Sorbic : 23 June 2014 - Interim Results

Press Release 23 June 2014 Sorbic International Plc

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

Interim Results

Sorbic International plc, (AIM:SORB), a leading sorbates producer in China, today announces its unaudited Interim Results for the six months period ended 31 March 2014.

Summary

• Revenue for the period increased by 7% to £7.5 million (H1 2013: £7.0 million)

• Gross profit margin for the period rose to 11.9% (H1 2013: 10.7%)

• Operating profit for the period improved to £0.258 million (H1 2013: £0.103 million)

• EBITDA for the period of £0.554 million (H1 2013: £0.408 million)

• Net cash balance at the end of the period of £6.61 million (H1 2013: £6.60 million)

• Net assets of £9.95 million as at 31 March 2014 (H1 2013: £17.35 million)

John McLean, Chairman, commented: "These results show a significant improvement in both revenues and operating profits when compared to the same period in 2013. As food safety in China becomes ever more important, coupled with the advent of increased numbers of supermarkets, more consumers and a greater range of products, the Board expect the Company's products to become increasingly in demand."

- Ends - For further information: Sorbic International Plc

John McLean, Chairman Tel: [phone] www.sorbicinternational.com

FinnCap (Nomad)

Geoff Nash / Ben Thompson (Corporate Finance) Tel: [phone]

Hybridan (Broker)

Claire Louise Noyce Tel: [phone]

Media enquiries: Abchurch Communications

Henry Harrison-Topham / Canace Wong Tel: [phone] [e-mail] www.abchurch-group.com

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, Peoples Republic of China. Approximately half of Sorbic International's production is sold to overseas markets 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 Operational overview

During the six months to 31 March 2014, revenues have increased by £500,000 representing a 7% uplift, whilst operating profits have increased to £256,000, which represents a significant improvement against the half year result for 2013.

This operating improvement has been driven by a number of factors which includes an improved margin performance of 11.9% (2013: 10.7%), due to a combination of improved selling prices and reduced cost of sales, together with a small reduction in administrative expenses.

Following the above performance, EBITDA improved to £554,000 (H1 2013: £408,000).

As food safety in China becomes more important, which together with the advent of more supermarkets, more consumers and a greater range of products, demand for the Company's products is expected to increase further. Accordingly the need to expand Sorbic's production capacity becomes even more critical.

Against this background, the discussions to expand production in Linyi have slowed and as a result the Board is taking steps to remedy matters by the appointment of at least two China experienced bilingual directors together with an internal rearrangement of responsibilities. As soon as these appointments have been made, shareholders will be updated.

Negotiations with Inner Mongolia in March 2014 over the Ulanquab compensation have resulted in an agreed framework for compensation, which will be expedited once the rearrangement of responsibilities (as mentioned above) has occurred.

As can be seen from the balance sheet, the Group has over £6.6 million in the bank and, as previously announced, these funds are needed both to repay the outstanding loan stock and meet ongoing plc costs. Since admission to AIM, the Legal Representative of LinYi Van Science and Technique Co Ltd ("LVST"), the main trading subsidiary of Sorbic, has been Mr. Wang Yan Ting, the Company's CEO. Mr. Wang remains reluctant to allow funds to be transferred to the UK and accordingly the Board has now decided to replace him in this capacity. The Company has today announced a placing to raise £250,000 million which is

expected to provide sufficient funds for Sorbic International plc until the transfer of legal representative is complete. Surplus cash can then be transferred to the UK.

As can be seen in note 4 to these results, the Board believes that the representations made by the Company's CEO concerning a loan that he had purported to have made to the Company for the purchase of the land in Inner Mongolia is incorrect. Following a meeting with the Inner Mongolian authorities, it has become apparent that the land was purchased for a nominal amount. The land certificate recorded the gross amount of the transaction (£1.65 million), with a corresponding loan to fund the purchase. However the industrial zone policy was to provide land for a nominal amount, and therefore provided grants for the full amount to cover the purchase. As these costs, were impaired in the year ended 30 September 2013, the impact of this item on the net assets as set out in the consolidated balance sheet is not expected to decrease the net assets of the Group.

During the six month period, the exchange rate for the £ against the RMB has strengthened, and as a result the Group has had unrealised foreign exchange losses of £237,000 which compares to a gain of £328,000 for the previous six months. In addition, there have been adverse exchange differences arising from translating foreign operations, and in aggregate, these exchange fluctuations have, as at 31 March 2014, given rise to a foreign currency translation reserve of £1,916,000.

Outlook

As can be seen from the results and the positive food climate, the Company's products are in demand. However, there remains a number of internal structural issues which need to be addressed so that the Group can move forward. Steps are being taken to resolve these issues and shareholders will be updated with progress.

