PURE.L Regulatory News (PURE)

PureCircle Limited

("PureCircle" or the "Company")

Interim results for the six months ended 31 December 2013

PureCircle (LSE: PURE) the world's largest producer and marketer of high purity stevia today announces its unaudited interim results for the six month period from 1 July 2013 to 31 December 2013 ("1H FY14").

The unaudited financial statements comprising the profit and loss and cashflow statements for the six months to 31 December 2013 ("1H FY14") along with the balance sheet as at 31 December 2013 are set out below, together with the unaudited profit and loss and cashflow comparatives for the six months to 31 December 2012 ("1H FY13") and the audited balance sheet as at 30 June 2013. 

SUMMARY FINANCIALS

* Note 1H FY13 sales are restated for IFRS 11 "Joint Arrangements" (i.e.:- accounting for joint ventures) that the Group implemented from 1 July 2013. The impact is to reduce 1H FY2013 sales by $1m.

** Operating profit and adjusted EBITDA are as per management's segmental reporting on page 13. The full profit and loss account is detailed on page 4.

Sales: Sales of $34.9m were 32% higher than 1H FY13 (restated) with increases in all high purity sales products and across all regions. Sales of high purity ingredients grew 37%, driven by innovations in our proprietary Stevia 3.0 TM portfolio of all-natural, no-calorie sweetener and natural flavor systems. The proportion of total sales derived from lower value co-products again reduced, to 5% (1H FY13 6%).

Sales volumes: Total sales volumes increased 31% compared to 1H FY13. Our Stevia 3.0 TM portfolio of proprietary products including NSF02, SG95 and Alpha now comprise 12 products in market. In 1H FY14 they represented more than 70% of total volumes. Our Stevia 3.0 TM portfolio is growing the overall high purity stevia market as well as our market share.

Gross profit: The Group's increased sales volumes translated to improved profitability with gross profit increasing $6.9m (128%) to $12.3m. Gross profit margin improved 15 percentage points to 35% (1H FY13 20%).

Operating profit: Operating profit improved $5.8m to $2.9m. This reflects the 1H FY14 gross profit improvement, offset by $1m increased investment in the Group's global sales, application and product innovation activities. Within the last year the Group has opened application laboratories in the UK, China and Mexico and sales offices in Turkey and India.

Adjusted EBITDA: The benefits of the increase in sales flow through the profit and loss account with 1H FY14 Adjusted EBITDA improving $6.5m to $7.2m.

Interim results for the six months ended 31 December 2013 (continued)

Net debt and funding headroom: At 31 December 2013 the Group had net debt of $84.8m (30 June 2013: $75.2m) and cash and funding headroom of $59m (30 June 2013: $55m). The Group is adequately funded for its current business needs.

Balance sheet: the Group's balance sheet reflects fully invested production capacity and working capital able to support annual Stevia 3.0 TM volumes equivalent to at least $250m revenues.

BUSINESS DEVELOPMENTS

Market usage: Global Food and Beverage (F&B) usage of PureCircle's Stevia 3.0 TM ingredient range continues to accelerate with 1H FY14 again witnessing F&B launches in new categories and regions. Importantly 1H FY14 also saw significant increased retail distribution and consumption of existing products using Stevia 3.0 TM. Among numerous developments, Coca-Cola Life, successfully launched in Argentina in June 2013, was rolled out into Chile in November 2013; Trop 50 was named "new product launch of 2013" by the UK's Grocer magazine. By category beverages and Carbonated Soft Drinks (CSDs) in particular continues to lead usage. All regions are seeing increased growth.

Regulatory: Important regulatory clearances in 1H FY14 have included the December 2013 USA FDA GRAS no objection letter for Rebaudioside M (Reb M), being developed in conjunction with The Coca Cola Company. Reb M is another naturally occurring glycoside that has a closer taste to sugar than stevia ingredients commercialized to date, allowing deeper calorie reductions in F&B products, particularly those with higher levels of sweetness, such as CSDs. The Group continues to seek and win regulatory approvals on an ongoing basis for its expanding Stevia 3.0 TM portfolio. Further approvals are expected across CY2014.

Customer base: The Group continues to strengthen its customer base with further investment in new regional sales offices, in market application laboratories and quality "leaders in their field" partnerships. 

Innovation: The Group's strategy is to introduce new innovation to meet identified market needs. The Group's pace of successful innovation continues to accelerate and is doing so both at a Stevia 3.0 TM ingredient level and at a F&B product application level. In CY2011 the Group had a single high purity stevia product in market: by end CY2013 it had twelve, with more due to be launched across CY2014. Market experience shows that each new launch increases overall market usage of high purity stevia as well as PureCircle's market share.

Marketing: PureCircle supports actively our clients as they seek natural solutions to their consumer moderated calorie needs. The Global Stevia Institute is established as the source of objective information for consumers and is used actively by clients.

