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PureCircle Limited (PURE)

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Monday 21 March, 2011

PureCircle Limited

Half Yearly Report

RNS Number : 2728D
PureCircle Limited
21 March 2011
 



PURECIRCLE LIMITED

("PureCircle" or the "Company")

Interim results for the six months ended 31 December 2010 and Quarterly Stevia Market Update

PureCircle (www.purecircle.com), the world's leading producer of Natural High Purity Stevia sweeteners ("Stevia") today announces results for the six months ended 31 December 2010 (H1 FY2011) and its second quarterly Stevia market update.

 

SUMMARY FINANCIALS

Six months ended 31 December  (US$m)

2010

(H1 FY 2011)

2009

(H1 FY 2010)

Revenue

13.6

37.5

Net (loss) / profit after tax and minority interests

(7.0)

1.6

EBITDA

(1.1)

7.4

Gross cash

30.8

80.3

Net debt

(76.7)

(20.5)

Gross assets

  270.4

271.1

Earnings per share (US cents)

(4.54)

1.21

 

HIGHLIGHTS

·     Sales reflect timing of call offs of contracted volumes which are planned to be delivered in H2.

·     At 31 December 2010 the Group had gross assets of $270m, including inventories of $114m.

·     The Group has cash and banking facility headroom of more than $50m.

·     Two additional global contracts signed with new Global Key Accounts (GKA's)

·     Supply Partnerships with two existing GKA's extended and deepened.

·     The Company's underlying Stevia sales excluding these GKA's increased 227%.

·     FY 2011 sales expected to be in the range $50m to $60m.

·     Nielsen based data shows USA retail consumption of Stevia sweetened products for 2010 totaled $809m, up 126% on 2009.

·     PureCircle market share (excludes table top sweetener category, includes indirect sales) of USA retail products is running in excess of 90%.

·     Joint Ventures with Tereos and Nordzucker and partnership with Dohler have been formalized and are operational.

 

Paul Selway-Swift, Chairman of PureCircle, commented

"The first half FY 2011 has been a challenging period with sales not reflecting the underlying growth in the Stevia market. We have a highly scaled business model that leaves results sensitive to sales volumes.

We remain confident of the long term opportunity. The range of products already launched, the strong consumer reaction to Stevia and the quality of the companies using Stevia regularly all suggest that it is developing into a significant global industry.

When it does, PureCircle will be well placed to capture the opportunity. We are well capitalized, the supply chain is ready and we have the strategic partnerships in place to service the global industry."

21 March 2011

 

ENQUIRIES

PureCircle Limited

Magomet Malsagov, Group CEO                                      +60 12388 8049

William Mitchell, Group CFO                                           +44 7974 005163

 

RFC Corporate Finance Ltd

Stephen Allen                                                                       +61 89480 2500

Chairman & Chief Executive's statement

1.    REVIEW

This report covers the six months to 31 December 2010. The results reported are disappointing with low sales, due to the call off timings of contracted volumes, leading to the Company trading at a loss.

As noted in prior reviews, our assessment is that High Purity Stevia ("Stevia") will become a mass volume mainstream ingredient which will require scaled supply. Initial Nielsen based retail consumption data for the USA indicate almost a billion US$ of retail sales within two years of the USA market opening and in that such a market is indeed developing. Our high market share, our continued contract wins and our strategic partnerships are positioning us to be well placed when the mass market does develop.

Our business model is sensitive to volumes and whilst operating at low capacity our profitability can be impacted significantly by relatively modest changes in volume. Our assessment is that it will be Calendar 2012 or 2013 before the true velocity of Stevia sales globally becomes apparent.  

2.    RESULTS

Revenues of $13.6m for H1 FY 2011 were $24m lower than the comparable sales for the six months to 31 December 2009 (H1 FY 2010). Within that total, sales of Stevia were $12m lower and sales of stevia extract and co-products were $12m lower.

The lower Stevia sales in H1 FY2011 were due to the timing of off take volumes for one of the Company's material Global contracts. The comparable FY 2011 volumes are already committed and will be delivered before 30 June 2011 and booked as H2 FY 2011 sales.  After adjusting for the timing of this contract, underlying sales of Stevia increased by $7m (227%), in line with increases in the global stevia market (see market analysis later).

Sales of stevia extract and co-products tend to be related to overall production levels. In H1 FY2011 they totalled $2m, $12m lower than H1 FY 2010, reflecting the lower production levels in H1 FY 2011.

The Group's long term business model is to achieve a variable gross margin of at least 50% on its Stevia sales.  In H1 FY 2011 we achieved 46%.

The low gross profit of $0.9m reflects the Group's 1H FY 2011 sales being just a low percentage of production capacity.  Gross profit margin will improve as sales throughput increases.

Finance costs have increased by $1.4m to $3.6m, reflecting the Group's higher net debt position across the period, itself due to the higher inventories held by PureCircle.   

