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Sorbic International (SORB)

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Tuesday 30 June, 2015

Sorbic International

Interim Results

RNS Number : 6812R
Sorbic International PLC
30 June 2015
 

 


30 June 2015

 

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 2015.

 

Summary

 

·  

Revenue for the period was £6.6 million (H1 2014: £7.5 million)

·  

Gross profit margin for the period of 6.9% (H1 2014: 11.9%)

·  

EBITDA for the period of £0.05 million (H1 2014: £0.554 million)

·  

Net loss after tax of £0.46 million (H1 2014: loss of £0.08 million)

·  

Net cash balance at the end of the period were £7.93 million* (H1 2014: £6.61 million)

·  

Net assets of £11.30 million* as at 31 March 2015 (H1 2014: £9.95 million)

 

*Due to the 'events' described below, the Company has no control over the cash balances which may no longer be in a Company controlled bank account.

 

- Ends-

For further information:

Sorbic International Plc


John McLean, Non-Executive Chairman

Tel: +44 (0) 7768 031 454


 www.sorbicinternational.com

 

 

Media enquiries:

Abchurch Communications


Henry Harrison-Topham / Canace Wong

Tel: +44 (0) 20 7398 7709

[email protected]

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, 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

The Board reports that the Group's operating subsidiary, Linyi Van Science and Technique Co., Ltd ("LVST") revenues for the six months ended 31 March 2015 were £6.6 million (RMB 62 million), which is down on the prior period (2014: £7.5 million and RMB 75 million), and is mainly due to a reduction in selling prices (particularly in February and March) and an element of foreign exchange.  This has impacted LVST's overall operating margin for the half year, which was 6.9% (2014: 11.9%), as well as a reduction in LVST's EBITDA to £0.05 million compared to £0.55 million for 2014. The finance cost for the period includes £0.49 million representing the redemption premium which was agreed at the time of the roll-over in August 2014 in the event that the loan-notes were not redeemed by 31 December 2014.

Revenues continue to be dominated by exports to the US (via the APAC Chemical Corporation) and Chinese domestic business.

Margins for Sorbic Acid have fluctuated widely during the period from 9% in January to a negative 3% in March, whilst Potassium Sorbate margins have also moved significantly from 14% in January to 4% in March. The significant margin change was partly due to the timing issue of Chinese New Year, and according to Mr Wang Yan Ting ('Wang'), the Company's former CEO, an increase in power costs due to a move from coal generation to gas generation. As further explained below, due to the events on 22 April ('events'), it has not been possible for the Board to gain any further information from the Linyi management.

UK and Singapore overheads remain in line with budget, with the exception of an approximate additional £75,000 to £100,000 to cover legal and other costs associated with the events.

The net assets as at 31 March 2015, show an improvement to £11.3 million compared to the full year as at 30 September 2014 of £10.12 million, which is due to currency appreciation against Sterling. Notwithstanding the events, the cash balance as at the period end has been reflected without any adjustment.

Loan Notes repayment

As announced on 29 August 2014, the outstanding loan note principal of £2.5 million was rolled over until 31 December 2014 to allow sufficient time for the loan notes to be repaid.  Discussions took place with Mr Wang and the Company's advisors and a plan had been agreed to take the necessary action to repay the outstanding loan note as the Company's subsidiary ("LVST") had approximately £6.9 million in the bank at the year-end. 

Mr Wang agreed in the October 2014 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 transfer actually happened, the Board 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.

During January and February 2015, it became apparent that Mr Wang had no intention of releasing any funds, which was confirmed at a Board meeting in March. 

In addition, during that time, the Board had been unable to adequately progress resolution of the compensation due regarding Inner Mongolia and the proposed expansion of the Company's operations in Linyi.

To remedy this position, the two UK-based directors sought and followed the advice from the Company's lawyers and advisers in China and announced on 22 April 2015, the removal of Mr Wang, the Group and Company CEO, from office, both at the Board (plc) level and in respect of the operating subsidiary ("LVST") in China.  Furthermore, the Board voted to terminate Mr Wang's role as Legal Representative in China and to replace him with Mr Cai Jun, the Managing Partner of Guolan, a Beijing law firm.  As part of the change, the remaining two Directors of LVST were also replaced.

For the change in Legal Representative to be legally (as opposed to corporately) effective, the change has to be registered with the relevant branch of the State Administration of Industry and Commerce. This has not occurred for the reasons explained below.