We have established clear sustainability principles for the stevia industry. Again this leadership role is being recognized by our customers in their own consumer communications. Activity behind both these key marketing initiatives accelerated again in 1H FY14.

Applications: The Group's investment in in-market application laboratories is further accelerating market usage. In CY 2013 the Group held more than 70 PureCircle University events with clients and this number is forecast to increase across CY2014.  

Supply Chain: The Group's supply chain has again delivered increased volumes across an enlarged product portfolio, whilst reducing individual unit costs, improving operating margins and supporting the development of further innovation. In 1H FY14 the Group increased production in anticipation of higher sales in H2 and accelerated further its mid-term leaf supplies.

Interim results for the six months ended 31 December 2013 (continued)

Outlook: Commenting on the 1H FY14 trading, the Group CEO Magomet Malsagov said:  In 1H FY14 we continued on our path of delivering sales growth leading to improvements in profitability.

Our strategy of introducing new and innovative ingredients and solutions to meet identified market needs is continuing to win business for PureCircle and to increase the overall market share for high purity stevia. The success of our innovations is underpinned by our R&D capabilities, uniquely integrated supply chain, global customer service infrastructure and smart partnerships. We are generating revenues from a wide range of natural sweetener and flavor products and from a wide range of customers directly and through our business partners.

The recent GRAS Letter of No Objection from the U.S. FDA for Rebaudioside M a new, zero-calorie sweetener from the stevia leaf jointly developed by The Coca-Cola Company and PureCircle is an important milestone for us and is another example of our ongoing commitment to sweetener innovation and our global commitment to offering solutions to help the food and beverage industry to develop more reduced, low and no-calorie food and beverage options. 

CSD launches and rollouts with stevia are expected to accelerate. Whilst the scale of these is yet to be determined fully, current known launches and roll-outs will be sufficient to remove the historic industry inventory overhang by the end of FY14.

Looking forward, with accelerating roll-outs of food and beverage products using PureCircle's high purity Stevia 3.0 TM solutions, particularly in the important Carbonated Soft Drink ("CSD") category, the Company is confident of sustainable future sales growth and with it further improvements in profitability.

NOTES TO EDITORS

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

Condensed consolidated statement of comprehensive income

for the period ended 31 December 2013

* Note 1H FY2013 financial statements are restated for IFRS 11 "Joint Arrangements" (i.e.:- accounting for joint ventures) that the Group implemented from 1 July 2013.

Condensed consolidated statement of financial position

As at 31 December 2013

* Note 1H FY2013 financial statements are restated for IFRS 11 "Joint Arrangements" (i.e.:- accounting for joint ventures) that the Group implemented from 1 July 2013.

Condensed consolidated statement of changes in equity

as at 31 December 2013

Condensed Consolidated Statement of Changes in Equity

as at 31 December 2012

Condensed consolidated cash flow statement for the period ended 31 December 2013

* Note 1H FY2013 financial statements are restated for IFRS 11 "Joint Arrangements" (i.e.:- accounting for joint ventures) that the Group implemented from 1 July 2013.

Condensed consolidated cash flow statement for the period ended 31 December 2013 (continued)

* Note 1H FY2013 financial statements are restated for IFRS 11 "Joint Arrangements" (i.e.:- accounting for joint ventures) that the Group implemented from 1 July 2013.

Notes to interim financial statements

1. General information

The Company was incorporated and registered as a private limited company in Bermuda, under the Companies (Bermuda) Law 1991 (as amended). The Company has its primary listing on the AIM market operated by the London Stock Exchange, plc (AIM).

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 sweeteners and flavours.

The unaudited condensed consolidated interim financial statements have been authorised for issue by the Board of Directors on 18 March 2014.

2. Basis of preparation

The condensed consolidated interim financial statements for the six months ended 31 December 2013 have been prepared in accordance with IAS 34, "Interim financial reporting". In preparing these condensed interim financial statements, the significant judgments and estimates made by management in applying the Group's accounting policies were the same as those that applied to the consolidated financial statements for the year ended 30 June 2013. The condensed consolidated interim financial statements should be read in conjunction with the Group's annual financial statements for the year ended 30 June 2013 ("FY2013"), which have been prepared in accordance with IFRSs.

3. Accounting policies

The accounting policies adopted for 1H FY2014 are as stated in the Group's FY2013 financial statements, with the addition of new standards and amendments to standards that are mandatory for the financial year beginning 1 July 2013, the new standards are summarised below:

(i) Financial year beginning on/after 1 July 2013

· IFRS 10, 'Consolidated Financial Statements' (effective from 1 January 2013) changes the definition of "control". An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. It establishes control as the basis for determining which entities are consolidated in the consolidated financial statements and sets out the accounting requirements for the preparation of consolidated financial statements. It replaces all the guidance on control and consolidation in IAS 27, 'Consolidated and Separate Financial Statements' and IC Interpretation 112, 'Consolidation - Special Purpose Entities'.

