PureCircle has “agreed with our lenders for a full waiver of all previous defaults and secured an additional $8.6m liquidity into the business by way of an unsecured subordinated loan from shareholders,” said Dato' Robert Cheim, who was appointed chairman in February.
But he cautioned: “The waivers and amendments contain certain conditions and covenants that the group may not be able to meet, and there is also the risk, in particular in relation to COVID-19 pandemic, that the group may not have sufficient liquidity up until the facility is required to be repaid in November 2020.”
The directors are therefore exploring alternative financing options including an infusion of equity, full debt refinancing, or sale and leaseback of the refinery plant facilities as alternatives to raise cash to fund the business and operations before the money needs to be repaid, he explained.
‘The apparent override of controls by members of senior management’
PureCircle, which supplies stevia extracts to some of the world’s largest food & beverage companies, recently installed a new management team following a probe into accounting irregularities that prompted a suspension of its shares and a restatement of its 2017 and 2018 accounts.
The probe determined that historical inventory had been overstated, while historical cost of sales had been understated, said the firm. In addition, “matters of concern were identified in relation to… revenue cut-off, and non-commercial transactions” reflecting the “apparent override of controls by members of senior management that may have contributed to the historical misstatements of the company's results going undetected.”
As a result, the restated 2018 and 2017 accounts show sales were $4.5m and $5.1m lower, respectively, than previously stated.
‘The company's systems and governance have been found wanting’
Interim results for the 6 months to Dec. 31, 2019 coupled with an update on current trading, will be published “as soon as practicable,” said the firm, which said FY 2019 sales were down slightly at $124m, while net losses after tax were up dramatically to -$79.7m (vs sales of $126.6m and net losses of -$1.7m in the restated 2018 accounts).
"The company's systems and governance have been found wanting and whilst I have only recently taken over as chairman, I would like to apologize to shareholders,” said Cheim.
'Proper accounting controls were overridden and inappropriate transactions were recorded’
The root cause of the problems, he argued, was a “culture of ’make the numbers’ as a priority over doing things properly...
"Meeting our loan covenants to satisfy our lenders was an issue in [the] management's minds as well. As a result, proper accounting controls were overridden and inappropriate transactions were recorded.”
PureCircle has ‘proven that it is able to produce Reb M and bio Reb M in scale’
But he added: “Over the last six months PureCircle changed its management team, refreshed the board, and started to put in place the controls necessary to ensure that similar errors do not occur in the future.”
And despite these challenges, he insisted, “I believe that our strategy to transform the business to scale, produce, and sell breakthrough super-tasting natural stevia ingredients and commercialize new technologies remains sound.”
New, highly productive, leaf varieties
PureCircle, he said, had “proven that it is able to produce [the best-tasting steviol glycosides] Reb M [extracted from the leaf] and bio Reb M [produced via an enzymatic conversion process that still begins with stevia leaf extracts] at scale.
"These new sweeteners can now be found in an increasing number of food and beverage products and our sales pipeline is showing increasing market acceptance of Reb M and bio Reb M.
“In full year 2020, about 25% of our leaf grown in China will be of a variety developed by us that has some 40% more steviol glycosides than previous stevia varieties. This hardy variety grows well and promises significant unit cost reductions for our products going forwards. In full year 2021, we are planning so that nearly all of the leaf grown for PureCircle by its contracted farmers will be of this new, highly productive variety.”
The firm also cited recent innovations including a proprietary stevia product (Sigma Syrup), claimed to deliver superior taste and solubility; and PCS-3028, a new proprietary stevia leaf sweetener claimed to increase stevia solubility by a factor of 10.
COVID-19 and stevia operations in China and Malaysia
While operations at PureCircle’s extraction plant in China were briefly suspended earlier this year to comply with local COVID-19 containment regulations, the plant opened again on February 20.
Meanwhile, operations at its refinery in Malaysia – which have been suspended since March 18 – are about to get up and running again, said Cheim.
CEO Peter Lai added: “Market conditions continue to be favorable for stevia use to expand. PureCircle will continue to capitalize on that. Regulatory approvals in the Philippines for both versions of our Reb M stevia leaf sweetener in September 2019 were followed by approvals in Australia, New Zealand, Indonesia, Thailand, Vietnam, and Taiwan.
“The group has not noted any terminations of supplier relationships over the past three months as we have a long-standing good relationship with our suppliers.”