PURE.L Regulatory News (PURE)

PURECIRCLE LIMITED

("PureCircle" or "the Company")

FY16 Results Statement

PureCircle (LSE: PURE), the world's leading producer and marketer of high purity stevia ingredients, today provides a Results Statement for its financial year ended 30 June 2016 ("FY16").

HIGHLIGHTS FOR THE YEAR

· Strong sales growth and margin expansion

· Potential for stevia market materially enhanced:

- Stevia approved in Brazil and India

- Sugar taxes being imposed in major markets

· Important new PureCircle innovations launched

· H2 sales lower than anticipated due to delayed customers launches and US Customs and Border Protection (CBP) actions

· PureCircle well positioned to capture long term market expansion

A summary of the financials for FY16 with FY15 comparatives is set out below:

*Gross margin, operating profit and Adjusted EBITDA are alternative performance measures which the directors believe are helpful in understanding the performance of the business. Refer to Note 29 for definitions of non-GAAP measures.

Commenting on the Results Statement the CEO Magomet Malsagov said "Despite challenging market conditions in FY16, I am delighted with the progress PureCircle has made, with strong growth in both revenue and profit. The market for PureCircle Stevia has continued to develop strongly with favourable regulatory developments and continued roll-out of ever larger Food and Beverage (F&B) brands using stevia. Significant milestones in the year include the approval of high purity stevia in India and Brazil, Reb M approval in Europe and the launch of our Zeta family of new ingredients, closing the taste gap for low or no calorie applications and opening up new F&B categories adoption of stevia. These developments underpin our confidence in the long term prospects for our business and support the investments we are making to increase production capacity and further product innovation.

Prospects for the business over the next 4 to 5 years are strong, and we are confident that as our sales continue to increase, we will report improved profitability. Nevertheless, we caution that there will be inevitable volatility in the growth trajectory as we move towards our longer term goals.

KEY FINANCIAL COMMENTARIES

Sales: FY16 sales increased $11.3m (9%) to $138.6m.

In FY16 sales revenues increased driven by accelerating market adoption of stevia, enabled by PureCircle innovation and the unique breadth of our in market product portfolio. FY16 growth reflects an improved sales mix with FY16 seeing a higher proportion of sales of our recently launched innovation products than in FY15. With a strong future product pipeline the Company is confident further sales mix improvements will be evident in future years. 

However, FY16 sales growth was further adversely impacted by both the delayed timing of a number of customer launches and by the CBP intervention.

Both recent Mintel data and our project pipeline give us confidence that considerable future growth is sustainable.

Gross Margin: FY16 gross margin increased by $16.7m (+41%) to $57m. FY16 gross margin was 41%, an increase of 9 percentage points over FY15's 32%. The gross margin percentage improvement principally reflects the improved sales mix described above.  

Operating Profit: FY16 Operating profit increased $15.4m (+90%) to $32.4m. The strong increase in operating profit relative to revenue growth demonstrates the positive operational leverage of the Group's business model. Going forward we expect growth in sales coupled with continued benefits of product innovation to sustain these high levels of operating profit.

Adjusted EBITDA: is defined as Group Operating profit with depreciation and amortisation and share of results in joint venture added back. FY16 adjusted EBITDA increased $15.5m (+70%) to $37.7m in line with the strong increase in operating profit referred to earlier.

Net profit: FY16 net profit of $14.6m represented a $10.5m (+256%) increase over the $4.1m net profit reported in FY15.

Operating cashflow before working capital changes: Improved in FY16 by $8.1m (+34%) to $31.9m (FY15 $23.8m). This improvement reflects the increase in net profit of $10.5m.

Net debt / headroom: The Group ended FY16 with cash and facility headroom of $76.3m (FY15 $87.9m) and net debt of $52.9m (FY15 $45.4m). The $7.6m increase in net debt reflects $19.0m cash generated from operations offset by $24.2m cash invested in production capacity expansion and leaf and innovation development, both to support expected future revenue growth.

The Group is well funded to finance its current and future plans.

USA Customs and Border Protection matter ("CBP")

Based on an allegation of non-compliance with the Trade Facilitation and Trade Enforcement Act ("TFTEA"), on May 20, 2016, US Customs and Border Protection issued a Withhold Release Order ("WRO") No. 29/China that was used to initially detain two PureCircle shipments of stevia, and subsequently all PureCircle shipments of stevia. The allegations are that PureCircle was importing "Stevia and its derivatives" from the Inner Mongolia Hengzheng Group Baoanzhao Agricultural and Trade LLC ("Baoanzhao") where there allegedly have been occurrences of forced prison labour. On June 1, 2016, CBP issued a press release focusing on CBP's detention of PureCircle products, but which also stated that "importers of detained shipments are provided an opportunity to demonstrate that the merchandise was not produced with forced labour."

