Full Year Results

RNS Number : 0924T

PureCircle Limited

22 September 2010

 

Results for the year ended 30 June 2010

PureCircle (LSE: PURE), the world's leading producer of high purity stevia products, announces its unaudited results for the year ended 30 June 2010 ("FY 2010") together with audited comparatives for the year to 30 June 2009 ("FY 2009").

The Group's full audited report and accounts will be posted to shareholders in October.

Change of auditors

As announced on 27 July 2010, the Group has changed its auditors to PricewaterhouseCoopers.

Financial Highlights

	Unaudited 12 months to 30 Jun 2010 FY2010 $'000	Audited & restated 12 months to 30 June 2009 FY2009 $'000
Sales	60,773	60,023
Gross profit	21,192	25,842
Operating profit	4,553	12,137
Net profit after tax and minority	1,034	11,241
Adjusted EBITDA	8,383	15,503
Earnings per share (US Cents)	0.71	8.52
Gross cash	63,601	18,920
Gross assets	272,180	169,050
Net assets	158,086	92,962
Net assets per share (US $)	1.02	0.70
Adjusted EBITDA is defined as earnings before interest, tax, depreciation amortisation and share based payments.

 

 

·; Sales flat year on year due to strategic decision to sell only direct to end user customers (60% of sales in FY 2009 to trading partner).  We completed our move to working directly with end user customers by setting up global sales and marketing infrastructure including in-house application facilities and forging strategic partnerships.

·; Underlying sales to direct to end user customers increases from $25m to $60m:  Underlying sales growth is a direct result of the company's strategic decision to focus on end user customers.

·; Major investments made in FY2009 to support growth reduced gross and net profits: On flat sales, gross profits were impacted by  higher production capacity costs in cost of sales and net profits by these and the sales organization investments made in FY 2009.

·; Strong adjusted EBITDA % confirms robustness of our business model: Our adjusted EBITDA of $9.4m represented 16% of sales, despite PureCircle production operating at just 25% of capacity.  The EBITDA % should strengthen as sales volumes increase and as we now benefit from direct end user margin.

·; Strong balance sheet: We have invested almost $300m building our supply chain. Gross assets of $270m confirm the scale of the capacity and infrastructure in place to support strong growth

·; Prior year adjustments and restatements: reflecting changes in our operations, the Group has changed its accounting for leaf development and leaf seedlings, and reviewed the prior year capitalization of certain assets. These changes have resulted in a $2.2m reduction in net assets at 30 June 2008 and a net $0.03m increase in net assets at 30 June 2009.

·; Capital raise: The Group further strengthened its balance sheet with a $65m net capital raise in November 2009. The issue was oversubscribed by quality long term international funds

·; Cash at bank: The Group ended FY 2010 with $63m gross cash, fully funded for its foreseeable expansion plans

·; Net debt: Net debt was $40mm at 30 June 2010. After adjusting for finished goods inventories, the Group was net cash positive

 

BUSINESS DEVELOPMENTS

 

·; Consumer demand: Strong Nielsen and Mintel data across a growing number of markets show consumer demand for products sweetened naturally with high purity stevia is accelerating.

·; Food and Beverage product launches and successes: The range of products launched has increased across categories, particularly into food, across companies and across countries. Market data and company's underling sales confirms all customers using high purity stevia are increasing their product usage which indicates that products launched containing stevia are performing well.

·; Diversified customer base:  At June 2010 the Group had over one hundred high purity stevia customers, an increase from just 25 at June 2009 and just 1 at June 2008.

·; Customer contracts wins confirm major share of market:PureCircle continues to secure additional contracts with large multinational F&B companies. Our customer base already represents the majority share of the global sweeteners consumption and although their stevia needs at this stage are relatively small we expect their usage to increase substantially in years to come as they continue to integrate stevia as sweetener of choice.

·; Diversified product portfolio: New high purity stevia products launched provide a diversified product portfolio with strong natural propositions at all calorie reduction target points.

·; FDA clearances: FDA GRAS clearance of our SG95 product in July 2010 opens up material new revenue opportunities and confirms the growing regulatory support for high purity stevia. We expect SG95 to open up additional new opportunities for stevia beyond Reb A. The company is actively developing number of other high purity stevia products as well as various blends with other 0 calorie & nutritive natural sweeteners.

·; European Regulatory progress: important further regulatory clearances have been secured. In September 2009 France approved RebA, following Switzerland which approved in 2008: wider EU approval is expected within a year. EU approval is an eagerly awaited mile stone by the company as it will open up major sweetener markets for stevia.

