TIDMPURE
RNS Number : 0924T
PureCircle Limited
22 September 2010
Results for the year ended 30 June 2010
PureCircle (LSE: PURE), the world's leading producer of high purity stevia
products, announces its unaudited results for the year ended 30 June 2010 ("FY
2010") together with audited comparatives for the year to 30 June 2009 ("FY
2009").
The Group's full audited report and accounts will be posted to shareholders in
October.
Change of auditors
As announced on 27 July 2010, the Group has changed its auditors to
PricewaterhouseCoopers.
Financial Highlights
+------------------------+-----------+----------+
| | Unaudited | Audited |
| | 12 months | & |
| | to 30 Jun | restated |
| | 2010 | 12 |
| | FY2010 | months |
| | $'000 | to 30 |
| | | June |
| | | 2009 |
| | | FY2009 |
| | | $'000 |
+------------------------+-----------+----------+
| Sales | 60,773 | 60,023 |
+------------------------+-----------+----------+
| Gross profit | 21,192 | 25,842 |
+------------------------+-----------+----------+
| Operating profit | 4,553 | 12,137 |
+------------------------+-----------+----------+
| Net profit after tax | 1,034 | 11,241 |
| and minority | | |
+------------------------+-----------+----------+
| Adjusted EBITDA | 8,383 | 15,503 |
+------------------------+-----------+----------+
| Earnings per share (US | 0.71 | 8.52 |
| Cents) | | |
+------------------------+-----------+----------+
| Gross cash | 63,601 | 18,920 |
+------------------------+-----------+----------+
| Gross assets | 272,180 | 169,050 |
+------------------------+-----------+----------+
| Net assets | 158,086 | 92,962 |
+------------------------+-----------+----------+
| Net assets per share | 1.02 | 0.70 |
| (US $) | | |
+------------------------+-----------+----------+
| Adjusted EBITDA is defined as earnings before |
| interest, tax, depreciation amortisation and |
| share based payments. |
+------------------------+-----------+----------+
· Sales flat year on year due to strategic decision to sell only direct to
end user customers (60% of sales in FY 2009 to trading partner). We completed
our move to working directly with end user customers by setting up global sales
and marketing infrastructure including in-house application facilities and
forging strategic partnerships.
· Underlying sales to direct to end user customers increases from $25m to
$60m: Underlying sales growth is a direct result of the company's strategic
decision to focus on end user customers.
· Major investments made in FY2009 to support growth reduced gross and net
profits: On flat sales, gross profits were impacted by higher production
capacity costs in cost of sales and net profits by these and the sales
organization investments made in FY 2009.
· Strong adjusted EBITDA % confirms robustness of our business model: Our
adjusted EBITDA of $9.4m represented 16% of sales, despite PureCircle production
operating at just 25% of capacity. The EBITDA % should strengthen as sales
volumes increase and as we now benefit from direct end user margin.
· Strong balance sheet: We have invested almost $300m building our supply
chain. Gross assets of $270m confirm the scale of the capacity and
infrastructure in place to support strong growth
· Prior year adjustments and restatements: reflecting changes in our
operations, the Group has changed its accounting for leaf development and leaf
seedlings, and reviewed the prior year capitalization of certain assets. These
changes have resulted in a $2.2m reduction in net assets at 30 June 2008 and a
net $0.03m increase in net assets at 30 June 2009.
· Capital raise: The Group further strengthened its balance sheet with a
$65m net capital raise in November 2009. The issue was oversubscribed by quality
long term international funds
· Cash at bank: The Group ended FY 2010 with $63m gross cash, fully funded
for its foreseeable expansion plans
· Net debt: Net debt was $40mm at 30 June 2010. After adjusting for finished
goods inventories, the Group was net cash positive
BUSINESS DEVELOPMENTS
· Consumer demand: Strong Nielsen and Mintel data across a growing number of
markets show consumer demand for products sweetened naturally with high purity
stevia is accelerating.
· Food and Beverage product launches and successes: The range of products
launched has increased across categories, particularly into food, across
companies and across countries. Market data and company's underling sales
confirms all customers using high purity stevia are increasing their product
usage which indicates that products launched containing stevia are performing
well.
· Diversified customer base: At June 2010 the Group had over one hundred
high purity stevia customers, an increase from just 25 at June 2009 and just 1
at June 2008.
· Customer contracts wins confirm major share of market:PureCircle continues
to secure additional contracts with large multinational F&B companies. Our
customer base already represents the majority share of the global sweeteners
consumption and although their stevia needs at this stage are relatively small
we expect their usage to increase substantially in years to come as they
continue to integrate stevia as sweetener of choice.
· Diversified product portfolio: New high purity stevia products launched
provide a diversified product portfolio with strong natural propositions at all
calorie reduction target points.
· FDA clearances: FDA GRAS clearance of our SG95 product in July 2010 opens
up material new revenue opportunities and confirms the growing regulatory
support for high purity stevia. We expect SG95 to open up additional new
opportunities for stevia beyond Reb A. The company is actively developing number
of other high purity stevia products as well as various blends with other 0
calorie & nutritive natural sweeteners.
· European Regulatory progress: important further regulatory clearances have
been secured. In September 2009 France approved RebA, following Switzerland
which approved in 2008: wider EU approval is expected within a year. EU approval
is an eagerly awaited mile stone by the company as it will open up major
sweetener markets for stevia.
