TIDMPURE
RNS Number : 3026I
PureCircle Limited
31 March 2020
Date: 31 March 2020
PURECIRCLE LIMITED ("PureCircle" or "the Company" or "the
Group")
Final Audited Results 2019
PureCircle (LSE: PURE) , the world's leading producer and
innovator of great-tasting stevia sweeteners for the global food
and beverage industry, today announces its final audited results
for the financial year ended 30 June 2019 ("FY19").
During the preparation of these results the Group's auditors
made the Board aware that they were unable to reconcile the value
of the Group's inventory between two internal systems which were
used to account for and manage inventory cost allocation. The
auditors also identified a number of non-commercial transactions,
and certain sales that appeared not to have been recorded in the
appropriate accounting period.
Publication of the FY19 results was delayed while the Board and
its advisers investigated how these matters arose and fully
understood the financial implications. As a result of these
investigations the Company has restated its results for FY18 and
opening retained earnings.
The Group's revenue for FY18 was restated as a result of the
investigation. The Group also reviewed its revenue cut-off
procedures which also resulted the adjustment in retained opening
retained earnings as at 1 July 2017.
The Group's gross profit has been further impacted by charges of
$19.7m to write inventory down to its net realisable value and a
further $14.8m to provide for slow-moving inventory, impairment on
intangible assets of leaf & product developments of $15.7m and
a further $6.8m one-off cost has been incurred in professional fees
during the investigation.
FINANCIAL OVERVIEW
FY19 FY18
Restated*
Financial year ended 30 June USD' m USD' m
Sales 124.0 126.6
Gross profit 1.2 38.3
Operating (loss)/ profit* (27.4) 4.6
Net loss after tax (79.7) (1.7)
Adjusted EBITDA* (29.6) 14.7
Loss per share (US$ cents) (45.32) (0.95)
Fully diluted (loss) per share (US$ cents) (45.32) (0.95)
Operating cash flow before working capital
changes 7.64 13.47
Net debt* (68.6) (98.1)
Net assets 159.5 210.2
* Net debt, 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 4(b)
and note 30 for more details.
-- Restatements
Our 2018 results have been restated based upon prior period
adjustments identified during the current year. It was identified
that the Group's costing methodology was not appropriately
allocating the full cost of inventory sold to comprehensive income,
but instead, certain costs remained capitalised in inventory in
2017, 2018 and 2019 respectively. Accordingly, historical inventory
was overstated and historical cost of sales was understated.
The Group's revenue was also overstated due to non-commercial
transactions and further, revenue was not recorded in the
appropriate period, which has resulted in a restatement of FY18
revenue and the opening retained earnings.
OPERATIONAL OVERVIEW
-- Revenue broadly flat at $124.0 million (2018: $126.6m)
-- Revenues were broadly flat between 2018 and 2019 as the
innovation in our product and change in the product mix led to a
reduction in volume of some older product lines. In addition, price
pressure in these basic ingredients also posed challenges in
defending our market shares in these increasingly commoditised
products.
-- Inventory write down to its net realisable value of $19.7
million due to South American leaf $5.3 million, by-products $11.0
million and finished goods of $3.4 million. In addition, provision
of $14.8 million for slow-moving inventory has been provided
for.
-- Gross Margin of 1.0% (2018: 30.2%) as a result of inventory
being written down to its net realisable value ("NRV") and
provision of slow-moving inventory. The gross margin excluding NRV
and provision for slow-moving inventory is 28.8% compared to 30.2%
in 2018. Going forward, our inventory costing methodology will
continue to allocate costs to by-products in the normal course of
business. To the extent we are unable to immediately utilise the
by-products, we will assess and provide for the slow-moving
inventory. In 2019 we continue to experience price pressure in
basic ingredients that posed challenges for the Company to defend
its market share in these increasingly commoditised products.
Hence, we faced downward pressure on maintaining gross margins
during the year.
Net loss $79.7 million (2018: $1.7m), mainly impacted by:
-- inventory net realisable value of $19.7 million, provision of
slow-moving inventory of $14.8 million;
-- impairment on intangible assets of leaf & product developments of $15.7million;
-- deferred tax expense of $7.0 million;
-- specific provisions on receivables of $1.8 million;
-- expected credit loss on trade receivables and other receivables of $4.7 million and
-- other expenses of $11.7 million comprised $6.8m one-off
professional costs incurred, specific and general provisions on
receivables as well as intangible assets written-off of $2.5m .
More information on the above can be found in Note 12 and
27.
-- C ontinued innovation to create new proprietary stevia
product - Sigma Syrup - which provides superior taste and overcomes
solubility challenges encountered when using other stevia
sweeteners.
-- Developed PCS-3028, a new proprietary stevia leaf sweetener
which increases stevia solubility by 10x.
-- Field tested new and improved stevia leaf variants
Starleaf(TM) which contains more steviol glycosides.
Commenting on the FY19 results, PureCircle Chairman Dato' Robert
Cheim, said:
"This has been a difficult time for PureCircle. The Company's
systems and governance have been found wanting and whilst I have
only recently taken over as Chairman I would like to apologise to
shareholders."
"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.
We have 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."
"Notwithstanding this, the Board is actively considering various
refinancing options namely securing definitive new equity infusion,
full debt refinancing or sale and leaseback of the refinery plant
facilities as alternative to raise cash to fund the business and
operations ."
"PureCircle has a market leading range of products and continues
to innovate, working closely with our customers. The market for our
products which makes food and beverage taste great without the
calorific value of sugar, is growing as a result of consumer choice
and government action to reduce obesity."
"With stevia regulatory clearances achieved in all major markets
across the globe, the adoption and application of stevia as an
ingredient continues to accelerate providing PureCircle with a
platform for strong medium-term growth".
Chairman's Review
PureCircle faced many difficult challenges in finalising our
FY19 results in order to deliver this Annual Report to our
shareholders. Some of these challenges have been referred to in our
public disclosures but, on behalf of the Board, I would like to
take this opportunity to provide our shareholders with a clear
account of what happened and what we have done to address the
issues we faced.
I joined the Board as a Non-Executive Director on 18 November
2019 during this period and was appointed as Chairman on 10
February 2020, after the AGM.
Accounting and Governance issues
As we approached the scheduled date for publication of the
accounts in September 2019, our auditors made us aware that there
was an unexplained reconciliation difference in the value of our
inventory between two internal systems which are used to account
for and manage the business. The impact of this issue covered
multiple years and resulted in not derecognising the full cost of
inventory to cost-of-goods-sold ("COGS") upon sale. We brought in
external consultants, specifically forensic accountants and legal
specialists to identify the corrections needed and a clear set of
actions to prevent recurrence.
These discoveries led us to disclose that we believed there to
have been inappropriate accounting treatment for allocation for
full cost of inventory and COGS as disclosed in Notes 12 and Note
34 to the Comprehensive Financial Statements.
In addition, during the course of work being undertaken by
PricewaterhouseCoopers, matters of concern were identified in
relation to how certain other transactions had been constructed
and/or reflected in the Group's accounting records. These matters
relate to revenue cut-off, and non-commercial transactions. The
investigations identified 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, adjustments with the effect of reducing sales of
approximately US$4.5 million and US$5.1 million have been made to
the 2018 and 2017 financial results respectively.
As a Board, we had to understand the root causes of the
problems. We identified a culture within the organisation of "make
the numbers" as a priority over doing things properly. Operating
management have always been very committed to the business and
clearly wished the business to be successful. At the same time,
meeting our loan covenants to satisfy our lenders was an issue in
management's minds as well. As a result, proper accounting controls
were overridden and inappropriate transactions were recorded.
During this period of finalising our FY19 results, both the CEO
and CFO left the business. Their departures were traumatic
especially as the CEO, the founder of the business can be credited
with creating the stevia industry.
We also undertook an investigation to understand whether these
issues were the result of systems, processes, and controls that
were not fit for purpose, or whether there were any other issues
which required addressing. We are implementing those recommended
actions which are briefly discussed below:
1. We are strengthening financial oversight and setting policies
and procedures in the Group to ensure no reoccurrence of previous
accounting and governance issues.
2. We have brought in Jimmy Lim, CFO to be based in Kuala
Lumpur, Malaysia, where the centre of the Group's financial
operations is located.
3. We are implementing and enhancing our policies and standard
operating procedures (SOPs) relating to critical financial
functions such as consolidation, inventory management and sales
recognition policy etc.
John Slosar, the former Chairman, assumed the role of Interim
CEO in November 2019. He personally undertook to speak to those in
the organisation who might have been involved or known about the
issues described above and whose leadership in changing Company
culture we deemed important going forwards to ensure that they
understood that we were going to operate to high ethical standards.
John provided stability, leadership and stewardship to the Company
during a period of uncertainly and on behalf of the Board, I would
like to express our sincere appreciation.
The Board has closely monitored these investigations and is
satisfied that management has reviewed a sufficiently large number
of transactions to support these financial statements. Our auditors
undertook significant additional testing of transactions to verify
the credibility of the results in FY19 and for previous years.
Their additional testing confirmed the control environment problems
in the Company.
Your Board is committed to producing correct financial
statements and is satisfied that we have identified and corrected
these issues and that we have taken positive steps to ensure that
there will be no recurrence of them going forwards.
Following the various audit adjustments reflected in our FY19
financial statements, it became clear that the Company had breached
the banking covenants related to the bank facility. The Company
therefore approached the banks in its lending syndicate and began
discussions to secure appropriate waivers of past breaches and in
order to put the Company in a stable position to refinance its
debts, given that the current term of our debt agreement expires in
November 2020.
The Group secured an approval from its lenders for Waivers and
Amendments to its Senior Facility Agreement ("Waivers and
Amendments"). This fully waives all previous defaults, in addition
to securing $8.6 million of additional liquidity into the business
by way of an unsecured subordinated loan from certain substantial
shareholders.
The Waivers and Amendments contains 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. However, the Directors are
exploring alternative financing options inc luding securing a
definitive new equity infusion, 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 facility needs
to be repaid.
This is an important step in ensuring the Company remains viable
and has the liquidity it needs to deliver on its strategy for the
foreseeable future. Nonetheless, these matters indicate the
existence of a material uncertainty that casts doubt on the Group's
going concern assumptions. Our auditors have drawn attention to the
material uncertainty with respect to going concern in an emphasis
of matter in their audit opinion.
Further details are provided in Note 4 Financial Risk Management
and Note 22 Borrowings, to the Consolidated Financial Statements,
respectively.
I am pleased to say that the Company has had good support from
our banks, and I would like to thank them for that.
Management and Board
There has been wholesale change to the PureCircle Board over the
past few months as we deal with the aftermath of the issues
discussed above and focus on strengthening our Board for the
future. All of the changes to the Board have already been included
in our public disclosures and therefore I would keep this section
brief.
The Board is comprised of the following 2 Executive Directors -
Peter Lai as Group Chief Executive; and Jimmy Lim as Chief
Financial Officer. In addition to my role as Non-Executive
Chairman, the Board is comprised of 4 Independent Directors and 1
Non-Independent Director. Independent Directors are Datuk Ali Abdul
Kadir as Senior Independent Director; Sridhar Krishnan; Olivier
Maes; and Guy Wollaert, whereas Tan Sri Wan Azmi Wan Hamzah is our
Non-Independent Non-Executive Director.
Strategic focus
Despite the issues that have justifiably consumed so much
attention recently, I believe that our strategy to transform the
business to scale, produce and sell breakthrough super-tasting
natural stevia ingredients and commercialise new technologies
remains sound. We are continuing to develop and innovate stevia
products, as demonstrated by some remarkable achievements for the
Company realised in FY19 and continuing to date.
First, the Company has proven that it is able to produce Reb M
and bio Reb M in 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. Being such a step-change improvement over other stevia
sweeteners, it is not surprising that we have had to defend the IP
we created in Reb M. As a result of a lawsuit filed by us, a
challenge was raised to our bio Reb M patents at the Patent Review
Board in the Patent Office in Washington, D.C. After review, the
Patent Review Board affirmed our patents, which for PureCircle was
an important result.
The supply of stevia is vital for the success of our business.
We have been working hard on developing better, more productive
cultivars for many years. This work is now clearly paying off. In
FY2020, 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 FY2021, 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.
COVID-19 update
The World Health Organization (WHO) on 30 January 2020 declared
the coronavirus outbreak a public health emergency. During that
time, the Group's extraction plant in China was already closed for
the week long lunar new year celebration but operations were
further suspended from 31 January 2020 to 18 February 2020 to
adhere to the authority's measure to contain the outbreak.
Operations at the Group's refinery facility in Malaysia has been
suspended since 18 March 2020 following the government's movement
control order to stop Covid-19's infection, however we are pleased
to report that we have secured approval from the authorities to
reopen and restart production immediately. Our priority is the
health and safety of our employees. As of today, none of our
employees are known to be infected or suspected to have contracted
the virus. Given the economic uncertainty arising from COVID-19,
the Group is taking measures to support the business to withstand
this period of uncertainty.
Refer to CEO's report in the section following for further
details.
Conclusion
Despite the financial and governance issues during FY19,
PureCircle has continued to refine its expertise in bringing the
highest quality, cost effective stevia products to the food and
beverage companies of the world. The PureCircle team excels at
this. I would like the thank all our PureCircle colleagues for
their hard work and our suppliers and customers for their support,
particularly over the last six months.
The delay in publishing our accounts and the suspension of our
shares is greatly regretted by the Board. We thank you, our
shareholders, for your patience. We have learnt from this and will
ensure that your business is run with the highest standards of
governance and control in the future.
PureCircle has repeatedly demonstrated its ability to innovate.
We have been investing in stevia, in our products and our people.
Our markets are opening up as both governments and consumers look
to move to lower calorie alternatives to sugar. With our new
management team, we will work toward delivering PureCircle's
strategic priorities.
Dato' Robert Cheim Dau Meng
Non-Executive Chairman
Chief Executive Officer Review
I joined the Board as the Group CEO and Executive Director on 10
February, 2020. It is an honour to be handed the helm of this
innovative and energetic enterprise, with its clear mission of
providing a portfolio of healthy, stevia-based natural sweeteners
and flavours to its customers and their consumers.
PureCircle's financial performance for 2019 is overshadowed by
the failures in our governance and controls which has led to an
impairment and additional costs for 2019 and a restatement of prior
years' financial statements.
Revenues were broadly flat between 2018 and 2019 as the
innovation in our product and change in the product mix led to a
reduction in volume of some older product lines. In addition, price
pressure in these basic ingredients also posed challenges in
defending our market shares in these increasingly commoditised
products.
It was identified that the Group's costing methodology was not
appropriately allocating the full cost of inventory sold to
comprehensive income, but instead, certain costs remained
capitalised in inventory in 2018 and 2019 respectively.
Accordingly, historical inventory was overstated and historical
cost of sales was understated. For FY2019, the Group performed a
comprehensive review and assessment of its NRV and provision of
slow-moving inventory procedures to ensure its existing inventories
were valued appropriately.
REBUILDING FINANCIAL HEALTH AND GOVERNANCE
At 30 June 2019, the Group's gross cash position was $25.7m.
This cash position benefited from working capital movements,
particularly extended supplier payments, which may not be
sustainable in the long-term. However, the Group has not been able
to access the revolving credit facility and had incurred unexpected
costs related to the investigations described above. In view of the
tight liquidity situation, much of management's time and effort has
gone into exploring alternative debt and equity financing options
to refinance its senior debt facility well before then.
Over the past few months, it has been the Management team's top
priority to rebuild the confidence that all our stakeholders once
had in the Company by improving its financial health and governance
processes. The most urgent of these priorities is to deleverage the
balance sheet of the Group to a more sustainable level. My CFO and
I are undertaking initiatives to source both equity and debt to
refinance the syndicated facility that is maturing in November
2020. At the same time, we will be actively managing the cashflow
of the Group to ensure that it maintains a healthy balance between
receivables and payables while unlocking cash by reducing the high
level of inventories.
The internal control failures that we have had in the recent
years must not be repeated. As the CEO and a member of the Board, I
will take an active role in working with the Audit Committee to
strengthen financial oversight and setting policies and procedures
in the Group to ensure no recurrence of previous accounting and
governance issues. Management will continue to implement and
enhance the Group's policies and standard operating procedures
relating to critical financial functions such as consolidation,
inventory management and sales recognition policy etc.
MARKET OPPORTUNITIES
The global stevia market continues to grow. PureCircle is
positioning itself to deliver the best-tasting, zero-calorie,
natural sweeteners to food and beverage companies to meet
consumers' demands.
In 2019, PureCircle expanded and strengthened our Commercial
team. Under the leadership of Stephane Ducroux, now our Deputy CEO,
we enhanced our ability to fully capture our market opportunity.
Stephane has focused on setting and implementing a set of key
strategies aimed at delivering the next chapter of growth for
PureCircle.
These new strategies involve transforming the business to scale,
produce and sell breakthrough superior-tasting, natural stevia
ingredients and commercialise new technologies. Our commitment to
next generation ingredients and improving taste and consumer
experience has, as expected, led to slower immediate short-term
sales growth. Our focus is on product development, which has a long
sell cycle, and we believe this is an important long-term
investment, both in consumers' adoption of stevia and longer-term
sales. Customers are now switching and reformulating to next
generation stevia leaf ingredients due to the superior taste
profile, improved sweetness quality and enhanced mouthfeel
experience.
The reformulations using our new generations of stevia
ingredients have led to some cannibalisation of our base business
and the results should be read in this context. We are pleased with
the early wins and positive feedback we are getting about the great
taste profile of our next generation stevia leaf sweeteners and
flavours.
Market conditions continue to be favourable for stevia use to
expand. PureCircle will continue to capitalise 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.
Due to our ongoing investment in R&D, our expertise extends
to all aspects of stevia. That is why our corporate tagline is
"everything stevia." Everything we do is about helping our
customers achieve their goals of reducing sugar, calories and the
cost of ingredients without compromising taste.
With this in mind, PureCircle has helped launch an international
cola brand featuring next generation stevia leaf sweeteners .
According to Innova Market Insights' new product database, over 35
new products have launched with Reb M labelled on the product
ingredient line since 2018. An exciting development for the Group
was the launch in the summer of 2019 of zero-sugar-added
stevia-sweetened ice-cream, which received overwhelmingly positive
feedback.
In addition to sweeteners and flavours, we provide our customers
with tailored and category specific blends of our robust portfolio
of stevia leaf ingredients. Our industry-leading formulation
expertise allows us to maximize taste with the most cost-efficient
use of stevia ingredients. With our next generation stevia
solutions, we work in partnership with our customers to achieve the
taste profile they require for their products in their different
markets around the globe.
Strategy evolution as a result of innovation
The story of stevia has changed significantly in the past few
years. Not long ago, stevia was viewed as a plant-based,
zero-calorie, single-ingredient sweetener which worked well in some
beverage and food applications. Today, having developed a range of
new generation stevia leaf ingredients, including Reb M, with
sugar-like taste and zero calories, PureCircle has the industry's
most complete portfolio of stevia leaf ingredients, which are all
from the stevia plant and non-GMO.
There are no taste trade-offs or compromises and our products
which taste as good as their full sugar counterparts. Therefore,
our next generation stevia sweeteners continue to generate
excitement among food and beverage companies.
Recent PureCircle advances have enabled us to significantly
boost production of these high-grade stevia sweeteners (e.g. Reb M
and Reb D) and flavours, which have the most sugar-like taste and
are highly sought after by customers. This means we can supply the
volume of stevia sweeteners food and beverage companies need as
they expand use of stevia ingredients - and we can do it cost
effectively for them.
We are also planning to expand our offerings of stevia leaf
ingredients to include, not just sweeteners and flavours, but also
protein, fibre and antioxidant ingredients - all from the stevia
plant.
This will enable PureCircle to utilise much more of each stevia
leaf. As such, the Company will be able to make each leaf "work
harder".
Our stevia ingredient blends are enabling superior taste
performance, mouth feel and sweetness quality in an increasing
number of food and beverage categories. Our proprietary stevia
blends facilitate our customers' use of stevia leaf sweeteners and
allow for quicker product development and speed to market.
The technologies to produce the products PureCircle sells are
covered by patents, applied for patents and other intellectual
property rights. PureCircle's broad and strong global array of
patents are the result of its advanced innovation, research and
development work with stevia and its investment therein. To date,
PureCircle has been granted more than 200 stevia-related patents,
with more than 300 patents pending covering a wide range of stevia
related products and processes.
PureCircle's patent coverage and other intellectual property
reflect its expertise and innovation with stevia. That expertise
and innovation enables PureCircle to provide unparalleled support
to its customers as they develop zero- and low-calories food and
beverage products and other products using stevia.
We are exploring new areas including using our stevia flavours
for sodium reduction and masking undesirable flavour
characteristics of other ingredients in various food and beverage
categories. This will provide consumers a great-tasting,
plant-based ingredient.
OPPORTUNITIES
According to Innova Market Insights 2020 data, in 2019 there
were well over 6,000 launches of food and beverage products
containing stevia sweeteners, up +10% versus prior year. There have
been over 35,000 products launched globally containing stevia since
2008. Over the last five years, stevia has had a compound annual
growth rate (CAGR) of 12%. While beverages continue to be key area
of focus, other categories in food, such as dairy from yogurts to
ice cream, and biscuits/cookies, are gaining strong momentum across
all markets. These launches included well-known global and regional
brands.
All these elements open up market potential for PureCircle's
innovation pipeline. Enabling food and beverage companies to
partner with PureCircle to help them achieve uncompromising taste
profiles tailored to their individual products and markets.
Sustainability: Farmers, Communities & Planet
Stevia is a force for good in the world. Our involvement
throughout the supply chain enables us to be a key leader in
corporate social responsibility.
The leaf is 250-400 times sweeter, depending on application,
than sugar. As a result one fifth of the land provides the same
amount of sweetness achieved from other sweeteners made from sugar
cane or corn.
Less land means less water and less energy. This major impact is
not just on the land but also the communities and co-operatives we
work with. PureCircle continues to partner with our customers to
reduce the impact the food and beverage industry have on the
environment and global caloric intake. Since 2011, we have provided
the equivalent amount of stevia to eliminate 7 trillion calories
from global diets.
Our commitment to corporate social responsibility is embedded in
our corporate practices.
Outlook
PureCircle has a market leading range of products and continues
to innovate, working closely with our customers. The market for our
products which provide great tasting food without the calorific
value of sugar is expected to grow as a result of consumer choice
and government action to reduce obesity.
With stevia regulatory clearances achieved in all major markets
across the globe, the adoption and application of stevia as an
ingredient will continue to widen, providing PureCircle with a
platform for healthy medium-term growth.
The Group is mindful of the volatile outlook and economic
uncertainties arising from the COVID-19 pandemic and has been
monitoring the situation closely. Therefore, the Group will
endeavour to conserve its cash flow by pro-actively managing its
capital expenditure and working capital as well as identifying
opportunities for cost savings that will not impact the long-term
viability of the Group.