·; Sugar partnerships: our Joint Ventures with Imperial Sugar and with British Sugar confirms the positive synergies two natural ingredients have and alignment and understanding of two industries to capitalize and create value based on these synergies. The company is actively pursuing other such partnerships which will be announced in due course.

·; Marketing: leading consumer recognition and trust:  the Global Stevia Institute, the Stevia by PureCircle trustmark and Launch of "We Grow Joy Campaign" are aimed to aids consumers awareness of stevia as natural sweetener and to help further consumer trust and demand for high purity stevia.

·; Global Stevia Institute (GSI): within just three months since launch with over 1,000 visits to the website is already recognized as the leading authority on the nutritional and health voice for the benefits of high purity stevia. GSI board members are active and are participating at the Society for Nutrition Education and American Association of Diabetes Educators conferences

·; Stevia by PureCircle trustmark: launched in September, this is already being supported by leading brands

·; Production scaled: we have scaled all aspects of our production capacity and processes. FY 2010 production was 400% higher than that for FY 2008.

·; Patents: USA approval of our core process patents confirms our base IP leadership. Our pipeline of forty nine application patents underscores our innovation leadership across many categories

·; First leaf sourced from Kenya and Paraguay: Kenya and Paraguay achieved key milestones when they shipped their initial volumes of leaf to our extract facilities in July 2010.

·; Leaf diversification fully on track: PureCircle now has leaf sourcing in progress or in trial with partners in sixteen countries across four continents including United States.

·; Implementation of improved China leaf model: We have implemented new controlled farmer model for leaf sourcing reducing our exposure to buying on the open market

·; Accelerated leaf research: in FY 2010 PureCircle has increased investment in leaf research to accelerate development of new generation stevia ingredients. As part of this initiative the company is working with Michigan State University (MSU).

 

 

Paul Selway-Swift, Chairman of PureCircle, commented:

 

"Our strategy is for high purity stevia to become a mass volume natural sweetener, like sugar. Our business model is based on mass volume supply. We have shown we can scale our supply chain. With major contract wins to supply the F&B industry globally we are securing the major share of the emerging market, and with our strategic partnerships we hope to accelerate our global distribution significantly.

 

There have been some challenges in the last twelve months, notably as we implemented our strategic decision to move all sales solely direct to end users. However the high purity stevia market is undoubtedly accelerating and as it does so the strength of our direct customer base and of our partners will justify fully the tough decisions taken this year.

 

We are ever more confident about the significant long term prospects of the Company. But the industry is still young and so there will continue to be volatility in our sales progress.

 

 

 

ENQUIRIES

 

PureCircle Limited

Magomet Malsagov, Group CEO +60 12388 8049

William Mitchell, Group CFO +44 7974 005163

 

Westport Communications

Alan Frame +44 20 7065 2690

 

RFC Corporate Finance Ltd

Stephen Allen +61 89480 2500

CHAIRMAN & CHIEF EXECUTIVE'S STATEMENT

 

 

1. REVIEW

 

FY 2010 was a year of hard but important progress for PureCircle. On the face of it our results were disappointing, with sales flat and profits reduced by the high levels of investment we made in FY 2009. It is important to note however that the high purity stevia industry is only two years old and just emerging. The company will benefit as the industry begins to mature, underpinned by our strategies and the significant investments already made. When the fundamentals of our business are analysed, it is clear that during FY 2010 PureCircle made a good deal of progress towards our long term goals.

 

- Although initially small the market is accelerating fast: actual consumer sales of high purity stevia sweetened products more than doubled which confirms that acceptance of taste is good and consumers respond well to the natural claim.

- The number of food and beverage companies using high purity stevia increased significantly and did so across more product categories and more countries than a year ago.

- PureCircle's market share as supplier to the products launched increased.

- Our underlying sales and market share of end users grew strongly and our pipeline suggests accelerating growth in the coming years.

- All aspects of our supply chain scaled successfully.

- Our R&D activities accelerated and the full breadth and depth of our innovation is now starting to be understood within the industry.

- We restructured and invested further in our sales and marketing organization, particularly in the USA and Europe, to enable us to better serve our global and regional customer base.

- Our stevia-sugar partnerships have the potential to be large long-term businesses.

 

We said in our FY 2009 review that the scale of our ambitions is significant. To achieve our goals we will undoubtedly face many challenges. Some will be daunting. But we remain determined to resolve each of them successfully.

 

2. SALES AND MARKETING

 

2.1 Sales development overview

 

The Company's market is defined as the consumption of high purity stevia based natural sweeteners by the world's Food and Beverage companies. In turn this will be determined by the levels of end consumer demand of products containing stevia as a sweetener.

