TIDMPURE
RNS Number : 6783Y
PureCircle Limited
07 March 2017
PureCircle Limited
("PureCircle" or the "Company")
Interim results for the six months ended 31 December 2016
PureCircle (LSE: PURE) the world's largest producer and marketer
of high purity stevia today announces its unaudited interim results
for the six month period from 1 July 2016 to 31 December 2016 ("1H
FY17").
These results should be seen in the context of PureCircle being
denied access to a market that represented a third of its revenues
in 2016 as a result of PureCircle being on the US Customs &
Border Protection (CBP) Withhold Release Order (WRO) list. After an
extensive investigation into this issue, CBP have confirmed the
removal of PureCircle from the WRO list on 30 January 2017. Whilst
sales to the US have now resumed it will take some time to rebuild
the previous momentum in this region.
HIGHLIGHTS
- Sales were $47.2m, a decrease of 13.4%, as a direct
consequence of the CBP action. Sales outside of the US increased
10%.
- Gross margin decreased 15.5% to $19.1m, with gross margin % down 1.2 points to 40.4%.
- Adjusted EBITDA decreased 33.3% to $9.0m.
- Net profit decreased $5.7m to a Net loss of $0.7m, generating
a loss per share of $0.39 cents per share.
- Net cash from operations decreased 37.2% to $5.4m.
- Net debt increased 73.8% to $80.1m.
- Completion of our $42.0m production facility expansion in Kuala Lumpur.
SUMMARY OF FINANCIALS
Period ended 31 December 1H FY17 1H FY16 Change
(USD'm)
--------------------------- -------- -------- -------
Sales 47.2 54.5 -13.4%
--------------------------- -------- -------- -------
Gross margin 19.1 22.6 -15.5%
Gross margin % 40.4% 41.6% -2.9%
--------------------------- -------- -------- -------
Operating profit** 5.5 10.7 -48.6%
--------------------------- -------- -------- -------
Adjusted EBITDA** 9.0 13.5 -33.3%
--------------------------- -------- -------- -------
Net (loss)/ earnings
for the financial period (0.7) 5.0 >-100%
--------------------------- -------- -------- -------
(Loss)/ Earnings Per
Share (fully diluted) (0.39) 2.88 >-100%
--------------------------- -------- -------- -------
Net assets 192.5 188.0 2.4%
--------------------------- -------- -------- -------
Operating cash flow
before working capital
changes 4.7 13.0 -63.8%
--------------------------- -------- -------- -------
Net cash from Operating
activities 5.4 8.6 -37.2%
--------------------------- -------- -------- -------
Net debt 80.1 46.1 73.8%
--------------------------- -------- -------- -------
Headroom** 74.6 72.7 2.6%
--------------------------- -------- -------- -------
** Operating profit, adjusted EBITDA and headroom are non-GAAP
alternative performance measures and are laid out on page 14 and
15. The full profit and loss account is detailed on page 5.
The unaudited financial statements comprising the statement of
comprehensive income and cash flow statements for the six months to
31 December 2016 ("1H FY17") along with the statement of financial
position and statement of equity as at 31 December 2016 are set out
on pages 5 to 9, together with the unaudited financial statements
comparatives of comprehensive income and cash flow statements for
the six months to 31 December 2015 ("1H FY16") along with the
statement of financial position and statement of equity as at 31
December 2015.
Sales: Sales of $47.2m decreased 13.4% over 1H FY16 ($54.5m).
Outside of the US, growth has primarily been driven by Europe and
Latin America and reflects the continued positive mix benefit of
the growth of Value Added and Breakthrough products. Our innovation
continues to enable new Food and Beverage adoption of stevia and
support continued roll-outs of products already launched.
Gross margin: Gross margin decreased $3.5m or 15.5% to $19.1m.
Gross margin percentage of 40.4% was 1.2 percentage points (2.9%)
lower than 1H FY16 (41.6%). This decline is primarily driven by
lower margins on Basic Ingredients.
Adjusted EBITDA: Declined by $4.5m (-33.3%) versus the prior
year. This reduction reflects $3.5m lower gross margins as a result
of reduced sales and additional investment in the Sales and
Marketing capability.
Net Result after Tax: 1H FY17 net result of $0.7m loss
represented a $5.7m reduction on 1H FY16, of which $3.9m is
accounted for by adverse foreign exchange movements.
(Loss)/ Earnings Per Share (LPS/EPS): the Group recorded a Loss
Per Share of -$0.39 (1H FY16: EPS of $2.88) in 1H FY17, on a fully
diluted basis.
Operating cash flow before working capital: the Group generated
$4.7m of Operating cash flow before working capital in 1H FY17,
$8.3m lower than the comparative period in 1H FY16, offset by an
improvement in working capital of $5.3m.
Net debt: Net debt of $80.1m (1H FY16: 46.1) has increased due
to the investment in the expanded factory facility and decreased
profitability in H1.
Headroom: The Group closed 1H FY17 with cash and bank facility
headroom of $75m (1H FY16: $73m).
BUSINESS DEVELOPMENTS
Market:
Global obesity and diabetes epidemics continue to worsen with
more than 600 million people now estimated to be obese and 415
million estimated to have diabetes, rising to an estimated 640
million by 2040. Public debate and calls for regulatory action to
address these public health issues are increasing, particularly
concerning the use of added sugar. At the same time, consumers are
actively seeking natural sustainable ingredients, as opposed to
using artificial ingredients. Most experts agree that these trends
are likely to continue, and in fact, may further accelerate.