· Sugar partnerships: our Joint Ventures with Imperial Sugar and with
British Sugar confirms the positive synergies two natural ingredients have and
alignment and understanding of two industries to capitalize and create value
based on these synergies. The company is actively pursuing other such
partnerships which will be announced in due course.
· Marketing: leading consumer recognition and trust: the Global Stevia
Institute, the Stevia by PureCircle trustmark and Launch of "We Grow Joy
Campaign" are aimed to aids consumers awareness of stevia as natural sweetener
and to help further consumer trust and demand for high purity stevia.
· Global Stevia Institute (GSI): within just three months since launch
with over 1,000 visits to the website is already recognized as the leading
authority on the nutritional and health voice for the benefits of high purity
stevia. GSI board members are active and are participating at the Society for
Nutrition Education and American Association of Diabetes Educators conferences
· Stevia by PureCircle trustmark: launched in September, this is already
being supported by leading brands
· Production scaled: we have scaled all aspects of our production capacity
and processes. FY 2010 production was 400% higher than that for FY 2008.
· Patents: USA approval of our core process patents confirms our base IP
leadership. Our pipeline of forty nine application patents underscores our
innovation leadership across many categories
· First leaf sourced from Kenya and Paraguay: Kenya and Paraguay achieved
key milestones when they shipped their initial volumes of leaf to our extract
facilities in July 2010.
· Leaf diversification fully on track: PureCircle now has leaf sourcing in
progress or in trial with partners in sixteen countries across four continents
including United States.
· Implementation of improved China leaf model: We have implemented new
controlled farmer model for leaf sourcing reducing our exposure to buying on the
open market
· Accelerated leaf research: in FY 2010 PureCircle has increased investment
in leaf research to accelerate development of new generation stevia ingredients.
As part of this initiative the company is working with Michigan State University
(MSU).
Paul Selway-Swift, Chairman of PureCircle, commented:
"Our strategy is for high purity stevia to become a mass volume natural
sweetener, like sugar. Our business model is based on mass volume supply. We
have shown we can scale our supply chain. With major contract wins to supply the
F&B industry globally we are securing the major share of the emerging market,
and with our strategic partnerships we hope to accelerate our global
distribution significantly.
There have been some challenges in the last twelve months, notably as we
implemented our strategic decision to move all sales solely direct to end
users. However the high purity stevia market is undoubtedly accelerating and as
it does so the strength of our direct customer base and of our partners will
justify fully the tough decisions taken this year.
We are ever more confident about the significant long term prospects of the
Company. But the industry is still young and so there will continue to be
volatility in our sales progress.
ENQUIRIES
PureCircle Limited
Magomet Malsagov, Group CEO +60 12388 8049
William Mitchell, Group CFO +44 7974 005163
Westport Communications
Alan Frame +44 20 7065
2690
RFC Corporate Finance Ltd
Stephen Allen +61 89480 2500
CHAIRMAN & CHIEF EXECUTIVE'S STATEMENT
1. REVIEW
FY 2010 was a year of hard but important progress for PureCircle. On the face of
it our results were disappointing, with sales flat and profits reduced by the
high levels of investment we made in FY 2009. It is important to note however
that the high purity stevia industry is only two years old and just emerging.
The company will benefit as the industry begins to mature, underpinned by our
strategies and the significant investments already made. When the fundamentals
of our business are analysed, it is clear that during FY 2010 PureCircle made a
good deal of progress towards our long term goals.
- Although initially small the market is accelerating fast: actual consumer
sales of high purity stevia sweetened products more than doubled which confirms
that acceptance of taste is good and consumers respond well to the natural
claim.
- The number of food and beverage companies using high purity stevia
increased significantly and did so across more product categories and more
countries than a year ago.
- PureCircle's market share as supplier to the products launched increased.
- Our underlying sales and market share of end users grew strongly and our
pipeline suggests accelerating growth in the coming years.
- All aspects of our supply chain scaled successfully.
- Our R&D activities accelerated and the full breadth and depth of our
innovation is now starting to be understood within the industry.
- We restructured and invested further in our sales and marketing
organization, particularly in the USA and Europe, to enable us to better serve
our global and regional customer base.
- Our stevia-sugar partnerships have the potential to be large long-term
businesses.
We said in our FY 2009 review that the scale of our ambitions is significant. To
achieve our goals we will undoubtedly face many challenges. Some will be
daunting. But we remain determined to resolve each of them successfully.
2. SALES AND MARKETING
2.1 Sales development overview
The Company's market is defined as the consumption of high purity stevia based
natural sweeteners by the world's Food and Beverage companies. In turn this will
be determined by the levels of end consumer demand of products containing stevia
as a sweetener.
PureCircle's long term sales are dependent upon the growth in consumer demand
and on our direct to customer share of the Food and Beverage stevia usage. FY
2010 has seen important progress in both these long term performance indicators.
· Consumer demand for high purity stevia sweetened products is growing
rapidly; and
· The Company completed the restructuring of its sales to direct end user
relationships
In the process the Company has progressed towards a "normal" sales business with
regular repeat orders.
