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PureCircle shares slump on warning of lower profits

By Caroline Scott-Thomas , 28-Jul-2010

Stevia supplier PureCircle saw its share price plummet yesterday (Tuesday) after it said in a trading update that its profits for fiscal 2010 would be down on last year.

Its shares on the London Stock Exchange closed at 209.5p, a slump of nearly 24 per cent, after the company said that “significantly increased investment” in sales and marketing had held back profits to June 30, 2010.

“PureCircle's strategy is to build a large global business and we have invested heavily to do so,” the company said. “The current company infrastructure is designed to support a business with turnover of $250m or more.”

It also noted that the business is currently operating under capacity. The company said it expects 2010 sales to remain at a similar level to 2009, when it reported sales of US$60m.

Those 2009 sales were based substantially on Reb A sales to just two customers, PureCircle said, with almost 60 per cent of sales going to a “trading partner”. The company had hoped to see a significant increase in profits this year, but said that it had not made any sales to that trading partner during 2010, contributing to its flat profits.

“The company's sales strategy post 2008 has been to work directly with end user food and beverage clients. In line with this strategy, the contract with the trading partner has been discontinued,” PureCircle said.

Joint ventures

Also on Tuesday, PureCircle announced a joint venture with British Sugar, a division of Associated British Foods, creating a 50-50 joint venture called The Natural Sweetness Company.

The new company will operate in the UK, Spain, Portugal, Ireland, China and Africa and will develop products for food and drink manufacturers and retailers. The venture will target customers that want to reduce calories using a ‘natural’ sweetener in solid foods that require bulk as well as sweetness.

The formation of The Natural Sweetness Company follows the company’s announcement of a similar joint venture back in February, when partnered with Imperial Sugar in the US to form Natural Sweet Ventures.

New deals

PureCircle also named five new major contracts on Tuesday with Danone, Unilever, Bimbo Bakeries, Dean Foods and Kerry Ingredients. The company did not disclose further details on the contracts.

“Beyond these contracts there are a number of other arrangements that are in the final stages of negotiations with global multinational F&B companies which will be announced in due course,” the company said.

PureCircle said it would announce its preliminary full year results to June 30, 2010 on September 22.

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