 

PureCircle's long term sales are dependent upon the growth in consumer demand and on our direct to customer share of the Food and Beverage stevia usage. FY 2010 has seen important progress in both these long term performance indicators.

 

·; Consumer demand for high purity stevia sweetened products is growing rapidly; and

·; The Company completed the restructuring of its sales to direct end user relationships

 

In the process the Company has progressed towards a "normal" sales business with regular repeat orders.

 

Our regular recurring orders to end customers, increased from $25m in FY2009 to $60m.

 

 

2.2 Stevia market accelerating growth

 

Data across all key indicators suggest that consumer demand and consumption for high purity stevia sweetened products is accelerating. High purity stevia is being consumed in more countries, more brands, more SKUs and with more repeat purchases and product roll-outs than at 30 June 2009. Focusing on consumer demand, Mintel New Product Database confirms that the number of new product launches increased by 200% in the last twelve months, with products having launched across thirty-five countries in 2010.

 

In the important USA market the sales run rate for product using high purity stevia is now estimated to have exceeded an annualized market sales of $600m at retail, this is unprecedented growth considering stevia approval was granted less than two years ago. In the United States recent Nielsen retail data also estimates Stevia sweeteners have surpassed Aspartame sales and now comprise fourteen per cent of the USA tabletop sugar substitute market. In addition high purity stevia sweetened products have been launched into new major markets like France (Danone, Coca-Cola, Merisant) and Mexico (Pepsico Inc, Danone) and Australia (Schweppes, Merisant, McCormick Foods). The growth of these markets has been made possible by our commitment to produce and deliver high purity stevia products in volume.

 

Most products using high purity stevia have launched in the past twelve months. Some of the new product launches are line extensions supporting innovation for leading brands (e.g. Taillefine, Fanta Still), others are at market test level (e.g. G2 Natural) and we have even started seeing in the past ten months existing brands being reformulated (Bonafont). As these early stage launches develop and increase their distribution and widen their SKU base, they provide additional growth potential yet to be realized. In addition we anticipate that larger brands and larger launches are occurring and are being planned which will fuel market growth further.

 

Given the standard eighteen months to three or more years new product development and launch cycles, it is our firm belief the true market size potential and consumer acceptance will only be confirmed in 2011 and beyond. Additionally, regulatory clearances expected in the next twelve months (EU, Argentina, Canada, Indonesia, Thailand and others) will facilitate accelerating the roll-out of sizeable brands internationally.

 

2.3 Customer contract wins: major share of growing market

 

We have secured a number of prestigious customer contracts in the period. Our client base has increased by almost one hundred customers in the last twelve months. Within this we have secured a high proportion of the world's twenty largest food and beverage companies ranked by sales.

 

Reviewing the increasing number of products being launched containing high purity stevia, it is clear that PureCircle continues to secure the majority share of the fast growing market.

 

2.4 Diversified customer base established

 

The Group's sales strategy is to have a highly diversified customer base to which the Company sells directly to the end user customer. We have made good progress with this strategic objective.

 

The Group is building its sales to a diversified customer base. At 30 June 2010 the Group had over one hundred invoiced high purity stevia product customers against twenty-five at 30 June 2009 and just the one at 30 June 2008. Our sales pipeline indicates a further increase in the customer base over the next twelve to twenty four months. Our customers and sales pipeline now cover most food and beverage categories: in particular, as expected, we are seeing many more food projects than a year ago. The decisions we took a year ago to build finished goods inventories in our key markets to increase new customer confidence of seeing local warehoused product availability starting to pay dividends.

 

On 30 June 2010 our contract with a trading partner expired, having had no sales in FY 2010. In the year to 30 June 2009, sales to the trading partner had represented 60% of our total sales.

 

2.5 Applications support and formulation partnerships

 

One of the Group's key strategies is to provide customers with in-depth as well as hands-on support with their formulating needs. We implement this solution-based strategy in three ways:

 

- In-house application support: Our Global application center based at our PureCircle USA headquarters in Oakbrook, Illinois, in coordination with our Kuala Lumpur based Science team- provides effective ways on how to formulate a wide range of food and beverage applications using Reb A but also different available high purity stevia sweeteners, natural flavors and blends with other natural 0 calorie and nutritive sweeteners.

 

- Extended formulation support: we provide extensive and more specific formulation support to our customers by working in partnership with some of the leading application companies in the world, combining our in-depth knowledge of high purity stevia sweeteners with our partners' focused application expertise.