The Group has also considered the impact of COVID-19 on
customers, suppliers and staff. The Group is cautiously optimistic
that customers will continue to place sales orders but it is
difficult to estimate the impact of COVID-19 on future sales orders
and there may be a reduction compared to prior years should
customers reduce orders or delay product launches.
The Group has not noted any terminations of supplier
relationships over the past 3 months as we have a long-standing
good relationship with our suppliers. We are monitoring closely the
relationship in the coming months to ensure smooth production when
we restart the manufacturing operation and work towards improving
the difficult situation.
Over the past number of weeks, we have been working with our
teams in production facilities in China, Malaysia to manage the
ongoing developments relating to COVID-19. Our first priority
remains the safety of our people and their families. Our teams in
China and Malaysia are taking all appropriate protective measures
in our facilities and we are working with authorities, our
customers and other stakeholders to manage through the situation.
Operations at our refinery plant in Malaysia has been suspended
since 18 March 2020, to adhere to the government's movement control
order. However, we expect to resume operations immediately,
following approval by the authorities of our application to reopen
and restart production. The Group continues to have sufficient
inventories at hand that should mitigate any further disruptions.
Production at our extraction plant in China is running as
usual.
Whilst our supply chain remains robust, we are taking steps to
mitigate our risks. We are actively monitoring and managing our
inventory level and liquidity positions in this unprecedented
uncertain period.
Therefore, the outlook for the full year is now more
cautious.
Peter Lai
Chief Executive Officer
31 March 2020
Disclaimer
This 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.
Enquiries:
Investors/Analysts
Jimmy Lim, CFO
Email: Jimmy.Lim@purecircle.com
Phone: +603 2166 2206
Newgate Communications, Media Relations
Elisabeth Cowell
Giles Croot
Email: purecircle@newgatecomms.com
Phone: +44 (0) 20 3757 6880
Notes to Editors
About PureCircle
-- PureCircle is the only company that combines advanced R&D
with full vertical integration from farm to high-quality,
great-tasting innovative stevia sweeteners.
-- The Company collaborates with farmers who grow the stevia
plants and with food and beverage companies which seek to improve
their low- and no-calorie formulations using a sweetener from
plants.
-- PureCircle will continue to: lead in research, development
and innovation; produce a growing supply of multiple varieties of
stevia sweeteners with sugar-like taste, using all necessary and
appropriate methods of production; and be a resource and innovation
partner for food and beverage companies.
-- PureCircle stevia flavor modifiers work in synergy with
sweeteners to improve the taste, mouthfeel and calorie profile, and
enhance the cost effectiveness, of beverage and food products.
-- Founded in 2002, PureCircle is continually investing in
breakthrough research and development and it has been granted over
214 stevia-related patents with more than 300 applied for patents
pending.
-- PureCircle has offices around the world with the global
headquarters in Chicago, Illinois.
-- To meet growing demand for stevia sweeteners, PureCircle is
rapidly ramping up its supply capability. It completed expansion of
its Malaysian stevia extract facility in March 2017, increasing its
capacity to rapidly supply the newer and great-tasting specialty
stevia sweeteners and helping provide ever-increasing value to its
customers.
-- PureCircle's shares are listed on the main market of the London Stock Exchange.
-- For more information, visit: www.purecircle.com
About stevia
-- Given the growing global concerns about obesity and diabetes,
beverage and food companies are working responsibly to reduce sugar
and calories in their products, responding to both consumers and
health and wellness advocates. Sweeteners from the stevia plant
offer sugar-like taste and are becoming an increasingly important
tool for these companies.
-- Like sugar, stevia sweeteners are from plants. But unlike
sugar, they enable low-calorie and zero-calorie formulations of
beverages and foods.
-- Stevia leaf extract is a natural-based, zero calorie,
high-intensity sweetener, used by global food and beverage
companies as a great-tasting zero-calorie alternative to sugar and
artificial sweeteners.
-- Stevia is a naturally sweet plant native to South America;
today, it is grown around the world, notably in Kenya, China and
the US.
-- The sweet-tasting parts of the stevia leaf are up to 350
times sweeter than sugar: stevia's high-intensity sweetness means
it requires far less water and land than sugar.
-- Research has shown that the molecules of the stevia leaf are
present and unchanged in the dried stevia leaf, through the
commercial extraction and purification process, and in the final
stevia leaf extract product. All major global regulatory
organisations, across 65 countries, have approved the use of
high-purity stevia leaf extracts in food and beverages.
-- For more information on the science of stevia, please visit https://www.purecirclesteviainstitute.com/
Group Financial Review
The Group's FY19 financial year covers the year from 1 July 2018
to 30 June 2019. FY18 comparatives are for the year from 1 July
2017 to 30 June 2018.
Set out below is an extract from the audited FY19 financial
statements. The complete financial statements and the accompanying
notes are in the Appendix.
FY19 FY18
USD'000 USD'000
(Restated*)
Revenue 124,003 126,601
Cost of sales (122,758) (88,320)
----------- -----------------
Gross Profit 1,245 38,281
----------- -----------------
Gross margin % 1.0% 30.2%
Other income 5,875 1,138
Administrative expenses (34,477) (34,813)
----------- -----------------
Operating (loss)/profit (27,357) 4,606
Other expenses (33,955) (2,046)
Foreign exchange gain 4 1,363
Finance costs (11,015) (7,355)
Share of profit/(loss) of joint venture 80 (14)
Taxation (7,430) 1,784
----------- -----------------
Loss for the financial year (79,673) (1,662)
----------- -----------------
Loss Per Share
(US$ cents per share) (45.32) (0.95)
Fully diluted Loss Per Share
(US$ cents per share) (45.32) (0.95)
Operating cash flow before working capital
changes 7,635 13,465
Working capital changes 12,777 2,461
----------- -----------------
Operating cash flow after working capital
changes 20,412 15,926
----------- -----------------
Net debt
Gross debt 94,271 122,092
Gross cash (25,675) (23,987)
----------- -----------------
Net debt 68,596 98,105
----------- -----------------
Adjusted EBITDA (29,603) 14,724
REVENUE
FY19 revenue was $124.0m (2018 restated: $126.6m). The decrease
arises from decline in sales from flavours products with a shift to
breakthrough products.
Revenues have been driven by Asia Pacific and North America
regions mainly due to improved distribution and a change in the
product mix. Partnering with our customers and supported by our
continuous innovation, are key enablers to customers' adoption of
stevia into their products as shown by increased new product
launches. The decline in volume was mainly driven by certain base
products being replaced with new and better tasting breakthrough
products.
GROSS MARGIN AND GROSS PROFIT
Gross profit decreased by $37.0m mainly due to inventory written
down to its net realisable value and provision of slow-moving
inventory amounting to $19.7m and $14.8m respectively (leaf,
work-in-progress and finished goods).
During the year, it was identified that the Group's costing
methodology was not appropriately allocating the full cost of
inventory sold to comprehensive income, but instead those costs
remained capitalised in inventory. As such, historical inventory
was overstated and historical cost of sales was understated. The
amounts above have been restated to properly reflect inventory on
hand at 30 June 2019 and 2018 respectively.
OPERATING PROFIT
Operating loss was $27.4m (FY18:Operating profit $4.6m)
primarily due to inventory net realisable value write down of
$19.7m and provision of slow-moving inventory of $14.8m, offsetting
against other income of $5.5m received from a R&D supplier on
termination of R&D agreement.
During the year, Management has impaired the leaf development in
Latin America and America programmes by $13.9m. In addition, there
are incremental professional costs of $6.8m (2018: NIL) in relation
to the provision of audit, legal and advisory services from
professionals arising from the review of the Group's inventory cost
allocation methodology and revenue investigation.
OTHER EXPENSES
Other expenses increased by $31.9m mainly due to impairment of
leaf development by $13.9m, $2.5m write-off of product development
costs, impairment of intangible assets of $1.7m, bad debts
provision of $1.8m, expected credit loss on trade receivables of
$0.9m, provision for doubtful debts on other receivables of $3.8m
and additional professional fees of $6.8m.
The impairment of leaf development costs is caused by the
inability to obtain the necessary license to export stevia leaf
from Paraguay to China where our extraction facility is located.
This also led to a provision of $5.3m against leaf already
purchased and awaiting export in South America.
Another termination of a product development agreement has led
to a write-off of the product development cost of $2.5m.
Impairment of intangible assets relates to patents and
development cost of certain products which is no longer profitable.
Additional professional fees are incurred in relation to statutory
audit overrun, forensic audit, debt advisory and compliance
audit.
FINANCE COSTS
In FY19, finance costs were $11.0m (FY18: $7.4m). The higher
finance cost was driven by amortisation of arrangement fees and
higher interest rates.
NET LOSS AFTER TAX
The Group recorded a $79.7m net loss in FY19 (FY18: net loss
$1.7m).
LOSS PER SHARE
On a fully diluted basis, the loss per share was 45.32 cents as
a result of the write down of inventories and impairment of
intangible assets. Excluding the exceptional items, diluted loss
per share was 33.55 cents.
OPERATING CASH FLOW BEFORE WORKING CAPITAL CHANGES
The Group generated $7.6m of operating cash flow before working
capital changes in 2019, $5.8m lower than 2018.
ADJUSTED EBITDA
FY19 Adjusted EBITDA loss of $29.6m (EBITDA profit in FY18:
$14.7m). A combination of higher other expenses with inventory
written down to its net realisable value contributed to lower
earnings and hence lower Adjusted EBITDA.
TAXATION
The tax expense of $7.4m was mainly attributable to the reversal
of deferred tax assets in our US operation where there is no longer
sufficient evidence these will be recovered through future taxable
profits.
FINANCING, LIQUIDITY AND BANK COVENANTS
The Group ended FY19 with net debt of US$68.6m (FY18:US$98.1m).
Since year end, net debt decreased mainly due to a fund raising of
$35m from share placement exercise and $20m was utilised to pay
down the term loan.
Under the terms of the Waivers and Amendments, the Group will be
able to have access to the revolving credit facility following the
receipt of the audited Financial Statements. The Group did not
satisfy all of the conditions of the agreement but this was
subsequently waived on 27 March 2020. The facility also contains
certain other conditions.
In view of the tight liquidity situation and the upcoming
revolving credit facility that falls due on 30 November 2020, much
of management's time and effort has gone into exploring alternative
debt and equity financing options to refinance its revolving credit
facility outstanding amount and senior debt facility well before
then.
The Group is mindful of the volatile outlook and economic
uncertainties arising from COVID-19 pandemic and has been
monitoring the situation closely. Therefore, the Group will
endeavour to conserve its cash flow by pro-actively managing its
capital expenditure and working capital as well as identifying
opportunities for cost savings that will not impact the long-term
viability of the Group.
RISKS AND UNCERTAINTIES
During the year, our Board has reviewed the risks facing the
Group. The level of risk arising from Long-Term Funding, Working
Capital and Inventory Management increased significantly following
breach of debt covenants, inventory costing and valuation issues,
which has impacted the Company's financial position and reputation.
In addition, the Board has identified Culture and Internal Control
Environment as new risks. In view of the scale and magnitude of
impact from these issues, the Board has acknowledged the urgent
need for a robust review and revamp of senior management leadership
team, culture, systems and processes in order to reduce and manage
risks to an acceptable level.
At the time of writing, in view of the current COVID-19 outbreak
and given the rapidly evolving nature of the pandemic, the Group
has done detailed assessment on the existing production plan and
sales channel condition.
The Group has also considered the impact of COVID-19 on
customers, suppliers and staff. The Group is cautiously optimistic
that the customers will continue to place sales orders but it is
difficult to estimate the impact of COVID-19 on future sales order
and there may be a reduction compared to prior years should
customers reduce order or delay product launches.
The Group has not noted any termination of supplier
relationships over the past 3 months as we have a long-standing
good relationship with our suppliers. We are monitoring closely the
relationship in the coming months to ensure smooth production when
we restart the manufacturing operation and work towards improving
the difficult situation.
Whilst our supply chain remains robust, we are taking steps to
mitigate our risks. We are actively monitoring and managing our
inventory level and liquidity positions in this unprecedented
uncertain period.
Our Board of Directors and Risk Committee believe that there
have been no new emerging risks other than the 10 broad key risk
areas outlined below; and that identified mitigation actions remain
appropriate to manage these identified risks.
Our approach is not to eliminate risk entirely, but to ensure
that we have the right structure to effectively navigate the
challenges and opportunities faced. We focus on being risk aware,
responding to changes to our risk profile quickly and having a
strong risk awareness among employees. This ensures that our risk
exposure remains appropriately minimal at any point in time.
Our principal risks are listed as follows. However, these are
not intended to be an exhaustive analysis of all risks currently
facing the Group.
1. Long-term funding
PureCircle is reliant on funding from a consortium of banks to
fund the ongoing operations of the business and to enable ongoing
product innovation and investment in technology. The current
funding arrangements are subject to bank covenants. The debt is due
to mature in November 2020 and is subject to compliance with
certain bank covenants and conditions. The Group needs to maintain
sufficient liquidity to balance operating requirements with
financial obligations and covenants.
The Group's debt covenants were re-set multiple times during the
year, there was a default at financial year end. Subsequent to
FY2019, the Group experienced severe cash flow constraints in
meeting its working capital requirements and needed additional
funding. In addition, the Group renegotiated and secured approval
for the full waiver of non-compliance of bank covenants.
Going forward, the Group's liquidity will be tight and our
projections indicate that we will break our reset covenants. The
Group is exploring alternative financing options to refinance its
existing term loan before it matures in November 2020.
2. Working capital funding to support operations
PureCircle fully controls the end-to-end process of its entire
supply chain from leaf sourcing to manufacturing; sales;
distribution and customer relationship management. The Company
needs to fund its working capital from leaf purchases to sales and
receivables. Working capital requirement at PureCircle is
particularly influenced by its inventory levels.
During the year, the Group experienced severe cash flow
constraints in meeting its working capital requirements and needed
additional funding to meet its payment obligations. Failure of our
business to generate sufficient operating cash flows; restricted
access to funding or existing bank facilities being potentially
withdrawn; creates call on cash, higher than anticipated. This will
impact our financial performance and liquidity.
3. Inventory management
Inventory management is a key area of the business. Ensuring
PureCircle manufactures the appropriate mix of finished goods
inventory is of paramount importance as failure to do so may result
in high level of cash being tied up in the business.
In 2019, it was noted that PureCircle maintained high inventory
balances, particularly in relation to by-products. Many of the
by-products were found to be carried at a cost higher than what
could be realised, and/or slow moving and in excess of market
requirements, despite efforts to sell directly or convert into
other finished goods.
Fluctuations in the market demand for PureCircle products can
cause inventory levels to rise. In addition, changes in the market
or viable uses of by-products may potentially cause inventory
obsolescence and write-offs.
4. Culture and internal control environment
PureCircle is an entrepreneurial company operating in a new
industry. Strong directive leadership is vital to achieving the
Group's vision and strategy.
Although this provides a clear chain of command and enables the
company to grow and react quickly to market opportunities, there is
a risk that this creates a culture where achieving sales forecast
and financials set out by the leadership was the sole purpose.
The control environment around revenue recognition and inventory
is particularly important. During the year, there was apparent
override of controls by members of senior management that was not
identified by our monitoring controls.
Weak awareness of controls and culture may give rise to failure
in corporate governance and non-compliance with internal
controls.
5. Talent attraction and retention
Stevia is a relatively new industry in which PureCircle remains
as a market leader. Attracting and retaining talented individuals
will be imperative to the Group's future success.
During the year, there were a number of senior management
departures. Although an interim leadership team was formed to fill
the void, there was nonetheless a short vacuum in senior
leadership. The Group has since appointed a new set of senior
leaders, with immediate focus on resolving issues identified during
2019 and restoring stability to the Business.
As PureCircle grows and becomes more successful, our talented
individuals will increasingly become sought after.
6. Competition
As the stevia industry continues to evolve, larger food and
beverage ingredient suppliers may enter the market and erode the
Group's current market share. Failure to anticipate movements in
the market/ accurately forecast customer demand and industry trends
could undermine PureCircle's business performance.
The Group needs to adequately price its products to remain
competitive.
7. Leaf sourcing/ procurement
The Group's leaf sourcing plan is driven by market demand and
sales strategy, which provides the direction on leaf variety to be
planted, cultivated and purchased.
Dried leaf is PureCircle's primary raw material and constitutes
a significant proportion of the Company's variable costs of
production. The Company's financial performance can be materially
impacted by rising leaf cost and nature of contractual conditions,
if not managed effectively.
A significant majority of PureCircle's total leaf supply is
sourced from China. The Group adopts a logical purchasing plan
differentiated by province and purchase timing. This mitigates any
potential risk of supply disruption within China.
We have implemented and scaled up gradually sourcing supply of
leaf from other overseas locations, ex-China, principally from
Zambia. This strategy to balance the supply of leaf from outside
China is important for risk diversification in leaf supply as well
as to maintain shorter cash-to-cash cycle of our working
capital.
During the year, the Group exited its leaf development project
in Latin America and North America due to unfavourable developments
in those regions, and provided for impaired the associated costs in
its financial statements.
Going forward, the Group's leaf sourcing strategy will comprise
of combination of different leaf varieties, and the gradual phasing
out of old stevia leaf varieties to leaf with better extract
yields. This will drive improvements in terms of lower overall
extract cost per metric ton of processed leaf.
8. Intellectual property and innovation
Innovation is why PureCircle is the market leader in the stevia
industry. PureCircle's continuous investment in research,
development and innovation (RD&I) must be protected by robust
intellectual property (IP) strategies, including obtaining patents
and protecting other forms of IP, to help sustain and grow the
Company's position in an ever-competitive market.
9. Manufacturing capacity
PureCircle is a potentially fast growing company with production
chain covering both extraction and refinery activities. It is
imperative that our capacity keeps up with increasing customer
demand.
In addition, the Group needs to maintain reasonably accurate
sales forecasts to facilitate the planning for manufacturing
capacity, purchasing needs and inventory holding levels.
The ability to manufacture however, is subject to available
capacity and raw material extract to produce the required product
according to customer's requirements at specified volumes.
Our manufacturing capacity is dependent on process and product,
and was built in anticipation of growth and increased market
demand. Overall in FY2019, our refinery capacity utilisation is
approximately 65% to 75% and we are currently running on full
capacity in H2 FY2020. In addition, we are also purchasing certain
products externally, on an exceptional approval basis, to close off
any potential supply gaps.
Subsequent to FY2019, Manufacturing is re-processing by-products
to produce certain types of intermediary/ finished goods. This is a
temporary shift in production plan to meet the current shortage of
raw materials and excess demand in the market.
Management will continue to monitor the situation and adjust its
production plan, in order to achieve better efficiency in capacity
usage and to produce intermediary/ end-products that will yield
better margins and cash flow.
10. Managing quality
PureCircle is committed towards manufacturing safe products that
meets legal and regulatory compliance.
PureCircle sites are committed towards continuous improvement of
quality objectives.
Directors' responsibility statement
The consolidated financial statements included in this
preliminary announcement have been extracted from the Annual Report
for the year ended 30 June 2019. The Annual Report contains a
responsibility statement in the following form:
Each of the Directors confirm that, to the best of their
knowledge:
-- the Group financial statements, which have been prepared in
accordance with IFRS, give a true and fair view of the assets,
liabilities, financial position and profit of the Group; and
-- the Directors' Report includes a fair review of the
development and performance of the business and the position of the
Group, together with a description of the principal risks and
uncertainties that is faces.
In the case of each Director in office at the date the
Directors' Report is approved:
-- so far as the Director is aware, there is no relevant audit
information of which the Group's auditors are unaware; and
-- they have taken all the steps that they ought to have taken
as a Director in order to make themselves aware of any relevant
audit information and to establish that the Group's auditors are
aware of that information.
On behalf of the Board
Lai Hock Meng Lim Kian Thong
Chief Executive Officer Chief Financial Officer
APPIX
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2019
Group
Note 30.06.2019 30.06.2018 01.07.2017
(Restated*) (Restated*)
USD'000 USD'000 USD'000
ASSETS
NON-CURRENT ASSETS
Intangible assets 8 47,564 64,132 54,710
Property, plant and equipment 9 95,294 100,115 90,627
Prepaid land lease payments 10 1,794 2,408 2,439
Deferred tax assets 11 2,221 10,223 10,464
Trade receivables - - 279
Other receivables, deposits
and prepayments 14 - 410 935
----------- ------------ ------------
146,873 177,288 159,454
CURRENT ASSETS
Inventories 12 89,242 115,487 105,228
Trade receivables 13 40,266 48,001 52,925
Other receivables, deposits
and prepayments 14 6,893 8,074 8,720
Tax recoverable 1,512 253 109
Restricted cash 16 215 52 252
Cash and cash equivalents 16 25,460 23,935 32,744
Financial assets at fair
value through
profit or loss 17 1,748 - -
----------- ------------ ------------
165,336 195,802 199,978
-----------
TOTAL ASSETS 312,209 373,090 359,432
=========== ============ ============
EQUITY AND LIABILITIES
EQUITY
Share capital 18 18,436 17,428 17,371
Share premium 19 259,999 225,504 222,284
Foreign exchange
translation reserve 20 (20,135) (14,006) (22,529)
Share-based payment reserve 21 2,099 2,167 3,719
Accumulated losses (100,922) (20,926) (19,264)
-----------
TOTAL EQUITY 159,477 210,167 201,581
=========== ============ ============
* Refer to Note 34.