Continued progress in regulatory approvals for stevia are also
driving wider availability. In November 2015, India was the last
major market to approve the use of stevia as a F&B ingredient,
which means that globally more than 5 billion consumers now have
access to products using stevia. In early 2016, Brazil approved the
use of stevia as an ingredient permitted to be mixed with sugar and
China and Indonesia approved the use of stevia-based flavors,
opening up significant additional market potential. Importantly,
all 40+ steviol glycosides are found safe for F&B applications
according to US FDA and JECFA, further opening up market potential
for our innovation pipeline.
These trends continue to drive increased adoption of stevia by
the food and beverage industry across a wider range of Food and
Beverage (F&B) categories. Mintel data shows that by end CY2016
more than 11,000 F&B products had been launched in the world
containing stevia since 2011, with a 5-year CAGR of 36%. These
launches span all regions of the world, across both developed and
developing markets. In addition, these launches span a wide range
of food and beverage categories, with the strongest growth across
beverages, dairy and snacks. Notably, many of these launches have
been in high-awareness brands.
The F&B products already launched using stevia are estimated
to have the potential to support an industry with market size of
more than $1billion when those products are fully rolled out and
mature. The pace of F&B adoption to-date, particularly in
mainstream products, coupled with consumer concerns about obesity,
provide confidence that the stevia market will develop to such a
size.
Innovation: PureCircle continues to lead stevia innovation with
new products and applications designed to meet identified market
needs and unlock further demand to help moderate calories
naturally. We are leading the industry with category-specific taste
solutions, beginning with Sigma-Dairy and Sigma Tea and added
Sigma-Beverage this past November. We continued the global rollout
of Zeta family of ingredients, which enable great tasting product
formulations with deeper calorie reductions, with the most
sugar-like tasting glycosides such as Reb M and D.
With our strong diversified customer base, our unique breadth of
product innovation and application support, our global supply chain
and customer support infrastructure already established, PureCircle
continues to retain and build further market leadership.
Production capacity expansion: The construction of the $42m
expanded refinery is complete, which effectively doubles our
capacity, and includes a dedicated line, specifically designed for
the Zeta family of ingredients. This additional capacity allows
PureCircle to take advantage of the potential sustained long term
growth of the market, ensuring we meet anticipated future increased
volume demand and further sustain market share.
Leaf: We have increased our investment in R&D to develop
proprietary stevia strains to maximize steviol glycoside content.
In addition, we continue to invest in order to enable us to expand
leaf supply from Latin America and Africa.
Management and systems: We continue to invest in management and
information systems. On 1 November 2016, we announced the
recruitment of Mr. Gary Juncosa as Chief Operating Officer. Gary
will drive the optimization and management of the company's global
operations. This includes leaf sourcing, manufacturing, customer
service and sustainability endeavours.
In 1H FY17 we completed the implementation of the Growers module
in Paraguay and Kenya of Oracle JD Edwards ERP system.
Implementation of additional modules are scheduled to come on
stream progressively in 2H FY17 and FY18.
Board of Directors: Effective today, Peter Lai will retire as
Non-Executive Director of the Company, after nine years in the
role. Mr Lai will continue to work for the Group in a part-time
consultancy capacity, focusing on China.
Mr. John Gibney, a Non-Executive Director of the Company, will
replace Mr. Lai as Audit Committee Chairman with effect from the
same date. The Company's board now comprises five non-executive and
two executive directors.
Commenting on Mr Lai's retirement from the Board, Paul
Selway-Swift, Chairman of PureCircle, said:
"We are grateful to Peter for his significant contribution over
the last nine years as a Director and as Chairman of the Audit
Committee. The Company has made significant progress over the
period of Peter's stewardship; I would like to thank him on behalf
of the Board for his contribution to the success of the Company.
The Board is pleased that he has agreed to continue his long term
involvement with the Group so we can continue to benefit from his
experience and insights, particularly in China.
"John will make an excellent Chairman of the Audit Committee.
His breath of experience makes him ideal for this role and I am
confident we will benefit greatly from his stewardship."
Commenting on the 1H FY17 trading, the Group CEO Magomet
Malsagov said:
"I am particularly proud of the 1H FY17 results where despite
being unable to service the US market, we delivered a set of
results which demonstrate our resilience as a business and our
expanding global footprint.
During 1H FY17 all the key industry trends have continued to
develop in favour of stevia. Regulators and F&B companies in
all regions are being challenged to find solutions to obesity and
diabetes. The emergence of sugar taxes in some countries has
accelerated the search for solutions.
In 1H FY17 we continued to develop our proprietary product
innovation and I am delighted that our expanded production facility
is ready to ensure our strong project pipeline.
With access to all markets available, our strong customer
relationships and the increased demand for stevia solutions by the
global F&B industry, the Company is confident of significant
medium to long term growth in sales and profitability".