Our regular recurring orders to end customers, increased from $25m in FY2009 to
$60m.
2.2 Stevia market accelerating growth
Data across all key indicators suggest that consumer demand and consumption for
high purity stevia sweetened products is accelerating. High purity stevia is
being consumed in more countries, more brands, more SKUs and with more repeat
purchases and product roll-outs than at 30 June 2009. Focusing on consumer
demand, Mintel New Product Database confirms that the number of new product
launches increased by 200% in the last twelve months, with products having
launched across thirty-five countries in 2010.
In the important USA market the sales run rate for product using high purity
stevia is now estimated to have exceeded an annualized market sales of $600m at
retail, this is unprecedented growth considering stevia approval was granted
less than two years ago. In the United States recent Nielsen retail data also
estimates Stevia sweeteners have surpassed Aspartame sales and now comprise
fourteen per cent of the USA tabletop sugar substitute market. In addition high
purity stevia sweetened products have been launched into new major markets like
France (Danone, Coca-Cola, Merisant) and Mexico (Pepsico Inc, Danone) and
Australia (Schweppes, Merisant, McCormick Foods). The growth of these markets
has been made possible by our commitment to produce and deliver high purity
stevia products in volume.
Most products using high purity stevia have launched in the past twelve months.
Some of the new product launches are line extensions supporting innovation for
leading brands (e.g. Taillefine, Fanta Still), others are at market test level
(e.g. G2 Natural) and we have even started seeing in the past ten months
existing brands being reformulated (Bonafont). As these early stage launches
develop and increase their distribution and widen their SKU base, they provide
additional growth potential yet to be realized. In addition we anticipate that
larger brands and larger launches are occurring and are being planned which will
fuel market growth further.
Given the standard eighteen months to three or more years new product
development and launch cycles, it is our firm belief the true market size
potential and consumer acceptance will only be confirmed in 2011 and beyond.
Additionally, regulatory clearances expected in the next twelve months (EU,
Argentina, Canada, Indonesia, Thailand and others) will facilitate accelerating
the roll-out of sizeable brands internationally.
2.3 Customer contract wins: major share of growing market
We have secured a number of prestigious customer contracts in the period. Our
client base has increased by almost one hundred customers in the last twelve
months. Within this we have secured a high proportion of the world's twenty
largest food and beverage companies ranked by sales.
Reviewing the increasing number of products being launched containing high
purity stevia, it is clear that PureCircle continues to secure the majority
share of the fast growing market.
2.4 Diversified customer base established
The Group's sales strategy is to have a highly diversified customer base to
which the Company sells directly to the end user customer. We have made good
progress with this strategic objective.
The Group is building its sales to a diversified customer base. At 30 June 2010
the Group had over one hundred invoiced high purity stevia product customers
against twenty-five at 30 June 2009 and just the one at 30 June 2008. Our sales
pipeline indicates a further increase in the customer base over the next twelve
to twenty four months. Our customers and sales pipeline now cover most food and
beverage categories: in particular, as expected, we are seeing many more food
projects than a year ago. The decisions we took a year ago to build finished
goods inventories in our key markets to increase new customer confidence of
seeing local warehoused product availability starting to pay dividends.
On 30 June 2010 our contract with a trading partner expired, having had no sales
in FY 2010. In the year to 30 June 2009, sales to the trading partner had
represented 60% of our total sales.
2.5 Applications support and formulation partnerships
One of the Group's key strategies is to provide customers with in-depth as well
as hands-on support with their formulating needs. We implement this
solution-based strategy in three ways:
- In-house application support: Our Global application center based at our
PureCircle USA headquarters in Oakbrook, Illinois, in coordination with our
Kuala Lumpur based Science team- provides effective ways on how to formulate a
wide range of food and beverage applications using Reb A but also different
available high purity stevia sweeteners, natural flavors and blends with other
natural 0 calorie and nutritive sweeteners.
- Extended formulation support: we provide extensive and more specific
formulation support to our customers by working in partnership with some of the
leading application companies in the world, combining our in-depth knowledge of
high purity stevia sweeteners with our partners' focused application expertise.
- Stevia-sugar Technology: PureCircle is a strong believer of the
significant opportunities offered by effectively combining sugar and stevia
beyond a mere mechanical blend. Improving such technology and product delivery
is fulfilled through our sugar Joint Ventures (see later) which global roll out
we have accelerated significantly in this year
2.6 Pricing
Our long term strategy is for high purity stevia to be used as a mainstream mass
volume sweetener, just like sugar and corn. To achieve this the long term
pricing of high purity stevia has to be cost competitive with these nutritive
sweeteners on an equivalent sweetness, volume usage and proposition basis.
We encourage our customers to look at high purity stevia strategically in this
manner and our corporate strategy is to ensure we are positioned to be able to
deliver this pricing long term for mass volume usage. This is a critical
marketing communication which will accelerate wider usage. As market leaders
with clear production scale and efficiency advantages, our pricing strategy also
provides a powerful unique selling point for the Group that is winning us strong
market share.
3. MARKETING
Our marketing strategy is to promote the growth of the overall high purity
stevia industry and to promote PureCircle as leader within that industry. We
have accelerated the activity and progress in marketing significantly across the
period.