30.06.2019 30.06.2018 01.07.2017
(Restated*) (Restated*)
USD'000 USD'000 USD'000
NON-CURRENT LIABILITIES
Deferred tax liabilities 11 3 1,102 3,574
Long-term borrowings - - 39,000
Other payables and accruals 24 403 598 567
Derivative financial instruments 32 1,446 - -
----------- ------------ ------------
1,852 1,700 43,141
CURRENT LIABILITIES
Short-term borrowings 22 94,271 122,092 78,735
Trade payables 23 33,190 20,529 11,055
Other payables and accruals 24 23,285 18,167 24,521
Income tax liabilities 134 435 399
----------- ------------ ------------
150,880 161,223 114,710
----------- ------------ ------------
TOTAL LIABILITIES 152,732 162,923 157,851
----------- ------------ ------------
TOTAL EQUITY AND LIABILITIES 312,209 373,090 359,432
=========== ============ ============
* Refer to Note 34.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEARED 30 JUNE 2019
Note 2019 2018
(Restated*)
USD'000 USD'000
Revenue 30 124,003 126,601
Cost of sales (122,758) (88,320)
------------------- ---------------------
Gross profit 1,245 38,281
Administrative expenses (34,477) (34,813)
Other income 27 5,665 2,385
Other expenses 27 (11,744) (2,046)
Impairment on leaf development 27 (13,919) -
Impairment on product development 27 (1,760) -
Specific provision on trade
receivables 27 (1,834) -
Expected credit loss on trade
receivables 27 (892) -
Expected credit loss on other
receivables 27 (3,807) -
Finance income 27 215 116
Finance costs 27 (11,015) (7,355)
Share of gain/(loss) in joint venture 80 (14)
------------------- ---------------------
Loss before taxation 26 (72,243) (3,446)
Taxation 25 (7,430) 1,784
------------------- ---------------------
Loss for the financial year (79,673) (1,662)
Other comprehensive income (net of
tax):
Items that may be reclassified
subsequently to profit or loss:
Exchange differences arising on
translation of foreign operations (6,129) 8,523
Total comprehensive (loss)/income
for the financial year (net of tax) (85,802) 6,861
=================== =====================
Loss for the financial year
Attributable to:
Owners of the company (79,673) (1,662)
=================== =====================
Total comprehensive (loss)/income
Attributable to:
Owners of the company (85,802) 6,861
=================== =====================
Loss per share (US cents)
- Basic 28 (45.32) (0.95)
- Diluted 28 (45.32) (0.95)
*Refer to Note 34
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEARED 30 JUNE 2019
_____ Attributable to owners of the Company
Foreign
exchange Share-based
Share Share translation payment Accumulated Total
capital premium reserve reserve losses equity
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Group
Balance at 01.07.2018 17,428 225,504 (14,155) 2,167 (4,498) 226,446
Impact of correction, net of tax* - - 149 - (16,428) (16,279)
Balance at 01.07.2018 (Restated*) 17,428 225,504 (14,006) 2,167 (20,926) 210,167
Adjustment on adoption of IFRS9** - - - - (323) (323)
Balance at 01.07.2018 (Restated
after IFRS9*) 17,428 225,504 (14,006) 2,167 (21,249) 209,844
Loss for the financial year - - - - (79,673) (79,673)
Exchange difference
arising on translation
of foreign operations - - (6,129) - - (6,129)
Change in fair value of - - - - - -
derivative
-------- -------- ------------ ---------------- ---------------- ---------
Total comprehensive
loss for the financial year - - (6,129) - (79,673) (85,802)
Transactions with owners:
-------- -------- ------------ ---------------- ---------------- ---------
Share awards scheme
compensation expense
for the financial year - - - 2,291 - 2,291
Exercise of share awards 58 2,301 - (2,359) - -
Issuance of share capital, net
of transaction costs 950 32,194 - - - 33,144
-------- -------- ------------ ---------------- ---------------- ---------
1,008 34,495 - (68) - 35,435
Balance at 30.06.2019 18,436 259,999 (20,135) 2,099 (100,922) 159,477
======== ======== ============ ================ ================ =========
* Refer to Note 34.
** Refer to Note 33
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE FINANCIAL YEARED 30 JUNE 2019
Attributable to owners of the
Company
Foreign
exchange Share-based
Share Share translation payment Accumulated Total
capital premium reserve reserve losses equity
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Group
Balance at 01.07.2017
(Previously stated) 17,371 222,284 (22,531) 3,719 (13,195) 207,648
Impact of correction,
net of tax* - - 2 - (6,069) (6,067)
Balance at 01.07.2017
(Restated*) 17,371 222,284 (22,529) 3,719 (19,264) 201,581
Loss for the financial
year - - - - (1,662) (1,662)
Other comprehensive - - - - - -
income
Exchange difference
arising on translation
of foreign operations - - 8,523 - - 8,523
---------- ---------- --------------- ------------------ ------------------- ---------
Total comprehensive
income
for the financial year
(Restated*) - - 8,523 - (1,662) 6,861
Transactions with
owners:
---------- ---------- --------------- ------------------ ------------------- ---------
Share awards scheme
compensation expense
for the financial
year - - - 1,725 - 1,725
Exercise of share
awards 57 3,220 - (3,277) - -
57 3,220 - (1,552) - 1,725
Balance at 30.06.2018
(Restated*) 17,428 225,504 (14,006) 2,167 (20,926) 210,167
========== ========== =============== ================== =================== =========
* Refer to Note 34.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEARED 30 JUNE 2019
Note 2019 2018
(Restated*)
USD'000 USD'000
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before taxation (72,243) (3,446)
Adjustments for:
Amortisation of prepaid land lease
payments 10 101 162
Amortisation of deferred income (101) (73)
Amortisation of intangible assets 8 2,606 1,554
Depreciation of property, plant and
equipment 9 8,178 8,311
Interest expense 7,183 6,070
Amortisation of borrowing transaction
cost 2,386 1,170
Fair value loss on interest rate swaps 1,446 -
Interest income (215) (116)
Gain on disposal of property, plant
and equipment (7) (1)
Gain on disposal of prepaid land lease (134) -
Share-based payment expense 21 2,291 1,725
Compensation of termination on R&D
project 27 (5,500) -
Write off of intangible assets 8 2,500 6
Impairment of leaf development 8 13,919 -
Impairment of product development 8 1,760 -
Inventories written off 816 224
Inventories written back - (25)
Write down of inventories to net realisable
value 19,668 -
Provision for slow-moving inventory 14,807 -
Provision for inventory obsolescence 29 (31)
Unrealised foreign exchange loss/(gain) 1,692 (3,006)
Share of (gain)/ loss in joint venture 7 (80) 14
Property, plant and equipment written
off - 27
Other receivables written off - 519
Provision for doubtful debts - 381
Specific provision on trade receivables 27 1,834 -
Expected credit loss on trade receivables 27 892 -
Expected credit loss on other receivables 27 3,807 -
----------- --------------------
Operating cash flow before working
capital changes 7,635 13,465
Increase in inventories (9,075) (10,427)
Decrease in trade and other receivables 4,289 7,791
Increase in trade and other payables 17,563 5,097
----------- --------------------
NET CASH FROM OPERATIONS 20,412 15,926
* Refer to Note 34.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEARED 30 JUNE 2019
Note 2019 2018
(Restated*)
USD'000 USD'000
Interest received 215 116
Interest paid (7,282) (6,133)
Tax paid (1,919) (491)
Tax refund 44 -
Transaction cost paid for loan arrangement (220) (6,577)
----------- --------------------
NET CASH GENERATED FROM OPERATING
ACTIVITIES 11,250 2,841
----------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in investment in joint venture 7 (204) (342)
Addition of intangible assets 8 (5,877) (7,029)
Purchase of property, plant and equipment 9 (5,629) (16,054)
Proceeds from disposal of property,
plant
and equipment 51 13
Proceeds from disposal of prepaid land
lease 530 -
Proceeds from government grant - 460
Compensation received from a R&D partner 1,830 -
Placement with financial assets at
fair value through
profit or loss 17 (1,748) -
----------- --------------------
NET CASH USED IN INVESTING ACTIVITIES (11,047) (22,952)
----------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Drawdown of borrowings 10,000 208,726
Repayment of borrowings (40,000) (202,320)
Proceeds from private placement 33,144 -
Decrease in restricted cash (163) 200
----------- --------------------
NET CASH GENERATED FROM
FINANCING ACTIVITIES 2,981 6,606
----------- --------------------
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 3,184 (13,505)
Effects of foreign exchange rate changes
on cash and cash equivalents (1,659) 4,696
CASH AND CASH EQUIVALENTS
AT BEGINNING OF THE FINANCIAL YEAR 23,935 32,744
CASH AND CASH EQUIVALENTS
----------- --------------------
AT OF THE FINANCIAL YEAR 16 25,460 23,935
=========== ====================
* Refer to Note 34.
The net cash outflow for the purchases of property, plant and equipment
during the financial
is as follows:
Group
2019 2018
USD'000 USD'000
Additions for the financial year 5,710 13,593
Payment made for previous year additions 420 3,207
Amount not yet due for payment (371) (420)
Interest expense categorised in capital
work in
progress (130) (326)
---------- ------------
Total cash payments during the financial
year 5,629 16,054
---------- ------------
Reconciliation of bank borrowings Group
arising from
financing activities:
2019 2018
USD'000 USD'000
As at 1 July 122,092 117,735
Cash impact
Drawdown 10,000 208,726
Principal and interest payment (40,000) (202,320)
Transaction cost (379) (6,577)
Non-cash impact:
Amortisation of transaction costs 2,386 1,170
Foreign exchange movement 172 3,358
As at 30 June 94,271 122,092
========== ============
Additions in intangible assets during 2018 included consideration
of USD970,000 for the purchase of intellectual property and USD763,000
incurred in relation to development costs. During 2019, no such
costs were incurred.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FINANCIAL YEARED 30 JUNE 2019
1 GENERAL INFORMATION
T he 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 : 200 West Jackson Blvd.
8(th) Floor
Chicago, IL 60606
The Company's shares are publicly traded on the Main Market of
the London Stock Exchange.
In the financial statements, "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
31 March 2020.
The prior period financial position and comprehensive income
have been restated to correct errors with respect of revenue,
inventory and cost of goods sold. The restatement had a related
impact to other payables, tax expense and deferred tax. Although
there was no impact to our actual cash generation, the Group has
restated the statement of cash flows to reflect the impact of these
changes on profit and other relevant financial statement line
items. Please refer to Note 34 for additional details.
2 PRINCIPAL ACTIVITIES
The Group is engaged principally in the business of production,
marketing and distribution of natural ingredients including
sweeteners and flavours.
There are 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 Note 7 of the
consolidated financial statements and Note 3 of the company
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 2019. The report of the auditor on those Group
Financial Statements was qualified and did contain an emphasis of
matter paragraph with respect to going concern. These consolidated
financial statements do not constitute statutory accounts within
the meaning of the Bermuda Companies Act 1981.
The Group has prepared its consolidated financial statements in
accordance with International Financial Reporting Standards
("IFRS") and IFRS Interpretations Committee ("IFRS IC")
Interpretations. The accounting policies are consistent with those
described in the Annual Report and Group financial statements
2019.
The financial information contained in this preliminary
announcement has been prepared on the going concern basis. Details
of the factors which have been taken into account in assessing the
Group's going concern status are set out within the Financial
Review and below.
The Group's strategy to market innovative stevia products has
required significant upfront investment in research and
development, along with production facilities, which have been
funded via a mix of equity and a senior debt facility consisting of
a term loan and revolving credit facility. Sales have not however
grown in line with expectations following the completion of the
refinery expansion, with gearing levels rising as leaf continued to
be purchased, processed and held on the balance sheet.
Throughout the 2019 financial year, the Group held significant
levels of cash and additional liquidity was available via the
revolving credit facility. Nonetheless the directors closely
monitored the covenants under the facility and took proactive
necessary action to reset the covenants in September 2018 and May
2019 to ensure the Group remained in compliance during the relevant
periods. In May 2019 further equity was raised to allow the Group
to accelerate its capital expenditure project plans. However, the
amounts raised were not sufficient to fund the full extent of the
plans and much of the proceeds were used to pay down the term
loan.
During 2019, a sales shortfall, together with lower than
expected margins, led to a deterioration in EBITDA and a
non-compliance with the facilities' covenant tests as at the 30
June 2019 covenant test. As set out in the Chairman's Review, the
subsequent identification of an issue in the inventory cost
allocation methodology, along with the incorrect recording of sales
over year ends, lead to the Group's profitability being reassessed
downwards and the prior year results also being restated.
Accordingly, as at 30 June 2019 while the Group had cash on hand
and sufficient liquidity to meet its immediate needs, the Group was
in default on the senior debt facility and the available undrawn
committed facility was no longer available to be drawn down.
Owing to the breach in covenants in both FY19 and FY18, the term
loan and the revolving credit facility have been reclassified as
current debt accordance with terms in the facility agreement.
On 18 February 2020, the Group secured an approval from its
lenders from its lenders for Waivers and Amendments to its Senior
Facility Agreement ("Waivers and Amendments") that provides a
waiver for all past breaches of covenants up to and including 31
December 2019. In addition, all lenders have also agreed to amend
the covenants for the year period 31 March 2020 and 30 June 2020
respectively.
As a show of continued support, certain substantial shareholders
also made available USD8,600,000 via an unsecured subordinated loan
which provided additional immediate liquidity to cover ongoing
expenses and settle unplanned punitive consultancy professional
fees.
Under the terms of the Waivers and Amendments the Group will be
able to have access to the revolving credit facility following the
receipt of the audited Financial Statements. The Group did not
satisfy all of the conditions of the agreement but this was
subsequently waived on 27 March 2020. The facility also contains
certain other conditions and potential events of default. The
Directors are making every effort to lift the suspension of shares
of the Group but there is a risk this may not occur by 30 April
2020 as required under the amended facility covenant. Additionally,
the Directors projections indicate that the reset June 2020
covenants are likely to be breached.
While the transition to new higher yielding stevia leaf
varieties and a delay in securing new customers for its higher
margin products remains a constraint, the Directors believe the
underlying operating business is profitable and will be able to
generate positive operating cashflows. Notwithstanding this, the
directors note the inherent difficulty in forecasting sales in a
rapidly evolving marketplace, against the backdrop of the impact of
COVID-19 on demand and global supply chains, and the impact of any
further quarantine measures on the Group's facilities. Accordingly
there is a risk that the Group will not be able to maintain
sufficient cash balances throughout the period.
The Directors have considered the risks associated with upcoming
repayment obligations for the Group's senior debt facility. The
facility will mature on 30 November 2020. The Directors are
actively exploring and considering various refinancing options,
including securing a definitive new equity infusion, full debt
refinancing or sale and leaseback of the refinery plant facilities
as alternatives to raise cash to fund the business and operations.
Bearing in mind that in the absence of any committed external funds
over the next 8 months, there is a risk that that Group may not be
able to repay the facility at maturity.
There are therefore significant risks that the Group will not be
able to maintain access to its lending facility and otherwise meet
its obligations as they fall due. Together, these matters indicate
the existence of a material uncertainty with which may cast
significant doubt about the Group's ability to continue as a going
concern.
The financial statements do not include the adjustments that
would result if the Group was unable to continue as a going
concern.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed in Note 6.
(a) New accounting standards, amendments and interpretations
The Group has applied IFRS 9 Financial Instruments and IFRS 15
Revenue from Contracts with Customers for the first time for the
financial year beginning on 1 July 2018. The nature and effect of
the changes as a result of adoption of these new accounting
standards are described in Note 33.
The Group has early adopted the amendments to IFRS 9 'Financial
Instruments,' which relates to interbank offered rates (IBORs)
reform and was endorsed by the EU on 6 January 2020. The Group has
assessed the exposure and maturity profile of its financial
instruments that are exposed to IBOR. Based on the impact
assessment, the IBOR reform is not applicable to the Group's
derivative financial instruments as the Group has no hedge
accounting. Group has considered the IBOR transition plan. This
transition project will include changes to processes, risk and
valuation models, as well as managing related tax and accounting
implications wherever applicable. Group currently anticipates that
the areas of greatest change will be amendments to the contractual
terms of loans which are LIBOR linked however as IBOR reform is
expected to develop further during 2020, Group will continue to
monitor this and will have the necessary arrangements in place
through its financial institutions.
Certain new accounting standards and interpretations have been
published that are not mandatory for 30 June 2019 reporting periods
and have not been adopted earlier by the Group. The Group's
assessment of the impact of these new standards and interpretations
is set out below.
(b) Standard that has been issued and is applicable to the Group but is not yet effective:
The Group will apply the new standard in the following
period:
(i) Financial year beginning on 1 July 2019
IFRS 16 Leases
IFRS 16 "Leases" supersedes IAS 17 "Leases" and the related
interpretations. IFRS 16 eliminates the classification of leases by
the lessee as either finance leases or operating leases. IFRS 16
introduces a single accounting model, requiring the lessee to
recognise the "right-of-use" of the underlying asset and the lease
liability reflecting future lease payment liabilities in the
statement of financial position. The right-of-use asset is
depreciated in accordance with the principles in IFRS 116
"Property, Plant and Equipment" and the lease liability is accreted
over time with interest expense recognised in the statement of
comprehensive income.
The Group will adopt IFRS 16 retrospectively from 1 July 2019,
via the simplified transition approach and will therefore not
restate the comparatives for the 2018 reporting period, as
permitted under the specific transitional provisions in the
standard. The reclassifications and the adjustments arising from
the new leasing rules will therefore be recognised in the opening
consolidated statement of financial position on 1 July 2019.
Key judgements and estimates made in calculating the initial
impact of adoption include assessing whether arrangements contain a
lease, determining the lease term, and calculating the discount
rate. The lessee's incremental borrowing rate to be applied to the
lease liabilities on 1 July 2019 will be a range of 4.0% to
12.1%.
On adoption of IFRS 16, the Group will recognise lease
liabilities in relation to leases which had previously been
classified as "operating leases" under the principles of IAS 17.
These liabilities are measured at the present value of the
remaining lease payments.
On a lease-by-lease basis, the Group measures the associated
right-of-use asset on a retrospective basis either at its carrying
amount as if the new rules had always been applied or at the amount
equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments relating to that lease recognised in the
statement of financial position as at 30 June 2019.
In applying IFRS 16 for the first time, the Group will apply the
following practical expedients:
a) The use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
b) Reliance on previous assessments on whether leases are onerous;
c) The accounting for operating leases with remaining lease
terms of less than 12 months as short term leases as at the date of
initial application;
d) The exclusion of initial direct costs for the measurement of
the right-of-use assets at the date of initial application; and
e) The use of hindsight in determining the lease terms where the
contracts contain options to extend or terminate the leases. The
Group has also elected not to reassess whether a contract is, or
contains a lease at the date of initial application. Instead, for
contracts entered into before the transition date, the Group relied
on its assessment made by applying IAS 17 and IFRIC 4 "Determining
whether an Arrangement contains a Lease".
The Group will recognise new assets and liabilities for its
operating leases of warehouses, offices, apartments, gas tanks,
laptops, and photocopiers. Based on the information currently
available, the Group estimates that it will recognise lease
liabilities equal to the right-of-use assets equal to the lease
liabilities of USD 5,408,138 upon initial adoption as follows:
2019
USD'000
Operating lease commitments disclosed as at 30
June 2019 5,534
Less: Discounted using the lessee's incremental
borrowing rate of at the
date of initial application (1,429)
Less: Short-term leases recognised on a straight-line
basis as expense (43)
Add: Adjustments as a result of a different treatment
of extension
options 1,346
---------
Lease liabilities recognised as at 1 July 2019 5,408
=========
In light of the impairment recorded during the year, the
Group has considered the recoverable amount of the CGU that
retains the right of use ("ROU") assets and has concluded
that there is no impairment required on the ROU assets.
Of which are:
Current lease liabilities 1,325
Non-current lease liabilities 4,083
---------
5,408
=========
Upon the adoption of IFRS 16, there will be an immaterial
benefit to operating profit and a corresponding increase in finance
expense from the presentation of a portion of lease costs as
interest costs. Profit before tax and earnings per share are not
expected to be significantly impacted. The adoption of IFRS 16 will
have no impact on the Group's cash flows except to present
principal lease cash outflows as financing, instead of
operating.
There are no other standards that are not yet effective and that
would be expected to have a material impact on the entity in the
current or future reporting periods and on foreseeable future
transactions.
4 FINANCIAL RISK MANAGEMENT
The Group has exposure to the following risks:
-- Credit risk
-- Liquidity risk
-- Market risk
Financial Risk Management Framework
The Group's risk management is predominantly controlled by a
central treasury department (Group treasury) under policies
approved by the board of directors. Group treasury identifies,
evaluates and hedges financial risks in close cooperation with the
Group's operating units. The board provides written principles for
overall risk management, as well as policies covering specific
areas, such as foreign exchange risk, interest rate risk, credit
risk, use of derivative financial instruments and non-derivative
financial instruments, and investment of excess liquidity.
(a) Credit risk
Credit risk is the risk that arises from cash and cash
equivalents, contractual cash flows of debt investments carried at
amortised cost and at fair value through profit or loss (FVPL),
favourable derivative financial instruments and deposits with banks
and financial institutions, as well as credit exposures to
wholesale and retail customers, including outstanding receivables
if a customer or counter party to a financial instrument fails to
meet its contractual obligations.
(i) Risk management
Credit risk is managed on a Group basis. For banks and financial
institutions, only independently rated parties with a minimum
rating of 'A' are accepted.
(ii) Security
For some trade receivables, the Group may obtain security in the
form of guarantees, deeds of undertakings or letters of credit
which can be called upon if the counterparty is in default under
the terms of the agreement.
(iii) Impairment of financial assets
The Group's trade receivables for sales of inventory are valued
using the expected credit loss model.
While cash and cash equivalents are also subject to the
impairment requirements of IFRS 9 (see Note 33), the identified
impairment loss was immaterial. The measurement of expected credit
losses is a function of the probability of default, loss given
default (i.e. the magnitude of the loss after recovery if there is
a default) and the exposure at default (i.e. the asset's carrying
amount). Probabilities of default derived from historical, current
and future-looking market data are assigned by credit risk rating
with a loss given default based on historical experience and
relevant market and academic research applied by exposure type.
Experienced credit judgement is applied to ensure probabilities of
default are reflective of the credit risk associated with the
Group's exposures.
Trade receivables
The Group applies the IFRS 9 simplified approach and records
lifetime expected credit losses for all trade receivables. The
carrying value of all trade receivables recorded at amortised cost
is reduced by allowances for lifetime estimated credit losses.
Credit risk is being managed by verifying a customer's
creditworthiness and financial strength both before commencing
trade and during the business relationship. Credit losses on
receivables due from global key accounts are not significant as
these customers are mainly large and financially strong customers
and therefore there is a lower risk of default. The default rates
are computed based on historical loss experience. There has been no
significant change in our customer base and customer profile.
The expected credit loss rates are measured using historical
cash collected data for period of 24 months from 1 July 2017 to 30
June 2019. The historical loss rates are adjusted where
macroeconomic factors, for example changes in interest rates or
unemployment rates, or other commercial factors are expected to
have a significant impact when determining the future expected
credit loss rate.
The expected credit loss allowance as at 30 June 2019 and 1 July
2018 (on adoption of IFRS 9) was determined as follows for trade
receivables:
More than More than More than
30 days 60 days 120 days
30 June 2019 Current past due past due past due Total
Expected loss rate 0.6% 5.7% 11.7% 72.0%
Trade receivables
- Carrying amount 38,289 1,272 667 1,467 41,695
- Loss allowances 223 72 78 1,056 1,429
-------- ---------- ---------- ---------- -------
- Net carrying amount 38,066 1,200 589 411 40,266
======== ========== ========== ========== =======
More than More than More than
30 days 60 days 120 days
1 July 2018 Current past due past due past due Total
Expected loss rate 0.2% 2.3% 14.8% 21.3%
Trade receivables
- Carrying amount 43,860 845 1,322 2,485 48,512
- Loss allowances 87 20 196 530 833
-------- ---------- ---------- ---------- -------
- Net carrying amount 43,773 825 1,126 1,955 47,679
======== ========== ========== ========== =======
The closing loss allowanced for trade receivables as at 30 June
2019 reconciles to the opening loss allowances as follows:
2019 2018
USD'000 USD'000
30 June - calculated under IAS39 510 1,365
Amounts restated through opening retained
earnings 323 -
-------- --------
Opening loss allowance as at 1 July 2018
-
calculated under IFRS 9 833 1,365
Increase in loss allowance recognised
in profit or
loss during the year 892 381
Write off provision on trade receivables
against trade
receivables (296) (1,236)
As at 30 June 1,429 510
======== ========
Trade receivables are written off when there is no reasonable
expectation of recovery. The Group considered that there is
evidence that receivables should be written off if any of the
following indicators are present:
-- the failure of a debtor to engage in a repayment plan;
-- significant financial difficulties of the debtor;
-- probability that the debtor will enter bankruptcy or financial reorganisation, and
-- default or late payments (more than 360 days overdue).