Contacts
PureCircle Limited www.purecircle.com
Magomet Malsagov, CEO via Redleaf
Rakesh Sinha, CFO
Redleaf Communications purecircle@redleafpr.com
Emma Kane
Rebecca Sanders-Hewett +44 20 7382 4747
David Ison
A presentation to analysts will take place at 9:30am today in
London. Please contact Redleaf Communications at
purecircle@redleafpr.com for details on how to connect via a
conference call facility.
A recorded audio webcast of the presentation to analysts will be
made available from 2pm today at www.purecircle.com/investors.
This announcement is available on the Company's website
www.purecircle.com.
A short video of the recent launch of our expanded refinery is
available here.
NOTES TO EDITORS
PureCircle is the world's leading producer of high-purity stevia
ingredients for the global food and beverage industry. Its mission
is to encourage healthier diets around the world through the supply
of natural ingredients to the global food and beverage industry.
Its vision is to lead the global expansion of stevia as the next
mass volume, natural-origin sweetener. PureCircle has offices
around the world with the global headquarters in Kuala Lumpur,
Malaysia. The Business was founded in 2002. PureCircle's shares are
listed on the Main Market of the London Stock Exchange and trade
under the ticker symbol PURE. For more information, visit:
www.purecircle.com.
Condensed consolidated statement of comprehensive income
for the period ended 31 December 2016
Unaudited
Notes Six months ended
31 December 31 December
2016 2015
USD'000 USD'000
Continuing operations
Revenue 47,230 54,502
Cost of sales (28,131) (31,858)
======================================= ====== ============ ============
Gross profit 19,099 22,644
Other income 6 222 3,619
Other expenses 7 (2,565) (2,177)
Administrative expenses (16,839) (15,943)
Finance income 43 36
Finance costs (2,341) (2,757)
Share of profit in joint venture 231 -
======================================= ====== ============ ============
(Loss)/ Profit before taxation (2,150) 5,422
Income tax credit/ (expense) 14 1,474 (394)
======================================= ====== ============ ============
(Loss)/ Profit for the period (676) 5,028
Other comprehensive loss (net
of tax):
Items that may be reclassified
subsequently to profit or
loss:
Exchange difference arising
on translation of foreign
operations (11,469) (10,689)
Share of other comprehensive income
in joint
Venture - -
Foreign exchange translation of
assets held for sale - (67)
(11,469) (10,756)
======================================= ====== ============ ============
Total comprehensive loss for
the period (net of tax) (12,145) (5,728)
======================================= ====== ============ ============
(Loss)/ Profit for the financial
period attributable to:
Owners of the company (676) 5,028
Non-controlling interest - -
(676) 5,028
======================================= ====== ============ ============
Total comprehensive loss attributable
to:
Owners of the company (12,145) (5,728)
Non-controlling interest - -
(12,145) (5,728)
======================================= ====== ============ ============
(Loss)/ Earnings per share
(US cents)
Basic 16 (0.39) 2.92
Diluted 16 (0.39) 2.88
======================================= ====== ============ ============
Condensed consolidated statement of financial position
as at 31 December 2016
Unaudited Audited
31 December 30 June
Notes 2016 2016
USD'000 USD'000
Assets
Non-current assets
Property, plant and equipment 11 80,600 65,662
Intangible assets 11 49,551 48,547
Prepaid land lease payments 2,407 2,537
Deferred tax assets 8,562 7,388
Trade receivables 267 523
Other receivables - 885
141,387 125,542
============================================== ====== ============ =========
Current assets
Inventories 12 102,584 84,604
Trade receivables 50,140 62,743
Other receivables and prepayments 17,906 11,654
Tax recoverable 109 259
Cash and bank balances 30,296 61,002
201,035 220,262
Total assets 342,422 345,804
============================================== ====== ============ =========
Equity and liabilities
Equity
Share capital 15 17,365 17,211
Share premium 15 221,919 214,723
Foreign exchange translation reserve (28,970) (17,501)
Share option reserve 3,242 9,776
Accumulated losses (21,095) (20,419)
============================================== ====== ============ =========
Equity attributable to owners of the company 192,461 203,790
Total equity 192,461 203,790
============================================== ====== ============ =========
Non-current liabilities
Long-term borrowings 13 72,178 84,885
Other payables and accruals 518 1,245
72,696 86,130
============================================== ====== ============ =========
Current liabilities
Trade payables 19,354 5,543
Other payables and accruals 19,330 19,977
Income tax liabilities 380 1,320
Short-term borrowings 13 38,201 29,044
77,265 55,884
============================================== ====== ============ =========
Total liabilities 149,961 142,014
Total equity and liabilities 342,422 345,804
Condensed consolidated statement of changes in equity
as at 31 December 2016
Attributable to owners of the Company
--------------------------------------------------------------------
Foreign Share
exchange based Non-
Share Share translation payment Accumulated controlling Total
capital premium reserve reserve losses Sub-total interest equity
-------- -------- ------------ -------- ------------ ---------- ------------ ---------
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Balance at 1 July 2016 17,211 214,723 (17,501) 9,776 (20,419) 203,790 - 203,790
Loss for the period - - - - (676) (676) - (676)
Other comprehensive
loss - - (11,469) - - (11,469) - (11,469)
-------- -------- ------------ -------- ------------ ---------- ------------ ---------