CBP did not notify PureCircle of any allegation or investigation of its labour practices and did not provide PureCircle with an opportunity to respond to the allegations before CBP acted. We became aware of the WRO only after our shipment was detained by CBP on May 27, 2016.

Starting on June 1, 2016, PureCircle provided to CBP the Certificates of Origin and Consignee Statement and detailed leaf traceability information, for the detained shipments, including the names and locations of each farmer from whom PureCircle purchased stevia leaf to be made into the products that are currently under detention. 

We have demonstrated that all of the stevia leaf used to make the detained products is compliant with the TFTEA and none of our imported products are or will be produced with forced labour. To ensure the independence of the information we sent to the CBP, we had all our traceability information corroborated in audits of our supply chain conducted by third party Bureau Veritas. These audit reports have also been provided to CBP, confirming that no forced labour is used in our supply chain.

Based on the traceability information and the audit reports, two of our detained shipments were released by CBP on June 24, 2016. Another shipment of one of our customers was also released. Despite the first three shipments being released from detention by CBP, PureCircle still remains named on CBP's WRO.

At present, a number of our shipments remain in detention, despite CBP already having received the same documents, the same level of traceability information, and the same audit reports for these shipments as PureCircle and its customer provided to CBP for the three released shipments. CBP has neither requested further information from us, nor given us a formal timetable for its decision.

We continue to actively work with the CBP to address the matter and have our name removed from the WRO.

We are actively working with our US customers to ensure ongoing supply until this matter is resolved. Outside of the US, our business continues as usual. PureCircle remains committed to human rights and fair use of labour. As we expand our vertically integrated supply chain, we remain committed to traceability and transparency as we verify compliance with our Global Labour Policy and Supplier Code of Conduct and remain confident that this matter will be resolved in due course.

Stevia Market Developments

All macro market trends continue to develop in favour of the Company and our products. In November 2014 the McKinsey Global Institute (MGI) issued a discussion paper titled "Overcoming Obesity: an initial economic analysis" which highlighted Obesity as one of the top three social burdens generated by human beings with an estimated global economic impact of US$ 2 trillion, equivalent to 2.8% of global GDP.

Although there are a number of causes of obesity and diabetes such as genetics and lifestyles including levels of exercise undertaken, increasing scrutiny is being undertaken on calorific content of food and beverages; and within this on the levels of sugars being added to food and beverage products.

Regulatory action to reduce calorific loading of Food and Beverage products

In FY16 there were significant regulatory steps taken to reduce the levels of calories and in particular added sugars in food and beverage products. For example:

- In the UK the government announced legislation that will tax carbonated soft drinks that have added sugars with effect from 2018;

- In Mexico the government has stated that it is reviewing the effectiveness of the so called soda tax that was introduced in 2013 with a view to increasing the levels of taxation;

- In the USA a number of influential State Governments and some cities have introduced legislation to impose taxes on calorific Carbonated Soft Drinks. including San Francisco (CA) and Philadelphia (PA);

- Other countries proposing legislation are: Columbia, Brazil, Portugal, South Africa, India, Indonesia, Malaysia, Thailand, Philippines, Australia, Saudi Arabia and Egypt.

Consumer preferences for natural ingredients

Consumers increasingly are demanding natural and sustainable sources for their food and beverage ingredients.

Stevia as a natural sustainable sweetener offers consumers the option of lower calorific loading combined with the natural sustainability that consumers rightly demand.

Material further regulatory approvals for stevia in FY16

During FY16, there were a number of important regulatory approvals for stevia. These included:

- India approved the use of high purity stevia as an ingredient thereby opening up a market of more than 1 billion new consumers to products sweetened with stevia;

- Brazil approved by Presidential decree the use of stevia with sugar as an ingredient. Given that more than 90% of food and beverages launched so far using stevia use stevia in combination with sugar this change in regulation effectively opened up the mainstream Brazilian market to stevia for the first time;

- Reb M in Australia, New Zealand and Canada; and

- PureCircle Flavours in China and Indonesia.

These approvals have the effect of opening up food and beverage categories that require deeper calorie reductions than have so far been possible.

With our commitment to innovation and investment in plant and supply chain, taken together, the various developments in the stevia market during FY16 give management further confidence in the long term growth prospects for the stevia market.