The Group's EBITDA loss of $1.1m reflects the low sales in during the period. 

The Group's operating cash outflow of $28.0m was in line with that of H1 FY 2010 ($27.4m) and reflects the highly seasonal nature of the Group's cashflow. During the H1 each year, the Group purchases its annual leaf requirements and builds finished goods inventories to support sales for H2. After adjusting for the inventory increase of $28.6m, the Group generated positive cashflow from operations of $0.6m, an improvement of $0.8m versus H1 FY 2010.

Net debt of $77m (H1 FY 2010 $21m) reflects the Group's investment in inventories. After adjusting for the $113m of inventories, the Group is net cash positive.

The Group has gross assets of $270m (31 December 2009 $271m) and is capable of achieving profitable growth when sales volumes increase. Existing finished goods inventory and production capacity are available to service higher levels of sales.

3.    SALES

H1 FY 2011 Stevia sales reflect the timing of call offs of committed volumes.  After adjusting for this, the Company's H1 FY 2011 Stevia sales increased by 227% against comparable H1 FY 2010 Stevia sales. Operational indices confirm the growing sales and customer base.

In the USA, the Group serviced 67 customers H1 FY2011, against 28 in H1 FY 2010, an increase of 139%:  Globally the Group is now servicing more than 135 customers.

During H1 FY 2011 the Group secured a number of new sales contracts. We continue to be prevented by confidentiality clauses from announcing customer contracts, particularly before our clients announce their own product launch and roll-out plans. However since 30 June 2010 PureCircle has won contracts to supply on a global basis two more of the world's largest ten Food and Beverage companies. The Group is now contracted supplier to seven of the world's largest ten such Companies.

PureCircle has substantially extended and deepened the existing global contract with strategic beverage GKA due to expire June 2011.

PureCircle has extended the global contract with Merisant. Under the extended contract terms, PureCircle will service all Merisant's Stevia needs and all Merisant products sweetened with Stevia will carry PureCircle's trust mark "Stevia by PureCircle".

4.    TREASURY

At 31 December 2010 the Group had gross cash of $30.8m and net debt of $76.7m. Our assessment is that net debt is at its seasonal peak due to the timing of leaf purchases and major contract sales.  We expect net debt to reduce steadily over the next 18 to 24 months. At the current peak net debt levels the Group has more than $50m cash and banking facility headroom. We believe this to be sufficient for our projected requirements.

Further, our inventories represent more than $150m of sales value and as sales occur would convert into that amount of cash without further investment. Our production facilities are equipped to support volumes higher than current run rates, again without major investment. Our business model will be cash generative as sales volumes increase.

5.    REGULATORY & PRODUCT

Additional regulatory clearances for Stevia continue to be achieved. For example in July 2010 the USA FDA has granted PureCircle's SG95 product GRAS approval.

Indications are that Stevia will secure important new regulatory approvals before the end of Calendar 2011. In Europe proposals for Stevia approval appear to be slated for fourth quarter calendar 2011. In Asia the March 2011 CODEX meeting has cleared the principal remaining obstacles to Stevia approval in various Asia Pacific countries such as India, the Philippines and Thailand.

6.    SUGAR JOINT VENTURES & OTHER PARTNERSHIPS

In October 2010 the Group's Joint Venture with Tereos was created with the launch of Tereos PureCircle Solutions SA (http://www.stevia-tereos-purecircle.com). This has made encouraging progress in both product and market development since October, including initial sample sales. Our partner Tereos has launched a retail steviasucrose product, "Ligne de Beghin Say aux extraits de stevia" , which is performing well.

In November 2010 the Group's Joint Venture with Imperial Sugar, Natural Sweet Ventures, launched Steviacane as a retail steviasucrose product for household consumption. The initial trial launch in 200 retail stores in Texas is outperforming expectations. Talks are in progress to extend the launch nationally later in 2011.

On 18 March 2011 the Group's Joint Venture with Nordzucker was launched successfully with the creation of NP Sweet AS. Based in Copenhagen, Denmark, this markets stevia and steviasucrose products across North and Eastern Europe.

Discussions continue with British Sugar Group.

In October 2010 our Dohler partnership was formed which since has been operational and working well. Globally there are number of joint projects underway for verious global, regeonal and local food and beverage companies which will further contribute to PureCircle sales and stevia market development in general.

7.    CUSTOMER SERVICE & SUPPLY CHAIN

During H1 FY 2011 the Group has consolidated the progress made in scaling up its supply chain since 2007. Supply chain key performance indicators remain on track to support the mass volume natural sweetener business that we believe Stevia will develop into. Progress in H1 FY 2011 has included:

·     Initial commercial stevia leaf production from both Paraguay and Kenya

·     Adapting the Group's production facilities to enable the development of a wider range of high purity stevia products, including the new SG95.