Total comprehensive
loss for the period
(net of tax) - - (11,469) - (676) (12,145) - (12,145)
-------- -------- ------------ -------- ------------ ---------- ------------ ---------
Share award
compensation expense
granted during the
period - - - 816 - 816 - 816
Exercise of share
options 154 7,196 - (7,350) - - - -
Balance at 31 December
2016 17,365 221,919 (28,970) 3,242 (21,095) 192,461 - 192,461
-------- -------- ------------ -------- ------------ ---------- ------------ ---------
Attributable to owners of the Company
--------------------------------------------------------------------
Foreign Share
exchange based Non-
Share Share translation payment Accumulated controlling Total
capital premium reserve reserve losses Sub-total interest equity
-------- -------- ------------ -------- ------------ ---------- ------------ ---------
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Balance at 1 July 2015 17,006 208,310 (10,990) 11,185 (35,019) 190,492 - 190,492
Profit for the period - - - - 5,028 5,028 - 5,028
Other comprehensive
loss - - (10,756) - - (10,756) - (10,756)
-------- -------- ------------ -------- ------------ ---------- ------------ ---------
Total comprehensive
loss for the period
(net of tax) - (10,756) 5,028 (5,728) - (5,728)
-------- -------- ------------ -------- ------------ ---------- ------------ ---------
Share award
compensation expense
granted during the
period - - - 2,808 - 2,808 - 2,808
Exercise of share
options 203 6,241 - (6,444) - - - -
Balance at 31 December
2015 17,209 214,551 (21,746) 7,549 (29,991) 187,572 - 187,572
-------- -------- ------------ -------- ------------ ---------- ------------ ---------
Condensed consolidated cash flow statement for the period
ended 31 December 2016
Unaudited 6 months ended
31 December 31 December
2016 2015
USD'000 USD'000
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/ Profit before taxation (2,150) 5,422
Adjustments for:-
Amortisation of deferred income (52) (40)
Amortisation of prepaid land lease payments 73 68
Depreciation of property, plant and equipment 3,083 2,657
Interest expense 2,341 2,757
Interest income (43) (36)
Loss on disposal of property, plant and equipment 100 138
Share based payments 817 2,808
Amortisation of intangible assets 100 37
Inventories written off 97 79
Intangible assets written off 84 -
Unrealised exchange loss/(gain) 448 (929)
Share of profit in joint venture (231) -
Operating cash flow before working capital changes 4,667 12,961
---------------------------------------------------------- ------------- ------------
Increase in inventories (18,078) (21,722)
Decrease in trade and other receivables 11,946 16,372
Increase in trade and other payables 9,948 3,836
NET CASH FROM OPERATIONS 8,483 11,447
---------------------------------------------------------- ------------- ------------
Interest received 43 36
Interest paid (2,341) (2,757)
Tax paid (752) (88)
NET CASH FROM OPERATING ACTIVITIES 5,433 8,638
---------------------------------------------------------- ------------- ------------
CASH FLOWS FOR INVESTING ACTIVITIES
Addition of intangible assets (5,140) (2,979)
Addition of property, plant and equipment (22,772) (6,220)
Proceeds from disposal of property, plant and equipment 100 -
Investment in joint venture (520) -
--------------------------------------------------------- ------------- ------------
NET CASH FOR INVESTING ACTIVITIES (28,332) (9,199)
---------------------------------------------------------- ------------- ------------
BALANCE CARRIED FORWARD (22,899) (561)
---------------------------------------------------------- ------------- ------------
Condensed consolidated cash flow statement for the period
ended 31 December 2016 (continued)
Unaudited 6 months ended
31 December 31 December
2016 2015
USD'000 USD'000
BALANCE BROUGHT FORWARD (22,899) (561)
CASH FLOWS FOR FINANCING ACTIVITIES
Drawdown of borrowings 54,366 57,519
Repayment of borrowings (60,753) (71,891)
Net repayment of hire purchase - (27)
Decrease in restricted cash 6 4,835
NET CASH FOR FINANCING ACTIVITIES (6,381) (9,564)
---------------------------------------------- ------------- ------------
Effects of foreign exchange rate changes on
cash and cash equivalents (1,419) (845)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF THE FINANCIAL PERIOD 60,747 59,181
CASH AND CASH EQUIVALENTS AT OF THE
FINANCIAL PERIOD 30,048 48,211
---------------------------------------------- ------------- ------------
The cash and bank balances of $30.3m on the face of the balance
sheet includes restricted cash amounting to $0.2m which is excluded
from the cash flow statement.
Notes to interim financial statements
1. General information
The Company was incorporated and registered as a private limited
company in Bermuda, under the Companies (Bermuda) Act 1981. The
Company is listed on the Main Market of the London Stock
Exchange.
The Company is engaged principally in the business of investment
holding whilst the principal activities of the rest of the Group
are the production, marketing and distribution of speciality
natural ingredients based upon high purity stevia.
The unaudited condensed consolidated interim financial
statements have been authorised for issue by the Board of Directors
on 6 March 2017.
2. Basis of preparation
The condensed consolidated financial information comprises the
unaudited interim financial information for the six months to 31
December 2016 and 31 December 2015. The condensed consolidated
interim financial statements has been prepared in accordance with
IAS 34, "Interim Financial reporting" and the Disclosure and
Transparency Rules issued by the Financial Conduct Authority. The
condensed consolidated financial information is unaudited but has
been reviewed by the auditors and their review report is set out on
page 20.