Market assessment at end FY16

The Company is building a long term business intended to be substantial in size and sustainable over many decades. The total global sweetener and flavour markets continue to grow and the depth of penetration within the category by stevia is increasing, with more products and larger brands adopting stevia. Further, given the timing of many recent product launches, only a small proportion have yet secured large or full retail distribution meaning that there is considerable latent growth still to emerge from the more than 10,000 products already in market.

Stevia is gaining momentum in major categories as a large scale solution of choice. PureCircle is well positioned as a solution provider in the fight against obesity and diabetes. As more and more food and beverage companies face sugar taxes, PureCircle provides natural, low calorie, great tasting ingredient solutions.

A review of alternative sweeteners to stevia suggests that there are no large scale natural low calorie alternatives.

PCL INNOVATION

The growth in stevia usage and development of high purity stevia as a mainstream ingredient of choice has largely being enabled by PureCircle's innovation. During FY16 there were further successful developments in our product innovation.

During the year the Group launched both our Sigma product family and our portfolio of Matrix solutions. These provide category specific solutions enabling deeper calorie reductions delivering great taste. Particular success is being seen by clients in the dairy and tea categories as well as accelerating adoption in new categories such as ketchups and confectionery. PureCircle continues to invest heavily in innovation in order to offer its customers further enhanced high quality flavours and sweeteners.

SUPPLY CHAIN

Construction of our new production facility is progressing well, and expected to be completed in early 2017.

The Group's strategy to diversify and increase leaf supply globally continues to ramp up as planned. PureCircle's strategy to invest in leaf development in order to identify and commercialise strains of stevia that have higher concentrations of particular molecules that have optimum commercial potential.

During FY16 the Group restructured our leaf supply chain infrastructure with more focus placed on larger farmer partners, defined as farmers with individual potential to commit in excess of 100 Hectares to stevia. By the end of FY16 the Company had secured trials in Africa and South America. Whilst actual FY16 supply from these sources was relatively small, the potential in the future is significant.

MANAGEMENT & ORGANISATION

PureCircle has ambitious long term growth plans. These require continual investment in management and information systems to ensure the Group organisation has the capacity, skills and experience to match our growth. The Company is committed to making these investments and further significant steps were again made in FY16.

DisclaimerThis document may contain forward-looking statements that may or may not prove accurate. For example, statements regarding expected revenue growth and operating profit, market trends and our product pipeline are forward-looking statements. Phrases such as "aim", "plan", "intend", "anticipate", "well-placed", "believe", "estimate", "expect", "target", "consider" and similar expressions are generally intended to identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from what is expressed or implied by the statements. Any forward-looking statement is based on information available to PureCircle as of the date of the statement. All written or oral forward-looking statements attributable to PureCircle are qualified by this caution. PureCircle does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances.

NOTES TO EDITORS

PureCircle Limited is the world's leading producer of high-purity stevia ingredients for the global food and beverage industry. Its mission is to encourage healthier diets around the world through the supply of natural ingredients to the global food and beverage industry. Its vision is to lead the global expansion of stevia as the next mass volume, natural-origin sweetener. PureCircle has offices around the world with the global headquarters in Kuala Lumpur, Malaysia. The Business was founded in 2002. PureCircle's shares are listed on the main market of London Stock Exchange and trades under the ticker symbol PURE. For more information, visit: www.purecircle.com.

Chairman's Statement

At PureCircle we are seeking to build a large global business designed to help address the world's growing need for moderation in calories in food and beverage products using naturally sourced and sustainable ingredients. We intend to achieve this by leveraging our rich heritage of bio-technology research and development. Our ambitions are significant and long term. We intend over time to be recognised as a true leader in our fields and as a "blue chip" company in everything we do.

Some 14 years after incorporation in 2002, the Group has made some progress towards realising its long term objectives, as the performance data in the CEO section following makes clear. Our progress to-date has been based on our first mover advantage in the stevia industry supported by a strong entrepreneurial culture based on nimble, fast decision making and an above average market risk appetite with continued investment in our bio-technology heritage. As a Board we are ever more confident about the future prospects of the Company in the long term. Our continued investment in development and in expanding production capacity is evidence that we are putting money behind this belief.

However as of today PureCircle is still a relatively small company, particularly given the global scope of our operations; our sales are below $200 million and we employ just 1,000 personnel. We live in uncertain times with political, economic and social volatility impacting all our markets, customers and stakeholders. So we are clear that our future progress will neither be easy or be secured in a "straight line". There will be volatility along the journey.

FY16 has been a microcosm of this. Undeniably there was continued progress across a number of KPI, be they for example further market regulatory approvals in India and Brazil or our Corporate move to the Main Market. At the same time there has been considerable volatility, notably the totally unexpected US Customs Border Protection ("US CBP") process that has diverted considerable resource and management attention away from our core business activities. 