Our customer service activities have focused on building inventories of finished goods in all major sales regions, including Latin America, China and Europe. In addition the Group has been subject to and has passed a number of major client supply chain audits.

 

8.    QUARTERLY STEVIA MARKET UPDATE AS AT 31 DECEMBER 2010

Nielsen data shows USA retail sales of consumer products containing Stevia totalled $809m in calendar 2010 ($357m calendar 2009), an increase of 126%.

Key Market Data

 ANNUALISED DATA FOR QUARTERS

CHANGE VS. PRIOR (%)


31-Dec-10

31-Dec-09

  Dec 2010 vs Dec 2009

Annualised USA Consumer retail sales of products containing high purity stevia: $m

$846

$443

91%





PureCircle share of USA F&B high purity stevia ingredient market %  **

90%

98%






**: excludes table top sweetener category, includes indirect sales




 

The annualized sales run rate for the quarter ended 31 December 2010 was $846m, an increase of 91% over the comparative quarter in 2009. Note that volumes in the fourth quarter are typically lower than the quarter ended 30 September, due to the seasonality of beverage sales in USA with higher sales in the summer months of Q3.

Nielsen data shows usage of Stevia widening into more food and beverage categories: 38 categories had seen launches by the end of 2010, up 30% from a year ago.

The strong growth in USA consumer usage is mirrored in other countries around the world. For example Mexico, France, Australia and China have all witnessed more launches and wider category usage than in 2009.

PureCircle estimates that the USA consumer 2010 retail sales translates into actual usage of about 130-150 tonnes. Allowing for increased usage in other countries, the Company estimates that global usage in 2010 totalled 230-250 tonnes, an increase of at least 100% compared to calendar 2009.

Euromonitor reports launches of products including stevia increased 87% in 2010. This compares to a 41% decline in launches with Saccharine and a 13% decline in launches with Aspartame.

9.    OUTLOOK

FY 2011 is the first year that independent retail consumption data for Stevia has been available. The Nielsen based data shows that Stevia is a rapidly growing industry and that Stevia is developing into a broadly based mainstream ingredient in foods and beverages. PureCircle remains confident about the long term growth prospects for Stevia and for the Company. Questions do remain about the short term pace of that growth.

The Group's current sales pipeline indicates sales for FY 2011 will be in the range $50m to $60m. Thereafter we expect volume increases in FY 2012. But with major markets like Europe and India not opening until late calendar 2011, we do not expect to see the true velocity of sales on a global basis to be evident fully before Calendar 2012 and 2013.  As such, we continue to anticipate a high degree of sales volatility over the next two years.

 

Paul Selway-Swift, Chairman

Magomet Malsagov, Chief Executive

21 March 2011

NOTES TO EDITORS

PureCircle is the global leader in the production of high purity Stevia products. PureCircle is leading the industry with the development of a sustainable, vertically integrated supply chain operating in four continents.  Across these regions, PureCircle sources dry stevia leaves, undertakes extraction processes and refines the extract into sweeteners which it markets as a mainstream ingredient to Food and Beverage manufacturers worldwide. PureCircle provides a sustainable cash crop for rural farming communities in each region and works closely with these communities to maximize the social, economic, and environmental benefits of its operations. PureCircle's investment in research and development has given it a leadership position in the Stevia industry and its scientists are globally recognized experts in their field.  PureCircle has pioneered the industry trust mark "Stevia PureCircle" that educates consumers about the benefits of Stevia and provides a strong base of trust for both consumers and Food & Beverage companies alike. PureCircle also funds the Global Stevia Institute (globalsteviainstitute.com) which provides a global platform for stevia education and outreach, lead by internationally recognized health professionals. PureCircle's corporate offices are located in Chicago, USA; Asuncion, Paraguay; Geneva, Switzerland; Kuala Lumpur, Malaysia; Ganzhou, China; Shanghai, China and Kericho, Kenya.  PureCircle is listed on the London Stock Exchange AiM market under the ticker symbol: PURE.  For more information on PureCircle visit: www.purecircle.com.

 

 

Condensed consolidated statement of comprehensive income

for the period ended 31 December 2010




Unaudited


Notes


Six months ended




31 December


31 December




2010


2009




USD '000


USD '000






(Restated)

Continuing operations






Revenue



13,574


37,507

Fair value gain on biological assets



349


-

Cost of sales



(13,062)


(27,315)







Gross profit



861


10,192







Administrative expenses



(5,191)


(5,779)

Other income

4


2,487


-

Other expenses

5


(2,066)


-

Finance income



153


25

Finance costs



(3,760)


(2,241)

Share of profit of an associate



-


109







(Loss)/Profit before taxation



(7,516)


2,306

Income tax credit / (charge)

13


501


(564)







(Loss)/Profit for the period



(7,015)


1,742







Other comprehensive income (net of tax)






Exchange difference arising on translation of foreign

  operations



 

