PureCircle Ltd. (PCRTF)

[tykundegex]

Interim resutls for the 6 months ended 31 December 2011

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11160616

(with emphasis added)

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 2011 to 31 December 2011 ("H1 FY 2012").

The unaudited financial statements comprising profit and loss account and cashflow for the six months to 31 December 2011 and the balance sheet at 31 December 2011 are set out in page 5 to 21 to this announcement, together with unaudited profit and loss and cashflow comparatives for the six months to 31 December 2010 ("H1 FY 2011") and the audited balance sheet at 30 June 2011.

SUMMARY FINANCIALS

SUMMARY FINANCIALS
Six months ended 31 December (millions US dollars)

(H1 FY 2012)
(H1 FY 2011)

Sales
15.2
13.6
Gross profit
1.7
0.9
EBITDA before exceptional costs*
(4.1)
(4.2)
Net loss after tax before exceptional costs*
(6.8)
(7.0)
Exceptional costs*
(6.3)
-
Net loss after tax
(13.1)
(7.0)
Cash and short term deposits
27.1
30.8
Net debt
(70.7)
(76.7)
Gross assets
238.1
270.4
Net assets
130.8
152.0
Net assets per share (US cents)
0.85
0.98

Sales: H1 FY 12 sales of $15.2m were in line with expectations and $1.6m (11%) higher than prior year. As expected there were no sales to the Company's Global Beverage Key Accounts (GBKA's) in H1, as they continue to use existing inventories. All our new products Natural Flavors and new natural sweeteners launched in Calendar Year 2011 (CY 2011) performed strongly and together contributed $6m (39%) of the total sales.

Gross Profit: H1 FY12 gross profit of $1.7m is $0.8m (88%) ahead of H1 FY 11. This reflects diversification and mix of sales with new products and improved variable contributions. However absolute gross profit margin % is below the Group's long term business model due to low production capacity utilization.

Exceptional costs: As was previously announced, having successfully scaled production across CY 2009 and CY 2010, since January 2011 the Group has temporarily slowed down production of Reb A until inventories are better aligned with market demand. As a result in H1 FY 12 the Group has charged $6.3m net of production overhead and related costs to profit that would ordinarily have been charged to inventory production.

Inventories: inventories reduced $9m from 30 June 2011 and at $87m are now $26m (23%) lower than their peak at 31 December 2010. Management expects them to reduce further across the next twelve months.

Cash and net debt: The Group ended H1 FY 12 with gross cash of $27m and net debt of $71m. Net debt is the same as at 30 June 2011 and $6m lower than at 31 December 2010 ($77m), confirming that the Group has been a net cash generator across CY 2011, despite the exceptional costs. At 31 December 2011 the Group had $60m of cash and facility headroom (31 December 2010: $50m) and is adequately funded to meet all its current plans.

Balance sheet: the Group's balance sheet reflects fully invested production capacity that can support volumes equivalent to more than $250m sales.

BUSINESS DEVELOPMENTS

Supply Chain: Although we reduced Reb A production temporarily, our supply chain has been busy with new products. Our production teams have been successful in scaling production of these new products. Our leaf growing regions both in Kenya and Paraguay are progressing well. The supply chain is robust and in place to support sales in excess of $250m as the market matures.

Regulatory: the EU market secured regulatory clearance in December 2011 thereby opening up the world's largest sweetener market to high purity stevia. Continued regulatory progress in other regions means that all principal markets in the world are expected to be open by the end of CY 2012.

Market adoption: the number of Food and Beverage products and the range of product categories using high purity stevia as a sweetening ingredient or flavor continue to increase in all markets. This includes the important Carbonated Soft Drink (CSD) market where we have seen major CSD household brands beginning to adopt stevia as their sweetening option worldwide. As expected, early launches in the EU since approval are more numerous and cover more companies than was seen when the USA market first opened. (edit: EU approval came in November 2011)

Consumer demand: Nielsen and other market data shows consumption of high purity stevia based products increasing in all categories. Higher demand is backed up by strong growth in awareness of stevia in all major markets. In France for example awareness has increased 20% across the last twelve months.