Since being replaced as the Company's Legal Representative for LVST in China and from the LVST board, Mr. Wang has declined to hand-over the Company's corporate seals (chops) and business licences, which were removed from the premises before he was dismissed.  The local police were contacted, but deemed Mr. Wang's non-cooperation as a commercial matter and were therefore unwilling to assist.

Further, members of the new LVST board attempted to enter LVST's premises on 23 April, but non-uniformed security personnel prevented entry.

As a result of Mr. Wang's non-cooperation, the bank accounts and the day-to-day operations of the Company still remain under the control of Mr. Wang.  Furthermore, Mr. Wang has confirmed that he has transferred funds belonging to the Company which remain under his control and, to date, he has refused to return them.  At 31 March 2015, the management accounts showed total cash balances of approximately £7.9 million.

The Board has been informed that the Company's factory in Linyi continues to be fully operational and Mr. Wang remains in regular contact with the Company.

Following the events of 22 April, 2015 in Linyi, the Board has adopted a pro-active approach and has initiated the following actions:

A legal route via our lawyers Zhong Lun and a direct approach to the Police in Linyi and the Public Security Bureau in Beijing and Linyi;

A diplomatic route via British Embassy in Beijing, the Chinese Embassy in London and UKTI in the UK;

A direct route via the appointment of Tim Clissold as special advisor to the Board ( UK based, fluent in Chinese, experienced in dispute resolution in China, and the author of 'Mr China') and his colleague Frank Li (China based and an ex China Foreign Affairs Ministry diplomat).

The above actions have been complemented by articles in the Financial Times and The Times.

Negotiations are now ongoing with Mr Wang and the Board will provide an update as and when appropriate. Shareholders should be aware that all of the disclosures contained with this statement may be read by Mr Wang. In addition, as the events have taken place after the period end, consideration will need to be given in the year-end accounts as to whether any accounting adjustments will be required.

Cash

Sorbic International plc is wholly reliant on the transfer of funds from China to meet its operating costs and to repay the loan notes (approximately £3.75 million including redemption premium and interest) which remain outstanding and are in default.  During the entire process, regular communication has occurred between the Company and the loan-stock holders through their representative and Board director, Jay Newman.

As announced on 8 December 2014, 6,000,000 shares were issued to raise £240,000 to fund the Company whilst the then plans for the funds transfer from LVST were put in place.

Following the series of events above, the financial position of Sorbic International plc is uncertain.

Inner Mongolia

In addition, the Board has been unable to progress resolution of the outstanding compensation due in respect of Inner Mongolia.

As previously reported, a framework to determine the amount of compensation had 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 Board were informed by Mr Wang that negotiations are on hold whilst an IM audit takes place.

In my statement in June 2014, I indicated that the balance sheet had previously stated that the funding for the land purchases had been provided by the Company's CEO, Mr Wang. However, this was 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 has adopted a prudent approach in assuming the entire purchase was loan funded.  Accordingly, the accounts were reclassified to reflect the change in liability which has had no effect on the reported net assets.  Shareholders should be aware that when it was discovered that the funding was not provided by Mr Wang and that various other transactions took place, legal action was initiated with the Chinese authorities, the outcome of which was that the Inner Mongolian Public Security Bureau visited Linyi and subsequently concluded that no criminal event had taken place. Following these events, Mr Wang became more cooperative for a short while, and the Board was alerted to Mr Wang's approach to corporate governance and the rights of other shareholders.  

Linyi

According to Mr Wang, 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, however given the events, the details of the proposed move are now uncertain and will be revisited when control of the subsidiary has been regained.

Nomad

Finncap, the Company's Nomad, has the right under the Company's agreement to resign if Sorbic's shares are suspended. On 16 June, Finncap announced their resignation. Discussions have taken place with a number of Nomads over the last year, however, none were willing to replace Finncap until the Company and Board were regularised. Accordingly, it is unlikely that there will be a satisfactory resolution (the return of control of LVST and the control and return of the cash) for the Company by 17 July, 2015 and therefore, the Company will be delisted.

Legal representative

Included within the interim statement is a paragraph setting out the role and responsibilities of the Legal Representative and the associated use of the corporate seal or 'chop'. Such controls work within a benign environment, but it is clear from our experience that the ability of the Company to remove a rogue Legal Representative is severely restricted, if not impossible, if he takes the chops and business licences and refuses to affix the chop to the documents appointing his replacement. Prior to 22 April 2015, the Company had sought to change the Legal Representative; however Mr Wang refused such a change.