The condensed consolidated interim financial statements should
be read in conjunction with the Group's annual financial statements
for the year ended 30 June 2016 ("FY2016"), which have been
prepared in accordance with International Financial Reporting
Standards ("IFRSs"). The auditors' report on those statements was
unqualified and did not contain an emphasis of matter
paragraph.
This condensed consolidated information has been prepared under
the historical cost convention and on a basis consistent with the
IFRS accounting policies as set out in the Annual Report for the
year ended 30 June 2016.
The preparation of this condensed consolidated financial
information requires management to make estimates and assumptions
that affect the reported amounts of revenues, expenses, assets and
liabilities and the disclosure of contingent liabilities at the
date of this condensed consolidated financial information. Such
estimates and assumptions are based on historical experience and
various other factors that are believed to be reasonable in the
circumstances and constitute management's best judgement at the
date of the condensed consolidated financial information. The key
estimates and assumptions were the same as those applied to the
consolidated financial statements for the year ended 30 June 2016.
In the future actual experience may deviate from these estimates
and assumptions, which could affect these condensed consolidated
financial information as the original estimates and assumptions are
modified, as appropriate, in the period in which the circumstances
change.
3. Accounting policies
The accounting policies adopted are consistent with those of the
previous financial year. Amendments to IFRSs effective for the
financial year ending 30 June 2017 do not have not a material
impact on the group.
4. Exceptional items
Exceptional costs of $2.2m have been incurred in H117 (H116:
nil) as a direct consequence of the Withhold Release Order which
are non-recurring in nature. The main components of the exceptional
costs are legal fees and incremental costs of production and
distribution.
5. Fair value estimation
Assets and liabilities measured at fair value can be determined
based on valuation methods as defined in the fair value measurement
hierarchy as follows:
(i) Quoted prices (unadjusted) in active markets for identical
assets or liabilities (Level 1).
(ii) Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from prices)
(Level 2).
(iii) Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (Level
3).
The Group has no asset and liability valuations which are
determined based on the methods above. The carrying values of the
financial assets and liabilities of the Group at the balance sheet
date approximated their fair values.
6. Other income
Other income represents net foreign exchange gain and other
miscellaneous income.
7. Other expenses
Other expenses represent net foreign exchange loss and other
operating expenses.
8. Principal risks and uncertainties
In the annual report for the year ended 30 June 2016, one of the
principal risks faced by the company was the failure to remove the
Groups name from the WRO list. This issue has now been fully
resolved as result of the CBP clearing PureCircle of all
allegations, the release of all impounded consignments and the
subsequent removal of the Group's name form the WRO list.
In the view of the board, the key risks and uncertainties now
affecting the business are those set out below.
Failure to re-establish the Groups business momentum in the USA
as a result of the CBP investigation.
The company has been unable to supply customers in the USA with
product from June 2016 till 30(th) January 2017. There is a risk
that customers may have established alternative trading
arrangements.
Mitigation activities
PureCircle has maintained strong and frequent communication with
all customers in the USA during the CBP investigation. Our
extensive relationships with USA customers have been founded on
PureCircle's unique and differentiated product range and strong
customer service ethic which we believe will leave PureCircle well
positioned to re-establish those relationships.
Continued growth in the Stevia market
The Group has pioneered the development of the high purity
stevia market and is focused on the further development of that
market. Additionally, the Group has an operationally leveraged
business model in which profitability is sensitive to volumes. This
makes the Group's future profitability sensitive to the continued
growth in the stevia market.
Mitigation activities
Management mitigate this risk with an active programme of new
stevia product innovation to support further consumer adoption of
stevia and to enable future food and beverage formulation projects.
Further the Group invests to protect and promote the natural
credentials of stevia. These activities coupled with external
evidence, such as Mintel data, shows continued strong growth in
F&B product launches using stevia which provides confidence in
there being sustainable stevia market growth over the long
term.
Competition: over time more competitors may enter the stevia
market with the potential to reduce the Group's share of that
market
As pioneers in the development of the stevia market, the Group
is believed currently to have a majority share of the Global stevia
market. There is a risk that as stevia becomes established as a
large volume mainstream F&B ingredient, that more competitors
may enter the stevia market with the potential to reduce the
Group's share of that market.
Mitigation activities
This risk is mitigated by the significant potential growth in
the total size of the stevia market. The global sweetener and
flavour markets have an annual ingredient sales value in excess of
$90 billion. By contrast the CY2015 global stevia market size is
estimated at just $0.2 billion. This means there remains
considerable growth potential for the stevia market and with it
scope for the Group to grow revenues significantly even with
reduced market share. Further there is limited scope for any new
technologies to be labelled as naturally sourced, which is likely
to significantly limit their acceptance by consumers.
Leaf costs: the Group's financial performance can be impacted by
material changes in the input costs of its primary raw material,
the stevia leaf
Dried leaf from the stevia plant is the Group's primary raw
material and it constitutes the majority of the Group's variable
costs of production. It follows that the Group's financial
performance can be impacted by material changes in the input costs
of the stevia leaf.
