Sorbic International Regulatory News (SORB)

30 Nov 2009 07:00



Sorbic International Plc

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

Final Results

For the year ended 30 September 2009

Sorbic International, (AIM: SORB.L), the food preservative group, is pleased to announce its results for the year ended 30 September 2009. Sorbic International changed its year end to September as a result of the acquisition of Honour Field and thus comparative figures represent a nine month period.

Results Summary

Revenue for the period is £14.45 million (2008: £11.66 million)

Gross profit margin for the period of 35.0% 

Pre-tax profit of £3.30 million (2008: £3.26 million).Profit after tax £2.79 million (2008: £2.80 million)

Net assets of £13.02 million (2008: £10.23 million)

Basic earnings per share 9.87 pence (2008: 16.92 pence)

Cash reserves at the end of the period of £5.99 million reflecting reliable cash flow and strength of the business model (2008: cash reserves of £6.50 million)

Net capital investment of new facilities in China during the period approximates to £3.79million.

As predicted in the interim results announced in May the Group has experienced reduced levels of order visibility in the second half. Visibility has since started to recover.

Post Year End - New Production Site

Investment to build two new purpose built production lines in new site in Inner Mongolia

Increasing production capacity to 7,500 tonnes per annum

New production capacity will benefit from significant efficiencies

The availability of resources such as coal, electricity and water at a lower cost will improve gross profit margins by approximately 20% and enhance the Company's competitive advantage;

Tax incentive that lowers effective rate of tax from 25% to 15% (a 40% saving) for the next 10 years;

New site benefits from modern infrastructure and excellent energy, water and transport links

Build expected to commence Spring 2010 and completed Autumn 2010

Commenting, John McLean, Chairman of Sorbic International, said:

"We are delighted to report that trading remains robust and in the year ended 30 September 2009, results are broadly in line with expectations on a constant currency basis and are a great credit to the operational management team, particularly given that they have been achieved in a period of the most demanding economic conditions we have ever seen. 

"The Board is confident that Sorbic International will continue to make progress during the current year, buoyed by a more robust economic environment and we remain focused on delivering value to shareholders. We are particularly excited by the opportunity that we now have in Inner Mongolia which is expected to drive the next phase of growth for the Company."

www.sorbicinternational.com

Sorbic International Plc

CHAIRMAN'S STATEMENT

Introduction

We are delighted to report that trading remains robust and in the year ended 30 September 2009, results are broadly in line with expectations on a constant currency basis and are a great credit to the operational management team, particularly given that they have been achieved in a period of the most demanding economic conditions we have ever experienced. 

The consolidated results for year ended 30 September 2009 show turnover of £14.44 million (nine month period ended 30 September 2008: £11.66 million), profit before tax of £3.30 million (2008: £3.26 million) and profit after tax of £2.79 million (2008: £2.80 million).

Gross margin decreased from 37.5% to 35.0%, while net profit margin also decreased from 24.0% to 19.3% due to a decrease in unit selling price. 

In summary, the Group achieved earnings per share of 10 pence (2008: 17 pence). 

The business climate that the Group experienced in the financial year has been unprecedented in terms of global financial crisis. On a domestic basis in China, the position was further exacerbated by the melamine contamination in Chinese milk products during early 2009. This unfortunate event heightened the awareness of food safety in China but it did not deter the strong demand for our products, partly due to our high food safety standards.

The long standing emphasis on customer service and the process and quality certification gained allowed the Group to maintain our customers' confidence during the challenging market conditions.

Market Overview

In response to the global economic recession, the Chinese government announced expansionary fiscal measures to stimulate the domestic economy, together a RMB4 trillion fiscal stimulus package to boost domestic investment and demand. The effects of the stimulus have been effective and most recently we have seen recent market indicators such as Purchasing Manager Index (PMI) that show China's manufacturing output operating in an expansionary mode. In addition most recently, the Chinese government has reiterated its high level of confidence that the economy will reach and perhaps exceed its GDP growth target of 8% in 2009.

In addition, a new food safety law was implemented on 1 June 2009, as part of the ongoing effort to ensure food safety and high food manufacturing standards.

The Group started the financial year strongly, however, it was unable to buck the recessionary trend that swept through the world. Faced with operational challenges in the industry, many of our competitors discounted heavily to de-stock and maintain sales and whilst the results for the first six months of the year were encouraging, the Group saw reduced levels of pricing and order visibility which, in the second half of the year, resulted in a lower level of profitability. We are pleased to have seen a gradual improvement in levels of trading as we moved into the new financial year, with a return to levels of enquiries which encourage the Board to now move ahead with its plans to expand production capacity which is referred to below under Strategy and Outlook.

Corporate Developments

We are committed to maintaining a high standard of corporate governance, financial controls and reporting systems. To further complement and support the Board, we have appointed BDO (Singapore) LLP, as our internal auditors.

Issue of deferred consideration shares

 The profit after tax target of RMB 60 million for the year ending 31 December 2008 was exceeded. Accordingly 10,300,000 New Ordinary Shares of 6p each (Deferred Consideration Shares) were allotted and admitted to trading on AIM in March 2009.