Expected credit losses on trade receivables are presented as net
expected credit losses within operating profit. Subsequent
recoveries of amounts previously written off are credited against
the same line item.
In addition to the above, there was USD1,834,000 in specific
provisions due to disputes with customers in which management
believes the outstanding receivables may not be recoverable.
Sensitivity to changes in assumptions
The Group has considered whether past performance will be
reflective of future performance and determined that no significant
change in the payment profile or recovery rates within each
identified group of receivables is expected. The Group reviews and
updates default rate by trade receivables grouping of global key
accounts and regional key accounts, on a regular basis to ensure
they incorporate the most up to date assumptions along with
forward-looking information where available and relevant. The Group
has determined that the industrial production index is the most
closely correlated indicator of our business.
This approach is considered appropriate as the Group's
outstanding trade receivable balance is mainly comprised of
reputable customers with strong credit ratings. expected credit
losses on trade receivables are also sensitive to macroeconomic
events. In order to test sensitivity to changes in the debt
profile, the Group has considered the impact of further credit
deterioration of these balances and determined that if half of the
unprovided for debts with more than 120 days overdue were to remain
unpaid, the additional credit loss recognisable by the Group would
be up to USD273,000.
Previous accounting policy for impairment of trade
receivables
In the prior year, the expected credit loss on trade receivables
was assessed based on the incurred loss model. Individual
receivables which were known to be uncollectible were written off
by reducing the carrying amount directly.
Receivables for which an expected credit loss provision was
recognised were written off against the provision when there was no
expectation of recovering additional cash.
(b) Liquidity risk
Liquidity risk is the risk that suitable sources of funding for
the Group's business activities may not be available and therefore
includes an element of cash flow risk in that the Group may not be
able to meet future debt covenants while also meeting its
operational requirements. The Group's approach to managing
liquidity is to ensure that it maintains sufficient cash and has
funding available through an adequate amount of committed credit
facilities to meet obligations when due.
Management monitors rolling forecasts of the Group's liquidity
reserve (comprising the undrawn borrowing facilities below) and
cash and cash equivalents (Note 6(iv)) on the basis of expected
cash flows. This is generally carried out at local level in the
operating companies of the Group in accordance with practice and
limits set by the Group. These limits vary by location to take into
account the liquidity of the market in which the entity operates.
In addition, the Group's liquidity management policy involves
projecting cash flows in major currencies and considering the level
of liquid assets necessary to meet these, monitoring balance sheet
liquidity ratios against internal and external regulatory
requirements and maintaining debt financing plans.
(i) Financing arrangements
The Group had access to the following undrawn borrowing
facilities at the end of the reporting period:
2019 2018
USD'000 USD'000
Expiring within one year (revolving
credit facility) 65,000 65,000
Given that the Group was in breach of covenants as at 30 June
2019, the undrawn amounts would not have been readily available for
future drawdown. The same would have been true for the period ended
30 June 2018 had the Group been aware of the prior period
adjustments discussed in Note 34. Before considering these
breaches, the bank loan facilities had an average maturity of 1.49
years (2018: 2.9 years). The revolving credit facility, which USD65
million is currently drawn, comes due in November 2020.
(ii) Maturities of financial liabilities
The following are the remaining contractual maturities of
financial liabilities at the reporting date. The amounts are gross
and undiscounted, and include contractual interest payments and
exclude the impact of netting agreements.
The tables below analyses the Group's financial liabilities into
relevant maturity groupings based on their contractual maturities
for:
(a) All non-derivative financial instruments, and
(b) Net and gross settled derivative financial instruments for
which the contractual maturities are essential for understanding
the timing of the cash flows.
The amounts disclosed in the table are the contractual
undiscounted cash flows. Balances due within 12 months equal their
carrying balances as the impact of discounting is not significant.
For interest rate swaps, the cash flows have been estimated using
forward interest rates applicable at the end of the reporting
period.
Within More than More than
Total contractual 1 year 1 but 2 but
Carrying undiscounted or on less than less than More than
amount cash flows demand 2 years 5 years 5 years
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
At 30 June 2019
Financial liabilities:
Trade and other
payables (exclude
deferred income) 56,438 56,438 56,438 - - -
Borrowings* 94,271 94,271 94,271 - - -
Derivatives
financial liabilities 1,446 1,469 635 654 180 -
========== ================== ============== =========== =========== =============
At 30 June 2018
Financial liabilities:
Trade and other
payables (exclude
deferred income) 38,759 38,759 38,759 - - -
Borrowings* 122,092 122,092 122,092 - - -
========== ================== ============== =========== =========== =============
* Due to the breach in covenants in both FY19 and FY18, the term
loan and the revolving credit facility have been reclassified as
current borrowings in accordance with terms in the facility
agreement.
(c) Market risk
Market risk is the risk that changes in market prices - e.g. raw
material price, foreign exchange rates, interest rates and equity
prices which will affect the Group's income or the value of its
holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposures within
acceptable parameters, while optimising the return. Risk in raw
materials relate to the leaf price which the Group is managing
through a range of contractual prices set with the farmers.
The major components of market risk are foreign currency
exchange risk and interest rate risk, each of which is discussed
below.
The US dollar denominated bank loans are expected to be repaid
with receipts from US dollar denominated sales. The foreign
currency exposure of these loans has therefore not been hedged.
The Group faces the following two risks. Mitigation strategies
are described in Note 4(d) below:
(i) Foreign exchange 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.
(ii) Cash flow and fair value interest rate risk
The Group's main interest rate risk arises from long-term
borrowings with variable rates, which expose the Group to cash flow
interest rate risk. Group policy is to maintain at least 50% of its
borrowings at fixed rate using floating-to-fixed interest rate
swaps to achieve this when necessary. Generally, the Group enters
into long-term borrowings at floating rates and swaps them into
fixed rates that are lower than those available if the Group
borrowed at fixed rates directly. The Group's borrowings at
variable rate were mainly denominated in US Dollars.
Instruments used by the Group
The fixed interest rates of the swaps range between 2.74% and
2.78% and the variable rates of the loans are LIBOR plus margin of
2.35% and 2.85%. The variable rates of the LIBOR was between 2.07%
to 2.52% (2018: 1.32% to 2.69%). The swap contracts require
settlement of net interest receivable or payable every 30 days. The
settlement dates coincide with the dates on which interest is
payable on the underlying debt.
(d) Financial risk management policies
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 program focuses on the
unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group's financial performance.
(i) Foreign currency risk
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 of financial
instruments to a reasonably possible change in foreign currencies
exchange rates, with all other variables held constant of the
Group's result:
Changes in Effect on
exchange profit/loss
rate after taxation
USD'000
2019
Ringgit Malaysia against United States
Dollar 10% 477
Chinese Renminbi against United States
Dollar 10% 154
Pound Sterling against United States
Dollar 10% 1,977
Euro against United States Dollar 10% 26
Mexican Peso against United States Dollar 10% 700
Pound Sterling against Euro 10% 123
2018 (*Restated)
Ringgit Malaysia against United States
Dollar 10% 169
Chinese Renminbi against United States
Dollar 10% 5
Pound Sterling against United States
Dollar 10% 1,229
Euro against United States Dollar 10% 2
Mexican Peso against United States Dollar 10% 821
Sterling Pound against Euro 10% 693
=========== ================
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:
2019 2018
United States Ringgit Chinese Pound United States Ringgit Chinese Pound
Dollars Malaysia Renminbi Euro Sterling Dollars Malaysia Renminbi Euro Sterling
USD MYR RMB EUR GBP USD MYR RMB EUR GBP
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Group
Cash and cash
equivalents 1,475 167 3,024 275 916 2,223 2,612 206 293 24
Trade
receivables 18,951 452 - 897 - 19,854 174 - 7,371 -
Trade
payables 1,940 - - - - 93 121 - - -
Other
receivables,
deposits
and
prepayments 382 1,074 12 45 - 1,020 2,570 - 395 8
Other
payables and
accruals 206 604 - 576 5,679 38 734 - 243 -
(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:
2019 2018 2019 2018
Effective Effective
interest interest
rate (%) rate (%) USD'000 USD'000
Term loans 5.39 4.65 94,271 122,092
========== ========== ======== ========
Borrowings issued at variable rates expose the Group to cash
flow interest rate risk which is partially offset by cash held at
variable rates. USD55,740,000 (2018: USD82,500,000) from term loan
have been swapped under such an arrangement. Refer Note 4(c)(ii)
for more details on interest rate risk.
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 financial year would be USD942,710
lower/higher (2018: USD1,220,920 lower/higher), mainly as a result
of higher/lower interest expense on floating rate borrowing.
(e) Derivatives
The group has the following derivative financial
instruments:
2019 2018*
USD'000 USD'000
Non-current liabilities
Interest rate swaps ("IRS") 1,446 -
======== ========
*IRS was entered on 29 June 2018 and the fair value was
immaterial to be disclosed as at 30 June 2018
(i) Classification of derivatives
Derivatives are only used for economic hedging purposes and not
as speculative investments. They are presented as current assets or
liabilities to the extent they are expected to be settled within 12
months after the end of the reporting period.
The Group's accounting policy for derivative financial
instruments is set out in Note 5(aa). Further information about the
derivatives used by the Group is provided in Note 32.
(ii) Fair value measurement
For information about the methods and assumptions used in
determining the fair value of derivatives refer to Note 4(g).
(iii) Amounts recognised in profit or loss
During the year, the following amounts were recognised in profit
or loss in relation to changes in fair value of interest rate
swaps.
2019 2018
USD'000 USD'000
Profit or loss:
Amount recognised in finance costs 1,446 -
======== ========
(f) Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as a going concern while maximising
the return to shareholders through the optimisation of the debt and
equity balance.
The capital structure of the Group consists of debts, which
include the borrowings disclosed in Note 22, cash and cash
equivalents and equity attributable to equity holders of the
parent, comprising issued capital, share premium, reserves and
retained earnings.
The Group monitors capital on the basis of the gearing ratio.
The ratio is calculated as net debt divided by total equity.
The gearing ratio at the financial year end was as follows:
2019 2018
(Restated*)
USD'000 USD'000
Borrowings (i) 94,271 122,092
Less: Gross cash (ii) (25,675) (23,987)
Net debt (iii) 68,596 98,105
========= ============
Equity (iv) 159,477 210,167
========= ============
Net debt to equity ratio 43% 47%
========= ============
(i) Borrowings is disclosed in Note 22 to the financial statements.
(ii) Gross cash includes restricted cash and cash and cash
equivalents disclosed in Note 16 to the financial statements.
(iii) Net debt are calculated as total borrowings including
current and non-current borrowings are in the consolidated
statement of financial position less gross cash.
(iv) Equity includes all capital and reserves of the Group
attributable to the equity holders of the Company.
* Equity related to 2018 was restated. Refer to Note 34.
(g) Fair value estimation
Fair value is defined as the amount at which the
assets/liabilities could be exchanged in a current transaction
between knowledgeable willing parties in an arm's length
transaction, other than in a forced sale or liquidation. This
section explains the judgements and estimates made in determining
the fair values of the financial instruments that are recognised
and measured at fair value in the financial statements. To provide
an indication about the reliability of the inputs used in
determining fair value, the Group has classified its financial
instruments into the three levels prescribed under the accounting
standards.
The financial instruments carried at fair value are categorised
into different levels of the fair value hierarchy as follows:
-- Level 1: The fair value of financial instruments traded in
active markets (such as publicly traded derivatives, and equity
securities) is based on unadjusted quoted market prices at the end
of the reporting period. As at 30 June 2019, the Group does not
hold any Level 1 securities.
-- Level 2: The fair value of financial instruments that are not
traded in an active market (for example, over-the-counter
derivatives) is determined using valuation techniques which
maximise the use of observable market data and rely as little as
possible on entity-specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument
is included in Level 2.
-- Level 3: Inputs for the asset or liability that are not based
on observable market data (that is, unobservable inputs). As at 30
June 2019, the Group does not hold any Level 3 financial
instruments.
Specific valuation techniques used to value financial
instruments include:
-- Interest rate swaps were valued using the present value of
the estimated future cash flows based on observable yield curves;
and
-- Other financial assets recognised at fair value through
profit and loss were short term in nature (30 day investments) and
therefore cost was assumed to approximate the fair value.
All of the resulting fair value estimates are included in Level
2.
2019 2018
USD'000 USD'000
Level
Level 2 2
Financial assets
Financial assets at fair value through
profit and loss 1,748 -
======== ========
2019 2018*
USD'000 USD'000
Level
Level 2 2
Financial liability
Interest rate swaps ("IRS") 1,446 -
======== ========
*IRS was entered on 29 June 2018 and the fair value was
immaterial to be disclosed as at 30 June 2018.
There were no transfers between Level 1, Level 2 or Level 3
during the financial year (2018: Nil).
5 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of
the financial statements are set out below. These policies have
been consistently applied to all the financial years presented,
unless otherwise stated.
(a) Financial instruments
(i) Financial assets
Accounting policies applied from 1 July 2018
Financial assets are classified, at initial recognition, as
subsequently measured at amortised cost, fair value through other
comprehensive income (OCI), and fair value through profit or
loss.
The classification of financial assets at initial recognition
depends on the financial asset's contractual cash flow
characteristics and the Group's business model for managing them.
With the exception of trade receivables that do not contain a
significant financing component or for which the Group has applied
the practical expedient, the Group initially measures a financial
asset at its fair value plus, in the case of a financial asset not
at fair value through profit or loss, transaction costs. Trade
receivables that do not contain a significant financing component
or for which the Group has applied the practical expedient are
measured at the transaction price determined under IFRS 15.
In order for a financial asset to be classified and measured at
amortised cost or fair value through OCI, it needs to give rise to
cash flows that are 'solely payments of principal and interest
(SPPI)' on the principal amount outstanding. This assessment is
referred to as the SPPI test and is performed at an instrument
level.
The Group's business model for managing financial assets refers
to how it manages its financial assets in order to generate cash
flows. The business model determines whether cash flows will result
from collecting contractual cash flows, selling the financial
assets, or both.
Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention
in the marketplace (regular way trades) are recognised on the trade
date, i.e., the date that the Group commits to purchase or sell the
asset.
-- Classification
From 1 July 2018, the Group classifies its financial assets as
amortised cost or at fair value through profit and loss
('FVTPL').
-- Recognition and derecognition
Purchases and sales of financial assets are recognised on
trade-date, the date on which the Group commits to purchase or sell
the asset. Financial assets are derecognised when the rights to
receive cash flows from the financial assets have expired or have
been transferred and the Group has transferred substantially all
the risks and rewards of ownership.
-- Measurement
At initial recognition, the Group measures a financial asset at
its fair value plus, in the case of a financial asset not at fair
value through profit or loss, transaction costs that are directly
attributable to the acquisition of the financial asset. Transaction
costs of financial assets carried at FVTPL are expensed in profit
or loss.
Subsequent measurement of debt instruments depends on the
Group's business model for managing the asset and the cash flow
characteristics of the asset. The Group reclassifies debt
instruments when and only when its business model for managing
those assets changes.
There are two measurement categories into which the Group
classifies its debt instruments:
(i) Amortised cost
Assets that are held for collection of contractual cash flows
where those cash flows represent solely payments of principal and
interest ("SPPI") are measured at amortised cost. Interest income
from these financial assets is included in other income using the
effective interest method. Any gain or loss arising on
derecognition is recognised directly in profit or loss together
with foreign exchange gains and losses. Impairment losses are
presented as separate line item in the statement of comprehensive
income.
(ii) FVTPL
Assets that do not meet the criteria for amortised cost are
measured at FVTPL. The Group may also irrevocably designate
financial assets at FVTPL if doing so significantly reduces or
eliminates a mismatch created by assets and liabilities being
measured on different bases. Fair value changes are recognised in
profit or loss and presented net within other expenses in the
period which it arises.
-- Recognition and Measurement of Expected Credit Loss
For financial assets not measured at fair value, the Group
assesses on a forward-looking basis the expected credit loss
('ECL') associated with its debt instruments carried at amortised
cost. The impairment methodology applied depends on whether there
has been a significant increase in credit risk.
The Group has three types of financial instruments that are
subject to the ECL model:
- Trade receivables
- Other receivables and deposits
- Amounts owed from related companies
While cash and cash equivalents are also subject to the
impairment requirements of IFRS 9, the identified impairment loss
was immaterial.
ECL represent a probability-weighted estimate of the difference
between present value of cash flows according to contract and
present value of cash flows the Group expects to receive, over the
remaining life of the financial instrument.
The measurement of ECL reflects:
-- an unbiased and probability-weighted amount that is
determined by evaluating a range of possible outcomes;
-- the time value of money; and
-- reasonable and supportable information that is available
without undue cost or effort at the reporting date about past
events, current conditions and forecasts of future economic
conditions.
Expected credit losses are calculated using one or two
approaches.
(i) General 3-stage approach for other receivables and amounts owing from related companies
At each reporting date, the Group measures ECL through loss
allowance at an amount equal to 12 month ECL if credit risk on a
financial instrument or a group of financial instruments has not
increased significantly since initial recognition. For all other
financial instruments, a loss allowance at an amount equal to
lifetime ECL is required.
(ii) Simplified approach for trade receivables
The Group applies the IFRS 9 simplified approach to measure ECL
which uses a lifetime ECL for all trade receivables.
-- Write-off
(i) Trade receivables
Trade receivables are written off when there is no reasonable
expectation of recovery. Indicators that there is no reasonable
expectation of recovery include, amongst others, the failure of a
debtor to engage in a repayment plan with the Group, significant
financial difficulties of the debtor, probability that the debtor
will enter bankruptcy or financial reorganisation and default or
late payments (more than 360 days overdue).
Impairment losses on trade receivables are presented as net
impairment losses within operating profit. Subsequent recoveries of
amounts previously written off are credited against the same line
item.
(ii) Other receivables, deposits and amounts owing from related
companies
The Group writes off financial assets, in whole or in part, when
it has exhausted all practical recovery efforts and has concluded
there is no reasonable expectation of recovery. The assessment of
no reasonable expectation of recovery is based on unavailability of
debtor's sources of income or assets to generate sufficient future
cash flows to repay the amount. The Group may write-off financial
assets that are still subject to enforcement activity.
Accounting policies applied until 30 June 2018
-- Classification
The Group classifies its financial assets as loans and
receivables. The classification depends on the purpose for which
the financial assets were acquired. Management determines the
classification at initial recognition.
Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. If collection of the amounts is expected in one year or
less they are classified as current assets. If not, they are
presented as non-current assets. The Group's loans and receivables
comprise 'trade receivables', 'other receivables and deposits
(excluding prepayments and GST recoverable)', 'amounts owed from
subsidiaries', 'amounts owed from related companies', 'short term
deposits with licensed banks' and 'cash and bank balances' in the
statement of financial position.
-- Recognition and initial measurement
Regular purchases and sales of financial assets are recognised
on the trade-date, the date on which the Group commits to purchase
or sell the asset. Financial assets are initially recognised at
fair value plus transaction costs that are directly attributable to
the acquisition of the financial asset.
-- Subsequent measurement
Loans and receivable are subsequently carried at amortised cost
using the effective interest method.
-- Impairment
Assets carried at amortised cost
The Group assesses at the end of the reporting period whether
there is objective evidence that a financial asset or group of
financial assets is impaired. A financial asset or a group of
financial assets is impaired and impairment losses are incurred
only if there is objective evidence of impairment as a result of
one or more events that occurred after the initial recognition of
the asset (a 'loss event') and that loss event (or events) has an
impact on the estimated future cash flows of the financial asset or
group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the debtors
or a group of debtors is experiencing significant financial
difficulty, default or delinquency in interest or principal
payments, the probability that they will enter bankruptcy or other
financial reorganisation, and where observable data indicate that
there is a measurable decrease in the estimated future cash flows,
such as changes in arrears or economic conditions that correlate
with defaults.
The amount of the loss is measured as the difference between the
asset's carrying amount and the present value of estimated future
cash flows (excluding future credit losses that have not been
incurred) discounted at the financial asset's original effective
interest rate. The carrying amount of the asset is reduced and the
amount of the loss is recognised in profit or loss. If 'loans and
receivables' has a variable interest rate, the discount rate for
measuring any impairment loss is the current effective interest
rate determined under the contract. As a practical expedient, the
Group may measure impairment on the basis of an instrument's fair
value using an observable market price.
If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised (such as an
improvement in the debtor's credit rating), the reversal of the
previously recognised impairment loss is recognised in profit or
loss.
When an asset is uncollectible, it is written off against the
related allowance account. Such assets are written off after all
the necessary procedures have been completed and the amount of the
loss has been determined.
-- Derecognition
Financial assets are de-recognised when the rights to receive
cash flows from the investments have expired or have been
transferred and the Group has transferred substantially all risks
and rewards of ownership.
(b) Financial liabilities
(i) Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans
and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value
and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
The Group's financial liabilities include trade and other
payables, borrowings, and derivative financial instruments.
(ii) Subsequent measurement
The subsequent measurement of financial assets depends on their
classification as follows:
a. Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value
through profit or loss.
Financial liabilities are classified as held for trading if they
are incurred for the purpose of repurchasing in the near term. This
category also includes derivative financial instruments entered
into by the Group that are not designated as hedging instruments in
hedge relationships as defined by IFRS 9. Separated embedded
derivatives are also classified as held for trading unless they are
designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised
in profit or loss.
Financial liabilities designated upon initial recognition at
fair value through profit or loss are designated at the initial
date of recognition, and only if the criteria in IFRS 9 are
satisfied. The Group does not have any non-derivative financial
instruments designated at fair value through profit or loss.
b. Financial liabilities carried at amortised cost
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the effective
interest method. Gains and losses are recognised in profit or loss
when the liabilities are derecognised as well as through the
effective interest method amortisation process.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the effective interest method. The effective interest
method amortisation is included as finance costs in the statement
of profit or loss.
(iii) Derecognition
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in the statement of
profit or loss.
(c) Offsetting of financial assets and liabilities
Financial assets and financial liabilities are offset and the
net amount is reported in the consolidated statement of financial
position if there is a currently enforceable legal right to offset
the recognised amounts and there is an intention to settle on a net
basis, to realise the assets and settle the liabilities
simultaneously.