John McLean Chairman

20 June 2014

Unaudited consolidated statement of financial position As at 31 March 2014 Notes Six months ended 31 March 2014

Six months ended

31 March

2013

Year ended

30 September

2013

Unaudited Unaudited Audited £ £ £ Revenue 7,472,712 7,049,273 14,619,913

Cost of sales (6,580,780) (6,295,243) (12,726,137)

Gross profit 891,932 754,030 1,893,776

Distribution and selling expenses (88,653) (87,755) (184,121) Administrative expenses (545,748) (563,671) (1,105,984)

Operating profit 257,531 102,604 603,671

Impairment loss 4 - - (6,684,701) Other income 16,404 26,271 30,867

Finance costs (2,488) (33,377) (74,471) Unrealised foreign exchange (loss)/gain (237,124) 328,314 (5,016) Profit/(loss) before taxation 34,323 423,812 (6,129,650)

Income tax expense 5 (109,512) (65,907) (221,240)

Profit / (loss) for the period (75,189) 357,905 (6,350,890) Other comprehensive income

- Exchange differences on translating

foreign operations (431,134) 827,106 288,423

Total comprehensive (loss)/ income, net of tax (506,323) 1,185,011 (6,062,467) (Loss)/profit attributable to equity holders of the parent Total comprehensive (loss)/ income for the year attributable to equity holders of the parent (75,189) 357,905 (6,350,890)

(506,323) 1,185,011 (6,062,467)

Earnings per share (pence): 6

Basic (0.14) 0.79 (13) Diluted (0.14) 0.65 (13)

Unaudited consolidated statement of financial position As at 31 March 2014 As at 31 March 2014 As at 31 March 2013 As at 30 September 2013

Assets

Non-current assets

Unaudited Unaudited Audited £ £ £

Property, plant and equipment 5,569,982 11,580,072 6,001,071
Land use rights 2,097,746 4,076,060 2,243,331

7,667,728 15,656,132 8,244,402

Current assets

Inventories 520,810 459,138 1,083,429
Trade receivables 762,220 1,228,302 1,271,036
Prepayments, deposits and other receivables 199,831 278,494 259,040
Amount due from director 5,895,483 6,460,663 6,142,668
Cash and cash equivalents 6,607,177 6,597,116 5,311,311

13,985,521 15,023,713 14,067,484

Total assets 21,653,249 30,679,845 22,311,886

Equity and liabilities

Current liabilities

Trade payables 136,390 110,962 96,226
Advanced payments - 197,122 161,143
Accruals and other payables 378,838 303,390 225,336
Amount due to directors 8,324,430 8,929,998 8,588,833
Borrowings - 1,256,400 - Current tax liabilities 34,470 81,547 102,780

Convertible loan notes 2,833,290 - 2,685,414
11,707,418 10,879,419 11,859,732

Non-current liability

Convertible loan notes - 2,450,983 -

Total liabilities 11,707,418 13,330,402 11,859,732

Capital and reserves

Share capital 3,203,159 2,899,730 3,203,159
Share premium 22,120,265 22,073,505 22,120,265
Capital reserve 2,703,062 2,899,699 2,788,918
Surplus reserve 481,856 516,909 497,161
Retained earnings 806,833 7,560,817 882,022
Share based payment reserve - 30,000 - Reverse acquisition reserve (20,911,925) (20,911,925) (20,911,925) Foreign currency translation reserve 1,916,092 2,656,042 2,246,065
Hedging reserve (451,353) (451,353) (451,353) Convertible loan notes - Equity 77,842 76,019 77,842

Total equity 9,945,831 17,349,443 10,452,154

Total equity and liabilities 21,653,249 30,679,845 22,311,886

Unaudited condensed statement of cash flows For the six month period ended 31 March 2014 Six months ended 31 March 2014

Six months ended
31 March
2013
Year ended
30
September
2013

Cash flows from operating activities Unaudited Unaudited Audited £ £ £

Profit/(loss) for the period 34,323 423,812 (6,129,650)
Adjustments for:
Amortisation of prepaid land lease payments 26,322 26,646 54,109
Depreciation 270,491 278,765 564,294
Impairment loss 6,684,701
Interest income (16,404) (26,271) (30,867) Interest expense 2,488 33,378 74,471

Operating profit before working capital changes: 317,220 736,330 1,217,058
Changes in working capital
(Increase)/decrease in inventories 529,268 (4,940) (646,583) (Increase)/decrease in trade and other receivables 689,827 (7,877) 174,505

Increase/(decrease) in trade and other payables 58,113 225,019 (19,525) Cash generated from operating activities 1,594,428 948,532 725,455
Interest paid (2,488) (33,378) (150,543)
Income tax paid (136,903) (65,907) (74,471)

Net cash generated from operating activities 1,455,037 849,247 500,441 Cash flows from investing activities

Interest received 16,404 26,271 30,881

Net cash generated from investing activities 16,404 26,271 30.881 Cash flows from financing activities

Proceeds from issuance of new share - 109,890 535,078
Loan from financial institution - 1,256,400 1,208,400
Repayment of loan from financial institution - - (1,208,400) Proceeds from issuance of convertible loans notes - - 88,260

Net cash generated from financing activities - 1,366,290 623,338 Net increase in cash and cash equivalents 1,471,441 2,241,808 1,154,660

Cash and cash equivalents at the beginning of the
period 5,311,311 4,174,723 4,088,593
Exchange (loss)/ gain on cash and cash equivalents (175,575) 180,585 68,058

Cash and cash equivalents at the end of the period 6,607,177 6,597,116 5,311,311