Despite the volatility we end FY16 ahead of where we were a year ago. Our intention is to continue to achieve further progress annually for many years to come.

Chief Executive Officer's Strategic Review

Progress since incorporation

The business strategy of PureCircle is simple and has not changed since we started the business in 2002; it is to build a large long term natural ingredients business based on stevia providing sustainable moderated calorie solutions to the world's food and beverage companies and consumers. Our strategy is underpinned by our strong bio-technology heritage that enabled us to secure first mover advantage in our industry and into which we will continue to invest so as to preserve our market leadership.

In the 14 years since incorporation we have made some progress towards our goals:

- Between 2002 and 2009 we demonstrated that large scale high purity stevia production and commercialisation was indeed possible: this period of our development culminated in the end 2008 FDA and WHO approvals of stevia as a food ingredient and the effective opening up of some of our markets.

- Between 2009 and 2015 we have successfully scaled up our business and led the global expansion of the stevia industry, culminating in late 2015 with India and Brazil approvals meaning that more than 5 billion consumers now have access to stevia as a tool to moderate their calorific food load.

Looking at the Group's key indicators we have made clear progress:

- Sales have grown by $93.2m (205%) in the 5 years since FY12

- Adjusted EBITDA and net profit have each improved $53.5m and $37.9m respectively across the same period

- Operating cashflow before working capital has also improved by $49m from negative $16.6m in FY12 to positive $31.9m in FY16

- We now have 20 products in market all derived from the same stevia leaf, all helping widen the applications of stevia to new food categories and ever deeper calorie reductions and all enabled by our unique integrated supply chain

- The improvement in profit and operating cashflow across the last 5 years and our ability to mine the wonderful stevia leaf for ever more ingredient solutions has confirmed fully the operational leverage in our business model and the appropriateness of our mass balance approach.

However we still have a great deal to do. Relative to our long term ambitions we are still early on our journey. For example the global stevia market is currently only $200-250m of B2B revenues a year, representing less than 1% of the global sweetener market.

The key priorities and challenges

As CEO I consider that our primary challenges and priorities are:

- Managing growth:

It is well known that growth brings new challenges. PureCircle is no different to other companies in this respect. Management's key priority is to ensure successful sustainable execution in everything we do; this touches all activities of our business and will remain our primary challenge for many years to come.

- Coping with volatility:

We need to ensure that our business has the flexibility, capacity and robustness to cope with global market volatility, in whatever form that takes.

We manage these two challenges by continued investment in people and systems and by ensuring that our capital structure has continued headroom and flexibility to support our growth aspirations.

- Competition:

Our bio-technology heritage gave us first mover advantage in developing the new stevia industry. Our role now is to stay ahead of the competition so as to preserve our leadership position for as long as possible.

We recognise that for stevia to develop into the large scale industry that we believe it will do, the market and our customers will require the development of a well-diversified supplier base. As such we see competitor developments as important further validation of the stevia industry potential.

In FY16 there was investment into stevia by a number of well-known ingredient and soft commodity companies. However, to date none of these companies have made investments into integrated supply chains back to stevia leaf plantations. They rely on smaller extraction and refining companies, principally based in China, to provide supply of a very limited range of steviol glycoside products. As they do not control source back to the stevia leaf they are not able to provide the range of innovative solutions that the market needs and can access from PureCircle.

Our strategy is to remain ahead of the competition by continuing to invest in innovation underpinned by our unique integrated supply chain so as to bring more cost effective solutions to our clients across more food categories.

FY16 Performance

FY16 has been a challenging year. We have seen progress in the development of all our markets, notably India and Brazil, and in the commercialisation of further innovation including our Sigma and Matrix ingredients, which are already helping customers deliver great tasting products with deeper calorie reductions.

At the same time we have had to address the considerable external shock of the CBP process. I will not go into more detail on the process here, except to say that it has placed the Company and its management under sustained pressure for many months now and has undoubtedly adversely impacted our ability to progress the Company's objectives significantly.

So, whilst performance as measured by revenues was some way below our plans at the start of the year, our ability to grow revenues and almost quadruple profits during a difficult year does provide further evidence of the robustness of our business model and with it some indication of the true potential of this business.

Looking ahead

Looking ahead, and particularly across the next 5 or so years, I would summarise our plans as more of the same. We do not anticipate changes in strategy. We are committed:

- to continued growth in our business in all regions of the world,

- to continued penetration of stevia into all major food and beverage categories

- to continued expansion of our production capacity to support demand

- to continued diversification of leaf supply outside of China

- to continued investment in our people, our systems and our organisation

If we are successful in our plans for the next 5 years then I believe we will be closer to our long term ambition of building the blue chip business that Paul referred to above. But I too emphasise: our development will not be a straight line. There will be volatility along the way.