(d) Foreign currency translation
(i) Functional and presentation currency
The functional currency of each of the Group's entities is
measured using the currency of the primary economic environment in
which the entities operate. The functional currency of the Parent
Company is USD.
The consolidated financial statements are presented in United
States Dollar ("USD") which is the Group's presentation
currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions or valuation (where items are remeasured). Foreign
exchange gains and losses resulting from the settlement of monetary
assets and liabilities denominated in foreign currencies are
recognised in the income statement.
Transactions in foreign currency are measured in the respective
functional currencies of the Group's entities and are recorded on
initial recognition in the functional currencies at exchange rates
approximating those ruling at the transaction dates.
Monetary assets and liabilities at the reporting date are
translated at the rates ruling as of that date. Exchange
differences arising from the translation of monetary assets and
liabilities are recognised in the profit or loss. All exchange
gains and losses are presented in the income statement within
"Other income/expenses."
Non-monetary assets and liabilities are translated using
exchange rates that existed when the values were determined.
(iii) Group companies
The results and financial position of all the Group entities
(none of which has the currency of a hyperinflationary economy)
that have a functional currency different from the presentation
currency are translated into the presentation currency as
follows:
(i) assets and liabilities for each statement of financial
position presented are translated at the closing rate at the date
of that statement of financial position;
(ii) income and expenses for each statement of comprehensive
income or statement of profit or loss and statement of
comprehensive income are translated at average exchange rates
(unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates,
in which case income and expenses are translated at the rate on the
dates of the transactions); and
(iii) all resulting exchange differences are recognised as a
separate component of other comprehensive income. Goodwill and fair
value adjustments arising on the acquisition of a foreign entity
are treated as assets and liabilities of the foreign entity and
translated at the closing rate. Exchange differences arising are
recognised in other comprehensive income.
(iv) On consolidation, exchange differences arising from the
translation of any net investment in foreign entities, and of
borrowings and other financial instruments designated as hedges of
such investments, are recognised in other comprehensive income.
(e) Basis of consolidation
The consolidated financial statements include the financial
statements of the Company and its subsidiaries.
(i) Subsidiaries
Subsidiaries are all entities (including structured entities)
over which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They are deconsolidated from the date that control
ceases.
The Group uses the acquisition method of accounting to account
for business combinations. The consideration transferred for the
acquisition of a subsidiary is the fair values of the assets
transferred, the liabilities incurred to the former owners of the
acquiree and the equity interests issued by the Group, after
considering any goodwill. The consideration transferred includes
the fair value of any asset or liability resulting from a
contingent consideration arrangement. Acquisition-related costs are
expensed as incurred. Identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date. On
an acquisition-by-acquisition basis, the Group recognises any
non-controlling interest in the acquiree either at fair value or at
the non-controlling interest's proportionate share of the
acquiree's net assets.
The excess of the consideration transferred for the amount of
any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the
acquiree over the fair value of the Group's share of the
identifiable net assets acquired is recorded as goodwill. If, after
reassessment, the Group's interest in the fair values of the
identifiable net assets of the subsidiaries exceeds the cost of the
business combinations, the excess is recognised immediately in the
profit or loss.
Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated on
consolidation. Unrealised profits and losses are also eliminated on
consolidation. Where necessary, amounts reported by subsidiaries
have been adjusted to conform with the Group's accounting
policies.
(ii) Disposal of subsidiaries
When the Group ceases to have control or significant influence,
any retained interest in the entity is remeasured to its fair
value, with the change in carrying amount recognised in profit or
loss. The fair value is the initial carrying amount for the
purposes of subsequently accounting for the retained interest as an
associate, joint venture or financial asset. In addition, any
amounts previously recognised in other comprehensive income in
respect of that entity are accounted for as if the Group had
directly disposed of the related assets or liabilities. This may
mean that amounts previously recognised in other comprehensive
income are reclassified to profit or loss.
(iv) Joint ventures
The Group's interest in a joint venture is accounted for in the
financial statements using the equity method of 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 recognise the further losses to the extent of
its incurred obligations.
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.
(f) Goodwill on consolidation
Goodwill arises from a business combination and represents the
excess of the aggregate of fair value of consideration transferred,
the amount of any non-controlling interest in the acquiree and the
fair value of any previously held equity interest in the acquiree
over the fair value of the net identifiable assets acquired and
liabilities assumed on the acquisition date. If the fair value of
consideration transferred, the amount of non-controlling interest
and the fair value of previously held interest in the acquiree are
less than the fair value of the net identifiable assets of the
acquiree, the resulting gain is recognised in profit or loss.
Goodwill that arises upon acquisition of subsidiaries is
included in intangible assets. The carrying value of goodwill is
reviewed for impairment annually or more frequently if events or
changes in circumstances indicate a potential impairment.
Impairment losses on goodwill are recognised immediately in the
profit or loss. An impairment loss recognised for goodwill is not
reversed in a subsequent year. Gains and losses on the disposal of
an entity include the carrying amount of goodwill relating to the
entity sold.
Goodwill is allocated to cash-generating units for the purpose
of impairment testing. The allocation is made to those
cash-generating units or groups of cash-generating units that are
expected to benefit from the business combination in which the
goodwill arose identified according to operating segment.
Acquisition of non-controlling interests are accounted for as
transactions with equity holders in their capacity as equity
holders and therefore no goodwill is recognised as a result of such
transaction.
(g) Intangible assets (other than goodwill)
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired in a
business combination is their fair values as at the date of
acquisition. Following initial recognition, intangible assets with
finite useful lives are carried at cost less any accumulated
amortisation and any accumulated impairment losses.
(i) Intellectual property
Technology know-how relates to the extraction and refinery
intellectual property and it forms the basis of all-natural
sweeteners. Technology know-how is subject to estimated useful life
of no more than 20 years. The Directors will continue to reassess
the basis of that useful life of the technology know how on an
annual basis. Technology know how is stated at cost less
amortisation costs and impairment losses. Technology know how is
tested for impairment annually or more frequently when indicators
of impairment are identified.
Patents and trademarks are subject to estimated useful life of
no more than 20 years and amortised on straight line basis starting
from the financial year when the product is first viable for
commercial use.
(ii) Development costs
All research costs are recognised in the profit or loss as
incurred.
Development costs consist of fees charged by external research
and development company, material cost, payroll cost, legal and
professional fees incurred on product development and leaf
development projects.
Expenditure incurred on these projects is capitalised as
intangible assets only when the Group can demonstrate the technical
feasibility of completing the intangible assets so that it will be
available for use or sale, its intention to complete and its
ability to use or sell the asset, how the asset will generate
future economic benefits, the availability of resources to complete
the project and the ability to measure reliably the expenditure
during the development. Expenditures which do not meet these
criteria are recognised in the profit or loss when incurred.
Product development costs are amortised on a straight line basis
over their estimated useful life of no more than 20 years starting
from the financial year when the product is first viable for
commercial use.
Leaf development costs are amortised on a straight line basis
over their estimated useful life of no more than 20 years starting
from the financial year when stevia plant demonstrates capability
of producing high yielding strains of stevia leaf at reasonable
consistency on a volume production basis.
(h) Property, plant and equipment
Property, plant and equipment, other than freehold land, are
stated at cost less accumulated depreciation and impairment losses,
if any. Freehold land is stated at cost less impairment losses, if
any, and is not depreciated. Cost includes expenditure that is
directly attributable to the acquisition of the items. The cost of
self-constructed assets includes the cost of materials and direct
labour, any other costs directly attributable to bringing the
assets to working condition for its intended use, and the costs of
dismantling and removing the items and restoring the site on which
they are located.
Subsequent costs are included in the asset's carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. The carrying amount of the replaced part is derecognised.
All other repairs and maintenance are charged to the profit or loss
during the financial period in which they are incurred.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected from its
use. Any gain or loss arising from derecognition of the asset is
included in the profit or loss in the financial year the asset is
derecognised.
Depreciation is calculated under the straight-line method to
write off the depreciable amount of the assets over their estimated
useful lives. Depreciation of an asset does not cease when the
asset becomes idle or is retired from active use unless the asset
is fully depreciated. The principal annual rates used for this
purpose are:-
Buildings 2.5%
Extraction and refinery plant 5%
Office equipment, furniture and fittings and
motor vehicles 20%
Capital work-in-progress Nil
The depreciation method, useful life and residual values are
reviewed, and adjusted if appropriate, at each reporting date. An
asset's carrying amount is written down immediately to its
recoverable amount if the asset's carrying amount is greater than
its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the
proceeds with the carrying amount and they are recognised within
"Other income/expenses" in the income statement.
Capital work-in-progress represents assets under construction,
and which are not ready for commercial use at the reporting date.
Capital work-in-progress is stated at cost, and will be transferred
to the relevant category of long-term assets and depreciated
accordingly when the assets are completed and ready for commercial
use.
(i) Impairment of non-financial assets
Intangible assets that have indefinite useful life intangible
assets not ready in use are subject to amortisation and tested
annually for impairment.
Assets that have an indefinite useful life, which is comprised
of only goodwill, are not subject to amortisation but are tested
annually for impairment. The Group assigned useful lives to all
intangible assets, other than goodwill, during the year. Assets
that are subject to amortisation are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is
recognised for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount is the
higher of an asset's fair value less costs to sell and value in
use. For the purposes of assessing impairment, assets are grouped
at the lowest levels for which there are separately identifiable
cash flows (cash-generating units). Prior impairments of
non-financial assets (other than goodwill) are reviewed for
possible reversal of the impairment at each reporting date. The
impairment is charged to profit or loss. Impairment of goodwill is
not reversed. Any subsequent increase in recoverable amount is
recognised in profit or loss.
The Group has changed certain of its intangible assets that have
indefinite useful life to definite useful life in 2019. The
intangible assets represent the technology know-how which is
classified as intellectual property rights. The change of
indefinite useful life to definite useful life for the intangible
assets is a change in estimate in which the Group has amortised the
intangible assets with effect from 1 July 2018.
(j) Inventories
Inventories are stated at the lower of cost and net realisable
value.
Cost of raw materials is determined based on the weighted
average basis, and comprises the purchase price and incidentals
incurred in bringing the inventories to their present location and
condition. Cost of finished goods and work-in-progress includes the
cost of materials, labour and production overheads. Net realisable
value represents the estimated selling price less the estimated
costs of completion and the estimated costs necessary to make the
sale.
Where necessary, due allowance is made for all damaged, obsolete
and slow-moving items.
(k) Current and deferred tax
Income taxes for the year comprise current and deferred tax.
Current tax is the expected amount of income taxes payable in
respect of the taxable profit for the year and is measured using
the applicable tax rates that have been enacted or substantively
enacted at the reporting date in each of the jurisdictions in which
the Group operates.
Deferred tax is provided in full, using the liability method, on
the temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the financial
statements.
Deferred tax liabilities are recognised for all taxable
temporary differences other than those that arise from goodwill or
excess of the acquirer's interest in the net fair value of the
acquiree's identifiable assets, liabilities and contingent
liabilities over the business combination costs or from the initial
recognition of an asset or liability in a transaction which is not
a business combination and at the time of the transaction, affects
neither accounting profit nor taxable profit.
Deferred tax assets are recognised for all deductible temporary
differences, unused tax losses and unused tax credits to the extent
that it is probable that future taxable profits will be available
against which the deductible temporary differences, unused tax
losses and unused tax credits can be utilised.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to be applicable in the period when the
asset is realised or the liability is settled, based on the tax
rates that have been enacted or substantively enacted at the
reporting date.
Deferred tax is recognised in the statement of comprehensive
income, except when it arises from a transaction which is
recognised directly in equity, in which case the deferred tax is
also charged or credited directly to equity, or when it arises from
a business combination that is an acquisition, in which case the
deferred tax is included in the resulting goodwill or excess of the
acquirer's interest in the net fair value of the acquiree's
identifiable assets, liabilities and contingent liabilities over
the business combination costs. The carrying amounts of deferred
tax assets are reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient future taxable
profits will be available to allow all or part of the deferred tax
assets to be utilised.
Deferred tax assets are recognised on deductible temporary
differences arising from investments in subsidiaries, associates
and joint arrangements only to the extent that it is probable that
the temporary difference will reverse in the future and there is
sufficient taxable profit available against which the temporary
difference can be utilised.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities and there is an intention to settle the balances on a net
basis.
(l) Equity instruments
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from proceeds.
Dividends on ordinary shares are recognised as liabilities when
declared.
(m) Restricted cash
Restricted cash is comprised of cash balances held in an account
solely for the purpose of utilising credit card facility provided
by a licensed financial institution.
(n) Cash and cash equivalents
For the purpose of the statement of cash flows, cash equivalents
are held for the purpose of meeting short-term cash commitments
rather than for investment or other purposes. Cash and cash
equivalents comprise cash on hand, deposits held at call with
banks, short-term deposits with licensed banks with maturities of
three month or less, and highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value. Cash and cash equivalents
exclude restricted cash.
(o) Employee benefits
(i) Short-term benefits
Wages, salaries, paid annual leave and sick leave, bonuses, and
non-monetary benefits that are expected to be settled wholly within
12 months after the end of the period in which the employees render
the related service are recognised in respect of employees'
services up to the end of the reporting period and are measured at
the amounts expected to be paid when the liabilities are settled.
The liabilities are presented as 'Other payables and accruals' in
the statement of financial position.
(ii) Defined contribution plans
The Group's contributions to defined contribution plans are
charged to the profit or loss in the period to which they relate.
Once the contributions have been paid, the Group has no further
liability in respect of the defined contribution plans. The Group
has no defined benefit plan.
(p) Share-based payment
The Group operates a long-term incentive programme which is an
equity-settled, share-based compensation plan, under which the
entity receives services from employees as consideration for equity
instruments (share awards) of the Company. The fair value of the
employee services received in exchange for the grant of the share
awards is recognised as an expense over the vesting period. The
total amount to be expensed is determined by reference to the fair
value of the shares granted, excluding the impact of any non-market
vesting conditions and the number of shares expected to vest.
Non-market vesting conditions are included in assumptions about the
number of share awards that are expected to become exercisable.
When the share awards are exercised, the Company issues new
shares. The proceeds received net of any directly attributable
transaction costs are credited to share capital (nominal value) and
share premium when the share awards are exercised.
(q) Provisions
A provision is recognised if, as a result of past events, the
Group has a present legal and constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. The
unwinding of the discount is recognised as a finance cost.
(r) Leases
Leases where a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to profit
or loss on a straight-line basis over the period of the lease.
When an operating lease is terminated before the lease period
has expired, any payment required to be made to the lessor by way
of penalty is recognised as an expense in the period in which the
termination takes place.
Leases of property, plant and equipment where the Group has
substantially all the risks and rewards of ownership are classified
as finance leases. Finance leases are capitalised at the inception
of the lease at the lower of the fair value and the present value
of the minimum lease payments. Each lease payment is allocated
between the liability and finance charges.
The corresponding rental obligations, net of finance charges,
are included as borrowings. The interest element of the finance
charge is charged to profit or loss over the lease period so as to
produce a constant periodic rate of interest on the remaining
balance of the liability for each period.
Plant and equipment acquired under a finance lease is
depreciated over the shorter of the estimated useful life of the
asset and the lease term.
The prepaid land lease payments represent the Group's right to
use the land for 20 years. Accordingly, the amortisation of the
prepaid land lease payments is on a straight-line basis over 20
years.
(s) Segmental information
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker
(i.e. the Chief Executive Officer ("CEO")). The chief operating
decision-maker is responsible for allocating resources and
assessing the performance of the operating segments.
(t) Revenue recognition
(i) Revenue from contracts with customers
The Group adopted IFRS 15 in the current year. Refer to Note 33
for additional details on adoption, which did not cause a
significant change to the way in which the Group recognises
revenue. There have been no changes to revenue recognition as a
result of the adoption of IFRS 15. The Group receives revenue for
supply of goods to external customers against orders received. The
majority of contracts that Group enters into relate to sales orders
containing single performance obligations for the delivery of
stevia products. The average duration of a sales order is less than
12 months and the average invoice terms are 60 days. The Group does
not therefore have significant financing components to revenue.
Product revenue is recognised when control of the goods is
passed to the customer. The point at which control passes is
determined by each customer arrangement, but generally occurs on
delivery to the customer and there is no unfulfilled obligation
that could affect the customer's acceptance of the products.
Delivery occurs when the products have been delivered to a
specified location (usually the carrier of the port of departure or
when the products have left the Group's manufacturing facility or
warehouse, as determined in the sales arrangement with the
respective customers). Revenue from sale of goods is recognised at
a point in time. Product revenue represents net invoice value
including fixed and variable consideration. Variable consideration
arises on the sale of goods as a result of discounts and allowances
given and accruals for estimated future returns and rebates.
The stevia products are often sold with discounts based on
aggregate sales volumes over a twelve-month period. Revenue from
these sales is recognised throughout the year based on the price
specified in the contract, net of the estimated discounts.
Accumulated experience is used to estimate and provide for the
discounts, using the expected value method. Revenue is only
recognised to the extent that it is highly probable that a
significant reversal will not occur. No element of financing is
deemed present as the sales are made with credit term ranging from
30 to 120 days, which is consistent with market practice. The
methodology and assumptions used to estimate rebates and returns
are monitored and adjusted regularly in the light of contractual
and legal obligations, historical trends, past experience and
projected market conditions. Once the uncertainty associated with
the returns and rebates is resolved, revenue is adjusted
accordingly.
(u) Government grants
Government grants are recognised initially as deferred income at
fair value when there is reasonable assurance that they will be
received, and the Group will comply with the conditions associated
with the grant. Grants that compensate the Group for the cost of an
asset are recognised in profit or loss on a systematic basis over
the useful life of the receivable.
(v) Interest income
Interest income is recognised on an accrual basis, based on the
effective yield on the investment.
(w) Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently carried at
amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in the
income statement over the period of the borrowings using the
effective interest method.
Fees paid on the establishment of loan facilities are recognised
as transaction costs of the loan to the extent that it is probable
that some or all of the facility will be drawn down. In this case,
the fee is deferred until the draw-down occurs. To the extent there
is no evidence that it is probable that some or all of the facility
will be drawn down, the fee is capitalised as a pre-payment for
liquidity services and amortised over the period of the facility to
which it relates.
(x) Borrowing costs
General and specific borrowing costs directly attributable to
the acquisition, construction or production of qualifying assets,
which are assets that necessarily take a substantial period of time
to get ready for their intended use or sale, are added to the cost
of those assets, until such time as the assets are substantially
ready for their intended use or sale.
All other borrowing costs are recognised in profit or loss in
the period in which they are incurred.
(y) Trade receivables
Trade receivables are amounts due from customers for goods sold
in the ordinary course of business. If collection is expected in
one year or less (or in the normal operating cycle of the business
if longer), they are classified as current assets. If not, they are
presented as non-current assets.
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for expected credit losses.
(z) Trade payables
Trade payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities
if payment is due within one year or less (or in the normal
operating cycle of the business, if longer). If not, they are
presented as non-current liabilities.
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.
(aa) Derivative financial instruments
Derivatives are initially recognised at fair value on the date
when a derivative contract is entered into, and they are
subsequently remeasured at their fair value through profit and
loss.
The fair values of derivative instruments are disclosed in Note
32. The full fair value is classified as a non-current asset or
liability when the remaining maturity is more than 12 months; it is
classified as a current asset or liability when the remaining
maturity is less than 12 months.
6 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
In preparing the Group's financial statements, management has
made judgements and used estimates and assumptions in establishing
the reported amounts of assets, liabilities, income and expense
under the Group's accounting policies. Judgements are based on the
best evidence available to management. Estimates are based on
factors including historical experience and expectations of future
events, corroborated with external information where possible.
Judgements and estimates and their underlying assumptions are
evaluated by the Directors and management based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the
circumstances.
The accounting policies and information about the accounting
estimates and judgements made in applying these accounting policies
that have the most significant effect on the amounts recognised in
the consolidated financial statements are set out below:
(i) Goodwill and other assets carrying values
(This accounting policy principally applies to Goodwill and
other intangible assets; and Property, plant and equipment - see
Notes 8 and 9)
Property, plant and equipment represents costs expended to
acquire and maintain fixed assets that support the future of the
business operations such as buildings, refinery equipment and
office buildings. In accordance with IAS 36 Impairment of Assets,
an annual assessment for potential impairment triggering events is
conducted every reporting period. No such triggers were identified
in the current year.
Intangible assets represent costs expended to maintain
competitive advantage through intellectual property, develop new
products or stevia leaf to support future innovation, and other
costs either related to acquired technological know-how or other
non-financial assets. The largest classification of intangible
assets has historically been related to costs of the Group to
develop new products and new leaf varietals or leaf growing sites
("development costs").
The Group carries out leaf, product and application development.
New and improved Stevia leaf variants, for example StarLeaf(TM)
which contains more steviol glycoside than standard Stevia leaf
varieties, are examples of leaf development. Leaf development is
being carried out in different geographic regions, namely Latin
America, Africa and North America to diversify from the current
major source of supply in China. The Group has commercial leaf
development facilities in Africa, Latin America and China and
in-process facilities in North America and Africa.
Product development includes cost incurred to develop existing
product by innovating new formulae to produce better quality
products or to improve the efficiency of the current processes of
production. The Group enters into agreements with third party
research & development ("R&D") companies to assist in the
product development process. In addition, there are product
development R&D activities conducted in-house by our R&D
team in Malaysia. Costs incurred also relate to development
activities focused on improving the taste of Stevia products via
formulae created to deliver great-tasting products. The Group
undertakes these activities by employing a dedicated team to do the
relevant procedures required to taste the sweeteners produced and
modify the taste to suit market preference. The Group continues to
heavily invest in innovation and protection of its respective
intellectual property rights. As a result, the classification of
assets that were most heavily capitalised in FY2019 were patent
assets and product development assets.
Given that the intangible assets (other than Goodwill) are
definite-lived, in accordance with IAS 36 Impairment of Assets, an
assessment for potential impairment triggering events is conducted
every reporting period. Whenever it is determined that events or
changes in circumstances indicate that carrying amounts may not be
recoverable, an indication of impairment is determined to exist. If
such an indication exists, the recoverable amount of the asset is
estimated.
Goodwill arises from a business combination and represents the
excess of the aggregate of the fair value of the consideration
transferred compared to the fair value of the net identifiable
assets acquired and liabilities assumed on the acquisition date.
Given that the asset is indefinite-lived, in accordance with IAS
36, an annual impairment assessment is conducted to determine the
recoverable value.
The Group is a multinational organisation with sales on multiple
continents but managed as one unified global organisation using a
single extraction and refinery facility in China and Malaysia
respectively. Subsidiaries within the Group are designed to operate
in such a way that their cash flows are tied to the Group's
principal business. Hence management considers the Group to be a
single operating segment whose activities are producing, marketing
and selling of natural sweeteners and flavours. For the purpose of
impairment testing, assets are grouped together into the smallest
group of assets which have cash inflows that are largely
independent of the cash inflows from other assets or groups of
assets. Goodwill is allocated to the Group's single CGU identified
accordingly to be its only operating segment given that assets are
fundamentally dependent on the Group's business of exploiting and
selling natural high intensity sweeteners in the global market.