3.1 Promote the growth of the overall high purity stevia market
Over the past year the Group has significantly ramped up marketing support
in partnership with customers to promote the growth of the industry. Marketing
communication efforts have focused on two key areas to drive industry growth -
development of the Global Stevia Institute and launch of the Stevia by
PureCircle trust mark.
The Global Stevia Institute: In June 2010 PCL announced that it had created the
Global Stevia Institute which would promote accurate, credible and consistent
information and resources about high purity stevia to health professionals,
consumers and the food industry. The Institute has been formed with the
leadership of seven internationally recognized professionals, including notable
M.D.'s and PhD's from the United States, Latin America and Europe. The Global
Stevia Institute's Executive Director, Dr. Keith Ayoob, is an internationally
known nutritionist and an Associate Clinical Professor of Pediatrics at the
Albert Einstein College of Medicine In New York City and has worked extensively
in the area of obesity and child nutrition. The representative from France, Dr.
Jean Michel Cohen, MD, PhD, is a nutrition specialist in France and an
award-winning and best-selling author on the subjects of nutrion and obesity.
The Institute has immediately provided a credible platform for education,
outreach and media response on a global scale. In addition to board member
assignments, the Global Institute has already established itself with outreach
to thousands of health professionals, media influencers and customers though its
efforts. Following launch in June the Institute introduced an industry leading
website (www.globalsteviainstitute.com), has been involved in the leading health
professional conferences, and been interviewed in mainstream consumer media
outlets. The Global Stevia Institutes efforts will continue to support global
expansion of the industry in support of our customers in 2011.
Stevia by PureCircle Trust Mark: In 2010 PCL developed a new customer
co-marketing program built around the newly development trust mark "Stevia by
PureCircle". In conjunction with the launch of the trust mark, a fully
integrated campaign entitled "We Grow Joy" was developed to drive stevia
awareness, promote stevia's natural sweet taste and help consumer packaged goods
companies communicate a trusted source of high purity stevia to their consumers.
The campaign has recently launched in September, with plans to reach millions of
consumers through print, digital (www.steviapurecircle.com), media tours and
social media channels in conjunction with customer co-marketing activities.
Products calling out that they are "naturally sweetened with stevia by
PureCircle" are now launching in the United States, Latin America and Australia
with plans underway to expand into other global markets. Included among these
brands are leading products like Silk Chocolate Light Soymilk and True Lemonade
powdered beverages in the United States. The campaign will continue to develop
in 2011 in conjunction with our customers launches.
Market Moving Insights: In the early stages of a rapidly developing industry
PureCircle has continued to develop customer relationships through deep consumer
insights. They have not only served as the foundation for development of
PureCircle marketing communications strategies, but have enabled the Group to
establish itself as a clear partner in the development and positioning of
product launches by PureCircle's customers. In 2010, PureCircle firmly
established itself as the industry expert, from stevia plant to the end
consumer, through the fielding of the largest mom and family research study of
its kind in the United States, focused on stevia. The results of the
quantitative study reached a record breaking online webinar attendance of over
500 companies across more than 50 countries in October 2009. Subsequently, the
company has fielded studies across key strategic markets including parts of
Latin America and Europe. PureCircle's continued role as expert on the consumer
and market will continue to play an important role in helping to accelerate our
customer's product development timelines.
4. SUPPLY CHAIN
Over the past two years the Group has invested heavily developing a supply chain
sufficiently robust to provide for rapid growth in the scale of both the Company
and the market. Based on detailed supply chain audit verification, there is now
a high level of customer confidence that PureCircle has scaled and is ready to
support a major ingredient industry as high purity stevia demand takes off. Our
customer confidence is based on the progress we have made in all areas of supply
chain: leaf, extract, refining and logistics.
4.1 Leaf
We plan to increase the volume and quality of leaf supply in all markets,
increase the percentage of leaf supply "controlled" by PureCircle and to
diversify supply from China across multiple countries in Asia, Africa and the
Americas. The Group continues to make strong progress on all these fronts. Our
initiatives are generating improvements across the industry.
Increase global supply: The total volume of leaf continues to increase globally
and in every country within which stevia is being planted. At 30 June 2010,
total global leaf for the current harvests is estimated at 70,000 to 100,000
tonnes. This is an increase of some 1,000 to 1,500% since PureCircle founded the
high purity stevia industry. We have led and continue to lead the expansion of
leaf supply.
Increase the quality of leaf: When PureCircle started the high purity stevia
industry, stevia leaf typically contained six to eight percent total
steviolglycoside (TSG) content and just one to one and a half percent net
Rebaudioside (Reb A) content. In the 2010 harvests these key quality indicators
have been increased to at least ten to twelve percent TSG content and four
percent Reb A content: a net quality improvement of 200-300%. As noted later,
PureCircle is investing to accelerate further improvements in leaf quality.
Increase the proportion of leaf "controlled" by PureCircle - China: We have
successfully moved our leaf model from the 100% buying on open market model of
just two years ago. In the 2010 harvest we have controlled the material part of
our buying requirements. Control has been based on new contracts with farmers,
increased investment in high quality leaf propagation stock sourced from
PureCircle and more supply from farmers and regions working directly with our
leaf technical teams. This has reduced considerably our exposure to the more
volatile and variable quality of the open market supply.