Mitigation activities
Over the long term stevia is a highly efficient source of
natural sweetness with excellent sustainability and agro-economic
properties which will underpin a well-balanced sustainable global
supply that will substantially mitigate this risk. In the medium
term, the Group is managing this risk by developing large scale
diversified supply. To achieve this PureCircle continues to lead
the diversification of leaf supply into new geographic regions
centred on our leaf development hubs in Africa, South America and
India. Further the Group is making progress working with larger
commercial agricultural partners who have the potential to scale
supply more quickly than traditional smallholders.
Working capital funding to support large growth plans
The Group currently controls its supply chain 100% from leaf
supply through extraction, purification to end customer sales
relationships. This 100% control critically provides the Group with
its innovation leadership. At the same time it requires the Group
to fund the working capital from leaf purchases through to end
sales receivables and including appropriate inventory holdings.
Given the Group's growth plans, working capital funding
requirements may increase. There is always a risk that capital
market conditions may make funding of such working capital hard to
source.
Mitigation activities
The Group manages its working capital growth risk actively
through a suite of ongoing policies. These include operational
policies to ensure balance between supply purchases, inventory
holdings and forecast sales cash flows; that maintains appropriate
gross cash and facility headroom availability at all times; and
that works actively to build and maintain bank and equity
relationships
Concentrated production capacity
As pioneers in the development of the stevia industry it is
inevitable that for a certain period in its development the Group's
production capacity will be concentrated into specific facilities.
This situation will continue until such time as demand volumes
warrant the construction of more diversified production capacity.
During this period the Group is at risk of catastrophic event
impacting either of its production facilities.
Mitigation activities
The Group manages this risk actively through a variety of
policies and practices. The Group has a policy of holding high
levels of finished goods specifically and inventory generally
relative to sales levels; and management work closely with larger
customers to ensure that their inventory holdings are appropriate;
the production facilities are designed on a modular basis so as to
reduce the likelihood of any one event impacting more than a
proportion of the total facility
Management: As pioneers in the development of the stevia
industry, the Group is reliant upon the performance of highly
skilled personnel including its senior management team
Stevia is a relatively new industry, in consequence the talent
pool of management with the skills and experience of working in the
stevia market is smaller than that in other more established
industries.
Mitigation activities
The Group manages this risk by ongoing investment in senior
management retention programmes for all key managers, including the
Group's Long Term Incentive Programme (LTIP).
Managing growth: the Group has significant growth plans, which
will require more complex execution skills and processes
The Group has grown significantly (by over 205%) across the last
five years and has plans to continue to do so. With such levels of
growth comes the challenges of managing a more complex business
including a diverse customer base and an expanded product
portfolio.
Mitigation activities
The Group manages these risks by investing heavily in
appropriately skilled senior management and in global management
information systems including the roll out of Oracle's JD Edwards
global Enterprise Resource Planning (ERP) management information
system.
Managing health and safety
The Group operates in the food ingredient industry and operates
a food grade supply chain, including large production facilities.
As a result health and safety considerations are a significant
operating factor for the Group's business.
Mitigation activities
The Group manages its health and safety requirements actively
through a combination of strategy, design, policy and process
management. The Group's strategy is to be in full compliance with
all health and safety requirements at all times across the Group;
our supply chain, including production configuration, is designed
to support this strategy and operating policies and processes are
structured to re-inforce compliance on an ongoing basis.
Liquidity
Due to the temporary impact on our earnings caused by the WRO
and the increased level of net debt, the risk of covenant breach
has increased in the period. As at 31 December we confirm that we
are fully compliant with all of our financing covenants and expect
to remain so in the foreseeable future.
Mitigating activities
Management mitigates this risk through closely monitoring net
debt and taking actions to improve the Group's working capital. The
Group has a disciplined forecasting process to monitor compliance
with the covenants in place.
The removal of PureCircle from the US CBP WRO list in January
2017 means the Group now has unrestricted access to the US market.
Refer to mitigating activities above relating to re-establishing
the Group's momentum in the US market.
9. Going concern
After reviewing the Group's cash flows for the foreseeable
future covering a period of not less than twelve months from the
date of this report, the directors are satisfied that, at the time
of approving the unaudited condensed consolidated financial
statements, it is appropriate to continue to adopt a going concern
basis of accounting.
10. Segmental information
Management determines the Group's operating segments based on
the criteria used by the Chief Operating Decision Maker who has
been identified as the Chief Executive Officer (CEO) for making
strategic decisions. Management considers the Group to be a single
operating segment whose activities are the production, marketing
and distribution of natural sweeteners and flavors.
From a geographical perspective, the Group is a multinational
with operations located on all continents, but managed as one
unified global organization.