Each individual tangible and intangible asset is also separately
considered, in the case of an identified trigger event, for
purposes of the annual impairment assessment. Impairment testing
has been applied in the order set out by IAS 36.98: assets within a
CGU first, where there is indication of impairment, then the CGUs
to which Goodwill has been allocated.
An asset or CGU is impaired to the extent that its carrying
amount exceeds its recoverable amount. The recoverable amount
represents the higher of the benefit which the entity expects to
derive from the asset or CGU over its life, discounted to present
value (value in use) and the net price for which the entity can
sell the asset or CGU in the open market (fair value less costs of
disposal). In order to determine whether impairments are required,
the Group estimates the recoverable amount of the asset or CGU
based upon projecting future cash flows over a five-year period and
using a long-term value to incorporate expectations of growth
thereafter until the end of the asset's remaining useful life,
consistent with IAS 36. As Goodwill is indefinite-lived, a terminal
value is utilised to incorporate expectations of growth thereafter
the five-year projection period, consistent with IAS 36. The
discount rate used for the VIU calculation for all impairment
assessments is a pre-tax rate that reflects the risks specific to
the Group.
The discount rate is impacted by estimates of interest rates,
equity returns and market and country related risks. The Group's
weighted average cost of capital is reviewed on a regular basis.
The weighted average cost of capital is calculated considering the
risk-free rate of interest based upon a 10-year US government bond,
the Group's cost of debt, a market risk premium, the Group's
capital structure and a risk adjustment (beta). The pre-tax
discount rate used is 8% per annum for all individual assets tested
as well as the Group's sole CGU. It is considered appropriate to
utilise the Group discount rate for each individual asset tested
given that the Group has incorporated into each respective asset's
cash flows any asset-specific or territory-specific risk.
If the cash flow or discount rate assumptions were to change
because of market conditions, the recoverable amount of any asset
or CGU tested could be different and could result in an asset or
CGU being impaired at a future date.
Impairment losses are recognised in the Consolidated Statement
of Comprehensive Income. Impairment losses recognised in previous
periods for assets other than Goodwill are reversed if there has
been an improvement in the estimates used to determine the asset's
recoverable amount. Asset impairments have the potential to
significantly impact operating profit.
A key source of estimation uncertainty lies in the future cash
flows for impairment VIU calculations, which are calculated based
upon management's expectations of future volumes, product mix and
margins based on plans and best estimates of the productivity of
the assets or CGU in their current condition. Sales are largely
order-based rather than contract-based which adds to the
uncertainty modelled in the calculations. Each significant
assumption and significant judgement inherently include an element
of estimation uncertainty. It is noted that future cash flow does
not include any benefits from major expansion projects nor future
capital expenditure. Critical assumptions employed in each
respective VIU model are described below.
(a) Definite-lived intangible assets
a. Key areas of judgement arising related to definite-lived intangible assets include:
i. Determination of an asset's progress towards commercialisation;
As discussed in Note 5(g) above, all costs are reviewed for
eligibility prior to capitalisation. Assets are recognised at cost
once eligibility is assessed. Management has considered whether any
assets in-development should be considered as commercialised.
Development activities continued in the North America and Africa
during FY2019, which focused on expanding the volume and quality of
the leaf produced in these regions as well as trials of StarLeaf.
Management developed benchmarks as a matter of internal guidance
used to assess whether the leaf quantities and Stevia content were
sufficient for sites to be considered as commercialised. During
FY2019, no costs were incurred related to the development of legacy
PC1 leaf cultivation in Africa and internal benchmarks were
reassessed based upon quantities of leaf purchased from this site
during the year. As a matter of management judgement, it was
concluded that the PC1 leaf development project in Africa should be
considered as commercialised. As a result, amortisation commenced
on 1 January 2019.
ii. Assignment and annual review of an asset's economic useful life ("EUL");
Management follows an internal policy when applying the EUL to a
newly capitalised or newly commercialised asset. Generally, assets
are estimated to provide economic value to the Group for an amount
of time equal to, but never greater than, the asset's legal life.
During the year, a reassessment of the lives of indefinite lived
intangible assets was performed and these assets were reclassified
as definite lived assets and amortisation commenced over their
expected useful lives. The useful life assigned was consistent with
Group accounting policy. As part of the annual assessment of the
valuation of intangible assets, management reviewed the remaining
economic useful life of each asset class.
In order to determine whether assets are still recoverable over
the remaining EUL of each respective asset, management performed an
assessment at the asset classification level and the product level.
Management's assessment considered the FY2019 deterioration in
performance and expected future shifts in customer preference
toward more innovative product categories. Ultimately, management
determined that although certain legacy assets are becoming less of
a priority to the Group, they continue to hold commercial value as
there are no plans to abandon any product lines, facilities or
locations. Further, holding certain assets such as intellectual
property, allow the Group to protect its innovations and prevent
others from gaining the Group's building-block assets that can
foster further innovations. Therefore, as a result of management's
assessment, the remaining EUL for each asset and asset class was
determined to be appropriate in the circumstances as at 30 June
2019.
iii. Consideration of whether an asset experienced a triggering event;
As part of management's assessment of recoverability, it was
identified that (1) certain products had a history of declining
sales or declining margins, (2) certain projects would be
terminated or a change in commercial strategy was noted, (3)
certain trade restrictions imposed on the Latin American region are
not likely to be lifted in the short term and (4) changes in
commercial strategy.
(1) Intangibles assets across all classes of assets, which
relate to specifically identifiable products, were grouped together
in order to consider whether there was any indication of
impairment. Management performed a high level calculation on a
number of products where there was a clear trend of declining sales
or margins were noted, therefore, to determine whether an event
occurred that would call into question the recoverability of the
assets associated with each product. The calculation considered
historical and projected future sales against quantity of inventory
on hand and ultimately the carrying value of the assets associated
with each product.
During the financial year ended 30 June 2019, there was an
impairment indicator on the carrying value of intellectual property
and product development projects in relation to a product with
negative margins, as discussed above.
As a result of the product's negative margin and declining
forecasted sales, management concluded that the carrying value of
the associated intellectual property and product development costs
would not be recoverable, which resulted in a full impairment of
USD1,760,000 during the year (2018: NIL).
For the remaining products, a further stress test was performed
to confirm whether these products were supportable by future sales.
The stress test indicated that if the current downward trends were
projected into the future, this may imply that the economic
benefits from these products could phase out more quickly than the
remaining EUL, but any impact of this was not calculated to be
significant.
Based upon the assessment of these products for potential
triggering events, an impairment was identified. Refer to the
discussion below.
(2) At 30 June 2018, USD2.5 million was capitalised as product
development costs relating to payments made to a third party for an
R&D project supported by the achievement of two historical
milestones. After the third party communicated to management that
the project should be terminated due to a subsequent milestone
failure, a Collaboration Termination Agreement was signed on 6
December 2018 with a total compensation to the Group of USD5.5
million recognised in Other Income (see Note 27). Of the USD5.5
million corresponding other receivable, USD1.8 million has been
received in cash whilst the remaining amount has been reserved
against other receivables. As a result of the milestone failure,
which is considered a triggering event, the Group wrote off the
entire USD2.5 million product development intangible asset related
to this collaboration agreement.
(3) During the financial year ended 30 June 2019, there was an
impairment indicator on the carrying value of leaf development cost
in Latin America due to certain trade restrictions imposed on
Paraguay and strategic decisions made by the Company in response to
these ongoing trade restrictions.
Although the trade restrictions are not new in the current year,
it became clear that they were not going to be lifted in the near
term and given the uncertainty in obtaining another route to
market, in FY19 management reassessed the commercial strategy for
Latin America, resulting in a full impairment made of its leaf
development cost of USD13.9 million (2018: NIL).
The carrying value of the leaf development costs were reviewed
for impairment and the Group calculated the VIU of the carrying
amount of the leaf development costs based on the net cash flow to
be generated from the geographical location, which was assessed as
zero as no further leaf purchases are now planned. During the year
the Group arranged an alternative route to market for the leaf in
South America. However, processing the leaf via an alternative
third party toll treatment increases the costs of production and
given that the impact of the trade restrictions are now seen as
more permanent in nature, this caused a reassessment of the
expected future volumes from Paraguay.
(4) During the financial year ended 30 June 2019, there was an
impairment indicator on the carrying value of leaf development
costs in North Carolina due to shift in business strategy, which
impacted the expected development of leaf from North Carolina.
As a result of the shift in business strategy, management
concluded that the commercial viability of the North Carolina
facility had changed, resulting in a full impairment on the related
leaf development costs of USD603,000 (2018: NIL).
(b) Goodwill
In accordance with the Group's accounting policies, goodwill is
tested annually for impairment at year end. The Goodwill is tested
for impairment based on the recoverable amount of the Group given
the Directors have determined there is a single CGU.
In assessing whether an impairment is required, the carrying
value of the CGU is compared with its recoverable amount.
The recoverable amount is the higher of the CGU's fair value
less costs of disposal (FVLCD) and value in use (VIU).
The Group has prepared a VIU calculation which is subject to a
number of estimates and uncertainties with regard to future sales,
margins and costs and the future rate of growth. The Group has also
considered the FVLCD of the Group. While information on the fair
value of an asset or CGU is usually difficult to obtain unless
negotiations with potential purchasers or similar transactions are
taking place, as set out in note 3 the Directors have been
considering equity and other fundraising opportunities as part of
the refinancing initiatives. Based on valuations prepared by the
Directors and their advisers as part of these activities, the
Directors determined that the FVLCD of the Group is in excess of
the carrying value of the net assets. Accordingly, the carrying
value of goodwill is supported and no impairment is required. The
directors have also considered whether any reasonable possible
changes could give rise to an impairment and concluded they would
not.
(ii) Inventories
Inventories are stated at the lower of cost or net realisable
value. Management determines the valuation of its inventory cost by
comparing its expected future selling price against its inventory
cost.
(a) Key sources of estimation uncertainty
In valuing inventories at the lower of cost or net realisable
value, the Group makes estimates in determining the net realisable
value by assessing the market prices for finished goods.
The Group assesses the net realisable value of the raw
materials, by-products and work-in-progress based on management's
sales and consumption plans. The net realisable value of
work-in-progress which will be sold to external parties will be
assessed based on the selling prices of the work-in-progress.
Similarly, the net realisable value of by-products will be assessed
based on selling prices to external parties or consumed in
production of finished goods depending on management's plan.
In determining the net realisable value of the inventories which
will be consumed by the Group, the Group estimates the incremental
processing costs required to convert the raw materials and
work-in-progress into finished goods and estimates the profit
margin that the Group will make from the sale of the finished
goods.
The Group assesses slow-moving inventory based on management's
forecasted sales and consumption plans. The work-in-progress which
will be used in production will be assessed based on its production
rate against its consumption rate. When the consumption rate is
lower than the production, a provision for slow-moving inventory
will be provided for.
(b) Significant judgements
Area of judgements that have the most significant effect on the
inventory valuation are as follows:
(i) Expected pricing of the product
(ii) Expected processing costs of individual product
(iii) Future sales and consumption plans of the product
(c) Key assumptions used in the net realisable value test
(i) Market price of products
Management has performed a bottom-up forecast analysis of future
sales and margins by product.
(ii) Product cost
Management estimated the cost of completion and the costs
necessary to make the sale to determine the future product costs
based on past results and expectations of future changes in the
market.
(d) Sensitivity test
Refer to Note 12. The net realisable value of finished goods
assessed based on selling prices to external parties or consumed in
production of finished goods had resulted in a write down of net
realisable value of USD3.4 million (2018: NIL).
Write down of by-products amounting to USD10.9 million (2018:
NIL) to its net realisable value was included as cost of sales in
profit or loss. No such expenses were provided for in prior
year.
As set out above, the export restriction in Paraguay has
impacted the net realisable value (NRV) of leaf already purchased
and ready for shipment. Due to the increased cost of toll treating
the leaf in a third-party facility, USD5.3 million (2018: NIL) has
been reserved on the write down of raw material leaf to its net
realisable value. The amount has been included in the cost of sales
in profit or loss.
Management has assessed the future sales forecasts by product
and made provision on slow-moving inventory on work-in-progress and
finished goods of USD10.4 million (2018: NIL) and USD4.4 million
(2018: NIL) respectively during the year. The amount is recognised
as an expense during the year and included in cost of sales in
profit or loss.
The table below shows the impact of NRV on the write-down of
finished goods in the changes of key assumptions - within the
underlying analysis:
Percentage NRV
change in
key assumption
% USD'000
Market price reduced by 2% -2% 168
Cost per unit increased by 2% -2% 171
Market price reduced by 2% and
cost per unit increased by 2% -2% and -2% 339
(iii) Financial covenants
Under the terms of the loan facility, the Group is required to
comply with financial covenants. The Group's objectives when
managing capital are to safeguard the Group's ability to continue
as a going concern and provide returns for shareholders and
benefits for other stakeholders.
As at 30 June 2019 and 30 June 2018, the Group has not complied
with the financial covenants of its borrowings which total to USD94
million and USD122 million respectively. Subsequent to the
reporting date of 30 June 2019, the Group has successfully obtained
waivers from the relevant financial institutions. In accordance
with IAS 1, the portion of the non-current liabilities of the
borrowings of USD77 million have been reclassified as current
liabilities as at 30 June 2019 (2018: USD113 million).
(a) Key assumptions which involve estimation uncertainty
The Group's forecasted operating cash inflows and capital
expenditure outflows for the foreseeable future includes estimates
as follows:
-- Sales;
-- Gross margin;
-- Leaf purchases to meet production needs;
-- General and administrative expenses to be incurred consistent with historical trend;
-- Manageable non-discretionary capital expenditure
(b) Key assumptions which involve critical accounting
judgement
Area of judgements that have the most significant effect on the
cash flows forecast are:
-- Higher sales of breakthrough products with higher gross profit margin;
-- Expansion into new geographical market such as Canada and India;
-- Improvement in receivables turnover days; and
-- Manageable payables turnover and cost cutting initiatives.
Although there are a number of material uncertainties due to the
requirement to refinance by November 2020 and covenant breaches as
highlighted above, the Group has a number of options and mitigating
actions that they are pursuing that will allow the Group to
refinance.
(c) Other key matters
Contingent liability
Management has also considered the impact of uncertainties from
contingent liability which is a key estimate that the Group is
unable to estimate. Please refer to Note 35 for more details on the
assessment of possibility of arising of a contingent liability.
7 INVESTMENT IN JOINT VENTURE
The Group has invested in a joint venture with Nordic Sugar
Holding incorporated as in NP Sweet AS being a company incorporated
in Denmark. The Group holds an equity interest of 50% in NP Sweet
AS. The following sets out the financial statements of the joint
venture entity and the Group's 50% ownership.
Details of joint venture are as follows:-
Effective Equity
Country of Interest
Name of Company Incorporation 2019 2018 Principal Activities
Production, marketing
and distribution of
natural
NP Sweet AS Sweeteners (Liquidated
("NPS") Denmark 50% 50% on 23 July 2019)
Group
2019 2018
USD'000 USD'000
At 1 July (165) (493)
Share of gain/(loss) 80 (14)
Additional investment 204 342
At 30 June 119 (165)
========================== ========
Analysed as follows:
Other receivables (current) 119 -
Other payables (non-current) - (165)
At 30 June 119 (165)
========================== ========
Set out below is the summarised financial information for joint
venture which is accounted for using the equity method:
Summarised statements of financial position
2019 2018
USD'000 USD'000
Current
Cash and cash equivalents 270 498
Other current assets (excluding cash) 24 1,072
Total current assets 294 1,570
-------------------------- --------
Other current liabilities (including
trade payables) (57) (1,594)
Total current liabilities (57) (1,594)
-------------------------- --------
Non-current
Assets - 9
Net assets/(liabilities) 237 (15)
========================== ========
Summarised statements of comprehensive income
2019 2018
USD'000 USD'000
Revenue 693 3,505
Interest expense (5) (8)
-------------------------- ------------
Loss before taxation (163) (623)
Income tax 3 9
-------------------------- ------------
Loss after taxation (160) (614)
Total comprehensive loss (160) (614)
========================== ============
Reconciliation of summarised financial information
2019 2018
USD'000 USD'000
Opening net assets - 1 July (15) (86)
Loss for the year (160) (614)
Additional investment 408 685
Foreign exchange translation 4 -
-------------------------- ------------
Closing net assets/(liabilities) - 30
June 237 (15)
Interest in joint venture 50% 50%
-------------------------- ------------
Share of net liabilities 119 (7)
Cumulative unrealized loss - (158)
Carrying value 119 (165)
========================== ============
On 30 November 2018, the Group agreed to voluntarily liquidate
its investment in joint venture, NP Sweet A/S. PureCircle (UK)
Limited received the final net cash balance of USD127,000 from the
completion of the voluntary liquidation on 28 August 2019.
8 INTANGIBLE ASSETS
Intellectual
property Development
Group rights costs Goodwil Total
l
USD'000 USD'000 USD'000 USD'000
Cost
At 1 July 2018 16,268 48,752 1,806 66,826
Additions 1,096 4,781 - 5,877
Written-off*** - (2,500) - (2,500)
Foreign exchange
translation difference (371) (1,159) - (1,530)
At 30 June 2019 16,993 49,874 1,806 68,673
-------------- ----------------- -------- --------
Accumulated amortisation
At 1 July 2018 514 2,180 - 2,694
Charge for the financial
year* 845 1,761 - 2,606
Impairment** 951 14,727 - 15,678
Foreign exchange
translation difference (18) 149 - 131
At 30 June 2019 2,292 18,817 - 21,109
-------------- ----------------- -------- --------
Net carrying amount
At 30 June 2019 14,701 31,057 1,806 47,564
============== ================= ======== ========
*During the year, the Group has begun amortising the leaf
development project in Africa amounting to USD237,000 (2018: nil)
on a straight-line basis over its useful life of 20 years given
that at 1 January 2019 the leaf under development demonstrated the
capability of producing high yielding strains of stevia leaf at
reasonable consistency on a volume production basis.
**During the year, the Group has provided an impairment of
USD13,919,000 (2018: nil) for its leaf development project in Latin
America and North America due to unfavourable developments in the
region. In addition, the Group has provided an impairment of
USD1,760,000 (2018: nil) for its intellectual property and product
development projects in relation to a product where triggering
event was observed.
***Refer to Note 6(i)(a)(iii) for additional details on this
write-off.
Intellectual
property Development
Group rights costs Goodwill Total
USD'000 USD'000 USD'000 USD'000
Cost
At 1 July 2017 14,174 39,824 1,806 55,804
Additions 1,662 7,100 - 8,762
Impairment (3) (3) - (6)
Foreign exchange
translation difference 435 1,831 - 2,266
At 30 June 2018 16,268 48,752 1,806 66,826
-------------- ---------------- --------- --------
Accumulated amortisation
At 1 July 2017 378 716 - 1,094
Charge for the financial
year 113 1,441 - 1,554
Foreign exchange
translation difference 23 23 - 46
At 30 June 2018 514 2,180 - 2,694
-------------- ---------------- --------- --------
Net carrying amount
At 30 June 2018 15,754 46,572 1,806 64,132
============== ================ ========= ========
Intellectual property rights comprise the patents, trademark,
technology know how and all intellectual and industrial property
rights in connection therewith on the production of natural
sweetener related products and derivatives of bio-organic and
physiologically active compounds.
Technology know how relates to extraction and refinery
intellectual property, which management has amortised the cost over
its useful life of 19 to 20 years from 1 July 2018. As at 30 June
2019, the carrying value of technology know how is USD9,316,591
(2018: USD10,751,825). The change in value was due to foreign
currency translation differences and amortisation charges.
Goodwill is allocated to the Group's single CGU identified
according to its only operating segment.
9 PROPERTY, PLANT AND EQUIPMENT
Office
equipment,
Extraction furniture
and and fittings Capital
Freehold refinery and motor work-in
land Buildings plants vehicles progress Total
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Group
Cost
At 1 July 2018 1,465 41,447 93,046 13,018 2,644 151,620
Additions - 1,229 1,783 1,363 1,335 5,710
Disposals - - (514) (471) - (985)
Transfer - 693 - 102 (795) -
Foreign exchange
translation reserve (25) (394) (3,062) (222) (182) (3,885)
At 30 June 2019 1,440 42,975 91,253 13,790 3,002 152,460
----------- ---------- ------------ ------------- --------- ----------
Accumulated
depreciation
At 1 July 2018 - 8,796 35,522 7,187 - 51,505
Charge for the
financial
year - 1,356 4,842 1,980 - 8,178
Disposals - - (499) (444) - (943)
Foreign exchange
translation reserve - (268) (1,167) (139) - (1,574)
At 30 June 2019 - 9,884 38,698 8,584 - 57,166
----------- ---------- ------------ ------------- --------- ----------
Net carrying amount
At 30 June 2019 1,440 33,091 52,555 5,206 3,002 95,294
=========== ========== ============ ============= ========= ==========
Office
equipment,
Extraction furniture
and and fittings Capital
Freehold refinery and motor work-in
land Buildings plants vehicles progress Total
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Group
Cost
At 1 July 2017 1,407 39,711 80,242 10,109 1,796 133,265
Additions - - 2,897 2,536 8,160 13,593
Disposals - - (411) (167) - (578)
Transfer - - 7,108 168 (7,276) -
Foreign exchange
translation reserve 58 1,736 3,210 372 (36) 5,340
At 30 June 2018 1,465 41,447 93,046 13,018 2,644 151,620
----------- ---------- ------------ ------------- --------- --------
Accumulated
depreciation
At 1 July 2017 - 6,672 30,507 5,459 - 42,638
Charge for the
financial
year - 1,870 4,709 1,732 - 8,311
Disposals - - (389) (150) - (539)
Foreign exchange
translation reserve - 254 695 146 - 1,095
At 30 June 2018 - 8,796 35,522 7,187 - 51,505
----------- ---------- ------------ ------------- --------- --------
Net carrying amount
At 30 June 2018 1,465 32,651 57,524 5,831 2,644 100,115
=========== ========== ============ ============= ========= ========
The carrying values of property, plant and equipment charged to
financial institutions to secure banking facilities granted to the
Group are as follows:
2019 2018
USD'000 USD'000
Freehold land 843 998
Building 19,372 20,919
Extraction and refinery plants 41,881 42,919
Office equipment, furniture and fittings 1,539 2,216
63,635 67,052
================ =================
10 PREPAID LAND LEASE PAYMENTS
2019 2018
USD'000 USD'000
At 1 July 2,408 2,439
Disposal (393) -
Amortisation for the financial year (101) (162)
Foreign exchange translation reserve (120) 131
At 30 June 1,794 2,408
======== ========
Cost 3,649 3,649
Disposal (393) -
Accumulated amortisation (1,294) (1,193)
Foreign exchange translation reserve (168) (48)
-------- --------
At 30 June 1,794 2,408
======== ========
11 DEFERRED TAX
2019 2018
(Restated*)
USD'000 USD'000
Deferred tax assets
At 1 July 10,223 10,464
(Charge)/Credit to profit or loss (Note
25) (8,052) (208)
Foreign exchange translation reserve 50 (33)
-------- ------------
At 30 June 2,221 10,223
======== ============
Deferred tax liabilities
Disposal 1,102 3,574
(Charge)/Credit to profit or loss (Note
25) (1,060) (2,472)
Foreign exchange translation reserve (39) -
-------- ------------
At 30 June 3 1,102
======== ============
Represented by:
Deferred tax assets
Tax losses 4,158 13,643
Capital allowance 4,023 2,901
Others 864 166
-------- ------------
9,045 16,710
Offsetting (6,824) (6,487)
-------- ------------
2,221 10,223
Deferred tax liabilities
Property, plant and equipment 6,380 5,712
Intangible assets 447 570
Unrealised loss on foreign exchange - 1,307
Offsetting (6,824) (6,487)
-------- ------------
3 1,102
======== ============
Deferred tax assets are recognised for tax losses carried
forward to the extent that the realisation of the related tax
benefit through future tax profit is probable based on projections
and forecasts prepared by management and taking into consideration
the expiry dates of carry forward losses.