· IFRS 11 "Joint arrangements" (effective from 1 January 2013) requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations arising from the arrangement, rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportionate consolidation of joint ventures is no longer allowed. The Group shall recognise its interests in joint ventures using the equity method, as disclosed below.

Notes to interim financial statements (continued)

3. Accounting policies

· IFRS 12, 'Disclosures of Interests in Other Entities' (effective from 1 January 2013) sets out the required disclosures for entities reporting under the two new standards, IFRS 10 and IFRS 11, and replaces the disclosure requirements currently found in IAS 28, 'Investments in Associates'. It requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entity's interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities.

· IFRS 13, 'Fair Value Measurement' (effective from 1 January 2013) aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards. The enhanced disclosure requirements are similar to those in IFRS 7, 'Financial Instruments: Disclosures', but apply to all assets and liabilities measured at fair value, not just financial ones.

· The revised IAS 27, 'Separate Financial Statements' (effective from 1 January 2013) includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10.

· The revised IAS 28, 'Investments in Associates and Joint Ventures' (effective from 1 January 2013) includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11.

· Amendment to IAS 19, 'Employee benefits' (effective from 1 January 2013) makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits, and to the disclosures for all employee benefits. Actuarial gains and losses will no longer be deferred using the corridor approach. IAS 19 shall be withdrawn on application of this amendment.

· Amendment to IFRS 7, 'Financial Instruments: Disclosures' (effective from 1 January 2013) requires more extensive disclosures focusing on quantitative information about recognized financial instruments that are offset in the statement of financial position and those that are subject to master netting or similar arrangements irrespective of whether they are offset.

Except for IFRS 11, the directors expect that the adoption of the above standards and interpretations will have no material impact on the interim financial statements in the period of initial application. The impact of the changes in accounting policy on adoption of IFRS 11 is described in Note 4.

Notes to interim financial statements (continued)

4. Changes in accounting policy

The Group has adopted IFRS 11, 'Joint arrangements', on 1 July 2013. This resulted in the Group changing its accounting policy for its interests in joint arrangements. PureCircle also adopted IFRS 10, 'Consolidated financial statements', IFRS 12, 'Disclosure of interests in other entities', and consequential amendments to IAS 28, 'Investments in associates and joint ventures' and IAS 27, 'Separate financial statements', at the same time. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. PureCircle has assessed the nature of its joint arrangements and determined them to be joint ventures.

The Group has applied the new policy for interests in joint ventures occurring on or after 1 July 2013 in accordance with the transition provisions of IFRS 11. The Group recognised its investment in joint ventures at the beginning of the earliest period presented (1 July 2012), as the total of the carrying amounts of the assets and liabilities previously proportionately consolidated by the Group. This is the deemed cost of the Group's investments in joint ventures for applying equity accounting. Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses and movements in other comprehensive income. When the Group's share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that, in substance, form part of the Group's net investment in the joint ventures), the Group recognises the losses as part of the Group's obligations in investment in joint ventures.

Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group's interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group. The change in accounting policy has been applied as from 1 July 2012. The effects of the changes in accounting policy on the financial position at 1 July 2012, 30 June 2013 and 31 December 2013 and comprehensive income and cash flows for the period ended 31 December 2013 and 31 December 2012 of the Group are summarised under Note 22.

5. Fair value estimation

Assets and liabilities measured at fair value can be determined based on valuation methods as defined in the fair value measurement hierarchy as follows:

(i) Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).

(ii) Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

(iii) Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

The Group's biological assets are measured at fair value less cost to sell and classified as Level 3 of which valuation inputs are not based on observable market data as management considers that the costs of the biological assets approximate fair value as little biological transformation has taken place since initial cost incurrences, and expect that the impact of the biological transformation on price is not expected to be material.

There are no other assets and liabilities of the Group which are measured at fair value. The carrying values of the financial assets and liabilities of the Group at the balance sheet date approximated their fair values.

Notes to interim financial statements (continued)

6. Other income

Other income represents net foreign exchange gain, interest income and other miscellaneous income.

7. Other expenses

Other expenses in prior period represented loss in biological assets.

8. Principal risks and uncertainties

The Group set out in its FY2013 Annual Report and Financial Statements the financial risks including foreign currency risk, interest rate risk, credit risk, liquidity and cash flow risks and capital risk management that could impact its performance; these remain unchanged since the Annual Report was published. The Group operates a structured risk management process, which identifies and evaluates risks and uncertainties and reviews mitigation activity.