 

- Stevia-sugar Technology: PureCircle is a strong believer of the significant opportunities offered by effectively combining sugar and stevia beyond a mere mechanical blend. Improving such technology and product delivery is fulfilled through our sugar Joint Ventures (see later) which global roll out we have accelerated significantly in this year

 

2.6 Pricing

Our long term strategy is for high purity stevia to be used as a mainstream mass volume sweetener, just like sugar and corn. To achieve this the long term pricing of high purity stevia has to be cost competitive with these nutritive sweeteners on an equivalent sweetness, volume usage and proposition basis.

 

We encourage our customers to look at high purity stevia strategically in this manner and our corporate strategy is to ensure we are positioned to be able to deliver this pricing long term for mass volume usage. This is a critical marketing communication which will accelerate wider usage. As market leaders with clear production scale and efficiency advantages, our pricing strategy also provides a powerful unique selling point for the Group that is winning us strong market share.

 

3. MARKETING

 

Our marketing strategy is to promote the growth of the overall high purity stevia industry and to promote PureCircle as leader within that industry. We have accelerated the activity and progress in marketing significantly across the period.

 

3.1 Promote the growth of the overall high purity stevia market

Over the past year the Group has significantly ramped up marketing support in partnership with customers to promote the growth of the industry. Marketing communication efforts have focused on two key areas to drive industry growth - development of the Global Stevia Institute and launch of the Stevia by PureCircle trust mark.

 

The Global Stevia Institute: In June 2010 PCL announced that it had created the Global Stevia Institute which would promote accurate, credible and consistent information and resources about high purity stevia to health professionals, consumers and the food industry. The Institute has been formed with the leadership of seven internationally recognized professionals, including notable M.D.'s and PhD's from the United States, Latin America and Europe. The Global Stevia Institute's Executive Director, Dr. Keith Ayoob, is an internationally known nutritionist and an Associate Clinical Professor of Pediatrics at the Albert Einstein College of Medicine In New York City and has worked extensively in the area of obesity and child nutrition. The representative from France, Dr. Jean Michel Cohen, MD, PhD, is a nutrition specialist in France and an award-winning and best-selling author on the subjects of nutrion and obesity.

 

The Institute has immediately provided a credible platform for education, outreach and media response on a global scale. In addition to board member assignments, the Global Institute has already established itself with outreach to thousands of health professionals, media influencers and customers though its efforts. Following launch in June the Institute introduced an industry leading website (www.globalsteviainstitute.com), has been involved in the leading health professional conferences, and been interviewed in mainstream consumer media outlets. The Global Stevia Institutes efforts will continue to support global expansion of the industry in support of our customers in 2011.

 

Stevia by PureCircle Trust Mark: In 2010 PCL developed a new customer co-marketing program built around the newly development trust mark "Stevia by PureCircle". In conjunction with the launch of the trust mark, a fully integrated campaign entitled "We Grow Joy" was developed to drive stevia awareness, promote stevia's natural sweet taste and help consumer packaged goods companies communicate a trusted source of high purity stevia to their consumers.

The campaign has recently launched in September, with plans to reach millions of consumers through print, digital (www.steviapurecircle.com), media tours and social media channels in conjunction with customer co-marketing activities. Products calling out that they are "naturally sweetened with stevia by PureCircle" are now launching in the United States, Latin America and Australia with plans underway to expand into other global markets. Included among these brands are leading products like Silk Chocolate Light Soymilk and True Lemonade powdered beverages in the United States. The campaign will continue to develop in 2011 in conjunction with our customers launches.

Market Moving Insights: In the early stages of a rapidly developing industry PureCircle has continued to develop customer relationships through deep consumer insights. They have not only served as the foundation for development of PureCircle marketing communications strategies, but have enabled the Group to establish itself as a clear partner in the development and positioning of product launches by PureCircle's customers. In 2010, PureCircle firmly established itself as the industry expert, from stevia plant to the end consumer, through the fielding of the largest mom and family research study of its kind in the United States, focused on stevia. The results of the quantitative study reached a record breaking online webinar attendance of over 500 companies across more than 50 countries in October 2009. Subsequently, the company has fielded studies across key strategic markets including parts of Latin America and Europe. PureCircle's continued role as expert on the consumer and market will continue to play an important role in helping to accelerate our customer's product development timelines.

4. SUPPLY CHAIN

Over the past two years the Group has invested heavily developing a supply chain sufficiently robust to provide for rapid growth in the scale of both the Company and the market. Based on detailed supply chain audit verification, there is now a high level of customer confidence that PureCircle has scaled and is ready to support a major ingredient industry as high purity stevia demand takes off. Our customer confidence is based on the progress we have made in all areas of supply chain: leaf, extract, refining and logistics.

 

4.1 Leaf

We plan to increase the volume and quality of leaf supply in all markets, increase the percentage of leaf supply "controlled" by PureCircle and to diversify supply from China across multiple countries in Asia, Africa and the Americas. The Group continues to make strong progress on all these fronts. Our initiatives are generating improvements across the industry.