123


 

(478)









(6,892)


  1,264







(Loss)/Profit for the financial period attributable to:






Owners of the company



(6,975)


1,646

Non-controlling interest



(40)


96









(7,015)


  1,742







Total comprehensive (loss)/income attributable to:






Owners of the company



(6,873)


1,168

Non-controlling interest



(19)


96









(6,892)


  1,264







Earnings per share (US cents)






Basic

15


(4.54)


1.21

Diluted

15


(4.44)


1.20







 

 

Condensed consolidated statement of financial position

As at 31 December 2010




Unaudited

Audited




31 December

30 June


Notes


2010

2010




 USD '000

USD '000

Assets





Non-current assets





Property, plant and equipment

9


71,316

69,761

Intangible assets



22,841

21,188

Biological assets

11


4,927

8,621

Prepaid land lease payments



3,088

3,113

Deferred tax assets



2,604

2,043









104,776

104,726






Current assets





Derivative financial instruments



-

72

Inventories

10


113,500

78,892

Trade receivables



12,094

19,990

Other receivables, deposits and prepayments



8,751

6,619

Tax recoverable



427

 -

Cash and bank balances



30,829

63,601









165,601

169,174

Total assets



270,377

273,900






Equity and liabilities





Equity





Share capital

14


15,405

15,358

Share premium

14


131,108

130,490

Treasury shares

14


-

*

Foreign exchange translation reserve



366

264

Share option reserve



693

994

Retained earnings



3,615

10,590






Equity attributable to owners of the company



151,187

157,696

Non-controlling interest



855

874






Total equity



152,042

158,570






Non-current liabilities





Deferred tax liabilities



1,302

1,216

Long-term borrowings

12


80,727

79,690

Deferred income



635

969









82,664

81,875






Current liabilities





Trade payables



4,439

4,115

Other payables and accruals



4,111

4,318

Amount due to joint venture partners



258

-

Income tax liabilities



33

811

Short-term borrowings

12


26,830

24,211









35,671

33,455






Total liabilities



118,335

115,330

Total equity and liabilities



270,377

273,900

Net assets per share (USD)



0.98

1.03





 

 

Condensed consolidated statement of changes in equity

as at 31 December 2010

 

Attributable to owners of the Company



 



 Foreign






 



 exchange

 Share



 Non-


 

 Share

 Share

 translation

 option

Retained


Sub-

 controlling

 Total

 

 capital

premium

 reserve

reserve

 earnings

 total

 interest

 equity

 

 USD '000

 USD '000

 USD '000

 USD '000

 USD '000

 USD'000

 USD '000

 USD '000

 









Balance at 1 July 2010

 15,358

 130,490

264

994

10,590

157,696

874

158,570



















Loss for the period

              -  

              -  

              -  

              -  

(6,975)

(6,975)

    (40)

 (7,015)

Other comprehensive income:









Exchange difference arising on









translation of foreign operations

              -  

              -  

           102

              -  

              -  

           102

             21

     123

 









Total comprehensive income/(loss) for









   the period (net of tax)

              -  

              -  

           102

              -  

(6,975)

     (6,873)

           (19)

(6,892)

 









Share option scheme compensation









expenses granted during the period

          -  

              -  

              -  

352

-  

           352

              -  

           352

Exercise of share options

47

618

              -  

(653)

-  

             12

              -  

 12

 









Balance at 31 December 2010

15,405

131,108

366

693

3,615

   151,187

855

152,042

 

 

Condensed Consolidated Statement of Changes in Equity

as at 31 December 2009

 

 

Attributable to owners of the Company



 




 Foreign






 




 exchange

 Share



 Non-


 

 Share

 Share

Treasury

 translation

 option

Retained

Sub-

 controlling

 Total

 

 capital

 premium

Shares

 reserve

 reserve

 earnings

 total

 interest

 equity

 

 USD '000

 USD '000

USD '000

 USD '000

 USD '000

 USD '000

 USD'000

 USD '000

 USD '000

 










Balance at 1 July 2009










As previously reported

13,272

66,353

*

1,032

1,704

12,276

94,637

600

95,237

Prior year adjustments

-

-

-

-

-

(2,720)

(2,720)

(18)

(2,738)

As restated (Note 21)

13,272

66,353

*

1,032

1,704

9,556

91,917

582

92,499











Profit for the period

              -

              -

-

              -

              -

1,646

1,646

96

1,742

Other comprehensive income:










Exchange difference arising on










translation of foreign operations

              -

              -

-

(478)

              -

-

(478)

-

(478)

 










Total comprehensive income for










the period for (net of tax)

              -

              -

-

(478)

              -

1,646

1,168

96

1,264

 










Share placements

2,000

62,047

-

-

-

-

64,047

-

64,047

Cost of issuance of shares

-

(165)

-

-

-

-

(165)