9. Seasonality

At 31 December 2013 the Group had gross cash of USD30.6m (31 December 2012: USD45.3m) and net debt of USD84.8m (31 December 2012: USD 75.2m). Net debt is defined as short-term and long-term borrowings less cash and bank balances. The Group's sales are seasonally weighted towards the H2 of each year and net debt is expected to reduce over time as sales increase and then convert to cash. At 31 December 2013, the Group had more than USD59m cash and banking facilities headroom. The Directors believe the banking facilities to be sufficient for projected funding requirements.

10. Segmental information

Management determines the Group's operating segments based on the criteria used by the Chief Operating Decision Maker who has been identified as the Chief Executive Officer (CEO) for making strategic decisions. Management considers the Group to be a single operating segment whose activities are the production, marketing and distribution of natural sweeteners and flavors.

From a geographical perspective, the Group is a multinational with operations located on all continents, but managed as one unified global organization.

Notes to interim financial statements (continued)

10. Segmental information (Cont'd)

Notes to interim financial statements (continued)

10. Segmental information (Cont'd)

Geographical information

The primary performance indicators used by the Group are revenues, gross profit, adjusted EBITDA, net cash from operations and net debt.

Notes to interim financial statements (continued)

10. Segmental information (Cont'd)

EBITDA is calculated as net result for the year reported on the face of the profit and loss account, adjusted for interest, taxation, depreciation and amortization.

Adjusted EBITDA is calculated as EBITDA adjusted for the discretionary items such as share based and bonus payments and any non-recurring expenses.

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

11. Property, plant and equipment and intangible assets

During the period, the Group invested USD3.4 million in property, plant and equipment.

The addition to intangible assets is in respect of capitalisation of project developments during the period, net of amortisation for products now launched commercially.

12. Inventories

13. Biological assets

Notes to interim financial statements (continued)

14. Borrowings

During the period, the Group repaid bank loan amounting to USD22.2m, in line with previously disclosed repayment terms. The Group then drew down bank loans amounting to USD17.1m at an weighted average effective interest rate of 7.6% per annum. The proceeds were used to meet working capital.

15. Income taxes

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The Group has no estimated assessable profit.

The Company was granted a tax assurance certificate dated 18 August 2007 under the Exempted Undertakings Tax Protection Act 1966 pursuant to which it is exempted from any Bermuda taxes (other than local property taxes) until 28 March 2016 and was extended to 31st March 2035 following the enactment of the Exempted Undertakings Tax Protection Amendment Act 2011.

A subsidiary of the Group, PureCircle Sdn Bhd (PCSB), has been granted the Bio-Nexus Status by the Malaysian Biotechnology Corporation Sdn Bhd in which PCSB is entitled to a 100% income tax exemption for a period of 10 years on its first statutory income commencing in 2009. Upon the expiry of the 10-year incentive period, PCSB will be entitled to a concessionary tax rate of 20% on income derived from qualifying activities for a further period of 10 years. As at 31 December 2013, PCSB has not utilised its tax exemption.

Another subsidiary of the Group, PureCircle (Jiangxi) Co. Ltd. (PCJX), has also been granted a 10% exemption on corporate tax from 1 January 2013 to 31 December 2020 by Ganzhou State Tax Revenue Department under the Western Ganzhou State Development program.

Notes to interim financial statements (continued)

16. Share capital and share premium

On 9 August 2012, the Company completed a private placement of 10 million new ordinary shares at GBP2.00 per share to Wang Tak Company Limited. The Placement raised USD31 million in new equity. At the completion, Wang Tak Company Limited owned 19,276,150 shares representing 11.7% of the then issued share capital.

17. Earnings per share

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

Diluted earnings per share is not applicable as the potential ordinary shares under the Company's Long Term Incentive Plan would have an anti-dilutive effect.

18. Dividends

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

19. Contingent liabilities and capital commitments

At the end of the period, there are no material contingent liabilities which, upon becoming enforceable, may have a material impact on the financial position of the Group.

Capital commitments amounting to approximately USD1.6m is approved and contracted for, these are incurred for the purchase of land and upgrading of plant and machinery in Malaysia.

Notes to interim financial statements (continued)

20. Events after the end of the reporting period

There were no events that had a material impact to the condensed consolidated interim financial statements after the end of the reporting period.

21. Significant related party transactions

(a) Identities of related parties:

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

(i) its subsidiaries and joint ventures;

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

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

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

(b) Related parties

(i) Related Parties

(ii) Key Management Personnel

Key management includes executive and non-executive directors. The compensation paid or payable to key management for employee services is shown as below:

Notes to interim financial statements (continued)

21. Significant related party transactions (continued)

(b) Related parties (Cont'd)

(ii) Key Management Personnel (Cont'd)

(iii) Balances with related parties

Notes to interim financial statements (continued)

22. Impact of change in accounting policy on the statement of financial position