PureCircle loss widens after inventory write-down

PureCircle on Tuesday reported a wider interim loss following a decline in revenues and a write-down of its inventory as it moved to create products with a new variety of stevia leaf.

For the six-month period ended 31 December, the world's leading producer and innovator of stevia sweeteners recorded a loss before tax of $25.4m, an increased loss from $1.8m the year before, which was primarily due to a $24.2m inventory write-down related to by-products generated from previous varieties of leaf.

The AIM traded company explained that with the introduction of "better tasting and yielding Starleaf", the commercial value of these by-products had been impaired due to their limited production in the future.

Magomet Malsagov, chief executive of PureCircle, said: "The reformulations have led to some cannibalisation of base business and the results of the first six months should be seen in this context. Over and above new business we anticipate cannibalisation of the base business to continue through calendar year 2019. We expect margins to strengthen as both reformulations and new launches will primarily be based on high margin products."

Meanwhile, the company's revenues dropped by 5.2% to $50.7m as sales were inhibited by customers reformulating first generation products to "better tasting" products made with the new Reb M sweetener, according to PureCircle.

Cash and cash equivalents stood at $14.6m at the end of the period, down from $27.7m at the conclusion of the previous year.

"Our pipeline of projects with new products continues to grow in both existing and new channels. We are seeking to further capitalise on the superior taste delivery of our new generation products through a significantly expanded go-to-market team. We believe this combination will position PureCircle to successfully execute its new strategy over the next few years," said Malsagov.

Analysts at Liberum said: "Customers are quickly reformulating existing products based on Reb A to the better-tasting Reb M. This process takes time and is cannabilising PureCircle's pre-existing revenue-base. This, plus some orders being delayed from 1H to 2H, drove the 1H sales decline. We still expect sales growth for the full year and believe the new product range will stimulate accelerated sales growth in addition to higher margins in approximately 12 months time."

PureCircle's shares were down 0.30% at 246.00p at 1547 GMT.