- Stevia producer PureCircle posted a net loss after taxes of $79.7 million in the year that ended in July 2019, according to final audited financial statements posted on its website.
- The company first noticed some inconsistencies related to how items in its inventory were classified and valued in September. The company postponed its results, which were supposed to be posted in late September, and hired KPMG to investigate any problems. They identified several transactions and sales that appeared to not be recorded properly, the statement says. The company also took a series of write downs, including one for $19.7 million for existing inventory, one for $14.8 million for slow-moving inventory and a $15.7 million impairment charge on leaf and product developments. The company also spent $6.8 million on professional fees during the investigation.
- "This has been a difficult time for PureCircle," Chairman Dato' Robert Cheim said in the report. "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." He said that since the problems were first found, the company changed its management team, added new board members and put in new accounting controls to prevent similar problems in the future. The company has also received a waiver of all previous defaults, bringing in an additional $8.6 million in liquidity through an unsecured subordinate loan from shareholders. PureCircle is considering different ways to come up with more money, including finding investors, refinancing existing debt or selling its refineries to a third party and leasing them back.
It would be an understatement to say that PureCircle had a challenging year from a business perspective.
The magnitude of these financial issues makes it clear that the problems were deep-seated. According to the financial reports posted this week, the problems stretched back several years. It's unclear if there was any criminal activity, but the investigation into these issues led to the resignation of the company's CEO, CFO and several members of the company's board.
As Board Chairman Cheim stated in his remarks on the report, the resignation of former CEO Magomet Malsagov hit the company very hard. Malsagov both founded PureCircle and started the movement to use stevia as a sweetener, the remarks say. However, Cheim wrote, changes needed to be made.
"We identified a culture within the organisation of 'make the numbers' as a priority over doing things properly," he wrote. "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."
The company's new CEO, Peter Lai Hock Meng, wrote in the report that the problem stemmed from a change in the products PureCircle was putting on the market in past years. Because of new innovations, the company made less of some older products, and inventory was improperly recorded on the balance sheet. Price pressures in an increasingly competitive and commoditized market also squeezed the company's finances.
But PureCircle appears to be on the path to move beyond this. About a month ago, experienced financial manager and PureCircle veteran Meng became the company's new CEO. Its new CFO, Jimmy Lim Kian Thong, has been at the company since February. He has deep operational accounting experience and was previously CEO and executive director of Asia-based security firm Haitong International Securities.
PureCircle is extremely late with its financial reporting — the results posted this week, after all, are from a time period that ended nine months ago — but a note from Lim in early March detailed the new financial and auditing controls the company is putting in place to ensure its finances remain accurate. Still, with so much of a backlog, it's hard to tell if there have been improvements in sales or earnings.
Meng said in the financial report that PureCircle is putting new emphasis on large-scale expansion and innovation. PureCircle is definitely in the sweetest spot for both of those. It's already a market leader in the stevia space, which Super Market Research said was worth nearly $480 million worldwide in 2018. The research firm expects the natural sweetener's market to expand at a compound annual growth rate of 8.5% through 2024.
PureCircle has always been at the forefront of innovation and marketing for stevia. In 2017, the company developed the StarLeaf variety of the stevia plant, which has 20 times more of sugar-like Rebaudioside M. PureCircle also has a chemical process to convert more of the stevia plant's glycosides to Reb M, and it's currently fighting in court to protect its patent. In December, PureCircle launched its new Sigma Syrup, a concentrated Reb M blend designed to overcome common solubility challenges.
In the financial report, Meng wrote that areas that PureCircle is working on include creating protein, fiber and antioxidant ingredients from stevia leaves, cutting down on the amount of the leaves that are discarded and fitting into consumer trends for more nutritious plant-based ingredients. The company is also pursuing using stevia for sodium reduction and masking undesirable flavors in some food and beverage.
Additionally, PureCircle has worked to show consumers that the stevia of today doesn't have the bitter aftertaste once associated with the ingredient. Last summer, the company sold ice cream sweetened with stevia from trucks throughout the Chicago area. This kind of campaign, coupled with all of the innovation at PureCircle, could make the public much sweeter on stevia. And while it won't be easy for the company to recover, all of these new ideas and developments make a turnaround seem much more likely.