GROUP FINANCIAL REVIEW

The Group's FY16 financial year covers the year from 1 July 2015 to 30 June 2016. FY15 comparatives are for the year from 1 July 2014 to 30 June 2015.

Set out below is an extract from the audited FY16 financial statements. The complete financial statement and its accompanying notes are in the Appendix.

Segmental reporting: The Group operates as a single operating segment comprising of the integrated production and marketing of PureCircle Stevia 3.0 TM products.

Sales: FY16 sales increased $11.3m (+9%) to $138.6m. This was driven by improved portfolio mix backed by strong innovations. Our "Value Added"category doubled in size which includes our Sigma product family which was launched in the year.

Geographically, EMEA and Latin America delivered strong double-digit growth. North America suffered as a result of delayed customer launches and CBP action, whilst Asia represents a significant growth opportunity moving forward.

Our key customer base also grew double digit helping us to increase our footprint in the marketplace.

Accelerating market adoption of stevia has been enabled by our Stevia 3.0 TM range of proprietary ingredients and customizable ingredient combinations. In 2016. PureCircle continues to lead the growth of this market and our project pipeline gives us confidence that future sales growth at these rates is sustainable.

Gross margin: In FY16, the gross margin was $57.0m (FY15 $40.3m), reflecting the better portfolio mix driven by innovations and moderating leaf prices.

The FY16 gross margin percentage of 41% was 9 percentage points higher than FY15. As disclosed in last year's RNS, gross margin in FY15 was impacted by high leaf cost in China.

Operating profit FY16 Operating profit of US$32.4m almost doubled from FY16, primarily due to higher gross profit and offset by marginal increase in general & administration cost

Other expenses: FY16 other expenses principally comprise non cash costs of the Group's LTIP scheme and STIP.

Finance costs: In FY16 finance costs were $5.3m (FY15 $7.3m). This reflects the full year impact of lower interest cost from the restructured banking facilities during FY15.

Net profit after tax: The Group recorded a $14.6m net profit in FY16, a $10.5m (+256%) improvement on FY15.

Financing and funding headroom: The Group ended FY16 with net debt of US$52.9m (FY15 US$45.4m) and cash and facility headroom of US$76.3m (FY15 US$87.9m). Net debt increased mainly due to higher capital expenditure.

RISKS AND UNCERTAINTIES

Current risk assessment

The Group operates a structured risk management process, which identifies and evaluates risks and uncertainties and reviews mitigation activity. Within this the principal risks and uncertainties which may affect the business activities of the Group are summarised below. A new risk related to the failure to resolve impoundment of goods by US CBP has been included.

· Continued growth in the Stevia Market

The Group has pioneered the development of the high purity stevia market and is focused on the further development of that market. Additionally the Group has an operationally geared business model in which profitability is sensitive to volumes. This makes the Group's future profitability sensitive to the continued growth in the Stevia Market.

Management mitigate this risk with an active programme of new stevia product innovation to support further consumer adoption of stevia and to enable future food and beverage formulation projects. Further the Group invests to protect and promote the natural credentials of stevia. These activities coupled with external evidence, such as Mintel data, shows continued strong growth in F&B product launches using stevia which provides confidence in there being sustainable stevia market growth over the long term.

· Competition: over time more competitors may enter the stevia market with the potential to reduce the Group's share of that market

As pioneers in the development of the stevia market, the Group is believed currently to have a majority share of the Global stevia market. There is a risk that as stevia becomes established as a large volume mainstream F&B ingredient, that more competitors may enter the stevia market with the potential to reduce the Group's share of that market.

This risk is mitigated by the significant potential growth in the total size of the stevia market. The global sweetener and flavour markets have an annual ingredient sales value in excess of $90 billion. By contrast the CY2015 global stevia market size is estimated at just $0.2 billion. This means there remains considerable growth potential for the stevia market and with it scope for the Group to grow revenues significantly even with reduced market share. Further there is limited scope for any new technologies to be labelled as naturally sourced, which is likely to significantly limit their acceptance by consumers.

· Leaf costs: the Group's financial performance can be impacted by material changes in the input costs of its primary raw material, the stevia leaf

Dried leaf from the stevia plant is the Group's primary raw material and it constitutes the majority of the Group's variable costs of production. It follows that the Group's financial performance can be impacted by material changes in the input costs of the stevia leaf.

Over the long term stevia is a highly efficient source of natural sweetness with excellent sustainability and agro-economic properties which will underpin a well-balanced sustainable global supply that will substantially mitigate this risk.