During the year, USD9.4 million was impaired. In addition, the
Group elected not to recognise USD3.2 million in deferred tax
assets attributable to 2019 losses.
* Refer to Note 34 for additional information.
2019 2018
(Restated*)
USD'000 USD'000
Deferred tax assets
Deferred tax assets to be recovered
within 12 months - -
Deferred tax assets to be recovered
after more than 12 months 2,221 10,223
2,221 10,223
======== ============
Deferred tax liabilities
Deferred tax liabilities to be settled
within 12 months - (1,100)
Deferred tax liabilities to be settled
after more than 12 months (3) (2)
(3) (1,102)
======== ============
An analysis of tax losses with expiry dates for which deferred
tax assets have been recognised is as follows:
2019
USD'000
FY2021 1,905
Indefinite 15,966
Total 17,871
========
2018
USD'000
FY2021 1,905
FY2029 to FY2038 36,693
Indefinite** 16,283
Total 54,881
========
* Refer to Note 34 for additional information.
** The tax losses which have indefinite expiry date related to a
Malaysian entity which was not disclosed in the prior year.
12 INVENTORIES
2019 2018 2017
(Restated*) (Restated*)
USD'000 USD'000 USD'000
Raw materials 12,755 17,700 6,233
Work-in-progress 69,991 52,513 52,817
Finished goods 40,971 45,274 46,178
--------- ------------ ------------
Gross 123,717 115,487 105,228
Less: Provision on Net
Realisable
Value
Raw materials (5,320) - -
Work-in-progress (10,938) - -
Finished goods (3,410) - -
--------- ------------ ------------
(19,668) - -
Less: Provision on slow-moving
inventory
Work-in-progress (10,453)
Finished goods (4,354)
--------- ------------ ------------
(14,807) - -
--------- ------------ ------------
Raw materials 7,435 17,700 6,233
Work-in-progress 48,600 52,513 52,817
Finished goods 33,207 45,274 46,178
---------
Net carrying value 89,242 115,487 105,228
========= ============ ============
The cost of inventories recognised as an expense and included in
'cost of sales' amounted to USD62 million (2018: USD79
million).
During the year, it was identified that the Group's costing
methodology was not appropriately allocating the full cost of
inventory sold to comprehensive income, but instead those costs
remained capitalised in inventory. As such, historical inventory
was overstated, and historical cost of sales was understated. The
amounts above have been restated to properly reflect inventory on
hand at 30 June 2019 and 2018 and 2017 respectively.
There was a write down of inventories to net realisable value
amounting to USD24,170,000 in December 2018, largely relating to a
manufactured by-product which is classified under work-in-progress.
An alternative internal use for the by-product was identified
subsequent to the half year and the inventory write down was
reversed. However, during the second half of the year, the Group
determined that internal consumption was too costly and therefore
wrote-down the remaining cost of the by-product of USD3,788,000
(2018:NIL) to zero value.
* Refer to Note 34 for additional information.
Following a change in leaf strategy and shift in production
process, it was determined that the remaining of the by-product
were building up. Management is assessing possible internal uses or
opportunities to sell externally. The management has assessed the
estimated output by the consumption of the by-product based on the
manufacturing conversion rate and its estimated cost and selling
price. An impairment of USD7,150,000 (2018: NIL) has been provided
against two of its by products which are classified under
work-in-progress.
Additionally, given the trade restriction discussed above
between Paraguay and China, and given the uncertainty of our
identified route to market in terms of timing extract quality, the
Group has considered whether the cost of Paraguay leaf is impaired.
Although we see a viable route to market and intend to utilise this
route described in Note 6(ii) if proven reliable and of adequate
quality, at this time not enough information is available and thus
we have fully provided for the leaf purchased from Paraguay that
has not yet been sent for processing by the third party. This
amounted to USD5.3 million.
There was a provision for inventory net realisable value on
finished goods of USD3.4 million (2018: NIL) in which the expense
is included in the profit and loss. The total provision for
inventory net realisable value at 30 June 2019 resulted in an
inventory write down of USD19.7 million (2018: NIL). No such
expense was incurred in the financial year ended 2018.
There was a provision of slow-moving inventory on
work-in-progress and finished goods of USD10.4 million (2018: NIL)
and USD4.4 million (2018: NIL) respectively. These amounts have
been included as cost of sales in profit or loss during the
year.
The carrying value of inventories charged to financial
institutions to secure banking facilities granted to the Group is
USD40,642,000 (2018: USD62,974,000).
13 TRADE RECEIVABLES
2019 2018
(*Restated)
USD'000 USD'000
Current
Third party trade receivables 43,529 46,587
Specific provision (1,834) (510)
Expected credit loss (Note (1,429) -
4)
--------
40,266 46,077
-------- ------------
Joint venture - 1,924
- 1,924
-------- ------------
40,266 48,001
======== ============
*Refer to Note 34 for additional information.
(i) Classification as trade receivables
Trade receivables are amounts due from customers for goods sold
in the ordinary course of business. They are generally due for
settlement within 60 days and therefore are all classified as
current. The average debtor turnover days during the year is 130
days (2018: 142 days). Trade receivables are recognised initially
at the amount of consideration that is unconditional. The Group
holds the trade receivables with the objective to collect the
contractual cash flows and therefore measures them subsequently at
amortised cost using the effective interest method. Details about
the Group's impairment policies and the calculation of the loss
allowance are provided in Note 4(a).
As of 30 June 2018, trade receivables amounting to USD7,672,000
were past due but not impaired. These relate to a number of
independent customers for whom there is no recent history of
default. The ageing of the trade receivables that are past due but
not impaired is as follows:
2018
USD'000
Past due but not impaired:
Up to 3 months 5,570
3 to 6 months 919
6 to 12 months 734
12 months and above 449
7,672
========
(ii) Fair value of trade receivables
Due to the short-term nature of the current receivables, their
carrying amount is considered to be the same as their fair
value.
(iii) Impairment and risk exposure
Information about the impairment of trade receivables and the
Group's exposure to credit risk, foreign currency risk and interest
rate risk can be found in Notes 4(a) and 4(d). There is no
concentration of credit risk.
14 OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS
2019 2018
USD'000 USD'000
Non-current
Other receivables 1,840 410
Specific provision (1,840) -
-------- --------
As at 30 June - 410
======== ========
Current
Other receivables 6,865 3,879
Prepayments 1,920 3,479
Deposits 662 716
Specific provision* (2,554) -
--------
As at 30 June 6,893 8,074
======== ========
Note that the Group has fully provided against a current and
non-current receivable each worth USD1,830,000 and USD1,840,000
respectively related to one counterparty for which a product
development project was terminated. The Company received the first
of the three instalments, however, subsequent liquidity issues with
the counterparty were identified leading to the identification that
the credit risk for this receivable had increased significantly
since initial recognition. This led management to change the basis
of its calculation to a lifetime expected credit loss. It was
assessed that the expected credit loss was substantially the full
value of the receivable therefore the full value has been provided
for. Management has taken legal action in an effort to recover
monies owed.
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of receivables mentioned above,
although certain of the above are prepayments or deposits and
therefore represent no credit risk. These amounts are not past
due.
*There is specific provision for farmers' receivables in Kenya
and Paraguay of USD724,000 included in the specific provision. This
provision has been separately represented in 2019 based on its
calculation to a lifetime expected credit loss.
15 FINANCIAL INSTRUMENTS BY CATEGORY
Note 2019 2018
USD'000 USD'000
Financial assets at amortised cost
Trade receivables 13 40,266 48,001
Other receivables and deposits
(excluding prepayments) 1,470 2,352
Cash and bank equivalents 16 25,675 23,987
-------- --------
67,411 74,340
Financial assets carried at fair
value through profit or loss
Financial assets at fair value
through profit or loss 17 1,748 -
69,159 74,340
======== ========
Financial liabilities carried at
amortised cost
Borrowings 22 94,271 122,092
Trade payables 23 33,190 20,529
Other payables and accruals
(excluding deferred income) 24 23,285 18,167
-------- --------
150,746 160,788
======== ========
Financial liabilities carried at
fair value
through profit or loss
Derivative financial instrument 31 (1,446) -*
-------- --------
(1,446) -
======== ========
*IRS was entered on 29 June 2018 and the fair value was
immaterial to be disclosed as at 30 June 2018.
16 CASH AND CASH EQUIVALENTS
2019 2018
USD'000 USD'000
Short term deposits with licensed bank 17,868 11,858
Cash at bank and on hand 7,807 12,129
Deposits, cash and bank balances 25,675 23,987
Restricted cash (215) (52)
Cash and cash equivalents 25,460 23,935
======== ========
Cash deposits of USD215,000 (2018: USD52,000) are pledged as
security for bank guarantee and credit card facility.
The weighted average interest rates of the short-term deposits
at the reporting date was 2.1% (2018: 1.6%) per annum. The
short-term deposits have weighted maturity period of 5 days (2018:
7 days).
17 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
2019 2018
USD'000 USD'000
Financial assets at fair value through 1,748 -
profit or loss
======== ========
The fair value of the financial assets held at fair value
through profit and loss was determined to be equal to the nominal
value deposited with the financial institution on 28 June 2019. As
at 30 June 2019, management had determined that there was no
material change to the fair value of the financial instrument,
which is money market fund, since the date of initial recognition
as the deposit was placed with the financial institution at a date
close to the reporting date.
18 SHARE CAPITAL
The movements in the authorised and paid-up share capital are as
follows:
Group Group
2019 2018
------------------------------- ------------------------------ ------------------------------- ------------------------------
Par Number Number
value of of
shares USD shares USD
USD ('000) ('000) ('000) ('000)
Authorised
At 30 June 0.10 250,000 25,000 250,000 25,000
=============================== ============================== =============================== ==============================
Issued and
fully
paid-up
At 1 July 0.10 174,276 17,428 173,699 17,371
Issuance of
shares 0.10 9,500 950 - -
Exercise of
share
awards 0.10 580 58 577 57
------------------------------- ------------------------------ ------------------------------- ------------------------------
At 30 June 0.10 184,356 18,436 174,276 17,428
=============================== ============================== =============================== ==============================
19 SHARE PREMIUM
2019 2018
USD'000 USD'000
At 1 July 225,504 222,284
Issuance of shares 32,919 -
Transaction costs (725) -
Exercise of share awards 2,301 3,220
At 30 June 259,999 225,504
======== ========
20 FOREIGN EXCHANGE TRANSLATION RESERVE
The foreign exchange translation reserve arose from the
translation of the financial statements of the foreign operations
to the Group's presentation currency of USD. The foreign exchange
translation reserve balance was USD 20,135,000 (2018: USD
14,006,000).
21 SHARE-BASED PAYMENT RESERVE
The expense arising from equity-settled share-based payment
transaction recognised for employee services received during the
year is as shown below:
2019 2018
USD'000 USD'000
Expense arising from equity-settled
share-based payment transactions 2,291 1,725
======== ========
Reconciliation of movement in share-based payment reserve:
2019 2018
USD'000 USD'000
At 1 July 2,167 3,719
Share awards scheme compensation expense 2,291 1,725
4,458 5,444
Transfer to share capital and share
premium upon
exercise of share awards (2,359) (3,277)
At 30 June 2,099 2,167
======== ========
The Company maintains a Long-Term Incentive Plan ("LTIP"). The
principal terms include a restriction on the Company issuing (or
granting rights to issue) no more than 10 per cent of its issued
ordinary share capital under the LTIP (and any other employee share
plan) in any ten calendar year period. It is currently intended
that, other than in exceptional circumstances, such as senior
executive recruitment, all awards will be subject to performance
conditions and that, the performance conditions will be linked
principally to the Group's sales growth, or remain as an employee
on vesting date, which is three years after grant date. The awards
are conditional on employment service requirements.
The LTIP recognises the fast growth and changing nature of the
Company and the need to recruit and retain executives in different
employment markets around the world. Accordingly, the LTIP allows
for the Remuneration Committee to exercise significant discretion
in exceptional cases where the Committee considers executives will
bring particular value to shareholders.
The fair value of share awards granted is estimated at the date
of the grant, taking into account the terms and conditions upon
which the LTIPs were granted.
2019 2018
Number of Number of
LTIPs LTIPs
('000) ('000)
At 1 July 1,562 1,493
Granted 1,642 995
Exercised (579) (577)
Lapsed (1,542) (349)
At 30 June 1,083 1,562
========== ==========
Details of share awards granted that are outstanding as at 30
June 2019 are as follows:
Weighted
average
fair value
Number of at grant
LTIPs date
Outstanding (Sterling
Grant-vest '000 pound) Vesting requirements
Award 9
20 January 2017 - 30 Three years'
June 2020 201 2.86 service
Award 9
20 January 2017 - 30
September 2020 300 2.86 Sales target
Award 10
13 March 2017 - 31 March Three years'
2020 10 3.00 service
Award 11
29 September 2017 - 30 Three years'
September 2020 554 4.93 service
Award 12
7 March 2018 - 15 March Three years'
2021 8 4.28 service
Award 13
29 June 2018 - 16 April Three years'
2021 10 3.90 service
Total 1,083
=============
Subsequent to the year end, 417,174 units of LTIP is lapsed with
the resignation of the Executive Directors who entitled to the
LTIP.
22 BORROWINGS
2019 2018
(Restated*)
USD'000 USD'000
Current portion:
- Term loans (a) 61,006 89,729
- Revolving credit facility (b) 33,265 32,363
-------- ------------
Total borrowings 94,271 122,092
======== ============
The carrying amounts are current and therefore are considered to
approximate their fair value. The nominal amounts of the Group's
outstanding borrowings are USD97,500,000 (2018:
USD127,500,000).
During the year, the Group has capitalised borrowing costs of
USD129,810 (2018: USD342,433) on qualifying assets. Borrowing costs
were capitalised at the weighted average rate of its general
borrowings at 0.5% in the financial year ended 2019 (2018:
0.4%).
(a) Term loans
The term loans bore a weighted average effective interest rate
of 5.39% (2018: 4.65%) per annum at the reporting date. These term
loans bear floating rates (base rate plus a margin as imposed by
the bank) that fluctuate because of changes in market interest
rates.
Term loan and revolving loan (noted in b) is secured as
follows:
(i) a fixed and floating charge over present and future assets; and
(ii) corporate guarantee by the Company.
(b) Revolving credit facility
The revolving credit facility borne a weighted average effective
interest rate of 4.93% (2018: 4.18%) per annum at the reporting
date. The revolving loan bears floating rates (base rate plus a
margin as imposed by the bank) that fluctuates because of changes
in market interest rates.
Owing to the breach in covenants in both FY19 and FY18, the term
loan and the revolving credit facility have been reclassified as
current debt as in accordance with terms in the facility
agreement.
23 TRADE PAYABLES
The trade credit terms granted to the Group range from 0 to 90
days (2018: 0 to 90 days). The Group has obtained approval from its
major leaf suppliers to defer the payment of its overdue debts to
180 days from the due date, which was a practice that continued
throughout 2019.
2019 2018
USD'000 USD'000
Current
Trade payables 33,190 20,529
======== ========
24 OTHER PAYABLES AND ACCRUALS
2019 2018
USD'000 USD'000
Non-current
Other payables - 165
Deferred income 403 433
403 598
======== ========
Current
Other payables 10,936 10,024
Deferred income 36 102
Accruals 12,313 8,041
23,285 18,167
======== ========
Deferred income as at the reporting date represents a form of
regional government financial assistance for the purchase of high
technology plant equipment. The deferred income will be amortised
over the useful life of 20 years.
25 TAXATION
2019 2018
(Restated*)
USD'000 USD'000
Current tax:
Current tax on profits for the years (994) (475)
(Under)/Over provision in respect of 557 -
prior years
(437) (475)
Deferred tax:
Origination and reversal of temporary
differences (6,993) 2,259
(7,430) 1,784
======== ============
The Company was granted a tax assurance certificate dated 1
February 2012 under the Exempted Undertakings Tax Protection Act,
1966 pursuant to which it is exempted from any Bermuda taxes (other
than local property taxes) until 31 March 2035.
The subsidiary, 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 year of assessment (YA) 2008. The 10-year incentive period
expired in (YA) 2017. Subject to the Ministry of Finances (MOF)
approval, PCSB will be entitled to a concessionary tax rate of 20%
on income derived from qualifying activities for a further period
of 10 years from (YA) 2018. However, given that the approval from
the MOF is still pending, PCSB adopted the normal corporate tax
rate at 24% (2018: 24%) on the income derived from the qualifying
activities for the financial year end 30 June 2019.
Another subsidiary, PureCircle Trading Sdn. Bhd. ("PCT") has
been granted the Principal Hub Status by the Malaysian Investment
Development Authority in which PCT is entitled to a 100% income tax
exemption for a period of 10 years on its statutory income
commencing from YA 2017.
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.
The tax rates applicable to the respective countries where the
Group has operations are as bellows:
2019 2018
% %
United Kingdom (UK) 19 19
United States of America (US) 26 26
Malaysia 24 24
China 15 15
*Refer to Note 34
**The Group has fully reversed a subsidiary's deferred tax
assets of USD9,448,000 during the year (2018: NIL) which relates to
carried forward tax losses. Refer to Note 6(iii) for more
details.
A reconciliation of income tax expense applicable to the profit
before taxation at the applicable tax rate to income tax expense at
the effective tax rate of the Group is as follows:-
2019 2018
(Restated*)
USD'000 USD'000
(Loss)/Profit before taxation (72,243) (3,446)
========= ============
Tax at the applicable tax rates in the
respective countries (12,304) (2,696)
Tax effects of:
Non-deductible expenses 7,587 1,053
Non-taxable income (3,688) (361)
Over provision of taxation (485) (782)
Tax losses not recognised 4,028 140
Impact of difference in tax rate - 2,081
Tax losses previously not recognised,
now recognised** - (1,460)
Over recognition of prior year deferred
tax asset*** 9,448 241
Deferred tax assets not recognised during
the financial year on temporary differences
and unutilised tax losses 2,844 -
--------- ------------
Income tax expense/(credit) 7,430 (1,784)
========= ============
*Refer to Note 34
**Being deferred tax assets recognised on tax losses not
recognised as deferred tax assets in the previous year. The Group
is of the opinion that such deferred tax assets are able to be
recovered through future taxable profits generated.
*** The Group has fully reversed a subsidiary's deferred tax
assets of USD9,448,000 during the year (2018: NIL) which relates to
carried forward tax losses.
26 LOSS BEFORE TAXATION
Included in the loss before taxation are the following charges
and credits:
2019 2018
(Restated*)
USD'000 USD'000
Charges :
Depreciation 8,178 8,311
Amortisation 2,755 1,715
Directors' remuneration 2,400 1,899
Share-based payment expense 2,291 1,725
Interest expenses 11,015 7,355
Direct cost of materials expensed 61,826 78,990
Write down of inventories to net 19,668 -
realisable value
Provision of slow-moving inventory 14,807 -
Inventories written off 816 224
Wages and salaries 18,978 20,369
Defined contribution retirement
plan 1,968 2,158
Operating lease 1,219 905
Research expenses** 714 956
Incremental professional costs 6,773 -
Credits :
Amortisation of deferred income 101 73
Interest income 215 116
======== ============
*Refer Note 34
** Research expenses in relation to research activities are
charged to the profit or loss.
27 OTHER INCOME AND OTHER EXPENSES
This note provides a breakdown of the items included in "other
income", "other expenses", "finance income" and "finance costs" and
an analysis of expenses by nature. Information about specific
profit and loss items (such as gains and losses in relation to
financial instruments) is disclosed in the related balance sheet
notes.
(a) Other income
2019 2018
USD'000 USD'000
Charges :
Compensation of termination on R&D 5,500 -
project
Gain on foreign exchange rate difference - 1,363
Others 165 1,022
-------- --------
5,665 2,385
======== ========
The Group wrote off intangible assets which amounted to USD2.5
million because the joint collaboration partner had terminated the
project (Note 6(a)). The partner agreed to pay a compensation
amount to USD5.5 million recorded in other income. The Group
received USD1,830,000 from the collaboration partner in FY19.
However, an amount of USD1,830,000, which was due on 1 September
2019 was not received. Hence, the Group has provided a provision of
bad debt on the remaining outstanding balance as at 30 June 2019 of
USD3,670,000 (both current and non-current portions) and commenced
legal action to recover the amounts owed.
(b) Other expenses
Note 2019 2018
USD'000 USD'000
Charges :
Write off of intangible asset 8 2,500 -
Restructuring costs 837 1,001
Incremental professional costs 6,773
Legal fees arising from lawsuits 897 -
Write off of trade receivables - 34
Others 737 1,011
-------- --------
11,744 2,046
======== ========
The Group classifies its expenses according to function which
include cost of sales, administrative expenses, finance costs and
other expenses. The Group uses the by function method to
distinguish its costs of sales from other expenses.
(c) Impairment on leaf development
The Group has provided an impairment of USD13,919,000 (2018:
nil) for its leaf development project in Latin America and North
America due to unfavourable developments in the region. The
impairment is classified as other expense function. Refer to Note
6.
(d) Impairment on product development
The Group has provided an impairment of USD1,760,000 (2018: nil)
for its intellectual property and product development projects in
relation to a product with negative gross margin. The impairment is
classified as other expense function. Refer to Note 6.
(e) Specific provision on trade receivables
The Group has provided a specific provision of USD1,834,000
(2018: NIL) for its specific customers with dispute over its
overdue debts. The specific provision is classified as other
expense function.