-

(165)

Share option scheme compensation










expenses granted  during the period

              -

              -

-

              -

720

-

720

              -

720

Exercise of share options

18

708

-

              -

(388)

-

338

              -

338

Equity subscription by non-










controlling interests

-

-

-

-

              -

-

-

80

80











Balance at 31 December 2009










(Restated)

15,290

128,943

*

554

2,036

11,202

158,025

758

158,783

 

Note

* -  Less than USD1.00

 

Condensed consolidated cash flow statement for the period ended 31 December 2010

 



Unaudited 6 months ended



31 December


31 December



2010


2009



USD'000


USD'000





(Restated)

CASH FLOWS FOR OPERATING ACTIVITIES





(Loss)/Profit before taxation


(7,516)


2,306






Adjustments for:-





Amortisation of deferred income


36


-

Amortisation of prepaid land lease payments


83


58

Depreciation of property, plant and equipment


2,676


2,839

Interest expense


3,760


2,241

Interest income


(153)


(25)

Other income receivable


(2,100)


-

Share of income of an associate


-


(109)

Share based payment expense


365


720

Plant and equipment written down


1,545


-

Intangible assets written off


50


-

Inventories written off


26


-

Change in fair value of biological asset


(349)


-

Unrealised exchange (gain)/loss


(3,338)


32






Operating cash flow before working capital changes


(4,915)


8,062






Increase in inventories


(28,602)


(27,232)

Decrease/ (Increase) in trade and other receivables


10,920


(7,488)

Increase in trade and other payables


200


2,050

Increase in biological assets


(1,359)


-

NET CASH FOR OPERATIONS


(23,756)


(24,608)






Interest received


153


25

Interest paid


(3,760)


(2,241)

Tax paid


(608)


(564)

NET CASH FOR OPERATING ACTIVITIES


(27,971)


(27,388)






CASH FLOWS FOR INVESTING ACTIVITIES








Addition of intangible assets


(852)


(1,238)

Addition of property, plant and equipment


(3,593)


(7,228)

Proceeds from disposal of property, plant and equipment


19


-

Proceeds from liquidation of an associate


-


157






NET CASH FOR INVESTING ACTIVITIES


(4,426)


(8,309)

BALANCE CARRIED FORWARD


(32,397)


(35,697)






 

 

Condensed consolidated cash flow statement for the period ended 31 December 2010 (continued)

 



Unaudited 6 months ended



31 December


31 December



2010


2009



USD'000


USD'000





(Restated)

 






 

BALANCE BROUGHT FORWARD


(32,397)


(35,697)

 






 

CASH FLOWS FROM FINANCING ACTIVITIES





 






 

Proceeds from disposal of treasury shares


-


180

 

Proceeds from issuance of shares to non-controlling interests


-


80

 

Proceeds from private placement


-


64,040

 

Drawdown of borrowings


15,186


60,450

 

Repayment of borrowings


(16,406)


(27,992)

 

Net drawdown/(repayment) of hire purchase


74


(44)

 






 






 

NET CASH (FOR)/FROM FINANCING ACTIVITIES


(1,146)


96,714

 






 

Effects of foreign exchange rate changes on





 

 cash and cash equivalents


771


350

 






 

CASH AND CASH EQUIVALENTS





 

 AT BEGINNING OF THE PERIOD


62,674


18,920

 

CASH AND CASH EQUIVALENTS AT END OF THE





 

FINANCIAL PERIOD


29,902


80,287

 

 

GROSS CASH


30,829


80,287

LESS: RESTRICTED CASH


(927)


-

CASH AND CASH EQUIVALENTS


29,902


80,287





 

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) Law 1991 (as amended).  The Company has its primary listing on the Alternative Investment Market (AiM) operated by the London Stock Exchange plc.

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 high purity stevia products.

The unaudited condensed consolidated interim financial statements have been authorised for issue by the Board of Directors on 21 March 2011.

2.         Basis of preparation

The condensed consolidated interim financial statements for the six months ended 31 December 2010 have been prepared in accordance with IAS 34, "Interim financial reporting".  The condensed consolidated interim financial statements should be read in conjunction with the Group's annual financial statements for the year ended 30 June 2010, which have been prepared in accordance with IFRSs.

3.         Accounting policies

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 July 2010.

(i)            Improvements to IFRS 2009 - Amendments to IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 36 & IAS 39 (effective for annual periods beginning on or after 1 January 2010

(ii)           Amendments to IFRS 2 - Group Cash-settled Share-based Payment Transactions (effective for annual periods beginning on or after 1 January 2010)

(iii)         Amendments to IFRS 1 - Additional Exemptions to First-time Adopters (effective for annual periods beginning on or after 1 January 2010)

(iv)          Amendment to IAS 32 - Classification of Rights Issues (effective for annual periods beginning on or after 1 February 2010)

(v)           IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after 1 July 2010)

(vi)          Amendment to IFRS 1 - Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters (effective for annual periods beginning on or after 1 July 2010)

(vii)         Improvements to IFRS 2010 - Amendments to IFRS 3 & IAS 27 (effective for annual periods beginning on or after 1 July 2010)

The adoption of the new standards and amendments to standards above did not have a material impact on the condensed consolidated interim financial statements for the six months ended 31 December 2010.

