Shares in Sorbic International got a boost after the preservatives producer said it is ready to chase market share in 2012 when its new facility in Inner Mongolia will double production capacity.
The company saw a 21% rise in revenues for the year ended 30 September and assured investors that it is "poised to become more sales oriented" in 2012.
Revenue grew from £12m to £13.7m on a like-for-like basis, although costs also rose to £13.2m, compared to £9.8m for the previous year.
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The majority of the construction work at the new Inner Mongolia facility, which will increase the group's production capacity to 15,000 tonnes per annum, has now been completed, prompting non-executive chairman John McLean to announce that the group will soon be in a position to capitalise on the significantly increased manufacturing capability.
Gross margin decreased from 18.5% to 10.2%, due to the rising costs of raw materials. The group said it has made a conscious effort to reduce the number of long-term contracts for the current year to less than 40% of total sales in order to provide a degree of flexibility for price adjustment. Although raw material price inflation was factored in during pricing negotiations, the inflationary impact was much higher than the firm and markets had anticipated.
The company's average gross margin dropped significantly below 10% during the second quarter of the financial year because price increases were not achieved at the same rate as the cost increases.
"With the ongoing global economic uncertainty, the main challenge for FY [fiscal] 2012 will be to improve margin stability and market share in existing markets, while building up relationships with domestic and Asian clients where demand is growing," McLean suggested.
"A fall in commodity prices due to slow world economic growth is expected to help stabilise China's inflation to within 4% for 2012," McLean noted, adding that this should ease inflationary pressure on the company's raw material prices.
Cash balances at the end of September stood at £3.5m, down from £5.7m a year earlier.
The company does not pay dividends.
The share price rose 10.94% to 17.75p to 13:31.
NR
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