We are targeting to expand the controlled proportion and volumes of our China
supply significantly in future years. Outside China our strategy to increase our
controlled supply is linked to our geographical diversification plans described
below.
Investments to improve leaf quality: the Group has a series of initiatives in
train to improve leaf quality. The Group has plant breeders' rights (PBR) to a
number of high quality leaf varieties well in excess of current market averages.
Importantly our PBR varieties already deliver the leaf quality improvements
needed to allow high purity stevia to become a mass volume commodity, once they
are rolled out in sufficient volume. That process of roll-out accelerated
during the last period.
The Group is investing in a number of research projects with major institutions
to further accelerate leaf quality improvements. Our partnership with Michigan
State University and our development programme with S&W seeds of California are
just two examples of this.
In addition, in all regions the best quality leaf of each harvest is routinely
used as mother stock for the next planting.
Global diversification of leaf supply: in China, stevia is now being sourced
from six regions as opposed to just three main areas two years ago.
Elsewhere, our strategy is to create supply in Africa, South America, the USA
and South East Asia, each with viable standalone critical mass. Our approach is
to own an R&D and propagation based subsidiary in each region and then to work
with third party partners to develop secure stable supplies of quality leaf. The
Group has made strong progress on both fronts.
We now own fully our Paraguay and Kenya businesses. This has allowed our pace of
development in each country to accelerate significantly. Both now have fully
viable standalone operations that are acting as the regional centres of
excellence they were intended to be. In addition we have strengthened our
global leaf management with the recruitment of leading horticultural development
managers for each leaf supply continent.
Strong support from our wholly owned propagation subsidiaries and from the new
development management has enabled our third party partners to accelerate
significantly. We now have partners growing stevia for purchase by PureCircle in
sixteen countries across four continents. We estimate that at least 40 per cent
of our total requirement will come from these good quality "controlled"
suppliers by end 2012.
In July 2010 the Group achieved the important milestone of having the first
commercial shipments of leaf from Kenya and Paraguay to our extract factory in
China.
Leaf management: our leaf improvements are underpinned by a strong global leaf
management team. We continue to invest in specialist agronomists, in research,
in technical support and buying management. We now have specialist teams
representing PureCircle in each of the four leaf growing continents in which we
operate.
Leaf summary: the stevia leaf market has many years to go of growth in supply
and improvement in quality standards before high purity stevia is truly a global
mass volume commodity sweetener. But the roadmap to get there is now clear and
progress is accelerating. On all key measures (volume purchased, controlled
supply hectares, quality improvements, geographical diversification and
expansion, next generation research, management organisation) PureCircle is
leading. There are challenges ahead but our intent is to keep leading. At 30
June 2010, our leaf operations are fully on track to deliver our long term
strategic objectives.
Kenya and Africa leaf operations
Our now 100% owned Kenya operations have focused on recruiting and training
farmers, propagating our proprietary leaf strains from South America, developing
and rolling out scalable operating systems, including micro-finance support and
starting to export leaf.
We have recruited 2,200 farmers, more than 1,500 of whom have been trained,
signed up by microfinance and are at different stages of planting stevia. Early
results from our proprietary leaf strains are encouraging and these are now
being propagated and rolled out in volume.
Regional stevia nurseries have now been established in Eastern Africa with two
companies in Tanzania. In addition we are working with supply partners in
Uganda, Zambia and South Africa.
Paraguay and South American leaf operations
During the period we exceeded our budgeted hectares of planting and are now
working with more than 800 new growers than a year ago. The average size of farm
under cultivation has doubled and we are contracting with an increasing number
of larger farmers.
We have established two major nurseries, one in the north and one in the south
of Paraguay, each focusing on the different proprietary leaf strains most suited
to the local climate and conditions. Both strains are in the process of being
declared of regional government interest, which will accelerate our planting
plans further. We are working with USAID, FOMIN and the InterAmerican
Development Bank as they seek to promote stevia as a commodity crop in the
region.
We expect to treble our hectares in the coming period, with over 60% of them
being for our highest yielding proprietary leaf strain. We are working actively
with our farmer suppliers to increase the proportion using high yielding
irrigation techniques and have put in place microfinance facilities to support
this.
Outside Paraguay we have put in place and are securing new supply partners in
Peru, Argentina, Chile, Uruguay, Brazil and Colombia.
Asia, the USA and Central America
Our leaf development activity in the USA has focused on research partnerships,
for example our Michigan State University Breeding Initiative, and developing
supply partners in California, for example S&W Seed, and the South Eastern USA,
where we expect trial planting to start before the end of 2010.
Outside the USA we continue to work with agricultural interests on a worldwide
basis, Projects include Egypt, Sri Lanka, India, Latin America as well as
evaluations in other South East Asia regions.
4.2 Extract
We are already the world's largest producer of stevia extract and again
increased production of extract to record levels, benefitting from the major
capacity and technology improvements that our most recent investment in
PureCircle Jiangxi provides. All extract Key Performance Indicators have
improved significantly compared to prior periods: total production was up,
average quality improved and cost per unit reduced. Our stevia extract unit in
Jiangxi is producing four times the volume with a consistently higher Reb A
content and a unit cost of 80% compared to two years ago. Energy consumption has
reduced by more than 21% on a like for like tonnage basis this year.