4.         Other income

 

Other income represents a one off settlement in FY 2011 of an insurance claim made in financial year ended 2009.

 

5.         Other expenses

 

Other expenses principally comprise USD1.5m plant and equipment written down following a decision to reconfigure certain of the Group's fixed assets to enable the production of an enlarged product portfolio. In addition, whilst the claim is being challenged, the Group has made a full provision of USD0.5m for a claim from a former packaging contractor.     

 

6.         Principal risks and uncertainties

 

The Group set out in its 2010 Annual Report and Financial Statements the principal risks and uncertainties that could impact its performance; these remain unchanged since the Annual Report was published. The Group operates a structured risk management process, which identifies and evaluates risks and uncertainties and reviews mitigation activity.

 

 

7.         Seasonality

 

At 31 December 2010 the Group had gross cash of USD30.8m and net debt of USD76.7m. The Group expects net debt to be at its seasonal peak due to the timing of  leaf purchases and  contracted deliveries from a major contract and expects net debt to reduce steadily over the next 18 months.  Net debt is defined as short-term and long-term borrowings less cash and bank balances.  Despite current peak net debt levels the Group has more than USD50m cash and banking facilities headroom. The Directors believe the banking facilities to be sufficient for projected funding requirements.

 

8.         Segmental information

 

Management determines the Group's operating segments based on the criteria used by 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 high purity natural sweeteners.

 

From a geographical perspective, the Group is a multinational with operations located on all continents, but managed as one unified global organization.  The Group's markets and its supply chain are based in the Americas, EMEA (Europe, Middle East and Africa) and Asia Pacific.

The performance of the operating segment is based on a measure of earnings before interest, tax, depreciation and amortization (EBITDA).

 

Trading

31 December

31 December


2010

2009


USD '000

USD '000



(Restated)




Revenue

13,574

37,507

Gain on biological assets

349

-

Cost of sales

(13,062)

(27,315)

Gross profit

861

10,192




Administrative expenses

(5,191)

(5,779)




Operating (loss)/profit

(7,516)

2,306




EBITDA

(1,150)

7,419




Reconciliation of EBITDA to profit for the financial period:



EBITDA

(1,150)

7,419

Depreciation and amortisation

(2,759)

(2,897)

EBIT

(3,909)

4,522

Finance income

153

25

Finance costs

(3,760)

(2,241)

Income tax credit / (charge)

501

(564)

(Loss)/Profit for the financial period

(7,015)

1,742




Cash Flow






Operating cash flow before working capital changes

(4,915)

8,062

Increase in inventories

(28,602)

(27,232)

Decrease/(Increase) in receivables

10,920

(7,488)

Increase in payables

200

2,050

Net cash for operations

(23,756)

(24,608)

Net cash (for)/ from financing activities

(1,146)

96,714

Gross cash at end of the financial period

30,829

80,287




Statement of financial position






Property, plant and equipment

71,316

   68,804

Inventories

             113,500

   58,938

Trade receivables

    12,094

     30,826

Cash and bank balances

       30,829

80,287

Total assets

 270,377

271,109

Borrowings

   107,557

100,744

 

 

Geographical information


Americas

EMEA and Asia Pacific

Unallocated

Elimination

Total


USD'000

USD'000

USD'000

USD'000

USD'000

31 December 2010












Sales

8,058

31,404

-

(25,888)

13,574

Loss for the financial period

(1,883)

(4,773)

-

     (359)

(7,015)

Capital employed

138,739

66,365

-

(53,917)

151,187

Non-current assets

31,053

124,061

1,626

(54,568)

102,172







31 December 2009 (restated)












Sales

21,431

70,786

-

(54,710)

37,507

Profit for the financial year

(688)

7,776

-

(5,346)

1,742

Capital employed

142,618

59,146

-

(43,739)

158,025

Non-current assets

26,734

107,808

1,790

(47,648)

88,684

 

 

 

 

  

The entity is domiciled in Bermuda. The entity's non-current assets are located in countries other than Bermuda. There is no revenue from Bermuda.

9.     Property, plant and equipment and intangible assets

During the period, the Group invested USD3.6 million in property, plant and equipment.

 

The addition to intangible assets is in respect of capitalisation of project developments during the period.