 

Increase global supply: The total volume of leaf continues to increase globally and in every country within which stevia is being planted. At 30 June 2010, total global leaf for the current harvests is estimated at 70,000 to 100,000 tonnes. This is an increase of some 1,000 to 1,500% since PureCircle founded the high purity stevia industry. We have led and continue to lead the expansion of leaf supply.

 

Increase the quality of leaf: When PureCircle started the high purity stevia industry, stevia leaf typically contained six to eight percent total steviolglycoside (TSG) content and just one to one and a half percent net Rebaudioside (Reb A) content. In the 2010 harvests these key quality indicators have been increased to at least ten to twelve percent TSG content and four percent Reb A content: a net quality improvement of 200-300%. As noted later, PureCircle is investing to accelerate further improvements in leaf quality.

 

Increase the proportion of leaf "controlled" by PureCircle - China: We have successfully moved our leaf model from the 100% buying on open market model of just two years ago. In the 2010 harvest we have controlled the material part of our buying requirements. Control has been based on new contracts with farmers, increased investment in high quality leaf propagation stock sourced from PureCircle and more supply from farmers and regions working directly with our leaf technical teams. This has reduced considerably our exposure to the more volatile and variable quality of the open market supply.

We are targeting to expand the controlled proportion and volumes of our China supply significantly in future years. Outside China our strategy to increase our controlled supply is linked to our geographical diversification plans described below.

Investments to improve leaf quality:  the Group has a series of initiatives in train to improve leaf quality. The Group has plant breeders' rights (PBR) to a number of high quality leaf varieties well in excess of current market averages. Importantly our PBR varieties already deliver the leaf quality improvements needed to allow high purity stevia to become a mass volume commodity, once they are rolled out in sufficient volume. That process of roll-out accelerated during the last period.

 

The Group is investing in a number of research projects with major institutions to further accelerate leaf quality improvements. Our partnership with Michigan State University and our development programme with S&W seeds of California are just two examples of this.

In addition, in all regions the best quality leaf of each harvest is routinely used as mother stock for the next planting.

 

Global diversification of leaf supply: in China, stevia is now being sourced from six regions as opposed to just three main areas two years ago.

 

Elsewhere, our strategy is to create supply in Africa, South America, the USA and South East Asia, each with viable standalone critical mass. Our approach is to own an R&D and propagation based subsidiary in each region and then to work with third party partners to develop secure stable supplies of quality leaf. The Group has made strong progress on both fronts.

We now own fully our Paraguay and Kenya businesses. This has allowed our pace of development in each country to accelerate significantly. Both now have fully viable standalone operations that are acting as the regional centres of excellence they were intended to be. In addition we have strengthened our global leaf management with the recruitment of leading horticultural development managers for each leaf supply continent.

Strong support from our wholly owned propagation subsidiaries and from the new development management has enabled our third party partners to accelerate significantly. We now have partners growing stevia for purchase by PureCircle in sixteen countries across four continents. We estimate that at least 40 per cent of our total requirement will come from these good quality "controlled" suppliers by end 2012.

 

In July 2010 the Group achieved the important milestone of having the first commercial shipments of leaf from Kenya and Paraguay to our extract factory in China.

 

Leaf management: our leaf improvements are underpinned by a strong global leaf management team. We continue to invest in specialist agronomists, in research, in technical support and buying management. We now have specialist teams representing PureCircle in each of the four leaf growing continents in which we operate.

 

Leaf summary:  the stevia leaf market has many years to go of growth in supply and improvement in quality standards before high purity stevia is truly a global mass volume commodity sweetener. But the roadmap to get there is now clear and progress is accelerating. On all key measures (volume purchased, controlled supply hectares, quality improvements, geographical diversification and expansion, next generation research, management organisation) PureCircle is leading. There are challenges ahead but our intent is to keep leading. At 30 June 2010, our leaf operations are fully on track to deliver our long term strategic objectives.

 

Kenya and Africa leaf operations

 

Our now 100% owned Kenya operations have focused on recruiting and training farmers, propagating our proprietary leaf strains from South America, developing and rolling out scalable operating systems, including micro-finance support and starting to export leaf.

We have recruited 2,200 farmers, more than 1,500 of whom have been trained, signed up by microfinance and are at different stages of planting stevia. Early results from our proprietary leaf strains are encouraging and these are now being propagated and rolled out in volume.

Regional stevia nurseries have now been established in Eastern Africa with two companies in Tanzania. In addition we are working with supply partners in Uganda, Zambia and South Africa.