In addition our industry leading extraction technology is enabling us to produce
a much wider range of high quality steviol glycoside products than previously.
The July 2010 FDA GRAS clearance of our SG95 product which is produced at
Jiangxi confirms this important progress. With FDA and JECFA clearance for our
high quality SG95 Jiangxi is well placed to produce in bulk. We expect further
product innovation in the coming year.
Progress at PureCircle Jiangxi has also included health and safety, with key
indicators improving, and a growing profile in the Jiangxi community where the
company is a major contributor to the economy.
4.3 Refining
The Group produced a record 500 tonnes (2008 100 tonnes) volumes of refined high
purity Reb A in the twelve months to 30 June 2010. To achieve this, a number of
key performance indicators were improved significantly, including the important
batch size (scaled fully).
We have also made significant progress with a series of process improvements.
These include increased refined yield of high purity Reb A from the stevia
extract supply, lower manufacturing consumables costs (reduced on a unit basis
by almost 50% year on year) and lower energy costs.
The capacity at our Malaysian refinery is now 2,000 tonnes of high purity Reb A.
The refinery has also been subject to and has passed successfully a record
number of customer supply audits in the period. In addition a concerted
programme of Health and Safety training and process improvement has been
undertaken, which will continue on an ongoing basis.
4.4 Engineering and Construction
During the period we set up a new management unit dedicated to engineering
improvements, environmental efficiency and capacity construction planning. The
team has managed our successful refining and extract capacity expansions in
prior years, but not as a dedicated specialist unit. During 2010 the engineering
and construction team has implemented a number of process efficiency
improvements that have already secured ongoing cost savings and removed capacity
bottlenecks. Further improvements are budgeted.
The company has made progress improving the environmental footprint of our
operations. The main focus in 2010 has been securing waste water and related
improvements that were designed into our China extract capacity expansion in
2009.
On capacity expansion, the Group is preparing the ground work for a range of
possible expansions. These include refining capacity in Malaysia and potential
extract capacity in both Africa and South America. Group policy is that we will
not commit capacity expansion until our sales volumes are running at not less
than 50% of current capacity. But our modular design approach will enable us to
implement fast when these thresholds are reached.
5. RESEARCH AND DEVELOPMENT
This has been an active period for our Research and Development team. Key
projects have included next generation steviolglycosides, developing next
generation analytical tools to enable wider usage of high purity stevia,
manufacturing process improvements and extensive stevia-sucrose product
developments.
During the period, the Company has accelerated its patent and Intellectual
Property protection activities. In July 2010 PureCircle's core process patents
were granted important USA registration. These patents provide "umbrella"
coverage for our processes that underpin our leadership of the high purity
stevia industry. In addition the Company now has forty nine separate other
patents filed and under review. These represent a comprehensive suite of process
and application IP that further underscore our industry leadership.
6. FUND RAISING, INVESTOR RELATIONS AND SIGNIFICANT SHAREHOLDING
In November 2009 we raised $65m, net of expenses, of new capital through the
placing of 20 million new ordinary shares at an issue price of GBP 2.00 each.
The fund raising means that PureCircle is well positioned to take full advantage
of the expected increases in demand for high purity stevia as the industry moves
mainstream.
The fund raising was well supported with major new international funds
participating in the placing, which was significantly oversubscribed.
Additionally, 20 per cent of the placing was subscribed by Olam International
("Olam"), which also in December 2009 bought out the interests in PureCircle of
its Joint Venture partner. As a result Olam is the owner of 20 per cent of the
shares of the Company.
7. MANAGEMENT
The Group has continued to invest in management to support and develop further
the Group's market leadership. The investments made in leaf buying, leaf
development, production and other supply chain activities are already enabling
significant productivity gains. During 2010 we have continued to invest in
building up a world class sales and marketing team, notably in the USA & Europe,
to ensure we continue providing best of class logistics, sales and marketing
support to our key customers around the world.
8. GROUP FINANCIAL REVIEW
8.1 Audited financial statements
The Group's full audited financial statements and annual report will be posted
to shareholders in October. Unaudited condensed profit and loss account, balance
sheet and cashflow are included in pages 16 to 18 of this press release.
8.2 Summarised unaudited results and group financial review
Summarised unaudited results and group financial review are set out below.
+------------------------+-----------+----------+
| | Unaudited | Audited |
| | 12 months | & |
| | to 30 Jun | restated |
| | 2010 | 12 |
| | FY2010 | months |
| | $'000 | to 30 |
| | | June |
| | | 2009 |
| | | FY2009 |
| | | $'000 |
+------------------------+-----------+----------+
| Sales | 60,773 | 60,023 |
+------------------------+-----------+----------+
| Gross profit | 21,192 | 25,842 |
+------------------------+-----------+----------+
| Operating profit | 4,553 | 12,137 |
+------------------------+-----------+----------+
| Net profit after tax | 1,034 | 11,241 |
| and minority | | |
+------------------------+-----------+----------+
| Adjusted EBITDA | 8,383 | 15,503 |
+------------------------+-----------+----------+
| Earnings per share (US | 0.71 | 8.52 |
| Cents) | | |
+------------------------+-----------+----------+
| Gross cash | 63,601 | 18,920 |
+------------------------+-----------+----------+
| Gross assets | 272,180 | 169,050 |
+------------------------+-----------+----------+
| Net assets | 158,086 | 92,962 |
+------------------------+-----------+----------+
| Net assets per share | 1.02 | 0.70 |
| (US $) | | |
+------------------------+-----------+----------+
| Adjusted EBITDA is defined as earnings before |
| interest, tax, depreciation amortisation and |
| share based payments. |
+------------------------+-----------+----------+
8.3 Revenues
Overall revenues were unchanged at $60m for FY 2010 versus FY 2009. Strong
growth in sales to our expanded diversified customer base was offset by the
reduction in sales to a single trading partner, which had in FY 2009 contributed
some 60% of our total sales.