10.  Inventories


31 December

2010

USD '000

30 June

 2010

USD '000




Raw materials

25,310

15,708

Work-in-progress

15,300

7,313

Finished goods

72,890

55,871





113,500

78,892

11.  Biological assets


31 December

2010

USD '000

30 June

 2010

USD '000




At 1 July

8,621

-

Expenditure incurred

1,359

2,078

Gain arising from changes in fair value

349

6,543

Decreased due to harvest

(5,646)

-

Foreign exchange translation differences

244

-





4,927

8,621

 

During the period under review, the Group harvested 7,985 tonnes of stevia leaves which carried fair value less estimated point-of-sales costs of USD5,646,000.

 

At 31 December 2010, stevia leaves comprised approximately 1,301 hectares stevia leaves plantations in China, Kenya and Paraguay.

12.  Borrowings

 


31 December

2010

USD '000

30 June

 2010

USD '000

Current



-       Hire purchase

68

50

-       Term loans

26,762

24,161


26,830

24,211




Non-Current



-       Hire purchase

253

185

-       Term loans

80,474

79,505


80,727

79,690




Total borrowings

107,557

103,901

 

During the period, the Group obtained a new short-term bank loan in the amount of USD15.2 million. The loan bears interest at rate of 6.37% per annum and is repayable in 1 year.  The proceeds were used to meet working capital.  Repayments of other bank loans amounting to USD16.4 million were made in line with previous disclosed repayment terms.  Strengthened Ringgit Malaysia and Chinese Renminbi against US Dollar during the period resulted in USD4.8mil increased in opening balance of borrowing.

 

13.  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 estimated tax liabilities incurred during the period were for the operation in Malaysia and Paraguay and amounted to USD27,000.  The rest of the Group has no estimated assessable profit.  An overprovision of income tax and net deferred tax assets amounted to USD157,000 and USD440,000 respectively.

 

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.

 

The subsidiary, 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.  As at 31 December 2010, PCSB has not utilised its tax exemption.

 

Another subsidiary, PureCircle (Jiangxi) Co. Ltd. (PCJX), has also been granted a 100% exemption on corporate tax from 1 January to 31 December 2008 and 50% exemption on corporate tax from 1 January 2009 to 31 December 2011.  Beginning 1 January 2012, PCJX will be taxed at the normal rate of 25%.

 

14.  Share capital, share premium and treasury shares


Number of shares

Ordinary shares

Share premium

Treasury shares

Total


'000

USD '000

USD '000

USD '000

USD '000







Balance at 1 July 2010

153,576

15,358

130,490

-  

145,848

Exercise of share options

478

47

618

       -  

665







Balance at 31 December 2010

154,054

15,405

131,108

-

146,513







Balance at 1 July 2009

132,723

13,272

66,353

*

79,625

Share placement

20,000

2,000

62,047

*

64,047

Cost of issuance shares

-

-  

(165)

(165)

Exercise of share options

            653

            18

            708

                -  

            726







Balance at 31 December 2009

153,376

15,290

128,943

*

144,233







* Less than USD1.00






 

In accordance with the Company's Long Term Incentive Plan (LTIP) implemented for the employees, options were exercised during the period to 31 December 2010 resulted in 477,750 shares being issued (31 December 2009: 653,250).  In accordance with the terms and conditions of the LTIP, majority of the options were exercised without any consideration.

 

15.  Earnings per share

The basic earnings per share is calculated by dividing the (loss)/profit attributable to owners of the Company by the weighted average number of ordinary shares in issue (excluding the treasury shares) during the period.


     6 months ended


31 December

2010

 

31 December

 2009

 

(Loss)/Profit attributable to equity holders of the Company (USD'000)

(6,975)

1,646

Weighted average number of ordinary shares in issue ('000)

153,704

135,991

Basic (loss)/earnings per share (US Cents)

(4.54)

1.21

 

The fully diluted earnings per share is calculated by dividing the (loss)/profit attributable to owners of the Company by the weighted average number of ordinary shares that would have been in issued had all the options been exercised:-

 


     6 months ended


31 December

2010

 

31 December

 2009

 

(Loss)/Profit attributable to equity holders of the Company (USD'000)

(6,975)

1,646

Weighted average number of ordinary shares in issue ('000)

156,941

137,045

Fully diluted (loss)/earnings per share (US  Cents)

(4.44)

1.20




16.  Dividends

No dividends were declared or paid by the Company during the interim period.

17.  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 USD436,000 is approved and contracted for, these are incurred for the purchase of land and upgrading of plant and machinery in Malaysia.

18.  Events after the end of the reporting period

 

On 18 March 2011, the Company entered into a joint venture arrangement with Nordzucker by incorporating NP Sweet AS in Denmark with 50% shareholding equity.  The principal activities of the joint venture are to develop and market a portfolio of high purity stevia products and innovative sweetening solutions combining sugar and stevia. 

 

19.  Significant related party transactions

(a)       Identities of related parties:

The Group and / or the Company have related party relationships with:

(i)    its subsidiaries;

(ii)   the directors who are the key management personnel; and

(iii) companies in which certain directors are common directors and / or substantial shareholders.