(f) Expected credit loss on trade receivables
The Group has provided an impairment of USD892,000 (2018: nil)
for its expected credit loss allowance on trade receivables. The
expected credit loss is classified as other expense function. Refer
Note 4(a) for details.
(g) Expected credit loss on other receivables
The Group has provided an impairment of USD3,670,000 (2018: NIL)
for its expected credit loss allowance on its product development
project with a counterparty. In addition, the Group has provided an
additional impairment of USD137,000 (2018: NIL) for its expected
credit loss allowance on its farmers' receivables. The expected
credit loss is classified as other expense function. Refer Note 14
for more details.
(h) Finance income and costs
2019 2018
USD'000 USD'000
Finance income
Interest income from financial
assets held for
cash management purpose 215 116
======== ========
Finance costs
Interest expense on borrowing 7,183 6,070
Amortisation on transaction
costs 2,386 1,285
Fair value movement on interest
rate swaps* 1,446 -
-------- --------
Interest and finance charges
paid/payable
for financial year 11,015 7,355
======== ========
*In 2019, the amount was recognised in profit or loss in
relation to change in fair value of
interest rate swaps.
28 LOSS PER SHARE
The basic earnings per share is calculated by dividing the
earnings attributable to equity holders of the Company by the
weighted average number of ordinary shares in issue:
2019 2018
(Restated*)
Loss attributable to equity holders
of the
company (USD'000) (79,673) (1,662)
========= ============
Weighted average number of ordinary
shares in
issue ('000) 175,783 174,238
Impact of share awards outstanding
('000) 1,083 1,562
--------- ------------
Diluted weighted average number of
ordinary
shares ('000) 176,866 175,800
========= ============
Basic loss per share (US Cents) (45.32) (0.95)
Diluted loss per share (US Cents) (45.32) (0.95)
========= ============
*Refer to Note 34
29 SIGNIFICANT RELATED PARTY TRANSACTIONS
(a) Identities of related parties
The Group and/the Company have related party relationships
with:-
(i) its subsidiaries and joint venture; and
(ii) the Directors who are the key management personnel
(b) In addition to the information detailed elsewhere in the
financial statements, details of the Group's transactions and
balances with related party during the financial year are set out
below:
(i) Related party
2019 2018
USD'000 USD'000
Gross sales of goods to joint
venture 116 1,081
Gross stock returns from joint (476) -
venture
Rental expense* (226) (232)
======== ========
* Rent is payable to a significant shareholder that is
controlled by a Director who became a Director after year end.
Refer to the post balance sheet events in Note 35.
(ii) Key management personnel compensation
Key management personnel are executive directors of the Company.
The compensation paid or payable to key management for employee
services is shown as below:
2019 2018
USD'000 USD'000
Remuneration 1,540 1,297
Share-based payment expense 214 231
-------- --------
1,754 1,528
-------- --------
30 SEGMENTAL REPORTING
An operating segment is a component of an entity:
-- that engages in business activities from which it may earn
revenues and incur expenses (including revenues and expenses
relating to transactions with other components of the same
entity);
-- whose operating results are reviewed regularly by the
entity's chief operating decision maker to make decisions about
resources to be allocated to the segment and assess its
performance; and
-- for which discrete financial information is available.
Management considers the Group to be a single operating segment
whose activities are the production, marketing and distribution of
natural sweeteners and flavours. Management determined the Group
has one operating segments based on the criteria used by the Chief
Executive Officer (CEO) for making strategic decisions.
Each subsidiary of the Group contributes to the overall
operation of the Group. For example, leaf development activities
are conducted in a variety of subsidiaries whilst the extraction of
the leaf is conducted by a Chinese subsidiary and refining of the
extract is conducted in a Malaysian subsidiary. From that
perspective, the respective subsidiaries within the Group are
designed to operate in such a way that their cash flows are tied to
the Group's principal business - as described above - and are not
therefore discrete. The existence of transfer pricing mechanism at
subsidiary level for tax planning purposes does not preclude the
fact these entities all jointly operate to fulfil the Group's
primary activity of producing and selling Stevia-based high
intensity sweeteners in the global market.
From a geographical perspective, the Group is a multinational
with operations located on all continents but managed as one
unified global organisation using a single extraction and refinery
facility in China and Malaysia, respectively. The Group's markets
and its supply chain are based in the Americas, EMEA (Europe,
Middle East and Africa) and Asia Pacific.
2019 2018
(Restated*)
USD'000 USD'000
Trading
Revenue from contracts with customers** 124,003 126,601
Cost of sales (122,758) (88,320)
---------- ------------
Gross margin 1,245 38,281
---------- ------------
Gross margin % 1.0% 30.2%
Other income**** 5,875 1,138
Administrative expenses**** (34,477) (34,813)
---------- ------------
Operating profit (27,357) 4,606
Other expenses**** (33,955) (2,046)
Foreign exchange gain 4 1,363
Finance costs (11,015) (7,355)
Share of gain/(loss) in joint venture 80 (14)
Taxation (7,430) 1,784
---------- ------------
Loss for the financial year (79,673) (1,662)
---------- ------------
Adjusted EBITDA***** (29,603) 14,724
Reconciliation of Earnings to Adjusted
EBITDA:
Loss for the financial year (79,673) (1,662)
Depreciation and amortisation 10,933 10,026
Finance costs 11,015 7,355
Taxation 7,430 (1,784)
Exceptional items*** 20,692 789
---------- ------------
Adjusted EBITDA (29,603) 14,724
========== ============
Gross borrowings 94,271 122,092
Less : Gross cash (25,675) (23,987)
---------- ------------
Net debt 68,596 98,105
========== ============
Gross cash 25,675 23,987
* Refer to Note 34
** Under segmental reporting, revenues of approximately USD73
million (2018*: USD73 million) which consist of more than 60%
(2018*: 58%) of total revenue are derived from 5 external
customers. These revenues are attributable to the customers in the
United States.
*** Exceptional items are one-off in nature and are not expected
to recur. During the year, management has impaired the leaf
development in Latin America and North America amounted to
USD13,919,000. In addition, there are incremental professional
costs of USD6,773,000 (2018: Nil) in relation to the provision of
audit, legal and advisory services from professionals arising from
the review of the Group's inventory cost allocation methodology and
debt covenants. The main components of the exceptional costs are as
follows:
2019 2018
USD'000 USD'000
U.S. Customs and Border Protection
issue - 157
Others - 632
Impairment of leaf development 13,919 -
Incremental professional costs 6,773 -
Total exceptional items 20,692 789
======== ========
Excluding the exceptional items, the diluted loss per share was
USD33.55 per share (2018: USD0.50 per share) and calculated based
on the net loss excluded exceptional items during the year of
USD58,981,000 (2018: USD873,000) divided by the weighted average
number of ordinary shares in issue at the reporting date of
175,783,000 (2018: 174,276,000).
**** Other income and other expenses in the table above exclude
foreign exchange gains and losses which are reported separately,
and include finance income of USD215,000 (2018: USD116,000).
USD2.3m (2018: USD2.3m) of costs associated with the Group's LTIP
scheme and bonus scheme have been reclassified from administrative
expenses to other expenses.
*****Adjusted EBITDA is defined as EBITDA with other expenses
(principally the charge of the Group's share-based payment
expenses, exceptional items, depreciation and amortisation,
taxation and finance cost) added back.
Geographical information
Asia Europe** Americas Goodwill Total
USD'000 USD'000 USD'000 USD'000 USD'000
30 June 2019
External revenue 20,266 37,790 65,947 - 124,003
Non-current assets 133,798 1,390 9,879 1,806 146,873
Current assets 115,973 18,412 30,951 - 165,336
30 June 2018
External revenue* 16,049 47,218 63,334 - 126,601
Non-current assets 154,898 1,531 19,053 1,806 177,288
Current assets* 138,398 25,021 32,383 - 195,802
* Restated
Basis of attributing sales by geographical region is based on
location of sales. All sales are recognised at a point in time.
The primary performance indicators used by the Group are
revenues, gross margin %, adjusted EBITDA, net cash from
operations, gross cash and borrowings. Management consider these
alternative performance measures helpful in understanding the
performance of the business.
The net assets per share is USD0.91 per share (2018: USD1.21 per
share) and calculated based on the net assets book value at the
reporting date of USD159,477,000 (2018*: USD210,167,000) divided by
the weighted average number of ordinary shares in issue at the
reporting date of 175,783,000 (2018: 174,276,000).
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.
*Refer to Note 34.
** The Europe segment includes results and sales to the Group's
European joint venture, which was in liquidation at the balance
sheet date.
31 COMMITMENTS
(a) Capital commitments
Capital expenditure contracted for at the reporting date but not
recognised as liabilities is as follows:
2019 2018
USD'000 USD'000
Authorised capital expenditure contracted
for
- Property, plant and equipment 2,651 269
Authorised capital expenditure not
contracted for 1,568 6,401
b) Operating lease commitments
The Group also leases corporate office under non-cancellable
operating lease agreements. The lease expenditure charged to the
profit or loss during the year is disclosed in note 26.
The future aggregate minimum lease payments under
non-cancellable operating lease is as follows:
2019 2018
USD'000 USD'000
The present value of operating lease
is as follows:
- No later than one year 1,324 800
- Later than 1 year and no later
than 5 years 2,740 3,725
- More than 5 years 1,470 1,715
5,534 6,240
32 DERIVATIVE FINANCIAL INSTRUMENT
2019 2018*
Assets Liabilities Assets Liabilities
USD'000 USD'000 USD'000 USD'000
Non-current liabilities:
Interest rate swaps - 1,446 - -
================
*IRS was entered on 29 June 2018 and the fair value was
immaterial to be disclosed as at 30 June 2018.
33 CHANGES IN ACCOUNTING POLICIES
This note explains the impact of the adoption of IFRS 9
Financial Instruments and IFRS 15 Revenue from Contracts with
Customers on the Group's financial statements.
(a) IFRS9 Financial Instruments
IFRS 9 replaces the provisions of IAS 39 that relate to the
recognition, classification and measurement of financial assets and
financial liabilities, derecognition of financial instruments,
impairment of financial assets and hedge accounting.
The Group applied IFRS 9 retrospectively, with certain permitted
exceptions. Comparative figures have not been restated.
(i) Classification and measurement
The adoption of IFRS 9 did not result in any changes in the
measurement or classification of financial instruments. All classes
of financial assets and financial liabilities will continue to be
measured on the same basis under IFRS 9. The effect of adopting
IFRS9 on the carrying amounts of financial assets and liabilities
relates solely to the new impairment requirements as explained in
Note 5 (a) and (b), all other carrying values remained the
same.
Below is the original and new classification and measurement of
financial instruments:
Financial assets Original New
Cash and cash equivalents Loan and receivables Financial assets
- amortised costs at amortised
costs
Money market fund Available for sales Fair value through
- fair value profit or loss
Trade receivables Loans and receivables Financial assets
- amortised cost at amortised
cost
Other receivables, Loans and receivables Financial assets
deposits and prepayments - amortised cost at amortised
cost
Financial liabilities
Trade payables Other liabilities Other financial
- amortised cost liabilities -
amortised cost
Bank loans and overdraft Other liabilities Other financial
- amortised cost liabilities -
amortised cost
Derivative financial Held for trading Fair value through
instruments - fair value profit or loss
(ii) Impairment
IFRS 9 replaces the 'incurred loss' model in IAS 39 with an
'expected credit loss' (ECL) model. IFRS 9 requires the Group to
recognise an allowance for ECLs for all debt instruments not held
at fair value through profit or loss and contract assets.
Consistent with note 4(a), the Group revised its impairment
methodology for trade receivables by applying the simplified
approach to provide for expected credit losses prescribed by IFRS
9, which requires expected lifetime losses to be recognised from
initial recognition of the receivables.
The Group has determined that the application of IFRS 9's
impairment requirements at 1 July 2018 results in an additional
allowance for impairment as follows.
USD'000
Loss allowance at 30 June 2018 under
IAS 39 510
Additional impairment recognised at 1
July 2018 on:
- Trade receivables 323
Loss allowance at 30 June 2018 under
IFRS 9 833
(b) IFRS 15 Revenue from Contracts with Customers
IFRS 15 requires entities to recognise revenue to depict the
satisfaction of a performance obligation in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for the related goods or services. It focuses on the
identification of performance obligations in a contract and
requires revenue to be recognised when or as those performance
obligations are satisfied. 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. As discussed in Note 5(t), the amount of revenue
recognised is recorded net of any sales allowances as the nature of
the arrangements with customers are such that the Group must
arrange for a third party to provide a specified good to the
customer.
Transfer of control is not the same as transfer of risks and
rewards as previously considered for revenue recognition. The Group
recognises revenue when it satisfies a performance obligation by
transferring control of a promised good 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 service to a customer).
Based upon the Group's operations, performance obligations are all
recognised at a point in time for distinct promised goods under a
standard ship-and-bill model. In certain cases the Group may enter
into less straightforward contracts with customers. IFRS 15
establishes a five-step model to account for revenue arising from
contracts with customers. As a result, the Group has implemented an
up-front review of contracts and amendments to ensure compliance
with IFRS 15.
The Group applied IFRS 15 using a modified retrospective
approach, with the date of initial application of 1 July 2018. The
adoption did not have a material impact on the Group's financial
statements, as the application of the new standard does not result
in differences with the existing accounting principles of the
Group, other than certain changes in the disclosure requirements.
The timing of the recognition of product sales and the basis for
the estimates of sales deductions under IAS 18 are consistent with
those adopted under IFRS 15. Accordingly, no adjustment was made to
the opening balance of accumulated losses as at 1 July 2018.
34 PRIOR YEAR ADJUSTMENTS
During the year, it was identified that the Group's revenue was
not appropriately recorded in the prior period due to recognition
of a non-commercial linked transaction and cut off errors. As a
result, historical revenue was overstated.
During the year, it was identified that the Group's costing
methodology was not appropriately allocating the full cost of
inventory sold to comprehensive income, but instead, certain costs
remained capitalised in inventory. As such, historical inventory
was overstated and historical cost of sales was understated.
As a result of the above restatements to prior period revenue
and cost of sales, the Group did not comply with certain of their
debt covenants as at 30 June 2018 and therefore debt was
reclassified to current for this period.
Revenue, receivables, i nventory, and cost of sales for the
financial year then ended 30 June 2018 as well as the opening
balance in retained earnings as at 1 July 2017 was restated and the
related tax impact was considered. Additionally, as a result of
covenant breaches in FY18 and FY19, borrowings have been
reclassified to current from noncurrent.
Accordingly, the comparative financial information has now been
restated as follows :
As
previously Prior year adjustments As
reported Revenue Inventory Borrowings IFRS 9 restated
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
(a) Impact on the statement of comprehensive income:
For the financial year ended 30 June 2018
Revenue 131,066 (4,465) - - - 126,601
Cost of sales (81,824) 798 (7,294) - - (88,320)
Profit/(loss)
before
taxation 7,514 (3,666) (7,294) - - (3,446)
Taxation 1,183 19 582 - - 1,784
Profit/(Loss)
for the
financial
year 8,697 (3,647) (6,712) - - (1,662)
As
previously Prior year adjustments As
reported Revenue Inventory Borrowings IFRS 9 restated
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
(b) Impact on the statement of financial position:
As at 1 July 2017
Current
assets:
Inventories 106,007 3,707 (4,486) - - 105,228
Trade
receivables 58,019 (5,094) - - - 52,925
Current
liabilities:
Other
payables
and accruals 24,637 (116) - - - 24,521
Non-current liabilities:
Deferred tax
liabilities 3,264 - 310 - - 3,574
Equity:
Foreign
exchange
translation
reserve (22,531) 2 - - - (22,529)
Accumulated
losses (13,195) (1,503) (4,566) - - (19,264)
As at 30 June 2018
Current
assets:
Inventories 122,538 4,505 (11,556) - - 115,487
Trade
receivables 57,496 (9,495) - - - 48,001
Non-current liabilities:
Deferred tax
liabilities 1,365 19 (282) - - 1,102
Long-term
borrowings 112,903 - - (112,903) - -
Current
liabilities:
Short-term
borrowings 9,189 - - 112,903 - 122,092
Other
payables
and accruals 18,171 (4) - - - 18,167
Equity:
Foreign
exchange
translation
reserve (14,155) 149 - - - (14,006)
Accumulated
losses (4,498) (5,009) (11,419) - - (20,926)
As
previously Prior year adjustments As
reported Revenue Inventory Borrowings IFRS 9 restated
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
(c) Impact on the statement of changes in equity:
As at 1 July 2017
Equity:
Foreign
exchange
translation
reserve (22,531) 2 - - - (22,529)
Accumulated
losses (13,195) (1,503) (4,566) - - (19,264)
As at 30 June 2018
Equity:
Foreign
exchange
translation
reserve (14,155) 149 - - - (14,006)
Accumulated
losses (4,498) (5,009) (11,419) - (323)* (21,249)
(d) Impact on the statement of cash flows:
For the financial year ended 30 June 2018
Profit/(Loss)
before
taxation 7,514 (3,666) (7,294) - - (3,446)
Operating cash
flow before
working
capital
changes 24,425 (3,666) (7,294) - - 13,465
Increase in
inventories (16,700) (4,505) 10,778 - - (10,427)
Decrease in
trade and
other
receivables 3,390 4,401 - - - 7,791
Net cash from
operations 16,100 (174) - - - 15,926
Net cash
generated
from
operating
activities 3,015 (174) - - - 2,841
Net decrease
in cash and
cash
equivalents (13,331) (175) - - - (13,506)
Effects of
foreign
exchange
rate 4,522 175 - - - 4,697
*The adjustment relates to application of IFRS 9's impairment
requirements at 1 July 2018 results in an additional allowance for
impairment. Refer Note 33(a) for more details.
Given that the Group's key performance indicators include
non-GAAP measures, a schedule below is included to provide detail
on the impact to earnings per share (EPS), gross margins, and
earnings before profit, taxes, depreciation and amortisation
(EBITDA).
As previously Prior year As restated
Key Financial Metric reported adjustment
Financial year ended 30 June 2018
Earnings per share (US cents)
-Basic 4.99 (5.94) (0.95)
-Diluted 4.95 (5.90) (0.95)
Gross Margin % 37.6% (7.4%) 30.2%
Adjusted EBITDA (USD'000) 28,836 (14,112) 14,724
35 POST BALANCE SHEET EVENTS
Events after the period end comprise:
(a) On 11 November 2019, Wan Azmi Wan Hamzah, Tan Sri was
appointed as a non-independent non-executive director of the
Company. He has a total combined interest of 11.2% of the share
capital of the Company through two family investment vehicles,
namely Halfmoon Bay Capital Limited and Alwaha Fund Limited, both
of which are significant shareholders. A subsidiary of the Group,
PureCircle Trading Sdn Bhd ("PCT") entered into an office rental
agreement with an entity controlled by Wan Azmi Wan Hamzah, Tan Sri
on 26 October 2015 for a fixed term of 6 years and a renewal term
of 4 years commenced from 1 July 2015 at monthly rental ranging
from USD18,000.00 to USD20,000.00. The rental agreement was made at
arm's length.
(b) On 14 November 2019, Mr. Magomet Malsagov voluntarily agreed
to stand aside on a temporary basis as Group CEO and as a director
of the Company and its subsidiaries. He subsequently resigned on 17
December 2019.
(c) On 22 November 2019, Mr. Rakesh Sinha resigned as the
Director of the Company and its subsidiaries. He subsequently
resigned as Chief Financial Officer on 12 December 2019.
(d) On 19 December 2019, the Department of Homeland Security
U.S. Customs and Border Protection's ("CBP") issued the Group with
twenty (20) Notices of Penalty or Liquidated Damages Incurred and
Demand for Payment seeking payment of USD 8,377,920.00 in penalties
for shipments from December 4, 2014 to February 4, 2016, that CBP
asserts may have included Stevia that derived from convict or
forced labor from the Baoanzhao region of China. As at the date of
signing of the financial statements, management is of the view that
the contingent liability of USD8,377,920 is very unlikely to become
a liability as CBP has not provided any proof of its claims. No
provision should be made as at 30 June 2019.
(e) On 23 December 2019, one of the Group's subsidiary,
PureCircle Sendirian Berhad ("PCSB") received a letter of
notification from the Royal Malaysian Customs Department of
Selangor ("Customs") claiming back-payment of import duties of
USD8,800,000 on the import of ethanol between March 2017 and April
2019 because imported ethanol purity levels did not agree with the
approved exemption letter from the Malaysian Investment Development
Authority ("MIDA"). On 31 January 2020, PCSB subsequently obtained
a new exemption letter from MIDA on the import of ethanol without
specification of the purity level for import from 9 January 2020 to
December 2020. An appeal letter has been issued to MIDA to obtain
waiver on the import duties of the past transactions. As at the
date of signing of the financial statements, the Directors are
unable to reliably estimate the cost to settle any potential claim
with respect to this matter as no demand has yet to be received.
Accordingly, no provision has been made in the financial
statements.
(f) On 16 January 2020, the Group has obtained a subordinated
term facility from certain shareholders and related parties of the
Group of USD8,600,000. The term facility is unsecured with interest
rate at 7.85% per annum plus LIBOR for an interest period of 6
months which was made at arm's length.
(g) On 10 February 2020, Lai Hock Meng (Peter) was appointed as
the Chief Executive Officer and an Executive Director of the
Company. He holds 280,000 ordinary shares in the Company,
representing 0.15% of the ordinary share capital of the
Company.
(h) On 10 February 2020, Olivier Maes was appointed as an
Independent Non-Executive Director of the Company. He holds a total
of 513,821 ordinary shares in the Company, representing 0.28% of
the ordinary share capital of the Company, of which 375,420
ordinary shares are held directly and 138,401 ordinary shares are
jointly held with his children.
(i) The Company has secured approval from its lenders of a
Waivers and Amendments to its Senior Facility Agreement ("Waivers
and Amendments") which became fully effective on 18 February
2020.
(j) The Company has secured an approval from its lenders of a
waiver to submit a proposed forecast set of certain financial
ratios as at 31 March 2020 by the required deadline and have
obtained an extension of time to finalise and publish its FY2019
audited financial statements by 31 March 2020 and approval waiver
on failing to provide a fortnightly update on the Group's financial
and operational performance to lenders by the required
deadline.
(k) In light of the COVID-19 pandemic, operations at the Group's
extraction plant in China was suspended from 31 January 2020 to 18
February 2020 to adhere to the authority's measure to contain the
outbreak. In addition, operations of the Group's refinery factory
located in Malaysia has been suspended since 18 March 2020, to
comply with the Malaysian government's movement control order.
However, we expect to resume operations immediately, following
approval by the authorities of our application to reopen and
restart production.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR QFLFXBXLFBBQ
(END) Dow Jones Newswires
March 31, 2020 12:21 ET (16:21 GMT)
Grafico Azioni Purecircle (LSE:PURE)
Storico
Da Dic 2024 a Gen 2025
Grafico Azioni Purecircle (LSE:PURE)
Storico
Da Gen 2024 a Gen 2025