In the medium term, the Group is managing this risk by developing large scale diversified supply. To achieve this PureCircle continues to lead the diversification of leaf supply into new geographic regions centred on our leaf development hubs in Africa, South America and India. Further the Group is making progress working with larger commercial agricultural partners who have the potential to scale supply more quickly than traditional smallholders.

· Failure to resolve impoundment of goods by US CBP

Whilst we fully expect a positive resolution to the CBP situation, the longer the impoundment of our shipments and our name remains on the WRO, the more impact it has on our route to market in the US.

We are actively working with our US customers to ensure ongoing supply until this matter is resolved. Outside of the US, our business continues as usual and our expansion plans in the rest of the world is being accelerated, somewhat mitigating the US impact.

We continue to actively work with the CBP to address the matter and have our name removed from the WRO.

· Working capital funding to support large growth plans

The Group currently controls its supply chain 100% from leaf supply through extraction, purification to end customer sales relationships. This 100% control critically provides the Group with its innovation leadership. At the same time it requires the Group to fund the working capital from leaf purchases through to end sales receivables and including appropriate inventory holdings. Given the Group's growth plans, working capital funding requirements may increase. There is always a risk that capital market conditions may make funding of such working capital hard to source.

The Group manages its working capital growth risk actively through a suite of ongoing policies. These include operational policies to ensure balance between supply purchases, inventory holdings and forecast sales cashflows; that maintains appropriate gross cash and facility headroom availability at all times; and that works actively to build and maintain bank and equity relationships.

· Concentrated production capacity

As pioneers in the development of the stevia industry it is inevitable that for a certain period in its development the Group's production capacity will be concentrated into specific facilities. This situation will continue until such time as demand volumes warrant the construction of more diversified production capacity. During this period the Group is at risk of catastrophic event impacting either of its production facilities.

The Group manages this risk actively through a variety of policies and practices. The Group has a policy of holding high levels of finished goods specifically and inventory generally relative to sales levels; and management work closely with larger customers to ensure that their inventory holdings are appropriate; the production facilities are designed on a modular basis so as to reduce the likelihood of any one event impacting more than a proportion of the total facility.

· Management: As pioneers in the development of the stevia industry, the Group is reliant upon the performance of highly skilled personnel including its senior management team

Stevia is a relatively new industry, in consequence the talent pool of management with the skills and experience of working in the stevia market is smaller than that in other more established industries.

The Group manages this risk by ongoing investment in senior management retention programmes for all key managers, including the Group's Long Term Incentive Programme (LTIP).

· Managing growth: the Group has significant growth plans, which will require more complex execution skills and processes

The Group has grown significantly (by over 205%) across the last five years and has plans to continue to do so. With such levels of growth comes the challenges of managing a more complex business including a diverse customer base and an expanded product portfolio.

The Group manages these risks by investing heavily in appropriately skilled senior management and in global management information systems including the roll out of Oracle's JD Edwards global Enterprise Resource Planning (ERP) management information system. 

· Managing health and safety

The Group operates in the food ingredient industry and operates a food grade supply chain, including large production facilities. As a result health and safety considerations are a significant operating factor for the Group's business.

The Group manages its health and safety requirements actively through a combination of strategy, design, policy and process management. The Group's strategy is to be in full compliance with all health and safety requirements at all times across the Group; our supply chain, including production configuration, is designed to support this strategy and operating policies and processes are structured to re-inforce compliance on an ongoing basis.

Directors' responsibility statement

The responsibility statement below has been prepared in connection with the company's full Annual Report for the year ended 30 June 2016. Certain parts thereof are not included within this announcement. We confirm to the best of our knowledge:

· the financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the Group respectively; and

· the Directors' Report and the Strategic Report include a fair review of the development and performance of the business and the position of the Group and the Company, together with a description of the principal risks and uncertainties that they face. This responsibility statement was approved by the Board of Directors on 20 September 2016 and is signed on its behalf by:

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2016

1 GENERAL INFORMATION

The Company was incorporated and registered as a private limited company in Bermuda, under the Companies (Bermuda) Law 1981. The registered office and principal place of business are as follows:-

Registered office : Clarendon House, 2 Church Street,

Hamilton HM 11, Bermuda.

Principal place of business : Level 12, West Wing, Rohas PureCircle

No. 9, Jalan P. Ramalee

50250 Kuala Lumpur, Malaysia

The Company's shares are publicly traded on the Main Market of the London Stock Exchange.

In the financial statement, "Company" refers to PureCircle Ltd. and "Group" refers to PureCircle Ltd and its subsidiaries.

The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the Directors dated 20 September 2016.