Paraguay and South American leaf operations

 

During the period we exceeded our budgeted hectares of planting and are now working with more than 800 new growers than a year ago. The average size of farm under cultivation has doubled and we are contracting with an increasing number of larger farmers.

We have established two major nurseries, one in the north and one in the south of Paraguay, each focusing on the different proprietary leaf strains most suited to the local climate and conditions. Both strains are in the process of being declared of regional government interest, which will accelerate our planting plans further. We are working with USAID, FOMIN and the InterAmerican Development Bank as they seek to promote stevia as a commodity crop in the region.

We expect to treble our hectares in the coming period, with over 60% of them being for our highest yielding proprietary leaf strain. We are working actively with our farmer suppliers to increase the proportion using high yielding irrigation techniques and have put in place microfinance facilities to support this.

Outside Paraguay we have put in place and are securing new supply partners in Peru, Argentina, Chile, Uruguay, Brazil and Colombia.

Asia, the USA and Central America

 

Our leaf development activity in the USA has focused on research partnerships, for example our Michigan State University Breeding Initiative, and developing supply partners in California, for example S&W Seed, and the South Eastern USA, where we expect trial planting to start before the end of 2010.

 

Outside the USA we continue to work with agricultural interests on a worldwide basis, Projects include Egypt, Sri Lanka, India, Latin America as well as evaluations in other South East Asia regions.

 

4.2 Extract

We are already the world's largest producer of stevia extract and again increased production of extract to record levels, benefitting from the major capacity and technology improvements that our most recent investment in PureCircle Jiangxi provides. All extract Key Performance Indicators have improved significantly compared to prior periods: total production was up, average quality improved and cost per unit reduced. Our stevia extract unit in Jiangxi is producing four times the volume with a consistently higher Reb A content and a unit cost of 80% compared to two years ago. Energy consumption has reduced by more than 21% on a like for like tonnage basis this year.

 

In addition our industry leading extraction technology is enabling us to produce a much wider range of high quality steviol glycoside products than previously. The July 2010 FDA GRAS clearance of our SG95 product which is produced at Jiangxi confirms this important progress. With FDA and JECFA clearance for our high quality SG95 Jiangxi is well placed to produce in bulk. We expect further product innovation in the coming year.

 

Progress at PureCircle Jiangxi has also included health and safety, with key indicators improving, and a growing profile in the Jiangxi community where the company is a major contributor to the economy.

 

 

4.3 Refining

The Group produced a record 500 tonnes (2008 100 tonnes) volumes of refined high purity Reb A in the twelve months to 30 June 2010. To achieve this, a number of key performance indicators were improved significantly, including the important batch size (scaled fully).

 

We have also made significant progress with a series of process improvements. These include increased refined yield of high purity Reb A from the stevia extract supply, lower manufacturing consumables costs (reduced on a unit basis by almost 50% year on year) and lower energy costs.

 

The capacity at our Malaysian refinery is now 2,000 tonnes of high purity Reb A.

 

The refinery has also been subject to and has passed successfully a record number of customer supply audits in the period. In addition a concerted programme of Health and Safety training and process improvement has been undertaken, which will continue on an ongoing basis.

 

4.4 Engineering and Construction

 

During the period we set up a new management unit dedicated to engineering improvements, environmental efficiency and capacity construction planning. The team has managed our successful refining and extract capacity expansions in prior years, but not as a dedicated specialist unit. During 2010 the engineering and construction team has implemented a number of process efficiency improvements that have already secured ongoing cost savings and removed capacity bottlenecks. Further improvements are budgeted.

 

The company has made progress improving the environmental footprint of our operations. The main focus in 2010 has been securing waste water and related improvements that were designed into our China extract capacity expansion in 2009.

 

On capacity expansion, the Group is preparing the ground work for a range of possible expansions. These include refining capacity in Malaysia and potential extract capacity in both Africa and South America. Group policy is that we will not commit capacity expansion until our sales volumes are running at not less than 50% of current capacity. But our modular design approach will enable us to implement fast when these thresholds are reached.

 

5. RESEARCH AND DEVELOPMENT

 

This has been an active period for our Research and Development team. Key projects have included next generation steviolglycosides, developing next generation analytical tools to enable wider usage of high purity stevia, manufacturing process improvements and extensive stevia-sucrose product developments.

 

During the period, the Company has accelerated its patent and Intellectual Property protection activities. In July 2010 PureCircle's core process patents were granted important USA registration. These patents provide "umbrella" coverage for our processes that underpin our leadership of the high purity stevia industry. In addition the Company now has forty nine separate other patents filed and under review. These represent a comprehensive suite of process and application IP that further underscore our industry leadership.