PureCircle product portfolio: during CY 2011 PureCircle launched a range of new products designed in close consultation with clients and meeting specific market needs, both as natural sweeteners and flavors. Each of the products has been well received, particularly the natural flavors that have been adopted into two billion dollar brands in USA within six months of the launch. Taken together they provide our customers with a flexible formulation tool kit across major price and calorie reduction points. For PureCircle they will provide a well balanced revenue portfolio going forward.

Application support: we continue to expand our application support capabilities through our Oak Brook, Illinois Application Center. Our uniquely deep knowledge of formulating with high purity stevia is being recognized increasingly in the market with more and more customers now working actively on projects with our application specialists.

Everything Stevia: our inaugural Everything Stevia conference was held in London in November and attracted more than a hundred delegates from major EMEA Food and Beverage companies. Everything Stevia is now being rolled out across Europe with events already held in Spain and Italy and more planned.

Customer base: we continue to secure more customers and to build repeat business. Most customers are still at relatively early development stages. But, data shows underlying demand building steadily as customers' launches expand. Excluding the BGKAs, we estimate that we are working on two to three times as many projects today as a year ago and that our regular order levels are almost five times those of two years ago.

Beverage Global Key Accounts (BGKAs): we have highlighted previously that the BGKAs will be the largest long term users of high purity stevia but that whilst they work through their existing stevia inventories, their current demand will be low. This has been the case in H1 FY 12. Whilst their existing product usage is growing particularly with high purity stevia now being adopted into major CSD brands and whilst we expect to see a series of new launches in CY 12, in the EU, Asia and Latin America, we do not expect any significant BGKA demand in FY12. We believe significant BGKA demand will now only kick in from CY 2013 and CY 2014.

Joint Ventures: activity levels in both our Joint Ventures (JVs) with Tereos (TPCS) and Nordzucker (NPS) have accelerated sharply with the opening of the EU. Both have rapidly expanding project pipelines and a growing list of customer launches across many EU countries. Our USA JV, NSV, is working to develop both a retail Table-top offer and an industrial B2B business. The JVs will make an initial sales contribution in FY 12, but reflecting the project roll-out timings, it will be FY 13 and FY 14 before their sales are material.

Partners: PureCircle has a first class suite of flavor, formulation and distribution partners, including Firmenich, Dohler and Prinova. Across H1 FY 12 all our partners have seen sharp increases in project activity and growing customer demand pipelines. As these roll-out they will provide strong additional sales, but it is expected to be FY 13 and FY 14 before these are material.

Outlook:

With the opening of the important EU market and continued growth in usage across all regions and Food and Beverage categories including major CSD brands we remain confident of the long term future of high purity stevia. The success of our expanded product portfolio and our continued customer acquisition supports our confidence in PureCircle's leading role in that future.

We do not however expect to see rapid sales growth until CY 2013 and CY 2014 when the combination of EU approval, the launches of major stevia sweetened CSDs and the unwinding of BGKA's inventories take fuller effect.

Our business model is sensitive to sales volumes. Whilst sales remain modest relative to our supply chain capacity, our margins too will remain substantially below those of our long term business model.

Looking at FY12, we expect H2 to show much stronger revenues than H1. However with BGKA demand tracking later than expected this is likely to impact FY 13 and FY 14 revenues not FY 12. Accordingly our sales guidance for H2 FY12 is in the range of $30m to $50m.

"CY 2011 has been a challenging year with PureCircle sales not reflecting the underlying strong growth in the global high purity stevia market, which accelerated further in December 2011 with the opening of the important EU market. We have a highly scaled business that leaves our results sensitive to sales volumes.

Across CY 2011 we have seen continued progress of high purity stevia becoming a natural sweetener of choice across more categories, companies and countries. CY 2011 has also seen the early but strong market adoption of our proprietary natural flavor products.

CY 2012 has started well with early evidence of the adoption of high purity stevia by the important carbonated soft drink (CSD) category.

As we mentioned in our Outlook, we remain confident of the long term future of high purity stevia and of our business. But it will be CY 2013 and CY 2014 before the strong sales growth is apparent."