 

            The following transactions were carried out by the Group during the period:

 

(b)       Related parties


Six months ended


31 December

31 December


2010

2009


USD '000

USD '000




Sales of treasury shares to a director of the Company

-

180

Amount owing by a former director in respect of shares sold to him (now fully repaid)

-

970

 

(i)    Transaction with key management personnel

Key management personnel receive compensation in the form of short-term employee benefits, and share-based payment awards valued at USD225,000 for the six months ended 31 December 2010 (2009: USD486,000).

(ii)   As disclosed in the condensed consolidated statement of financial position, the amount due to joint venture partners represents the group's proportionate shares.

20.  Changes in Composition of the Group

 

On 10th August 2010, a wholly owned subsidiary, PureCircle (Shanghai) Co. Ltd., was incorporated for sales and marketing of natural high intensity sweeteners.

 

On 5th October 2010, the Company has entered into a joint venture arrangement by incorporating Tereos PureCircle Solutions, in France with 50% shareholding equity. The principal activities of the joint venture are to develop and market a portfolio of high purity stevia products and innovative sweetening solutions combining sugar and stevia extracts. The financial year end of the joint venture is 30 September.

21.  Comparative figures

 

(a)       Certain comparatives in the condensed consolidated interim financial statements were subject to prior year adjustments that were reflected in the financial statements for the financial year ended 30 June 2010.

 

(b)       The impact of the adjustments to the consolidated statement of comprehensive income as a result of these prior year adjustments  for the six months financial period ended 31 December 2010 are as follows:

 


As previously reported

Adjustments

As restated


USD'000

USD'000

USD'000

USD'000

USD'000



(i)

(ii)

(iii)


As at 31 December 2009






Consolidated statement of comprehensive income






Revenue

37,507

-

-

-

37,507

Cost of sales

(27,261)

-

(54)

-

(27,315)







Gross profit

10,246

-

(54)

-

10,192

Administrative expenses

(7,608)

492

(315)

1,652

(5,779)

Finance income

-

-

-

25

25

Finance cost

(455)

-

-

(1,786)

(2,241)

Share of profit of an associate

-

-

-

109

109







Profit before tax

2,183

492

(369)

-

2,306

Income tax

(564)

-

-

-

(564)







Profit for the financial period

1,619

492

(369)

-

1,742







Other comprehensive income (net of tax)






Exchange differences arising on translation of foreign operations

 

(584)

 

106

 

-

 

-

 

(478)

Total comprehensive profit for the period (net of tax)

1,035

598

(369)

-

1,264







 

Profit for the financial period attributable to:






 

Owners of the Company

1,523

492

(369)

-

1,646

 

Non-controlling interest

96

-

-

-

96

 







 


1,619

492

(369)

-

1,742

 







 

Total comprehensive income attributable to:






 

Owners of the Company

939

598

(369)

-

1,168

 

Non-controlling interest

96

-

-

-

96

 







 


1,035

598

(369)

-

1,264

 

 

(i)    Leaf development investments previously expensed have been capitalised as intangibles as they will bring future economic benefits to the Group. The credit adjustments to the retained earnings amounted to USD492,000 in financial period ended 31.12.2009.

(ii)  Costs in financial period ended 31.12.2009 amounting to USD191,000 that were previously capitalised are now expensed. Certain property, plant and equipment that were not depreciated, have now been depreciated amounting to USD178,000.

(iii) Certain comparatives have been reclassified to conform with current classification and presentation of the Group financial statements.

 

(c)       The prior year adjustments resulted in a decrease in retained earnings and non-controlling interest of USD2,720,000 and USD18,000 as at 1 July 2009.


Independent review report to PureCircle Limited

 

PureCircle Limited

(Incorporated in Bermuda)

Registration No.: 40431

 

 

Introduction

 

We have been engaged by the Company to review the condensed consolidated interim financial statements for the six months ended 31 December 2010 set out on pages 8 to 23, which comprise the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and related notes.

 

Directors' responsibilities

 

The condensed consolidated interim financial statements are the responsibility of, and have been approved by, the directors of PureCircle Limited. The directors are responsible for preparing the condensed consolidated interim financial statements in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the Company's annual financial statements.

 

As disclosed in Note 3, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards. The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" ("IAS 34").

 

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 condensed consolidated interim financial statements since they were initially presented on the website.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed consolidated interim financial statements based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of preparing the condensed consolidated interim financial statements under IAS 34 and for no other purpose. We do not, in producing this report, 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.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'. 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 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.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements for the six months ended on 31 December 2010 are not prepared, in all material respects, in accordance with IAS 34.

 

 

PricewaterhouseCoopers

(No. AF: 1146)

Chartered Accountants

 

Kuala Lumpur

Malaysia

21 March 2011

 


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