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 2013.

Summary

John McLean, Non-Executive Chairman of Sorbic International, commented: "The Board is pleased that during the year the core business has significantly improved profitability and more than doubled EBITDA. The Board remains focused on resolving cash flow constraints, as well as continuing to work to seek a conclusion of the negotiations regarding the Inner Mongolia facility, and will update shareholders on this matter in due course."

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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 period under review has seen margins in the core business strengthen, despite the backdrop of volatility in the market. The Board remains focused on further improving the Group's operational performance at its Linyi facility and on concluding the negotiations regarding its facility in Inner Mongolia.

Although Sorbic acid selling prices have weakened slightly during the year, this has been offset by a decrease in cost of sales which has improved the margin from 4.1% to 5.6%. Potassium sorbate prices have seen a marginal increase in selling price which, combined with a decrease in cost of sales, has resulted in the margin improving to 20.2% from 13.1% for 2012. As a result of the margin improvements in both business segments, .the overall gross margin has increased from 8.6% to 12.95%, which reflects the cost of sales improvement, but more importantly a constant customer demand, thereby reducing 'spot' sales and allowing more focus on quality and production efficiency. The removal of 'spot' sales has resulted in lower revenues although the factory has remained operating at full capacity.

The relationship with APAC, the Group's US distributor, continues to develop and for the year represented 45% of total sales compared to 26% for 2012. This increase of over 50%, which is largely a testament to the high quality product that the Linyi facility produces and the growing demand in the US for the Company's products. As a result of this developing relationship, the balance of sales has shifted from China towards exports and in 2013 only 47% of sales were domestic. This is expected to reduce further in 2014 as the APAC relationship continues to develop.

Inner Mongolia facility

As announced on 23 April 2013, the Group had reached agreement with the local authorities in Ulanqab City, Inner Mongolia authorities over compensation terms and the resumption of building in Ulanqab, totalling approximately £5 million. However, with the advent of discussions in Linyi over a possible site re-location due to the redevelopment zone, the Board decided that it should not continue to pursue the commencement of rebuilding in Inner Mongolia while the option existed to expand within Linyi. Accordingly the local authority in Ulanqab City has been informed that the Company no longer wishes to pursue its original plan in Inner Mongolia and will continue to seek compensation. Negotiations are currently taking place on the understanding that the compensation agreement will be 'fair and reasonable' to both parties. An open dialogue exists with the Inner Mongolia authorities.

Given the investment to date of approximately £9.138 million in Inner Mongolia, the Board has decided that an impairment provision be made of £6.684 million, representing all of the costs incurred to date, but excluding 50% of the equipment which has already been paid for and is considered re-useable in the construction of the new facility in Linyi. The provision will be released when the quantum of the compensation agreement has been agreed.

Linyi facility

As announced on 30 May 2013, the Company has been approached by the local authorities in Linyi City to relocate the Company's facility to a nearby industrial park, whereby it is expected that an enhanced facility can be created. Negotiations are still ongoing and are lengthy, particularly as there is a need to balance the requirement to move quickly against the quantum offered for compensation. It is anticipated that the new site would be approximately 100 mou, compared to the existing site in Linyi of 66 mou. As detailed in the Interim Results in June 2013, the Board believes that the building of a new factory on an industrial park in Linyi would be funded in entirety by the Linyi authorities.

The Company's land values have increased significantly during Sorbic's occupancy of the Linyi site and the Directors estimate that this increase could be in excess of five times the Company's original cost (66 mou at approximately 80,000 RMB/mou) which, if realised through the compensation agreement, would give the Company a substantial inflow of funds to develop the new site.

Loan notes

The Group has £5.3 million at bank in China, and this cash position is more than adequate for working capital purposes for the existing operations. Following the re-negotiations of the loan notes earlier this year (of which £2.69 million remains outstanding), the Company extended the repayment date to 31 August 2014 and has revised the convert price to 9 pence. In light of significant recent progress the Company is currently formulating a plan to address the future needs for all stakeholders and will provide an update as matters develop.

Board change

As previously stated, the Board has been seeking another Non-Executive Director but has, in the interim, appointed James Newman as a consultant and who also acts as an observer to the loan-stock holders. James speaks Mandarin and has been operating in China for over 20 years. Accordingly, until the new factory plan and associated compensation is finalised and in order to minimise costs, any appointment of a new Non-Executive Director will be deferred.

Going concern

Whether the Group has sufficient working capital resources to continue operational existence in its present form will ultimately be dependent on the outcome of discussions with the loan note holders / shareholders and the successful conclusion of the Inner Mongolia compensation negotiation. Irrespective of the outcomes achieved, the Company will need to transfer funds out of China or raise additional capital to meet ongoing costs and in order to have sufficient resources to meet its obligations as they fall due.

Operational outlook

The Board will continue to focus on improving operational efficiencies at its Linyi facility, as well as concluding negotiations in Inner Mongolia and Linyi and formulating a plan for the future strategy of the Group. Trading post the year end has been in line with management expectations and the Group expects that 2014 will see a resolution of the outstanding matters.

John McLean

Chairman

10 December 2013

Unaudited Consolidated Statement of Comprehensive Income

Unaudited Consolidated Cash flow statement

For year ended 30 September 2013

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 2013 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 2012 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 successful resolution of the ongoing discussions with the local authorities in Ulanqab City, Inner Mongolia

· 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 mature on 31 August 2014. The repayment, conversion or renegotiation of the loan notes is dependent on matters such as the performance of the Group and the successful conclusion of the points highlighted above in respect of the plant in Inner Mongolia.

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 2014.

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 2013

Year ended 30 September 2012

4. Impairment loss

During the 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 is included within intangible assets, and the remaining £7.59 million is 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 24% (2012: 26%) 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% (2012: 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 £639,724 (2012: £639,724) at the year-end in respect of losses amounting to £2,284,727 (2012: £2,284,727) that can be carried forward against future taxable income since future profits were not considered probable.

6. Loss per share

Basic

Diluted

Diluted loss 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. 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 2013 to be approximately £2,685,414 (2012: £2,310,412).

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 August 2014. As at 30 September 2013, 28,477,778 ordinary shares are reserved for issue. No conversion took place during the year.

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 2013 and 2012.

The financial information for the year ended 30 September 2012 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 2013 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, the requirement for additional capital or the transfer of funds from China, and the ongoing Inner Mongolia compensation negotiation, 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.

The directors do not propose a dividend in respect of the year ended 30 September 2013 (2012: nil).

The Board of Directors approved this announcement on 9 December 2013.

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