Please describe the different products you offer?

Sorbic Acid and Potassium Sorbate.

Sorbic Acid, or 2,4-hexadienoic acid, is a naturally occurring organic compound that is used as a food preservative (E Number 200). It has the chemical formula C6H8O2 and was first isolated from the unripe berries of the rowan (Sorbus Aucuparia).

Sorbic Acid is an unsaturated fatty acid and has inhibitory effects against a wide spectrum of yeasts, moulds and bacteria including most food borne pathogens. Sorbic Acid is widely 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, or potassium (E,E)-hexa-2,4-dienoate, is the potassium salt of Sorbic Acid and is a mild preservative (E Number 202). It has the chemical formula C6H7O2K and is made by reacting Sorbic Acid with potassium hydroxide. Sorbates have been shown to have inhibitory effects against a wide spectrum of yeasts, moulds and bacteria and food applications of Sorbates expanded rapidly after the issuance of the original patents in 1945.

Potassium Sorbate is used to inhibit moulds and yeasts in many foods, such as cheese, wine, yogurt, dried meat and baked goods. It can also be found in many dried fruit products. In addition, herbal dietary supplement products generally contain Potassium Sorbate, which acts to prevent mould and microbes and to increase shelf life. It is also used in many personal care products (cosmetics & pharmaceuticals).

Please give detailed reasons for the decision to locate the new production lines in Mongolia and not adjacent to the existing site in LinYi City.
The main drivers of the relocation of the new facilities are:

  • The availability of rich resources like 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;

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

  • As an early entrant into Chahar Industrial Park should allow the Company to foster stronger relationship with local government which has committed full support for it’s construction project and future development plans;

When does the Company expect the new lines to be fully operational?

Both lines at the new facility are expected to commence production in summer 2012.

Do you own the land on which the facility will be built?

There is no land ownership in China; however we have been given the land use rights for 50 years. The land area is 333,400 square meters (500mu) and can accommodate up to 6 production lines.

What is the estimated size and growth rates of the markets the Company currently operates within?

According to the feasibility study conducted by Hunan Chemical and Pharmaceutical Design Institute (“HCPDI”), worldwide annual demand for Sorbic acid and Potassium sorbate demand is more than 100,000 tonnes, but the market has a production shortage of 30,000 tonnes.

At present, USA is the largest consumer of sorbic acid and potassium sorbate, with an annual demand of more than 20,000 tonnes. Europe, Japan, South America and Southeast Asia are other large consumers in the international market. For the main consumption sectors in the international market, the food processing sector accounts for more than 35%, the pharmacy sector 30%, and others 35%.

Currently, the global production capacity of sorbic acid and potassium sorbate is about 70,000t/a with realised output of 65,000t/a.

How significant an impact will the substitution of sorbates for sodium benzoate have on the Company’s long-term financial prospects?

The negative effects of benzoate will continue to put sorbate in the positive light; although the switch to sorbate will not be immediate.

What does the Group consider to be Sorbic’s unique selling point(s)?

Sorbic International is a China based sorbate producer with Western style management, which puts high emphasis on product quality and consistency.

How exposed is the Company to the risks associated with changes in foreign currency rates?

Minimal currency risk as the pricing of product takes into consideration exchange rate fluctuation.

What is the split in revenue between the various geographies into which the Company sells?
PRD 7,211,642 50%
United States 3,045,263 21%
Russia 1,410,255 10%
Netherlands 1,629,531 11%
Others 1,148,406 8%
Total 14,445,097 100%

Last updated 02 Nov 2011