these circumstances creates a level of uncertainty. However, having made enquiries and considered the uncertainties outlined above, the directors have a reasonable expectation that the Company and the Group have sufficient resources to continue operational existence for the foreseeable future.

Accordingly, the Board believes it is appropriate to adopt the going concern basis in the preparation of the financial information.

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 2015.

3. Segmental information

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

Year ended 30 September 2014

Year ended 30 September 2013

4. Impairment loss

In the prior year, the Directors decided not to continue to pursue the commencement of rebuilding the existing facility in Inner Mongolia. The Group continues to seek compensation and negotiations are currently taking place on the understanding that the compensation agreement will be 'fair and reasonable' to both parties.

The net book value of the non-current assets in respect of Inner Mongolia prior to any impairment amounted to £9,138,000, of which £1.65 million included within intangible assets, and the remaining £7.59 million included within plant, property and equipment. The Directors made an impairment provision against all of the intangible assets (£1.65 million) as well as £5.03 million against property, plant and equipment. The total provision in this respect amounts to £6.68 million. The unprovided non-current assets relate to equipment purchased which the Directors expect to use in a new facility.

The provision will be reassessed when the quantum of the compensation agreement has been agreed.

5. Income tax expense

* The Company is subject to a United Kingdom Tax rate of 23% (2013: 25%). 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% (2013: 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.

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 £678,616 (2013: £639,724) at the year-end in respect of losses amounting to £2,950,504 (2013: £2,284,727) that can be carried forward against future taxable income since future profits were not considered probable.

6. 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 and convertible loan notes are anti-dilutive and are not included in the calculation.

7. Convertible loan notes

The convertible loan notes were issued on 27 August 2010,25 February 2011 and 26 April 2013. 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 31 August 2014. The loan notes are convertible at £0.09 per share at the option of the loan note holder. The effective interest rate used to calculate the interest charged to the income statement was 12%.

On 29 August 2014, the loan notes were rolled over for a further period of 4 months to 31 December 2014 with a redemption premium equal to 20% of the principal amount outstanding if the principal is repaid between 1 November 2014 and 31 December 2014. As at the date of these statements, the loan notes remain outstanding and are in default.

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 2014 to be approximately £3,096,777 (2013: £2,685,414).

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, 25 February 2011 and 26 April 2013 can be converted into such number of new fully paid ordinary shares of the Company at a conversion price of 9 pence per share at any time up to the final redemption date of 31 December 2014. As at 30 September 2013, 29,866,667 ordinary shares are reserved for issue. No conversion took place during the year.

On 15 July 2014, the Ordinary Shares of £0.06 were redenominated and split into New Ordinary Shares of £0.001 each and Deferred Shares of £0.059 each. The Deferred Shares are not entitled to receive dividends or other distributions, does not entitle the holder to vote or speak at General Meetings of the company, and provide a return of assets on a winding up after the repayment of the capital paid-up on the Ordinary Shares.

On 16 July 2014, the Company issues 2,500,000 Ordinary Shares of £0.001 at a premium of £0.05 per share.

On 15th December, 6,000,000 ordinary shares of 0.01p were issued at 4p per share, raising £240,000.

The movement on the share premium account was as follows:

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 2014 and 2013.

The financial information for the year ended 30 September 2013 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 2014 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 auditors have indicated that in view of the Company's need to seek to renegotiate the terms of the loan notes and the requirement for additional capital or the transfer of funds from China, the auditors report may draw attention to these matters by way of emphasis in connection with the assessment of going concern, without qualifying their report. It is anticipated that the report and accounts for the year ended 30 September 2014 will be posted to shareholders in March 2015.

The directors do not propose a dividend in respect of the year ended 30 September 2014 (2013: nil).

The Board of Directors approved this announcement on 16 January 2015.

- Ends -