Sales of our wider portfolio of high purity stevia products grew strongly
reflecting our emphasis on maximizing revenues from all steviolglycosides.
PureCircle is well placed to lead the growing market demand for a wider
portfolio of high purity stevia options.
8.4 Margins
The Group's gross profit reduced $4.6m in FY 2010 to $ 21.2m, against $25.8m in
FY 2009. This reflects the higher production overheads following the major
capacity expansions made in FY 2009. Our Jiangxi extract capacity was almost
300% higher in FY 2010 than the average in FY 2009, and our refining capacity
almost 100% higher. The Group is operating substantially below scale. Although
almost double FY 2009 levels, the FY 2010 production represented only 25% of our
current capacity. As sales increase the gross margin percentage is expected to
strengthen significantly.
In FY 2010 the Group further improved our leaf operations and in particular we
implemented new contracts with farmers that enable us to reduce our reliance on
purchases in the open market. Our new procedures require us to recognize a
Biological Asset gain in accordance with IAS 41.
8.5 Management and administration expenses
The Group's sales and general administrative overheads increased $3.7m to $17.4m
in FY 2010 versus FY 2009, reflecting the investments PureCircle has made to
build its global sales and marketing organization and some initial marketing and
promotion costs.
8.6 Net profit and adjusted EBITDA
Finance charges increased $2.8m in FY 2010 to $3.5m. This reflects the $63m of
net cash investment made by PureCircle in FY 2009 to expand its supply chain,
only partly offset by the interest earned on the Group's capital raise in
November 2009.
In FY 2010 the Group had a net income tax credit of $0.2m against a charge in FY
2009 of $0.4m. The income tax credit reflects deferred tax assets recognized
where short term tax losses are expected to be replaced with taxable profits in
the foreseeable future.
Adjusted EBITDA for FY 2010 was $8.4m, representing 14% of sales. Adjusted
EBITDA is just $7.1m lower than FY 2009, despite the $9.9m lower net profit.
This emphasizes the impact on profitability of the higher capacity investments.
As the Group sales scale, the adjusted EBITDA margin is expected to strengthen
further.
8.7 Cashflow and Balance Sheet
The Group has a strong balance sheet that was strengthened further in by the
share placing that raised $65m of new capital, net of expenses in November 2009.
PureCircle ended FY 2010 with $63m of gross cash, gross assets of over $270m and
net debt of $40m.
The Group's net debt position reflects our decision to build finished goods
inventories in all our key sales markets. After adjusting for our finished goods
inventories, the Group is strongly net cash positive. The Group's policy is to
drawdown on its debt facilities for working capital, leaving cash balances
available to finance the future development of the business. The Group is well
capitalized and well poised to lead the strategic development of the global high
purity stevia industry.
8.8 Accounting policies and Prior Year Adjustments
During FY 2010 the Company's leaf procurement model changed with a high
proportion of our leaf harvest being sourced from farmers under contract, as
opposed to open market buying. In consequence the Group is required to adopt IAS
41 Agriculture for the first time. The open market value of leaf being grown for
the Group at 30 June 2010 gave rise to a $5.6m market value gain ($4.8m after
tax) .
To better reflect changes in the Group's operations, the Group has changed its
accounting for leaf development and seedlings and reviewed the prior year
capitalization of certain assets. This has resulted in a $2.2m reduction in net
assets at 30 June 2008, and net increase in net assets of $0.036m at 30 June
2009. Correspondingly, the changes have also resulted in $2.2m reduction in
previously reported FY2008 retained profit and $0.036m increase in previously
reported FY2009 net profit.