Six months to Six months to
31 December 31 December
2016 2015
USD'000 USD'000
Revenue 47,230 54,502
Cost of sales (28,131) (31,858)
Gross margin 19,099 22,644
=========================================== ============== ==============
Gross margin % 40% 42%
Other income 265 170
Administrative expenses (13,907) (12,072)
Operating profit 5,457 10,742
=========================================== ============== ==============
Main Market Listing costs - (1,950)
Other expenses (5,115) (4,098)
Foreign exchange (loss)/ gain (382) 3,485
Finance costs (2,341) (2,757)
Share of profit in joint venture 231 -
Taxation 1,474 (394)
(Loss)/Earnings for the financial period (676) 5,028
------------------------------------------- -------------- --------------
(Loss)/ Earnings per share (US cents) (0.39) 2.92
Basic (0.39) 2.88
Diluted
8,979 13,504
Adjusted EBITDA
Reconciliation of Adjusted EBITDA to operating profit
Adjusted EBITDA 8,979 13,504
Depreciation and amortization (3,256) (2,762)
Deferred revenue (35) -
Share of profit in joint venture (231) -
-------------------------------------------------- ------ -------- --------
Operating profit 5,457 10,742
---------------------------------------------------------- -------- --------
Gross cash 30,296 48,471
Gross debt 110,379 94,600
---------------------------------------------------------- -------- --------
Net debt 80,083 46,129
---------------------------------------------------------- -------- --------
Gross cash 30,296 48,471
Unutilised facilities 44,314 24,261
---------------------------------------------------------- -------- --------
Headroom 74,610 72,732
---------------------------------------------------------- -------- --------
In the reporting of financial information, the Group uses
certain alternative performance measures that are not required
under IFRS, the generally accepted accounting principles (GAAP)
under which the Group reports. The Group believes that these
additional measures, which are used internally, are useful to users
of the financial information in helping them to understand the
underlying business performance.
The primary performance indicators used by the Group are
revenue, gross margin, gross margin %, adjusted EBITDA, net cash
from operations, net debt and headroom.
The above measures are considered useful by management
because:
- In the Group's high operationally geared business model
profitability is sensitive to revenue and gross margin %
- Adjusted EBITDA is considered the most efficient profit and
loss account indicator of "operating cash flow profitability"
- Net cash from operations, net debt and headroom are important
measures of cash flow and debt capacity
- Gross margin is calculated as revenue less cost of sales
including sales duty and freight costs
- Gross margin % is calculated as gross margin as a % of revenue
- Operating profit is calculated as gross margin less
administrative expenses plus other income
- Adjusted EBITDA is calculated as operating profit plus
depreciation and amortisation. This also represents earnings for
the financial period plus taxation, finance costs, depreciation,
amortisation, foreign exchange, other expenses, deferred revenue
and share of loss on joint venture all added back
- Other expenses comprise discretionary remuneration related
costs including the Group's Long Term Incentive Plan (LTIP) and
bonus
- Net debt is calculated as total bank borrowings (both short
and long term) less gross cash and bank balances
- Headroom is calculated as gross cash and bank balances plus
all unutilised elements of the Group's bank facilities
Seasonality
Due to the seasonal nature of the Group operations, higher
revenue and operating profit are usually expected in the second
half of the year than the first six months.
In the financial year ended 30 June 2016, 39% of revenue
accumulated in the first half of the year, with 61% accumulating in
the second half.
Geographical information
Asia Europe Americas Goodwill Total
USD'000 USD'000 USD'000 USD'000 USD'000
31 December 2016
Sales 6,250 17,889 23,091 - 47,230
Non-current assets 123,809 1,559 14,213 1,806 141,387
31 December 2015
Sales 7,086 9,708 37,708 - 54,502
Non-current assets 95,502 1,352 13,243 1,806 111,903
11. Property, plant and equipment and intangible assets
During the period, the Group invested $22.8m in property, plant
and equipment.
The addition of $5.1m to intangible assets is in respect of
capitalisation of product developments, intellectual property and
leaf development during the period, net of amortisation for
products now launched commercially.
12. Inventories
31 December 30 June
2016 2016
USD'000 USD'000
Raw materials 16,094 11,422
Work-in-progress 47,111 41,785
Finished goods 39,379 31,397
102,584 84,604
================== ============ ========
13. Borrowings
31 December 30 June
2016 2016
USD'000 USD'000
Current
- Term loans 38,201 29,044
38,201 29,044
============== ============ ========
Non-Current
- Term loans 72,178 84,885
72,178 84,885
================== ======== ========
Total borrowings 110,379 113,929
=================== ======== ========
During the period, the Group repaid bank loans amounting to
$60.8m, in line with previously disclosed repayment terms. The
Group then drew down bank loans amounting to $54.4m at a weighted
average effective interest rate of 4.3% per annum. The proceeds
were used to meet working capital requirements.
The non-current term loans fall due in between February 2018 to
November 2020.
14. Income taxes
Income tax expense is recognised based on management's best
estimate of the weighted average annual income tax rate expected
for the full financial year.
The Company was granted a tax assurance certificate dated 18
August 2007 under the Exempted Undertakings Tax Protection Act 1966
pursuant to which it is exempted from any Bermuda taxes (other than
local property taxes) until 28 March 2016 which was extended to 31
March 2035 following the enactment of the Exempted Undertakings Tax
Protection Amendment Act 2011.
A subsidiary of the Group, PureCircle Sdn. Bhd. (PCSB), has been
granted the Bio-Nexus Status by the Malaysian Biotechnology
Corporation Sdn. Bhd. in which PCSB is entitled to a 100% income
tax exemption for a period of 10 years on its first statutory
income commencing in 2009. Upon the expiry of the 10-year incentive
period, PCSB will be entitled to a concessionary tax rate of 20% on
income derived from qualifying activities for a further period of
10 years.
Another subsidiary of the Group, PureCircle (Jiangxi) Co. Ltd.