 

6. FUND RAISING, INVESTOR RELATIONS AND SIGNIFICANT SHAREHOLDING

In November 2009 we raised $65m, net of expenses, of new capital through the placing of 20 million new ordinary shares at an issue price of GBP 2.00 each. The fund raising means that PureCircle is well positioned to take full advantage of the expected increases in demand for high purity stevia as the industry moves mainstream.

 

The fund raising was well supported with major new international funds participating in the placing, which was significantly oversubscribed.

 

Additionally, 20 per cent of the placing was subscribed by Olam International ("Olam"), which also in December 2009 bought out the interests in PureCircle of its Joint Venture partner. As a result Olam is the owner of 20 per cent of the shares of the Company.

 

7. MANAGEMENT

The Group has continued to invest in management to support and develop further the Group's market leadership. The investments made in leaf buying, leaf development, production and other supply chain activities are already enabling significant productivity gains. During 2010 we have continued to invest in building up a world class sales and marketing team, notably in the USA & Europe, to ensure we continue providing best of class logistics, sales and marketing support to our key customers around the world.

 

8. GROUP FINANCIAL REVIEW

 

8.1 Audited financial statements

 

The Group's full audited financial statements and annual report will be posted to shareholders in October. Unaudited condensed profit and loss account, balance sheet and cashflow are included in pages 16 to 18 of this press release.

 

8.2 Summarised unaudited results and group financial review

 

Summarised unaudited results and group financial review are set out below.

 

	Unaudited 12 months to 30 Jun 2010 FY2010 $'000	Audited & restated 12 months to 30 June 2009 FY2009 $'000
Sales	60,773	60,023
Gross profit	21,192	25,842
Operating profit	4,553	12,137
Net profit after tax and minority	1,034	11,241
Adjusted EBITDA	8,383	15,503
Earnings per share (US Cents)	0.71	8.52
Gross cash	63,601	18,920
Gross assets	272,180	169,050
Net assets	158,086	92,962
Net assets per share (US $)	1.02	0.70
Adjusted EBITDA is defined as earnings before interest, tax, depreciation amortisation and share based payments.

 

 

8.3 Revenues

 

Overall revenues were unchanged at $60m for FY 2010 versus FY 2009. Strong growth in sales to our expanded diversified customer base was offset by the reduction in sales to a single trading partner, which had in FY 2009 contributed some 60% of our total sales.

 

Sales of our wider portfolio of high purity stevia products grew strongly reflecting our emphasis on maximizing revenues from all steviolglycosides. PureCircle is well placed to lead the growing market demand for a wider portfolio of high purity stevia options.

 

8.4 Margins

 

The Group's gross profit reduced $4.6m in FY 2010 to $ 21.2m, against $25.8m in FY 2009. This reflects the higher production overheads following the major capacity expansions made in FY 2009. Our Jiangxi extract capacity was almost 300% higher in FY 2010 than the average in FY 2009, and our refining capacity almost 100% higher. The Group is operating substantially below scale. Although almost double FY 2009 levels, the FY 2010 production represented only 25% of our current capacity. As sales increase the gross margin percentage is expected to strengthen significantly.

 

In FY 2010 the Group further improved our leaf operations and in particular we implemented new contracts with farmers that enable us to reduce our reliance on purchases in the open market. Our new procedures require us to recognize a Biological Asset gain in accordance with IAS 41.

8.5 Management and administration expenses

 

The Group's sales and general administrative overheads increased $3.7m to $17.4m in FY 2010 versus FY 2009, reflecting the investments PureCircle has made to build its global sales and marketing organization and some initial marketing and promotion costs.

 

8.6 Net profit and adjusted EBITDA

 

Finance charges increased $2.8m in FY 2010 to $3.5m. This reflects the $63m of net cash investment made by PureCircle in FY 2009 to expand its supply chain, only partly offset by the interest earned on the Group's capital raise in November 2009.

 

In FY 2010 the Group had a net income tax credit of $0.2m against a charge in FY 2009 of $0.4m. The income tax credit reflects deferred tax assets recognized where short term tax losses are expected to be replaced with taxable profits in the foreseeable future.

 

Adjusted EBITDA for FY 2010 was $8.4m, representing 14% of sales. Adjusted EBITDA is just $7.1m lower than FY 2009, despite the $9.9m lower net profit. This emphasizes the impact on profitability of the higher capacity investments. As the Group sales scale, the adjusted EBITDA margin is expected to strengthen further.

 

8.7 Cashflow and Balance Sheet

 

The Group has a strong balance sheet that was strengthened further in by the share placing that raised $65m of new capital, net of expenses in November 2009. PureCircle ended FY 2010 with $63m of gross cash, gross assets of over $270m and net debt of $40m.