To view the Consolidated Income Statement paste the following link into your web
browser:
http://www.rns-pdf.londonstockexchange.com/rns/0924T_1-2010-9-22.pdf
+-------------------------------------------+-----------+-----------+
| PureCircle Limited | Unaudited | Audited |
| | | & |
+-------------------------------------------+-----------+-----------+
| Financial year ended 30 June 2010 | | restated |
+-------------------------------------------+-----------+-----------+
| Consolidated Balance Sheets | 30/6/2010 | 30/6/2009 |
+-------------------------------------------+-----------+-----------+
| | USD'000 | USD'000 |
+-------------------------------------------+-----------+-----------+
| ASSETS | | |
+-------------------------------------------+-----------+-----------+
| NON-CURRENT ASSETS | | |
+-------------------------------------------+-----------+-----------+
| Investment in an associate | | 48 |
| | - | |
+-------------------------------------------+-----------+-----------+
| Intangible assets | 20,855 | 14,984 |
+-------------------------------------------+-----------+-----------+
| Property, plant and equipment | 69,762 | 64,378 |
+-------------------------------------------+-----------+-----------+
| Prepaid land lease payments | 3,113 | 2,776 |
+-------------------------------------------+-----------+-----------+
| Deferred tax assets | 1,533 | - |
| | | |
+-------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------+-----------+-----------+
| TOTAL NON-CURRENT ASSETS | 95,263 | 82,186 |
+-------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------+-----------+-----------+
| CURRENT ASSETS | | |
+-------------------------------------------+-----------+-----------+
| Biological assets | 7,768 | - |
| | | |
+-------------------------------------------+-----------+-----------+
| Inventories | 78,892 | 31,250 |
+-------------------------------------------+-----------+-----------+
| Trade receivables | 19,990 | 27,173 |
+-------------------------------------------+-----------+-----------+
| Other receivables, deposits and | 6,666 | 9,521 |
| prepayments | | |
+-------------------------------------------+-----------+-----------+
| Cash and bank balances | 63,601 | 18,920 |
+-------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------+-----------+-----------+
| TOTAL CURRENT ASSETS | 176,917 | 86,864 |
+-------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------+-----------+-----------+
| TOTAL ASSETS | 272,180 | 169,050 |
+-------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------+-----------+-----------+
| CURRENT LIABILITIES | | |
+-------------------------------------------+-----------+-----------+
| Trade payables | 4,115 | 2,945 |
+-------------------------------------------+-----------+-----------+
| Other payables and accruals | 4,318 | 6,716 |
+-------------------------------------------+-----------+-----------+
| Income tax liabilities | 791 | - |
| | | |
+-------------------------------------------+-----------+-----------+
| Short-term borrowings | 24,211 | 26,419 |
+-------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------+-----------+-----------+
| TOTAL CURRENT LIABILITIES | 33,435 | 36,080 |
+-------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------+-----------+-----------+
| NON-CURRENT LIABILITIES | | |
+-------------------------------------------+-----------+-----------+
| Deferred income | 969 | - |
+-------------------------------------------+-----------+-----------+
| Long-term borrowings | 79,690 | 40,008 |
+-------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------+-----------+-----------+
| TOTAL NON-CURRENT LIABILITIES | 80,659 | 40,008 |
+-------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------+-----------+-----------+
| TOTAL LIABILITIES | 114,094 | 76,088 |
+-------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------+-----------+-----------+
| NET ASSETS | 158,086 | 92,962 |
+-------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------+-----------+-----------+
| SHAREHOLDERS' EQUITY | | |
+-------------------------------------------+-----------+-----------+
| Share capital | 15,358 | 13,272 |
+-------------------------------------------+-----------+-----------+
| Share premium | 130,490 | 66,353 |
+-------------------------------------------+-----------+-----------+
| Foreign exchange translation reserve | (683) | 1,032 |
+-------------------------------------------+-----------+-----------+
| Share option reserve | 994 | 1,704 |
+-------------------------------------------+-----------+-----------+
| Retained earnings | 11,053 | 10,019 |
+-------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------+-----------+-----------+
| EQUITY ATTRIBUTABLE TO OWNERS OF THE | 157,212 | 92,380 |
| COMPANY | | |
+-------------------------------------------+-----------+-----------+
| Non-controlling interest | 874 | 582 |
+-------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------+-----------+-----------+
| TOTAL EQUITY | 158,086 | 92,962 |
+-------------------------------------------+-----------+-----------+
| | | |
+-------------------------------------------+-----------+-----------+
| Net assets per share (USD) | 1.02 | 0.70 |
+-------------------------------------------+-----------+-----------+
To view the Consolidated cashflow statements paste the following link into your
web browser:
http://www.rns-pdf.londonstockexchange.com/rns/0924T_1-2010-9-22.pdf
9. STRATEGIC DEVELOPMENTS
As the global natural sweetener industry develops, including high purity stevia,
the Group sees significant opportunities to consolidate and accelerate our
leadership position through corporate activity. Our strategy is to do so
actively.
Our first strategic activity has focused on the benefits of stevia-sugar
combinations. In the last tweleve months we have put together a series of
partnerships with the leaders in sugar globally. These include our Natural Sweet
Ventures joint venture with Imperial Sugar announced in February 2010, our
proposed Joint Ventures with British Sugar Group, announced in July 2010 and the
proposed Joint Ventures announced in separate press releases today. We are
excited by the significant opportunities these partnerships will provide.
We look forward to reporting on further strategic developments in the future.
10. OUTLOOK
In the immediate term we are cautious as monthly run rate sales, whilst growing,
remain modest. We believe that our core sales base will continue to accelerate
but that it will be late 2011 or 2012 before the true velocity of sales from
today's launches is fully evident.
Looking longer term, we are ever more confident that high purity stevia will
become a mass volume natural sweetener with market characteristics akin to
sugar. Our business model is set up to prosper in a mass volume market. We
believe the benefits of this will become increasingly evident over the longer
term.
There will inevitably be some sales volatility, but we look forward to reporting
on further progress in the future.
Paul Selway-Swift, Chairman
Magomet Malsagov, Chief Executive
22 September 2010
This information is provided by RNS
The company news service from the London Stock Exchange
END
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