Strategy and Outlook

China, as the fastest growing economy in the world, was not spared in the global economic crisis. However, the Board views the situation as temporary and is optimistic of the long term growth of the PRC economy. We are greatly encouraged by the recent statements from the Chinese government that the domestic is on track to meet its goal of 8 per cent growth in GDP for 2009.

Whilst the food additive industry in China remains highly competitive, the Group maintained its strong market position as the third largest sorbate salt producer in China and therefore one of the leading producers in the World today.

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.

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. 

New Production Lines - Inner Mongolia

On 28 October 2009 we were pleased to announce our decision to move ahead with the construction of Sorbic's new production lines in Inner Mongolia. The Board believes this will bring significant commercial advantages to the Company, not least in our competitive standing in both the domestic and international markets places as we see greater demand for our products.

The new investment was to take place at the Group's current production facility in Linyi, Shandong province where the existing facilities are operating at full capacity. As current demand exceeds production, two more production lines to double the existing capacity were proposed to be built on the existing site in Linyi. However, the Group was invited to build the planned new facility in Chahar Industrial Park in Inner Mongolia in August 2009. The proposal was approved after strong supportive feasibility reports that emphasized a number of advantages as follows:

The availability of resources such as coal, electricity and water at a lower cost which will improve gross profit margins by approximately 20% and enhance the Company's competitive advantage;

Tax incentive that lowers effective rate of tax from 25% to 15% (a 40% saving) for the next 10 years;

Cheap industrial land resource at less than 45% of the National benchmark land price; and

As an early entrant into Chahar Industrial Park, the Company should be able to foster stronger relationship with local government which has committed full support for its construction project and future development plans.

We believe that the long term financial gains from relocation are substantial and these outweigh the additional investment amounting to £800,000 in addition to the overall planned investment of £9.5m to take the new operation to first production.

The Board is confident that Sorbic International will continue to make progress during the current year, buoyed by a more robust economic environment and we remain focused on delivering value to shareholders. We are particularly excited by the opportunity that we now have in Inner Mongolia which is expected to drive the next phase of growth for the Group. These new facilities will provide Sorbic International with purpose built production facilities which should benefit from significant efficiencies. Inner Mongolia is also very well logistically positioned with a modern infrastructure across energy, water and transport. The new site will also have the opportunity for additional expansion as we look towards greater capacity in order to meet growth in anticipated future demand.

The Board would like to thank the management and the employees for their hardwork and their continued dedication to the Group which has made Linyi Van Science and Technique Company Limited ("LVST") the Top-50 enterprise in Linyi City in 2008.

John McLean 

Chairman

30 November 2008

Consolidated Income Statement

Consolidated Balance Sheet

Consolidated Cash flow statement

  Consolidated Statement of Changes in Equity

Notes to the Financial Information

1. General information and principal activities

The Group's principal activities comprise 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").

Sorbic International Plc, 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 listed on the AIM Market of the London Stock Exchange.

The financial information set out in this preliminary announcement does not constitute the Group's financial statements for the year ended 30 September 2009 and the nine month period ended 30 September 2008, but is derived from those financial statements. This financial information has been prepared in accordance with applicable International Financial Reporting Standards as adopted by the European Union ("IFRS") and using accounting policies which are consistent with those applied in the financial statements for the nine month period ended 30 September 2008.  

The financial statements for the year ended 30 September 2008 were prepared in accordance with IFRSs and under the historical cost convention and have been delivered to the Registrar of Companies.

The financial statements for the year ended 30 September 2009 will be delivered to the Registrar of Companies following the Company's Annual General Meeting on 15 January 2010. The auditors' report on both accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under sections 237(2) or (3) of the Companies Act 1985. 

The full audited financial statements of Sorbic International Plc for the year ended 30 September 2009 are expected to be posted to shareholders in due course and will be available to the public at the Company's registered office, and available to view on the Company's website at www.sorbicinternational.com. 

The directors do not propose a dividend in respect of the year ended 30 September 2009 (2008: nil).

The directors have approved the financial statements for the year ended 30 September 2009 and this announcement on 30 November 2009.

3. Turnover

All revenue relates to the sales of goods. Turnover represents the invoiced value of goods, net of discounts and returns.

An analysis of the Group's turnover is as follows:

4. Income tax expense

* 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% (2008: 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 subsidiary operates, based on existing legislation, interpretation and practices in respect thereof.

The Group's subsidiary, 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. 

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 £192,541 (2008: £27,931) in respect of losses amounting to £687,648 (2008: £99,755) that can be carried forward against future taxable income since future profits were not considered probable. 

5. Earning per share and dividends

Basic

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.

6. Share capital

The movement on the share capital account was as follows:

The movement on the share premium account was as follows:

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 consolidations 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.

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.

Additional cost has been deducted from the share premium since these costs relate to professional services in relation to the issue of shares.

7. Contingent liability

The Group has been informally told by the Chinese tax authorities that a tax liability of up to £1 million may be due arising from the acquisition of LVST. However, the Company has sought advice and based on this advice the Board do not believe that any amount is due.