Board changes

As I reported on 19 January 2015, Jay Newman was appointed as a non-executive director. Jay has over 20 years' experience of working in China and specifically, he has been working with the Company since autumn 2013 as the Loan Notes observer. As I have mentioned above, on 22 April Mr Wang was removed as CEO and as a director of the Company.

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 resolution and return of the funds controlled by Mr Wang.

Outlook

Demand for the Group's products continues, but the hurdles of cash transfers, Inner Mongolian negotiations, the Linyi move and Mr Wang's behaviour have all contributed to a very challenging period since the year-end. 

At the AGM on 7 May and post the events on 22 April, the Board was unanimously re-appointed: both Jay and I would like to thank the shareholders, loan-stock holders and the current professionals for their help and support and both of us will continue to work tirelessly to seek an acceptable resolution.

 

 

 

John McLean

Non-executive Chairman

30 June 2015

Unaudited condensed consolidated statement of comprehensive income

For the six month period ended 31 March 2015

 

 

 

 


Notes

Six months ended

31 March

2015

Six months ended

31 March

2014

Year ended  30 September

2014




Unaudited

Unaudited

Audited




£

£

£







Revenue



6,544,044

7,472,712

14,074,421

Cost of sales



(6,093,102)

(6,580,780)

(12,698,901)

Gross profit



450,942

891,932

1,375,520







Distribution and selling expenses



(94,253)

(88,653)

(187,905)

Administrative expenses



(621,097)

(545,748)

(1,108,425)







Operating (loss) / profit



(264,408)

257,531

79,190

Impairment loss



-

-

-

Other income



9,632

16,404

33,424

Finance costs



(646,978)

(2,488)

(547,176)

Unrealised foreign exchange (loss)/gain



447,859

(237,124)

(28,386)

(Loss) / Profit before taxation



(453,895)

34,323

(462,948)







Income tax expense



(7,543)

(109,512)

(132,322)







(Loss) for the period



(461,438)

(75,189)

(595,270)

Other comprehensive income






- Exchange differences on translating    foreign operations

 



1,393,267

(431,134)

(88,562)

Total comprehensive income/ (loss), net of tax



931,829

(506,323)

(683,832)

 (Loss) attributable to equity holders of the parent



(461,438)

(75,189)

(595,270)

Total comprehensive income / (loss) for the year attributable to equity holders of the parent



931,829

(506,323)

(683,832)













Earnings per share (pence):






Basic



(0.73)

(0.14)

(1.03)

Diluted



(0.73)

(0.14)

(1.03)

 

 

 

 

 

 

Unaudited consolidated statement of financial position

As at 31 March 2015


 

 

As at

31 March

As at

31 March

As at

30 September

 

 

Unaudited

Unaudited

Audited

 

 

£

£

£

Assets

 

 



Non-current assets

 

 



Property, plant and equipment

 

6,044,636

5,569,982

5,388,472

Land use rights

 

2,512,200

2,097,746

2,163,567


 

8,556,836

7,667,728

7,552,039

Current assets

 




Inventories

 

959,933

520,810

436,577

Trade receivables

 

963,655

762,220

1,138,403

Prepayments, deposits and other receivables

 

246,837

199,831

251,520

Amount due from director

 

6,632,236

5,895,483

6,115,280

Cash and cash equivalents

 

7,934,280

6,607,177

6,947,186


 

16,736,941

13,985,521

14,888,966

Total assets

 

25,293,777

21,653,249

22,441,005

 

 

 



Equity and liabilities

 

 



Current liabilities

 

 



Trade payables

 

290,478

136,390

167,462

Advanced payments

 

-

-

180,476

Accruals and other payables

 

591,050

378,838

312,428

Amount due to directors

 

7,615,112

8,324,430

6,929,129

Amount due to Inner Mongolia

 

1,758,400

-

1,600,000

Current tax liabilities

 

-

34,470

30,735

Convertible loan notes

 

3,742,911

2,833,290

3,096,778

 

 

13,997,951

11,707,418

12,317,008

Non-current liability

 




Convertible loan notes

 

-

-

-

Total liabilities

 

13,997,951

11,707,418

12,317,008

Capital and reserves

 