 

The Group's net debt position reflects our decision to build finished goods inventories in all our key sales markets. After adjusting for our finished goods inventories, the Group is strongly net cash positive. The Group's policy is to drawdown on its debt facilities for working capital, leaving cash balances available to finance the future development of the business. The Group is well capitalized and well poised to lead the strategic development of the global high purity stevia industry.

 

8.8 Accounting policies and Prior Year Adjustments

 

During FY 2010 the Company's leaf procurement model changed with a high proportion of our leaf harvest being sourced from farmers under contract, as opposed to open market buying. In consequence the Group is required to adopt IAS 41 Agriculture for the first time. The open market value of leaf being grown for the Group at 30 June 2010 gave rise to a $5.6m market value gain ($4.8m after tax) .

 

To better reflect changes in the Group's operations, the Group has changed its accounting for leaf development and seedlings and reviewed the prior year capitalization of certain assets. This has resulted in a $2.2m reduction in net assets at 30 June 2008, and net increase in net assets of $0.036m at 30 June 2009. Correspondingly, the changes have also resulted in $2.2m reduction in previously reported FY2008 retained profit and $0.036m increase in previously reported FY2009 net profit.

 

To view the Consolidated Income Statement paste the following link into your web browser: 

 

 http://www.rns-pdf.londonstockexchange.com/rns/0924T_1-2010-9-22.pdf

 

PureCircle Limited	Unaudited	Audited &
Financial year ended 30 June 2010		restated
Consolidated Balance Sheets	30/6/2010	30/6/2009
	USD'000	USD'000
ASSETS
NON-CURRENT ASSETS
Investment in an associate	-	48
Intangible assets	20,855	14,984
Property, plant and equipment	69,762	64,378
Prepaid land lease payments	3,113	2,776
Deferred tax assets	1,533	-
TOTAL NON-CURRENT ASSETS	95,263	82,186
CURRENT ASSETS
Biological assets	7,768	-
Inventories	78,892	31,250
Trade receivables	19,990	27,173
Other receivables, deposits and prepayments	6,666	9,521
Cash and bank balances	63,601	18,920
TOTAL CURRENT ASSETS	176,917	86,864
TOTAL ASSETS	272,180	169,050
CURRENT LIABILITIES
Trade payables	4,115	2,945
Other payables and accruals	4,318	6,716
Income tax liabilities	791	-
Short-term borrowings	24,211	26,419
TOTAL CURRENT LIABILITIES	33,435	36,080
NON-CURRENT LIABILITIES
Deferred income	969	-
Long-term borrowings	79,690	40,008
TOTAL NON-CURRENT LIABILITIES	80,659	40,008
TOTAL LIABILITIES	114,094	76,088
NET ASSETS	158,086	92,962
SHAREHOLDERS' EQUITY
Share capital	15,358	13,272
Share premium	130,490	66,353
Foreign exchange translation reserve	(683)	1,032
Share option reserve	994	1,704
Retained earnings	11,053	10,019
EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY	157,212	92,380
Non-controlling interest	874	582
TOTAL EQUITY	158,086	92,962
Net assets per share (USD)	1.02	0.70

 

 

 

9. STRATEGIC DEVELOPMENTS

 

As the global natural sweetener industry develops, including high purity stevia, the Group sees significant opportunities to consolidate and accelerate our leadership position through corporate activity. Our strategy is to do so actively.

 

Our first strategic activity has focused on the benefits of stevia-sugar combinations. In the last tweleve months we have put together a series of partnerships with the leaders in sugar globally. These include our Natural Sweet Ventures joint venture with Imperial Sugar announced in February 2010, our proposed Joint Ventures with British Sugar Group, announced in July 2010 and the proposed Joint Ventures announced in separate press releases today. We are excited by the significant opportunities these partnerships will provide.

 

We look forward to reporting on further strategic developments in the future.

 

10. OUTLOOK

 

In the immediate term we are cautious as monthly run rate sales, whilst growing, remain modest. We believe that our core sales base will continue to accelerate but that it will be late 2011 or 2012 before the true velocity of sales from today's launches is fully evident.

 

Looking longer term, we are ever more confident that high purity stevia will become a mass volume natural sweetener with market characteristics akin to sugar. Our business model is set up to prosper in a mass volume market. We believe the benefits of this will become increasingly evident over the longer term.

 

There will inevitably be some sales volatility, but we look forward to reporting on further progress in the future.

 

 

Paul Selway-Swift, Chairman

Magomet Malsagov, Chief Executive

 

22 September 2010

This information is provided by RNS

The company news service from the London Stock Exchange