(PCJX), has also been granted a 10% exemption on corporate tax from
1 January 2013 to 31 December 2020 by Ganzhou State Tax Revenue
Department under the Western Ganzhou State Development program.
15. Share capital and share premium
Number of shares Ordinary shares Share premium Total
'000 USD'000 USD'000 USD'000
Balance at 1 July 2016 172,112 17,211 214,723 231,934
Exercise of share options 1,538 154 7,196 7,350
Balance at 31 December 2016 173,650 17,365 221,919 239,284
============================== ================= ================ ============== ========
Balance at 1 July 2015 170,062 17,006 208,310 225,316
Exercise of share options 2,026 203 6,241 6,444
Balance at 31 December 2015 172,088 17,209 214,551 231,760
============================== ================= ================ ============== ========
16. Earnings per share
The basic earnings per share is calculated by dividing the
profit attributable to owners of the Company by the weighted
average number of ordinary shares in issue during the period.
6 months ended
31 December 31 December
2016 2015
(Loss)/ Profit attributable to equity holders of the Company (USD'000) (676) 5,028
Weighted average number of ordinary shares in issue ('000) 173,499 171,960
Basic (loss)/ profit per share (US Cents) (0.39) 2.92
Fully diluted (loss)/ profit per share (US Cents) (0.39) 2.88
17. Dividends
No dividends were declared or paid by the Company during the
interim period.
18. Contingent liabilities and capital commitments
At the end of the period, there are no material contingent
liabilities which, upon becoming enforceable, may have a material
impact on the financial position of the Group.
Capital commitments amounting to approximately $12.6m were
approved and contracted for the purchase of land and upgrading of
plant and machinery in Malaysia.
19. Events after the end of the reporting period
Credit notes of $1.4m have been issued to one customer in
January 2017 following the release of our stevia shipments by the
US CBP due to a re-phasing of a stevia product innovation by one of
our customers.
20. Significant related party transactions
(a) Identities of related parties:
The Group and / or the Company have related party relationships
with:
i) its subsidiaries and joint venture;
ii) the directors who are the key management personnel; and
The following transactions were carried out by the Group during
the period:
31 December 31 December
2016 2015
USD'000 USD'000
Sales of goods to jointly controlled entity 438 -
------------ ------------
21. Directors' Responsibility Statement
The Directors confirm, that to the best of their knowledge, that
this condensed financial information has been prepared in
accordance with IAS34 "Interim Financial reporting", and that this
Half-Year Report includes a fair review of the information required
by the Disclosure and Transparency Rules of the Financial Conduct
Authority, paragraphs DTR 4.2.7 and DTR 4.2.8.
The Directors of PureCircle Limited are as listed on pages 36
and 37 in the PureCircle Limited Annual report for the year ended
30 June 2016.
Details of all the current Directors of PureCircle Limited are
maintained at www.purecircle.com
For and on behalf of the Directors:
Magomet Malsagov Rakesh Sinha
CEO CFO
6 March 2017
Independent review report to PureCircle Limited
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed the condensed consolidated interim financial
statements (the "interim financial statements") in the interim
results of PureCircle Limited for the six month period ended 31
December 2016. Based on our review, nothing has come to our
attention that causes us to believe that the condensed consolidated
interim financial statements are not prepared, in all material
respects, in accordance with International Accounting Standard 34
and the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the condensed consolidated statement of financial position as at 31 December 2016;
-- the condensed consolidated statement of comprehensive income
for the period then ended;
-- the condensed consolidated cash flow statement for the period then ended;
-- the condensed consolidated statement of changes in equity for
the period then ended; and
-- the explanatory notes to the condensed consolidated interim financial statements.
The interim financial statements included in the interim results
have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as issued by the
International Accounting Standards Board and the Disclosure Rules
and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as issued by the International Accounting Standards
Board.
Responsibilities for the condensed consolidated interim
financial statements and the review
Our responsibilities and those of the directors
The interim results, including the interim financial statements,
is the responsibility of, and has been approved by, the directors.
The directors are responsible for preparing the half-yearly report
in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Our responsibility is to express to the company a conclusion on
the condensed consolidated interim financial statements in the
half-yearly report based on our review. This report, including the
conclusion, has been prepared for and only for the company for the
purpose of complying with the Disclosure and Transparency Rules of
the Financial Conduct Authority and for no other purpose. We do
not, in giving this conclusion, accept or assume responsibility for
any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of condensed consolidated financial statements
involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the interim
results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
6 March 2017
London
Notes:
(a) The maintenance and integrity of the PureCircle Limited
website is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial statements since
they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Shareholder Information
Internet
Investors and corporate stakeholders
www.purecircle.com
Health professionals, customers, policy makers, consumers
www.globalsteviainstitute.com
Investors Relations
Requests for copies of the annual reports published in 2016 and
previous years or other investor relations matters should be
addressed to PureCircle office: ir@purecircle.com
Share Registrar
In Jersey (Shares)
Computershare Investor Services
(Channel Islands) Limited
PO Box 83, Ordnance House,
31 Pier Road St Helier
Jersey JE4 8PW
Channel Islands.
In the UK (Depository Interests)
Computershare Investor Services plc
The Pavillions, Bridgwater Road
Bristol BS13 8AE, United Kingdom.
0120B7/py
This information is provided by RNS
The company news service from the London Stock Exchange
END
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