2 PRINCIPAL ACTIVITIES

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 natural ingredient including sweeteners and flavours.

There have been no significant changes in the nature of these activities during the financial year. The principal activities of the subsidiaries and joint venture are set out in Notes 7 and 8 to the financial statements.

3 BASIS OF PREPARATION

The consolidated financial statements included in this preliminary announcement have been extracted from the Annual Report, including the audited financial statements for the year ended 30 June 2016. The report of the auditor on those Group Financial Statements was unqualified and did not contain an emphasis of matter paragraph. The Annual Report and Group Financial Statements for 2016 will be filed with the Registrar in due course. These consolidated financial statements do not constitute statutory accounts within the meaning of the Companies (Bermuda) Law 1981.

The Group has prepared its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations. The accounting policies applied are consistent with those described in the Annual Report and Group Financial Statements 2015.

The Group has, at the date of this announcement, sufficient existing financing available for its estimated requirements for at least the next 12 months. After reviewing the Group's annual budget, plans and financing arrangements for the next five years, the Directors consider that the Group has adequate resources to continue operating and that it is therefore appropriate to continue to adopt the going concern basis in preparing the consolidated financial information.

(a) The new accounting standards, amendments and improvements to published standards and interpretations that are effective for the Group and Company's financial year beginning on or after 1 July 2015 are as follows:

· Amendments to IAS 36 'Recoverable Amount Disclosures for Non-Financial Assets'

· Amendments to IAS 39 'Novation of Derivatives and Continuation of Hedge Accounting'

· Amendments to IFRS 10, IFRS 12 and IAS 27 'Investment Entities'

· Amendment to IAS 19 'Employee Benefits'

· IC Interpretation 21 'Levies'

· Annual Improvement 2010 - 2012

· Annual Improvement 2011 - 2013

The adoption of these standards did not have any material effect on the financial performance or position of the Group and the Company.

(b) Standards, amendments and interpretations that have been issued and are applicable to the Group but are not yet effective

The Group will apply the new standards, amendments to standards and interpretations in the following period:

(i) Financial year beginning on 1 July 2016

· Amendments to IFRS 11 "Joint Arrangements" require an investor to apply the principles of IFRS 3 "Business Combination" when it acquires an interest in a joint operation that constitutes a business. The amendments are applicable to both the acquisition of the initial interest in a joint operation and the acquisition of additional interest in the same joint operation. However, a previously held interest is not re-measured when the acquisition of an additional interest in the same joint operation results in retaining joint control. It is not expected to have significant financial impact on the financial statements of the Group.

· Amendments to IAS 16 "Property, Plant and Equipment" and IAS 38 "Intangible Assets" clarify that the use of revenue-based methods to calculate the depreciation and amortisation of an item of property, plant and equipment and intangible are not appropriate. This is because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset.

The amendments to IAS 38 also clarify that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption can be overcome only in the limited circumstances where the intangible asset is expressed as a measure of revenue or where it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated. It is not expected to have significant financial impact on the financial statements of the Group.

· Amendments to IFRS 10 and IFRS 28 IAS 28 regarding sale or contribution of assets between an investor and its associate or joint venture resolve a current inconsistency between IFRS 10 and IFRS 28 IAS 28. The accounting treatment depends on whether the non-monetary assets sold or contributed to an associate or joint venture constitute a "business". Full gain or loss shall be recognised by the investor where the non-monetary assets constitute "business". If the assets do not meet the definition of a business, the gain or loss is recognised by the investor to the extent of the other investors' interests. The amendments will only apply when an investor sells or contributes assets to its associate or joint venture. They are not intended to address accounting for the sale or contribution of assets by an investor in a joint operation. It is not expected to have significant financial impact on the financial statements of the Group.

(ii) Financial year beginning on 1 July 2018

· IFRS 15 'Revenue from Contracts with Customers' - An entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognised when a customer obtains control of goods or services, i.e. when the customer has the ability to direct the use of and obtain the benefits from the goods or services.

Transfer of control is not the same as transfer of risks and rewards as currently considered for revenue recognition. A company would recognise revenue when (or as) it satisfies a performance obligation by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer).

The Group is currently assessing its impact to its financial statement.

· IFRS 9 'Financial Instruments' will replace IAS 39 "Financial Instruments: Recognition and Measurement". IFRS 9 retains but simplifies the mixed measurement model in IAS 39 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ("OCI"). The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with a irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest.

For liabilities, the standard retains most of the IFRS 139 and IAS 39requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity's own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch.

The Group is currently assessing its impact to its financial statements.

