Sorbic International, China's third largest sorbates producer saw full-year revenues fall by 13 per cent in the first half of the year, to reach 14.6m pounds, as the firm moved to refocus on its higher margin clients.
Sorbic acid and potassium sorbate are natural food preservatives. They are used as inhibitors of micro-organisms that can cause food spoilage, thus increasing shelf-life.
Gross profit margins improved to 12.9% from 8.6% last year.
That allowed operating profits, as measured in terms of earnings before interest, taxes and depreciation (EBITDA), to rise to £1.2m from £0.5m last year.
"Production visibility has been helped by the growing relationship with US-based APAC since 2012 which accounted for 45% of group sales in the period. In practical terms, this represents an increase from £4.3m to £6.5m and the upward sales trend is expected to continue," analysts at FinnCap wrote.
However, the company's bottom line took a hit from an impairment charge, worth £6.7m, linked to the decision by the local authority at Ulanqab, in the province of Inner Mongolia, to rezone the area where one of its manufacturing facilities was located as a city zone for urban planning, affecting various businesses, Sorbic included.
Ulanqab is situated roughly 300 kilometres northwest of Beijing.
Although the company had reached a compensation agreement with those local authorities it instead opted to enter new negotiations which may see it allowed to relocate its facilities at Linyi, located to the south east of Beijing, in the coastal province of Shandong, to a nearby industrial park.
To be had in account, the company was continuing to shift towards export sales, with 53% of output now being shipped overseas.
As well, Sorbic might gain from the greater efficiencies which operating from only one site might allow. Furthermore, the company pointed out that land values had increased significantly during Sorbic's occupancy of the Linyi site.
This could result in a substantial inflow of funds, if realised through the compensation agreement," the company added.
Cash on hand rose to £5.3m versus £4.1m in 2012.
John McLean, Non-Executive Chairman of Sorbic International, highlighted the improved profitability of the company's operations and indicated that his firm is now focused on resolving its cash flow constraints.
Those constraints are linked to the need to repay its stock of £2.69m in loan notes. During the period in question the repayment date of those loan notes was re-negotiated to August 31st 2014 and the convert price renegotiated to 9p.
However, the firm may need to raise additional capital to meet on-going costs, as per the company's regulator statement.
"Both the Convertible Loan Stock and compensation negotiations" are significant issues, FinnCap indicated to clients on Tuesday. On the upside of things, estimated 2014 earnings per share could double.
In remarks to Sharecast McLean stressed that the outfit is now running at full capacity and the fact that China is the place to be, given the long-term trends in place towards greater urbanisation and as Chinese consumers begin to buy more like Westerners, placing a greater emphasis on food quality and paying for it.
On the subject of the now ongoing negotiations with regional authorities over compensation for the above mentioned rezoning of its Inner Mongolia site, Sorbic's Chairman expressed confidence that a fair agreement will be reached. He described the new regional authorities as being "honourable [...] people we can do business with."
As of 13:02 shares
of the firm were flat at 9p, but have risen by 24.14% year-to-date.