 

 

 

Share capital

 

3,491,773

3,203,159

3,431,773

Share premium

 

22,427,326

22,120,265

22,247,326

Capital reserve

 

3,043,715

2,703,062

2,769,531

Surplus reserve

 

542,582

481,856

493,705

Retained earnings

 

(174,686)

806,833

286,752

Share based payment reserve

 

-

-

-

Reverse acquisition reserve

 

(20,911,925)

(20,911,925)

(20,911,925)

Foreign currency translation reserve

 

3,250,327

1,916,092

2,180,121

Hedging reserve

 

(451,353)

(451,353)

(451,353)

Convertible loan notes - Equity

 

78,067

77,842

78,067

Total equity

 

11,295,826

9,945,831

10,123,997

 

 

 

 

 

Total equity and liabilities

 

25,293,777

21,653,249

22,441,005

 

 

 

 

Unaudited condensed statement of cash flows

For the six month period ended 31 March 2015

                                                                                                                       

 

 

 

 


Unaudited condensed consolidated statement of changes in equity

For the six month period ended 31 March 2014

 


Share capital

Share premium

Capital reserve

Surplus reserve

Retained earning

Share based payment reserve

Foreign

currency

translation

reserve

Reverse

acquisition

reserve

Hedging Reserve

Convertible loan notes - equity


 

Total equity attributable to

equity holders

of the parent

 


£

£

£

£

£

£

£

£

£

£

£

 













 

Balance at 1 October 2013

3,203,159

22,120,265

2,788,918

497,161

882,022

-

2,246,065

(20,911,925)

(451,353)

77,842

10,452,154

 

Issue of ordinary share

-

-

-

-

-

-

-

-

-

-

-

 

-

-

-

-

-

-

-

-

-

-

-

 

Profit for the period

-

-

-

-

(75,189)

-

-

-

-

-

(75,189)

 

 

Other comprehensive income:













Exchange differences on translation of foreign operations

-

-

(85,856)

(15,305)

-

-

(329,973)

-

-

-

(431,134)

 

Total comprehensive income for the period

-

-

(85,856)

(15,305)

(75,189)

-

(329,973)

-

-

-

(506,323)

 

Balance at 31 March 2014

3,203,159

22,120,265

2,703,062

481,856

806,833

-

1,916,092

(20,911,925)

(451,353)

77,842

9,945,831

 















 

Balance at 1 October 2014

3,431,773

22,247,326

2,769,531

493,705

286,752

-

2,180,121

(20,911,925)

(451,353)

78,067

10,123,997

 

Issue of ordinary share

60,000

-

-

-

-

-

-

-

-


60,000

 

Share issue costs


180,000

-

-

-


-

-

-


180,000

 

Loss for the period

-

-

-

-

(461,438)

-

-

-

-

-

(461,438)

 

 

Other comprehensive income:













 

Exchange differences on translation of foreign operations

-

-

274,184

48,877

-

-

1,070,206

-

-

-

1,393,267

 

Total comprehensive income for the period

-

-

274,184

48,877

(461,438)

-

1,070,206

-

-

-

931,829

 














 

Balance at 31 March 2015

3,491,773

22,427,326

3,043,715

542,582

(174,686)

-

3,250,327

(20,911,925)

(451,353)

78,067

11,295,826

 


 

 

Legal Representative

Every business established in China, whether domestic or foreign, is required to have a legal representative. He/she is the main principal of the company and is the employee with the legal power to represent - and enter into binding obligations on behalf of - the company in accordance with the law or articles of association of the company. The legal representative is authorised to perform all acts regarding the general administration of a company according to the company's aims and objectives, which includes:

·      Acting to conserve the company's assets; 

·      Executing powers of attorney on the company's behalf; 

·      Authorising legal representation of and litigation by the company; 

·      And executing any legal transactions that are within the nature and scope of that company's business.

 

Chops
In China, every company is required to have a "chop" which will be in the custody of the legal representative. Control of the chop is important in order to minimise risks. The legal representative's chop is required on numerous company documents and is regarded as a signature and the legal representative can, by using the chop, bind the company.

If a legal representative is to be changed, such a change has to be chopped using the corporate seal and thus approved by the outgoing legal representative.

The Company's registered legal representative in China is still Mr Wang.

 

 

 

- Ends -


This information is provided by RNS
The company news service from the London Stock Exchange
 
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