(iii) Financial year beginning on 1 July 2019

· IFRS 16 'Leases' supersedes IAS17 'Leases' and the related interpretations.

Under IFRS 16, a lease is a contract (or part of a contract) that conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

IFRS 16 eliminates the classification of leases by the lessee as either finance leases (on balance sheet) or operating leases (off balance sheet). IFRS 16 requires a lessee to recognise a "right-of-use" of the underlying asset and a lease liability reflecting future lease payments for most leases.

The right-of-use asset is depreciated in accordance with the principle in IAS 16 'Property, Plant and Equipment' and the lease liability is accreted over time with interest expense recognised in the income statement.

For lessors, IFRS 16 retains most of the requirements in IAS 17. Lessors continue to classify all leases as either operating leases or finance leases and account for them differently.

The Group is currently assessing its impact to its financial statements.

4 FINANCIAL RISK MANAGEMENT

The Group's activities are exposed to a variety of financial risks including foreign currency risk, interest rate risk, credit risk, liquidity and cash flow risk, and capital risk management. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.

(a) Financial risk management policies

(i) Foreign currency risk

The Group operates internationally and is exposed to foreign exchange risk when the Company and its subsidiaries enter into transactions that are not denominated in their functional currencies. Foreign exchange risk arises from commercial transactions, recognised assets and liabilities and net investments in foreign operations.

The Group manages its foreign exchange exposure by taking advantage of any natural offsets of the Group's foreign exchange revenue and expenses and from time to time enters into foreign exchange forward contracts for a portion of the remaining exposure relating to these forecast transactions when deemed appropriate.

The following table demonstrates the sensitivity to a reasonably possible change in the United States Dollar, Renminbi, Euro and Sterling Pound exchange rates, with all other variables held constant of the Group's results:

The above represents favourable effects on the results of the Group should the respective currencies strengthen against the functional currencies of the entities within the Group, whilst weakening of the above currencies would have an equal but opposite effect to the amount shown above, on the basis that all other variables remain constant.

The foreign currency exposure profile represents the carrying amounts arising from currencies other than the functional currency of the respective entities in the Group. The foreign currency exposure profile of the Group at the reporting date was as follows:

(ii) Interest rate risk

Interest rate risk is the risk that the future cash flows of the Group's financial instruments will fluctuate because of changes in market interest rates.

The Group's exposure to interest rate risk arises mainly from interest-bearing borrowings at floating rates. The Group's interest rate profile is set out below:

Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash held at variable rates. The Group actively reviews its debt portfolio to mitigate the impact of interest risk. The Group does not utilise interest swap contracts or other derivative instruments for trading or speculation purposes.

As at balance sheet date, if interest rates on borrowings are 1% higher/lower for a year with all other variables held constant post-tax profit for the year would beUSD1,140,000 lower/higher (2015: post-tax loss for the year would be USD1,095,000 higher/lower), mainly as a result of higher/lower interest expense on floating rate borrowing.

(iii) Credit risk

The Group trades only with recognised, creditworthy third parties. It is the Group's policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, the payment profile of the customers and credit exposure are monitored on an ongoing basis with the result that the Group's exposure to bad debt is not significant. The Group also establishes an allowance account for impairment that represents its estimate of losses in respect of trade and other receivables. The Group's maximum exposure is the carrying amount as disclosed in Notes 15, 16 and 17 to the financial statements.

At 30 June 2016, 2 customers (2015: 2) comprised more than 30% of total receivables and 7 customers (2015: 16) comprise 75% of total receivables. See Note 15 for ageing of trade receivables that are past due but not impaired.

The Group's cash and cash equivalents and short-term deposits are placed with creditworthy financial institutions and the risks arising thereof are minimised in view of the financial strength of these financial institutions.

The Group and Company consider that the credit risk relating to amounts due from joint ventures and subsidiaries respectively to be low. Both the joint ventures and subsidiaries are expected to repay fully the amounts owed to the Group and Company respectively as these related entities are expected to continue on a going concern basis. At year end, the Group believes there is no credit risk provision required for these receivables.

(iv) Liquidity and cash flow risks

Liquidity and cash flow risks arise mainly from general funding and business activities. The Group's cash flow is reviewed regularly to ensure commitments are settled when they fall due.

Cash flow forecasting is performed both in the operating entities and on a Group consolidated basis. The Group monitors rolling forecasts of its liquidity requirements including projected sales revenues, inventory and capital expenditure requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or financial covenants on any of its borrowing facilities. The Group invest surplus cash into financial interest bearing accounts and money market deposits. 

The following tables detail the remaining contractual maturities at the reporting date of the Group's non-derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the reporting date) and the earliest date the Group can be required to pay: