2013 Annual Report
2 PureCircle Annual Report 2013 Everything Stevia EVERYTHING STEVIA Everything Stevia – we introduced this theme in last year’s annual report to encapsulate PureCircle’s dedication and engagement with customers, stevia partners and end consumers. This year, we are proud to report on the progress of our continued journey in establishing PureCircle’s stevia based ingredients, a relatively young natural ingredient in a dynamic and vibrant food and beverage industry. To this end, we have focused relentlessly on the key dynamics in the food and beverage industry – delivering great taste, ensuring consumer acceptance, fostering ingredient advocacy. Our knowledge and systematic approach to eliminating barriers to stevia growth, has set us apart. In 2013, we have strengthened our position as the Everything Stevia company. To maintain leadership as the Everything Stevia company, we have continued our focus on the pillars that have fueled our growth. But we have not stood still. Our technical expertise is deeper. Our innovation pipeline is richer. Our trust mark is more visible. Our advocacy work is more ubiquitous. Our sustainability benefits are clearer. And our consumer insights are even more insightful. As a result, we’re developing deeper calorie reduction solutions and deeper partnerships with our customers than ever before. Most importantly, our results can be seen on grocery store shelves around the world. www.purecircle.com We focus on the following platforms to engage with customers, stevia partners, and end consumers: 1 Everything Stevia Platforms Innovation and Technical Support Creating competitive advantage through world class innovation and customer technical support 2 Trust Communication 3 Health Professional Advocacy 4 Sustainability Solutions 5 Everything Stevia Expanding the adoption of the Stevia PureCircle trustmark to support compelling consumer communications Providing confidence to the industry through the Global Stevia Institute Translating supply chain integration into environmental advantage Establishing ourselves as the “Everything Stevia” company – from marketing services to integrated communications 3 4 PureCircle Annual Report 2013 Platform 1: Innovation and Technical Support PureCircle Stevia 3.0™ 20+ new products in the pipeline Technical resource lab facilities 1 Innovation and Technical Support www.purecircle.com Providing the World, World-Class Innovation and Technical Support Our customers pride themselves on their unique food and beverage formulations. They tell us that their core consumers are discerning. Their new launches must delight them and reformulations are to be carefully considered. A single stevia ingredient, as we had offered in the past, was not fully meeting their needs. We responded with technical development and innovation solutions to meet this challenge. The results are evident with a greater diversification of our sales and better tasting products being launched, with deeper reductions than were possible in the past. It has been said, “The future is already here, it’s just not widely distributed yet”. PureCircle’s innovations are bringing forward the future of great-tasting, natural, calorie reduction. At its core, PureCircle is an innovation company. We believe the future is now here through the expansion of our portfolio across PureCircle sweeteners and flavors. Notable portfolio additions in 2013, included breakthrough innovation that can be used in zero calorie products like carbonated soft drinks, with Reb X and Reb D. And our pipeline remains rich with new sweeteners and flavors that will launch in 2014. We are also strengthening our ability to apply these innovations. In 2013, we greatly expanded our lab infrastructure in the United States, China and the UK. It has enabled us to expand our execution of PureCircle Stevia 3.0™ which offers tailored sweetening solutions blended to fit any application. Rather than providing ‘one-size-fits-all’ stevia sweetening, we have learned that to get the best stevia-sweetened product, a blended approach can be the answer. Knowing the particular stevia ingredients which work best in specific food and beverage matrices, lets our product developers achieve deeper calorie reductions with better taste profiles than ever before. We are delivering this new approach through an extensive side by side development program, with our customers, called PureCircle University. In 2013 we held over 70 PureCircle University programs around the world, partnering with our customers to develop the right concepts and right formulations to bring to market. 5 6 PureCircle Annual Report 2013 Platform 2: Trust Communication Trustmark use Licensing More product launches Launch campaigns across marketing media 2 Trust Communication www.purecircle.com Stevia PureCircle Trustmark integrated into activities of prominent product launches Approval of stevia for use as a sweetener in food and beverage products has continued to expand into new markets around the globe and the Stevia PureCircle Trustmark program has also expanded over the past fiscal year. The Stevia PureCircle Trustmark continues to provide a strong base of trust and source of consumer communication around stevia for PureCircle customers as part of their brand launches. Harnessing new market insight studies and continued market intelligence, the Stevia PureCircle Trustmark program not only supports customers in communicating key consumer messages but also helps ensure they understand the correct way to label stevia and describe it in key markets with specific, local regulatory guidelines. While the trustmark continues to be utilized by products in over 30 countries, it is finding its way into the campaigns of notable product launches. In 2013 the Stevia PureCircle trustmark was licensed for use in the world’s first major stevia cola launches by PepsiCo with Pepsi Next in both Australia and France. The Stevia PureCircle Trustmark was an integral part of the company’s consumer launch campaigns, appearing prominently across a range of marketing media including in-store, digital, sampling and print advertising. With consumers directed to www.steviapurecircle.com, PureCircle was able to reinforce the quality of the natural origin stevia they use from the leader in the industry. Origin of supply, traceability, quality and trust of ingredients are an increasing focus within the global food and beverage industry. Via the PureCircle Trustmark program, our customers are able to share rich information with their consumers about high-purity stevia from the leader in the industry. 7 8 PureCircle Annual Report 2013 Platform 3: Health Professional Advocacy 26,000 subscribers of GSI newsletter 73,000 visits to website ® 4000+ KOLs* reached at scientific forums 3 Health Professional Advocacy www.purecircle.com Proactive Ingredient Advocacy through The Global Stevia Institute The Global Stevia Institute has established itself as the leading resource for science-based information about stevia and plays an essential role in ingredient advocacy and protection in emerging and developed markets. The GSI is advised by a board of internationally-known nutrition and health specialists with expertise in key functional areas and established credibility in priority markets. In 2013, the Board was further strengthened with the appointment of an ingredient safety expert, a local advisor in Mexico, and an Advisory Board Chair to guide GSI strategy. The GSI disseminates science-based information about stevia, its safety and natural origin, and its role in improving and encouraging healthy diets through multiple channels globally. The GSI reaches 26,000 readers with proactive stevia messages through its online newsletters and updates. GSI’s resources are targeted to healthcare professionals, media, and consumers, yet also provide an important source of support for customers. In 2013, companies like Coca-Cola chose the GSI website as its expert stevia resource to support launch activities in South America and has expanded its references to GSI resources in markets around the world. The GSI’s website (www.globalsteviainstitute.com) has received over 73,000 visits from 169 countries since its launch. The value of GSI’s resources have been further recognized by customers who have partnered with the GSI to promote scientific discussion about stevia among health and nutrition organizations, at scientific forums and with the media. The GSI also collaborates with leading health information organizations like the Calorie Control Working Group to protect the reputation of stevia as a naturally sourced ingredient suitable for the whole family. Market/Advisor Expansion Global Digital Outreach • 7 countries across 3 continents • Recent addition of Mexico chair and functional experts •6 languages, newsletter reaches 26,000+ •Website traffic from 169 countries •Recognized by major customers as the leading resource about stevia Global Speaker Circuit •4000+ KOLs* reached at scientific forums and meetings in 11 countries Media and Coverage •15+ million media impressions * KOLs: Key Opinion Leaders Strategic Partnerships •Building credibility through partnerships and expanding stevia education to 45,000+ KOLs* and consumers via collaborations with leading health and nutrition organizations. 9 10 PureCircle Annual Report 2013 Platform 4: Sustainability Solutions 1million Reduction of metric tonnes of carbon CO2e Reduction of 2 trillion litres of water 20% footprint reduction PureCircle 2020 Sustainability Goals 0% landfill waste Supporting 100,000 farmers 4 Sustainability Solutions Reduction of 13 trillion calories 100% traceability www.purecircle.com Reducing Food and Beverage Impacts –Translating our Sustainability Advantage to Customer Advantage It is our vision to lead the global expansion of stevia as the next mass volume natural sweetener and to encourage healthier diets through the supply of natural ingredients to the global food and beverage industry. And it is our mission to scale stevia as the next mainstream natural sweetener sustainably. With completion of industry-pioneering farm to gate carbon and water footprints for fiscal 2011 followed by another detailed farm to gate carbon foot printing in fiscal 2012, we have established ambitious goals that will positively benefit the wider food and beverage industry and communities we operate in. These goals cover each aspect of our operation from farm to product. Briefly, our goals are to: Achieve a cumulative Reduction in the Food & Beverage Industry’s • Carbon emissions by 1 million metric tons by 2020 • Water consumption by 2 trillion liters by 2020 • Calories in global diets by 13 trillion by 2020 While • Reducing our own Carbon, Energy and Water intensity by 20% by 2020 from our 2011 baseline • Ensuring zero untreated landfill waste from across our supply chain by 2015 • Adopting a Sustainable Agricultural policy that empowers and offers up to 100,000 small scale farmers a fair market to participate in • Maintaining and extending our traceability program as we grow 11 12 PureCircle Annual Report 2013 Platform 5: Everything Stevia Stevia awareness: 64% of people in France surveyed in March 2013 Innovation Customization Realization more than 500 top food and beverage manufacturers worldwide 5 Everything Stevia www.purecircle.com Maintaining industry leadership as the “Everything Stevia” company through innovation • customization • realization While 2012 marked the launch of PureCircle’s Everything Stevia campaign, 2013 saw the company strengthen its position as the market leader through global communications and successful engagement of the PureCircle Insights Group with customers. The Everything Stevia campaign reached major customers around the world through integrated communication efforts across event, digital, print social media, and speaker positions at leading conferences globally. PureCircle expanded its successful Everything Stevia conference series with full day events across both China and the newly approved Canadian market. These events demonstrated PureCircle’s innovative portfolio and formulation expertise to thousands of delegates from more than 500 top food and beverage manufacturers worldwide. The PureCircle Insights Group is recognized as the leading authority for consumer and market insights on stevia. The group invested in extensive proprietary consumer research and market data to provide actionable insights that drive concept development and messaging strategy for our customers. In 2013, the PureCircle Insights Group conducted consumer research in 10 countries across Europe, Asia, Latin America and the United States, including expansion of our coverage into 3 new markets. With the expansion of our internal capabilities and integration of cutting edge social media trackers, PureCircle is able to share up to the minute insights with its customers on stevia and their brands around the world. Stevia awareness 64% FRANCE 62% US 55% GERMANY 43% CHINA 33% ARGENTINA UK 26% SPAIN 26% ITALY 26% POLAND MEXICO 23% 21% Source: PureCircle Insights Group, 2013 13 14 PureCircle’s Integrated Supply Chain: From Seedling to Sweetener 1 2 1 Plant Breeding Breeding proprietary Stevia varieties with higher sweet glycoside content 2Harvesting Working directly with local farmers across four continents 3Extraction Producing our own extract to ensure quality standards are met 3 4Purification Purifying steviol glycosides with an unmatched scale and consistency 5Application Providing formulation expertise to deliver great-tasting products 6 Finished Product 4 Supporting consumer communications with powerful Stevia by PureCircle trustmark equity 5 6 Contents 1 Our Business and Strategy 16 1.1 Vision and Strategy17 1.2 Our Market17 2 Our Performance 18 2.1 Highlights for the Year18 2.2 Chairman’s Statement21 2.3 CEO Review 21 3 28 Our Governance 3.1 Corporate Governance Report28 3.2 Report of the Remuneration Committee31 3.3 Director’s Report34 3.4 Board of Directors36 4 Our Financials 39 4.1 Independent Auditors Report39 4.2 Statement of Financial Position40 4.3 Consolidated Statement of Comprehensive Income42 4.4 Consolidated Statement of Changes in Equity43 4.5 Consolidated Statement of Cash Flows46 4.6 Notes to the Consolidated Financial Statements48 5 Shareholder’s Information 90 16 PureCircle Annual Report 2013 1 Our Business and Strategy PureCircle is the global leader in the production, marketing and distribution of high purity stevia ingredients, the world’s first all natural sweetener and flavour solutions regarded as a viable complement to sugar and corn (High Fructose Corn Syrup) in mainstream food and beverage production. Through our innovative technologies and processes we are able to extract the highest purity natural sweeteners and flavour from the stevia plant, enabling our customers to develop healthier, lower calorie formulations for their mainstream consumer products. As leaders in this industry, we are continually developing this global market in partnership with our blue chip customers and business partners in a transparent and responsible manner. • • • • Great taste Economic pricing Scalable supply Sustainable supply Only sugar, corn and stevia fulfill these four criteria. Of these only stevia has the added advantage of contributing no calories to food and beverage and has a low glycemic index, making it safe for diabetics. Additionally stevia has the benefit of having excellent application synergies with sugar and corn as well as cost advantages that can offset corn and sugar sweetener input costs. In today’s market where consumers are requiring healthier, more natural choices and manufacturers are looking to meet this demand while continually driving cost efficiencies, stevia is a clear solution. Our vision is for stevia to become a multi-billion dollar global market. With sustained growth over several decades, we expect it to take a significant share of the USD60 billion natural mass volume sweetener market. In achieving this vision, it is expected stevia will be commonly used as a complement to sugar and corn sweeteners – reducing calories in major mainstream brands around the world. With this vision in mind, PureCircle is focused on three core strategies: 1. Developing the global stevia market and securing market share – Our sales and marketing activities are directed towards contracts with the world’s leading food and beverage manufacturers and supporting them with consumer insights and education and technical support and innovation for their product development. 2. Scaling and sustaining supply – Our supply chain focus is on all elements necessary to ensure we are prepared to scale rapidly in line with global demand on a sustainable basis, through such activities as plant breeding, agricultural diversification, processing efficiencies and expansion. In the process, we will deliver mass volume supply at economic prices. 3. Delivering innovation leadership – The high purity stevia industry will develop over many decades. Innovation will enable wider and deeper usage across all food and beverage categories. Innovation is at the core of our business and we will use innovation to continue to lead the growth of the industry. As well as looking to address the growing health concerns of consumers, food and beverage producers are continually seeking for efficient solutions to offset commodity price increases of recent years. Stevia is a plant-based, no-calorie, natural ingredient that has been used for hundreds of years as a regular part of some regional diets. Extracts from stevia have been used as forms of sweetener for many centuries without ever becoming mainstream. PureCircle has addressed the technological issues and overcome the hurdles associated with developing a major new ingredient market. High purity stevia is the only viable mass volume natural ingredient complement to sugar and corn currently in commercial development. PureCircle believes it is unique in its ability to produce a portfolio of high purity stevia solutions. Our Business and Strategy Consumers are seeking an ingredient that provides great tasting sweetness but which also supports the natural and healthy lifestyle characteristics being demanded of 21st century food and beverage products. Stevia ingredients are well positioned to meet the mainstream consumer requirements for a complementary ingredient to sugar and corn. Our Performance PureCircle’s vision is to lead the global expansion of stevia as the next mass volume natural sweetener. All mass volume sweeteners have four characteristics: Our Governance 1.2 Our Market Our Financials 1.1 Vision and Strategy 17 Shareholder’s Information www.purecircle.com 18 PureCircle Annual Report 2013 2 Our Performance 2.1 Highlights for the Year Financial highlights The audited results for FY13 comprising the Group’s consolidated statement of comprehensive income, statement of financial position and statement of cash flows are set out on page 25 to 27. A summary of the financials for FY13 with FY12 comparatives is set out below. Summary financials FY 2013 USD’000 FY 2012 USD’000 Sales 71,206 45,412 Gross profit 18,808 4,922 Adjusted operating profit/(loss) 2,679 (13,200) EBITDA 4,851 (15,171) Adjusted EBITDA 8,768 (9,166) Net loss after tax (9,428) (23,278) Operating cash-flow before working capital changes 5,941 (16,642) Inventories 92,802 73,656 Cash and short term deposits 49,198 24,288 Net debt Gross assets Sales: FY13 sales increased $25.8m (57%) to $71.2m. $68m of the sales were high purity stevia sweeteners and natural flavors, a 74% improvement against FY12.There was growth in sales across all high purity ingredients primarily driven by new innovations in our Stevia PureCircle proprietary portfolio of all-natural sweetener and flavor ingredients, under the PureCircle Stevia 3.0 range. All regions (EMEA, Latin America, Asia Pacific and USA) recorded sales growth. Sales of lower value co-products reduced year-on-year in line with our strategy of focusing on high purity stevia ingredients. During FY13 there has been a series of important launches including Carbonated Soft Drinks using blends of proprietary ingredients developed by PureCircle which further accelerated market adoption. As expected, PureCircle’s FY13 sales do not yet fully reflect growth in market usage of Reb A due to the continued unwinding of Beverage Global Key Accounts’ inventories. Sales volumes: In FY13 total volumes of high purity stevia increased by 89%. Volume increases were led by the sales (76,288) (78,063) 289,407 233,349 of new proprietary ingredients introduced to the market over the past 24 months. In addition we continued to grow our customer base and in FY13 serviced over 300 customers worldwide, including the first full year of in market sales from our EU based Joint Ventures. Gross margin: In FY13 gross margin was $18.8m, an increase of $13.9m (282%) over FY12 reflecting increased volumes and improved sales mix, with a higher proportion of high purity stevia ingredients. At 26% of sales, gross profit % more than doubled against FY12. However our FY13 sales were still modest against our $300m sales production capacity and so we expect further improvements in gross profit margin as volumes increase. Adjusted EBITDA: FY13’s adjusted EBITDA was $8.8m positive, a $18m improvement on the FY12 adjusted EBITDA loss of $9.2m. The EBITDA improvement reflected strong growth in sales volumes and in gross profit as well as reduction in other operating costs and foreign exchange charges. In FY12 the Group incurred $5.7m net of exceptional costs relating to the temporary slowing down of Reb A production. Other F&B product launches: Datamonitor reported 2,600 new products with high purity stevia in CY2012, a major acceleration over prior years. Adoption is broadening across all regions and Food and Beverage categories. More products are mainstream reformulations. Funding headroom and net debt: The Group ended FY13 with cash and facility headroom of $55m (FY12 $44m) and net debt of $76m (FY12 $78m). The Group is sufficiently funded for its current expansion plans. Customer base: PureCircle has again increased our customer base significantly: in FY13 we sold to more than 300 different customers around the world: an increase of more than 200 against FY12. The number of orders processed increased proportionately. Moving forward our direct sales focus is on the larger F&B customers worldwide while our distributor partners will service smaller customers. Business developments Overview: Market adoption of PureCircle high purity stevia ingredients continues to accelerate across all Food and Beverage categories and all regions of the world. Of particular note in FY13 has been the increasing take up within the large Carbonated Soft Drinks (CSD) category and in major brand reformulations. There is growing acceptance of stevia as a mainstream ingredient. Many of the new launches with stevia have been enabled by our Stevia 3.0 innovation approach launched over the past 24 months to address market formulation needs. PureCircle’s business model is designed to operate on a mass volume basis, underpinned by continued product innovation. Perhaps FY13 has provided the first tangible indications of the sales volume growth that can flow from that innovation. Going forward our business development priorities will continue to focus on sustainable sales volumes growth underpinned by innovation. Carbonated Soft Drinks: Carbonated Soft Drinks are likely to represent the largest single category volume for high purity stevia. FY13 saw significant breakthroughs in Carbonated Soft Drink adoption of high purity stevia. The reformulation of Sprite in France was extended to the UK, Ireland, Benelux and Switzerland; and Pepsi Next was launched in Australia and France. In the United States Sprite and Fanta Select were test marketed. Notable expansion took place in Latin America as well with Fanta, Fresca and Sprite reformulations in Mexico; and in June Coca-Cola Life was launched in In FY13, the company announced a joint development agreement and a 5-year supply agreement with the CocaCola Company. The supply agreement encompasses high purity stevia sweeteners produced by the Company and the joint development agreement resulted in the discovery and development of a new food ingredient named Rebaudioside X (Reb X), with potential for use in zero calorie food and beverage products. Regulatory: Regulatory approvals for high purity stevia continue with almost 1.6 billion additional consumers given regulatory access to stevia in FY13 following approvals published in Philippines, Thailand, South Africa and Canada; whilst Indonesia and India have also approved and will publish approval in the coming months. In FY13 PureCircle progressed the next generation of innovation to achieve no calorie formulations, with new regulatory approvals for Reb D in June 2013, and a GRAS submission for new sweetener Reb X, with expected approval in October 2013. Investments and assets are in place from agriculture to manufacturing to be ready to commercialize these products in FY14. PureCircle product portfolio: We have launched a portfolio of new ingredients across the last 24 months under the Stevia 3.0 range. These have been developed specifically to address customer application needs and they are proprietary. Our Business and Strategy Inventories: At $93m FY13 inventories were $19m higher than at June 2012. This reflects management decisions to build inventories of new innovations introduced to the market recently in anticipation of higher and sustained sales growth in FY14 and FY15, in line with accelerating market usage. Our Performance Net cash from operations, before financing: Reflecting positive EBITDA, the Group’s FY13 base operating cashflow was positive $6m. In FY13 the Group built inventories ahead of projected sales growth in FY14 and FY15, which led to a net $10.6m operating cash-outflow. EU impact: FY13 was the first full year of stevia sales in the EU, the world’s largest single sweetener market. EU adoption of high purity stevia has been fast and is accelerating with almost 1,000 launches in Calendar Year 2012 (CY2012) alone, the highest of any region. Consumer awareness of stevia in the EU is accelerating rapidly and has more than doubled over the year in all surveyed countries. Our Governance Argentina. Numerous other Carbonated Soft Drink adoptions have been launched or are ready in development pipelines for launch. Our Financials Net loss after tax: FY13’s net loss of $9.4m was a $13.9m (60%) improvement on FY12. The Group’s business model and production capacity is highly leveraged towards volumes and as sales demand increases the Group’s profitability is expected to continue to improve strongly. 19 Shareholder’s Information www.purecircle.com 20 PureCircle Annual Report 2013 In FY13 they represented more than 50% of total sales, their volume growth was well in excess of 100% and their future pipeline growth is expected to be even higher. PureCircle’s innovation is helping accelerate market adoption by providing clients combinations of our products to achieve optimum taste results. The combination of our innovation and formulation expertise provides unique formulation options that cannot be matched. Our innovation underpins our business model and we have further innovative products in the pipeline. Technical support – PureCircle University (PCU): Having expanded our technical support in FY12 by opening application laboratories in key markets, in FY13 we held more than 70 PureCircle University customer events. The PCU programme will accelerate further in FY14 in response to strong customer demand for direct access to our technical support, including deeper understanding of product combination options and innovation developments. The efforts have been further supported by continued expansion of our commercial and technical footprint. In FY13 PureCircle expanded lab capabilities in the United States and China, opened a new office and laboratory in the UK and established a new entity in Mexico to better service our growing customer base. Stevia advocacy and sustainability initiatives: PureCircle has continued to integrate advocacy and sustainability initiatives with our customer to deliver long term value. •The PureCircle Stevia Trustmark ™ has reached more than 30 countries. In 2013 it was integrated on pack or as marketing support in customer advertising and included in the marketing of Pepsi Next launches in both Australia and France. • Our Sustainability leadership has resulted in several joint sustainability initiatives with our customers along with a clear vision for how our footprint can have material reductions in carbon, water and calories for the global food and beverage industry as part of our published 2020 Vision. •Our Insights Group is building market studies directly in partnership with key customers, with new studies across 9 markets including such markets as India, Argentina and China. •The Global Stevia Institute (GSI) has continued to expand its reach and position as the leading source on the science and safety of stevia, including new advisers in North America, Europe and Latin America and now has a monthly reach of over 26,000 readers to its monthly newsletter. The website is now highlighted with health professionals around the world through The Coca-Cola Beverage Institute and on packaging of leading ketchup introductions by Unilever across Europe. Supply chain: In FY13 our core production facilities were successfully re-configured to enable mass volume supply of all products in our widening portfolio. At the same time the facilities delivered overall sales volume increases of 89% with reduced unit costs and they increased production in anticipation of strong market growth in FY14 and FY15. This provides a strong platform for future profitable growth. Commenting on the audited results, the Chairman Paul Selway-Swift said: “FY 13 saw encouraging growth in usage of PureCircle’s high purity stevia in all major markets and the first tangible market indications of stevia developing into a mainstream ingredient. Whilst sales still remain modest compared to our invested production capacity, the strong improvements in financial result seen in FY13 provide strong evidence of the scalability of our business model. Further improvements in profitability should arise as volumes increase. We remain confident of the future of our high purity stevia business. Recent product launches, particularly in the Carbonated Soft Drink category, are leading to improved visibility on future sales prospects which, when realised, would drive future profitability.” At a market level FY13 saw good quality progress on many fronts: for example 2,600 products launched in CY 2012 and major new markets such as Canada opening up. Probably the most notable milestones have been the increased size and breadth of new activity in the Carbonated Soft Drinks category. These have the potential to develop into significant future volumes. At a Company level in FY13 PureCircle has again broadened its already leading product portfolio, further increased our innovation pipeline, further diversified our customer base and increased sales volumes by more than 100%, whilst continuing to expand leaf development. We remain confident about the long term future of the high purity stevia industry and of the opportunity for PureCircle to play the leading role in it. PureCircle is operationally geared and our financial results are sensitive to sales revenues. Recent product launches, particularly in the Carbonated Soft Drink category, are leading to improved visibility on future sales prospects which, when realised, would drive future profitability. 2.3 CEO Review Operations Market In less than two years stevia awareness in major European markets has grown to nearly 1/3rd of the population with awareness in France at over 60%. Regulatory Regulatory approvals for high purity stevia continue with almost 1.6 billion additional consumers given regulatory access to stevia in FY13 following approvals published in Philippines, Thailand, South Africa and Canada; whilst Indonesia and India have also approved and will publish approval in the coming months. In FY13 PureCircle secured important new regulatory approvals for Reb D and other proprietary ingredients that will further accelerate market adoption. Sales: FY13 sales increased $25.8m 57% to $71.2m. $68m of the sales were high purity stevia sweeteners and natural flavors, a 74% improvement against FY12.There was growth in sales in all regions and across all high purity ingredients primarily driven by new innovations in our Stevia PureCircle proprietary portfolio of all-natural sweetener and flavor ingredients, under the PureCircle Stevia 3.0 range. Sales of lower value co-products reduced year-on-year in line with our strategy of focusing on high purity stevia ingredients. Our market continues to grow as stevia moves toward becoming a mainstream sweetener. This growth is driven by new innovations brought to market by PureCircle, end consumer demand for healthier options and global food and beverage industry’s increased acceptance of stevia. FY13 saw important developments in our market such as greater usage in key categories, major brand launches, and increased consumer awareness for high purity stevia in key markets. During FY13 there has been a series of important launches including Carbonated Soft Drinks using proprietary ingredients developed by PureCircle which further accelerated market adoption. As expected, PureCircle’s FY13 sales do not yet fully reflect growth in market usage due to the continued unwinding of Beverage Global Key Accounts inventories. Based on data from Mintel’s GNPD database, we estimate that more than 1,600 foods and beverages sweetened with stevia will launch globally in CY 2013 (more than 900 launches reported to date). This represents over 50+% growth compared to CY 2012, maintaining a 57% compound annual growth rate (CAGR) since 2009. To date, more than Sales volumes: In FY 2013 total volumes of high purity stevia increased by 89%. Volume increases were led by the sales of new proprietary ingredients introduced to the market over the past 24 months. In addition we continued to grow our customer base and in FY13 serviced over 300 customers worldwide, including the first full year of contribution from our EU based Joint Ventures. Our Business and Strategy While the number of stevia launches is on the rise across categories, the landscape of the global stevia market is evolving as certain categories are growing faster than others. In particular, carbonated soft drink launches have begun to develop more aggressively in CY 2013 with over 50+ products launched around the world as well as the first major introductions into the Cola category behind Pepsi Next and Coca-Cola Life. Our Performance FY 13 has been another year of considerable progress in the development of the high purity stevia industry and in the establishment of PureCircle as the leading company in the industry. With strongly improved volumes and margins, FY13 has perhaps also provided the first indication of PureCircle’s potential in our reported financial results. Our Governance 4,500 food and beverages have launched using high purity stevia as an ingredient. Our Financials 2.2 Chairman’s Statement 21 Shareholder’s Information www.purecircle.com 22 PureCircle Annual Report 2013 Reviewing the food and beverage products launched into market that are using high purity stevia, it is clear that PureCircle and our partners continue to secure the major share of market. This has been further underpinned by the successes of our proprietary new products launched within the last twenty four months. Marketing and technical support We have expanded out technical support and further developed our stevia advocacy and sustainability platforms. We have opened application support laboratories in Europe (UK) and China and, soon to open, Mexico. Our pipeline of customer technical projects is growing and the number of customer working sessions has increased significantly. In FY13 we held more than 70 PureCircle University customer events to ensure our customers develop winning food and beverage formulations and bring them quickly to market. The PCU programme will accelerate further in FY14 in response to strong customer interest in having support to help incorporate our leading Stevia 3.0 portfolio into their products. PureCircle has continued to integrate advocacy and sustainability initiatives with our customer to deliver long term value. •The PureCircle Stevia Trustmark ™ can be found across more than 30 countries and has been highlighted on notable product launched including Pepsi Next in Australia and France. •Our Sustainability Programs are resulting in deeper partnerships with our customers along with a clear vision for how our stevia can reduce carbon, water and calories in our customers’ food and beverage products. •Our Insights Group is building market studies directly in partnership with key customers, with new studies across 9 markets including India, Argentina and China. •The Global Stevia Institute (GSI) has continued to expand its position as the leading source on the science and safety of stevia, with a reach of over 26,000 readers to its monthly newsletter. The website is now highlighted with health professionals around the world through The CocaCola Beverage Institute and even on packaging of leading ketchup introductions by Unilever across Europe. Joint Ventures Sales by our EU joint ventures grew by more than 130%, benefitting from FY13 being the first full year of operation in the world’s largest single sweetener market. On 13 September, the Group sold its interests in the joint venture NSV to our partner, Imperial Sugar. Going forward, PureCircle will supply stevia to Imperial without the need for a JV structure. Supply chain In FY13 our supply chain successfully delivered an 89% increase in sales volumes whilst simultaneously re-configuring our production capacity to enable scaled production of a much wider product portfolio. Two years ago our factories were configured to manufacture just two high purity stevia products. In FY13 they produced to scale six high purity stevia ingredients and the new configuration has been tested successfully for additional products currently in our innovation pipeline. At the same time supply chain supported a $19m increase in inventories, ahead of the anticipated growth in FY14 and FY15 demand. The volume increases have been achieved at reduced unit costs. Both Extraction and Purification Plants continued their focus on the KPI’s (Key Performance Indicators) to improve efficiency while maintaining flexibility to the changes in demand for our finished goods. During FY13 we restructured our global leaf buying operations so as to reduce supply volatility, improve leaf quality and increase volumes. The benefits of this will start being evident from FY14 onwards. After slowing down development in FY12 pending alignment of market stevia inventories, both our Paraguay and Kenya leaf operations increased volumes of leaf shipped, improved leaf quality, and started aggressive plantation development plans to increase the supply capacity for FY14 and future years. In FY13 we recruited Randy Cook as Corporate VP Supply Chain and Logistics. Randy previously held a number of executive positions within The Coca-Cola Company and its bottling system in Hong Kong and the United States. Randy is spearheading further development and continuous improvement of the entire supply chain and logistics activities within the Group with focus on Strategy, Process and People. He has already made a number of senior operational management appointments that will focus on these value drivers. R&D Research and development is and will always be at the core of the PureCircle business. We continue to invest actively in all aspects of R&D from pure research through to core product development, specific application development and, by no means least, leaf research and development. In FY13 our investment levels increased both in absolute terms and as a % of sales. The Group has ambitious long term growth plans. To deliver these we will continue to invest in management with the skills and experience to drive and support our growth plans in all aspects of our business. During FY13 our investments have had particular functional emphasis on product application development, supply chain process and efficiency, customer service and logistics and management reporting Moving forward we will extend further our global sales coverage, upgrade our IT systems and further strengthen our supply chain and logistics to better service the anticipated increase in demand. Group Financial review The Group’s FY 2013 financial year covers the year from 1 July 2012 to 30 June 2013. FY 2012 comparatives are for the year from 1 July 2011 to 30 June 2012. Set out below is an extract from the audited FY 2013 accounts. The full consolidated statement of comprehensive income, statement of financial position and statement of cash flows follow in pages 25 to 27. Trading FY 2013 USD’000 FY 2012 USD’000 Revenue 71,206 45,412 Cost of sales (52,398) (40,490) Gross margin 18,808 4,922 26% 11% Gross margin % Other income and foreign exchange 2,789 (1,104) Selling and administrative expenses (18,918) (17,018) Adjusted operating profit/(loss) 2,679 (13,200) Other expenses (3,917) (6,005) Finance costs (8,240) (7,452) Taxation 50 3,379 (9,428) (23,278) EBITDA 4,851 (15,171) Adjusted EBITDA 8,768 (9,166) Loss for the financial year Adjusted EBITDA comprises EBITDA adjusted for other expenses Our Business and Strategy Management Our Performance We expect our R&D, innovation and patent programs to accelerate again in FY14 and FY15. Our Governance Our R&D capability is backed up by a comprehensive patent and Intellectual Property protection program. This too expanded in activity and registrations across FY13. Our Financials Our R&D capability is being recognized increasingly as a unique point of difference in the industry by our customers. New innovative ingredients successfully introduced in the market as well as the September 2012 Joint Development Agreement with The Coca-Cola Company are clearly milestones in this respect. But the success of our PureCircle University programme, the pace of our new product and application launches show clearly the wider picture. 23 Shareholder’s Information www.purecircle.com 24 PureCircle Annual Report 2013 Segmental reporting: The Group operates as a single segment company comprising the integrated production and marketing of high purity stevia products. Sales: In FY13 sales of $71.2m were $25.8m (57%) higher than FY12, with High Purity Stevia sales totalling $68m, up $29m on FY12. Sales increased in all geographies and included the Group’s share of the first full year of EU operations. Sales volumes: In FY13 high purity stevia volumes increased 89%, led by the growth in proprietary new products launched within the last 24 months. Our customer base increased and in FY13 we serviced over 300 customers worldwide. Gross margin: In FY13 gross margin was $18.8m, an increase of $13.9m (282%) over FY12. The improvement reflects higher sales volumes; improved sales mix with less low margin co-products, and lower unit costs. Whilst strongly improved in FY13 from 11% to 26% of sales, gross profit margins are expected to improve further as sales volumes increase to better reflect the Group’s current invested production capacity. Other income and foreign exchange: In FY13 the Group had other income of $2.8m, which reflect foreign exchange gains of $2.5m. Other expenses: FY13 other expenses comprise $2.4m of LTIP and related discretionary remuneration payments, a $0.9m charge related to the unwinding of the Group’s Natural Sweet Ventures joint venture and a $0.6m write down on biological asset. In FY12, other expenses principally comprised $5.9m of exceptional production costs charged to profit relating to the temporary slowdown in Reb A production. Adjusted EBITDA: In FY13 the Group’s adjusted EBITDA was a gain of $8.8m, an $18m improvement on the FY12 EBITDA loss of $9.2m. This reflects the sales volume increases and gross margin improvements noted earlier, together with the absence of FY12 exceptional production costs charged to profit. FY 2013 USD’000 FY 2012 USD’000 5,941 (16,642) Changes in working capital (16,542) 20,772 Inventories 92,802 73,656 Cash-flow and statement of financial position Operating cash-flow before working capital changes Net debt Gross assets Net cash from operations, before financing: The Group generated $6m of operating cash-flow in FY13 before inventories, reflecting positive EBITDA. Production of inventories was increased by $19m in FY13 ahead of stronger sales demand in FY14 and FY15, resulting in an operating cash-outflow before interest of $10.6m. Adjusting for inventory movements underlying operating cash-flow in FY13 was $8.4m favourable on FY12. Inventories: At $93m inventories are $19m higher than at June 2012 as production of new innovations introduced to the market recently was increased in FY13 in anticipation of future sales. 76,288 78,063 289,407 233,349 Funding headroom and net debt: The Group ended FY13 with cash and facility headroom of $55m (FY12: $44m), net debt of $76m (FY12 $78m). Gross cash and net debt were strengthened in FY13 by the $31m share issue in August 2012, partially offset by the decision to boost production ahead of future sales growth. Gross assets: The Group has gross assets of $289m representing the fully invested supply chain capable of delivering 2,800 tonnes of high purity stevia. When running at capacity the existing supply chain can support sales of $250 to $300 million. The Group is sufficiently funded for its current expansion plans. www.purecircle.com 25 Revenue 71,206 45,412 Cost of sales (53,023) (40,516) Gross profit 18,183 4,896 Other income 2,789 1,040 Other expenses (1,538) (8,045) (20,672) (17,096) 180 377 Administrative expenses Finance income Finance costs (8,420) (7,829) Loss before taxation (9,478) (26,657) 50 3,379 (9,428) (23,278) (432) 297 (9,860) (22,981) (9,492) (23,255) Income tax Loss for the financial year Other comprehensive (loss)/income (net of tax) Exchange differences arising on translation of foreign operations Total comprehensive loss for the financial year (net of tax) Our Performance 2012 USD’000 Our Governance 2013 USD’000 Our Business and Strategy Audited Consolidated Statement of Comprehensive Income Non-controlling interest 64 (23) (9,428) (23,278) (9,928) (22,971) 68 (10) (9,860) (22,981) - Basic (5.80) (15.06) - Diluted (5.80) (15.06) Total comprehensive loss attributable to: Owners of the company Non-controlling interest Loss per share (US cents) Shareholder’s Information Owners of the company Our Financials Loss for the financial year attributable to: 26 PureCircle Annual Report 2013 Audited Statement of Financial Position 2013 USD’000 2012 USD’000 Intangible assets 32,472 26,812 Property, plant and equipment 65,889 66,586 Biological assets 4,172 6,047 Prepaid land lease payments 3,181 3,102 Deferred tax assets 5,979 6,209 111,693 108,756 Inventories 92,802 73,656 Trade receivables 29,352 21,827 6,315 4,778 ASSETS Non-Current Assets Current Assets Other receivables, deposits and prepayments Tax recoverable Short-term deposits with licensed banks Cash and bank balances Total Assets 47 44 37,599 9,733 11,599 14,555 177,714 124,593 289,407 233,349 EQUITY AND LIABILITIES Equity Share capital 16,460 15,449 162,898 132,330 Foreign exchange translation reserve 1,432 1,868 Share option reserve 1,530 204 Accumulated losses (40,519) (31,027) 141,801 118,824 Share premium Equity Attributable to Owners of the Company Non-Controlling Interest Total Equity 715 652 142,516 119,476 59 594 96,581 84,026 483 548 97,123 85,168 12,532 3,625 7,566 5,932 517 789 Non-Current Liabilities Deferred tax liabilities Long-term borrowings Deferred income Current Liabilities Trade payables Other payables and accruals Amount due to joint venture partners Income tax liabilities Short-term borrowings 248 34 28,905 18,325 49,768 28,705 Total Liabilities 146,891 113,873 Total Equity And Liabilities 289,407 233,349 0.86 0.77 Net Assets Per Share (USD) www.purecircle.com 27 Audited Consolidated Statement of Cashflows 2013 USD’000 2012 USD’000 (9,478) (26,657) 134 Amortisation of deferred income (88) (77) Amortisation of intangible assets 160 - Depreciation of property, plant and equipment 5,793 3,900 Interest expense 8,420 7,829 (180) (377) Interest income Loss on disposal of plant and equipment Share based payment expense/(credit) Intangible assets written off Inventories written off Change in fair value of biological asset Unrealised exchange gain Operating cash flow before working capital changes (Increase)/Decrease in inventories Decrease/(Increase) in biological assets Increase in trade and other receivables 54 50 1,481 (595) 40 - 209 291 628 (1) (1,234) (1,139) 5,941 (16,642) (19,355) 24,330 1,353 (1,009) (8,966) (6,284) 10,426 3,735 (10,601) 4,130 180 377 (8,420) (7,829) (28) (23) (18,869) (3,345) Addition of intangible assets (5,949) (2,573) Addition of property, plant and equipment (4,299) (2,070) 147 106 (10,101) (4,537) Increase in trade and other payables Net cash (for)/from operations Interest received Interest paid Tax paid Net cash for operating activities CASH FLOWS FOR INVESTING ACTIVITIES Proceeds from disposal of property, plant and equipment Net cash for investing activities CASH FLOWS FROM FINANCING ACTIVITIES Drawdown of borrowings 44,046 11,233 Repayment of borrowings (21,264) (21,254) Repayment of hire purchase (40) (61) 31,322 - 102 - (1,373) 383 Net cash from/(for) financing activities 52,793 (9,699) Net increase/(decrease) in cash and cash equivalents 23,823 (17,581) (313) (1,061) Cash and cash equivalents at beginning of the year 23,171 41,813 Cash and cash equivalents at end of the financial year 46,681 23,171 Proceeds from private placement Proceeds from share options exercised (Increase)/Decrease in restricted cash Effects of foreign exchange rate changes on cash and cash equivalents Our Performance 136 Our Governance Amortisation of prepaid land lease payments Our Financials Adjustments for: Shareholder’s Information Loss before taxation Our Business and Strategy CASH FLOWS FROM OPERATING ACTIVITIES 28 PureCircle Annual Report 2013 3 Our Governance 3.1 Corporate Governance Report The Financial Services Authority requires London Stock Exchange main Board listed companies incorporated in the UK to state in their report and accounts whether they comply with the UK Corporate Governance Code and identify and give reasons for any areas of non-compliance. PureCircle is listed on AIM and incorporated in Bermuda and therefore, no formal disclosures are required. However, the Board is fully aware and is committed to achieving good standards of corporate governance, integrity and business ethics for all activities. The Directors of PureCircle regard corporate governance as important to the success of the Company’s business and are committed to applying the principles necessary to ensure that good governance is practised in all of its business dealings in respect of all its stakeholders. The following section sets out how PureCircle has applied the principles and provisions of the Code in the running of the Board. The Board Board composition and Board independence The Board comprises a Non-Executive Chairman, two Executive Directors and four other Non-Executive Directors. Collectively, they have a diverse range of knowledge and commercial experience and serve the function of bringing objective judgement on the development, performance and risk management of the Group through their contributions in board meetings. With the exception of Sunny Verghese, the Board considers all the Non-Executive Directors to be independent. The role of the Board The Board’s principal responsibility is to deliver shareholder value and provide an overall vision and leadership for the Group. It also has an oversight role, monitoring operational plans and ensuring internal controls and risk management are effective. There is a formal schedule of matters reserved for the Board, which provides a framework for it to oversee the control of the Group’s direction and affairs. The schedule of matters reserved include the approval of the financial statements and dividends, strategy, acquisitions and disposals, major projects, contracts, delegated authorities, major capital expenditure, risk management strategies, health and safety and succession planning. Whilst the CEO and Executive Directors are responsible for recommending the overall strategy of the Group, the Board meets at least once a year to review strategy and the future of the business. Implementation of the strategy is delegated by the CEO and Executive Directors to the Executive management team. The Directors are satisfied that the Board continues to deliver a strategic vision and effective leadership for the Group. Meeting attendance The table below shows the number of board meetings held during the year and the attendance of individual Directors. Number of Board meetings held in FY2013 5 Paul Selway-Swift 5 Magomet Malsagov 5 William Mitchell 5 Olivier Maes 4 At the date of this report, Sunny Verghese is the Group Managing Director of Olam International Limited (“Olam”). Olam holds 18.6% equity interest in the Company. John Slosar 5 Peter Lai Hock Meng 5 Sunny Verghese 5 The roles of the Chairman and Chief Executive are separate and clearly defined. Tan Boon Seng 2* *Tan Boon Seng resigned as a Non-Executive Director on 28 December 2012. Chairman Paul Selway-Swift who is the Chairman of PureCircle Limited also chairs the Nomination Committee. The Chairman carries responsibility for ensuring the efficient operation of the Board and its Committees, for ensuring that corporate governance matters are addressed, and for representing the Group externally and communicating with shareholders when required. Their responsibilities include being available to liaise with shareholders should this be necessary. Board processes The Board is scheduled to meet on a quarterly basis, and in any event no less than four times a year. The Board will meet at least once a year to review the strategic direction of the Group. In addition to normal scheduled meetings, the Board will convene as required. All Directors have access to and may, in furtherance of their duties, seek independent professional advice at the Company’s expense. The Chairman and Non-Executive Directors will meet annually without the Executive Directors present. In accordance with the Company’s Bye-Law, one-third of the Board is required to retire by rotation each year, but if any Director has, at the start of the AGM, been in office for three years or more since his last appointment or re-appointment, he shall retire at the AGM. In addition, any Director appointed during the year is subject to election at the AGM after their appointment. The Non-Executive Directors are appointed for an initial three-year term after which they are subject to annual re-appointment. Board performance and evaluation The Board is committed to evaluating its own performance. This is an ongoing process led by the Chairman and the Independent Directors. Board Committees The Board is assisted in discharging its responsibilities through three principal committees: Audit Committee; Remuneration Committee and Nomination Committee which were formally established in March 2008. Membership of the Audit and Remuneration Committees consists wholly of Non-Executive Directors. The Chairman of each Committee provides a report of that Committee at the next Board meeting. 2 Peter Lai (Chairman) 2 John Slosar 2 Olivier Maes 1 The Audit Committee is responsible for making recommendations to the Board on the appointment and terms of reference of the auditors and to receive and review reports from management and the Company’s auditors on the financial accounts and internal control systems used throughout the Company. The Board believes that members of the Committee have recent and relevant financial experience. The external Auditors, the CEO, CFO and VP-Group Controller will regularly attend meetings at the invitation of the Committee. Group financial statements The Audit Committee is responsible for the integrity of the financial statements and the Group’s internal controls and risk management structure. The Committee’s deliberations will include the following matters: •the review of the financial results in advance of their consideration by the Board, paying particular attention to significant financial reporting judgements, any changes in accounting policies and practices and any findings post audit; •the review of the nature and scope of the external audit and the findings of the Auditors in respect of Annual and Interim Reports; •the review of the Auditors’ independence and the policy on the provision of non-audit services; •monitoring the Group’s financial and non-financial risk and internal controls; •the review of the effectiveness of the internal systems with respect to financial control and Group risk; •a review of the necessity for an internal audit function; and •a review of the means by which employees may raise concerns regarding the systems of internal financial control. Our Business and Strategy The Independent Directors are Paul Selway-Swift, Olivier Maes, Peter Lai Hock Meng and John Slosar. Number of meetings held in FY2013 Our Performance Independent directors Audit Committee Our Governance The CEO, Magomet Malsagov, is responsible for the Executive management of the Group. He has responsibility to recommend and to implement the Group’s strategic objectives. A summary of the Committees of the Board and their membership is set out below: Our Financials Chief Executive Officer 29 Shareholder’s Information www.purecircle.com 30 PureCircle Annual Report 2013 The Report of the Remuneration Committee can be found on pages 31 to 33 of the Report. Nomination Committee Number of meetings held in FY2013 2 Paul Selway-Swift (Chairman) 2 Magomet Malsagov 2 Olivier Maes 1 The Committee is responsible for reviewing the structure, size, composition and skills of the Board, presenting suitable candidates to fill Board vacancies, reviewing succession planning for the Board and senior managers, evaluating the time commitment Internal control and risk management The Board is responsible for establishing, reviewing and maintaining the Group’s systems of internal control and risk management and ensuring that these systems are effective for managing the business risk within the Group. The Group will annually review the effectiveness of the risk management system and its internal controls to safeguard shareholders’ investments and the Group’s assets whilst ensuring that proper accounting records are maintained. of the Chairman and Non-Executive Directors, The Company and its Shareholders undertaking the performance evaluation of the Board The Board is committed to a continuing dialogue with its shareholders. and reviewing the reappointment of Non-Executive Directors. The Committee is responsible for assessing the composition, diversity and skill set of the Board and is aware that as the Company grows there may be a future need to expand the size of the Board. The Committee will regularly review this need. There is a robust procedure for selecting candidates for vacancies. The Committee’s performance is evaluated as part of the overall Board evaluation exercise. Remuneration Committee Number of meetings held in FY2013 2 Olivier Maes (Chairman) 1 Paul Selway-Swift 2 John Slosar 2 The Remuneration Committee held two meetings during the financial year as set out above. The Executive Directors and relevant management attend the meeting by invitation as required. No individual is present when his or her own remuneration is under consideration. The role of the Remuneration Committee is to review the performance of the Executive Directors and other senior executives and to set the scale and structure of their remuneration, including annual bonus arrangements and Long Term Incentive Plan with due regard to the interest of shareholders. The Remuneration Committee administers and establishes performance targets for share incentive schemes and determine the allocation of share incentives to employees. Following the announcement and presentation of the year-end results, there are a series of formal meetings with shareholders. These meetings are a two-way dialogue whereby the Executive Directors can apprise the investors of the Group’s business and future plans and the shareholders can communicate any concerns they may have. The NonExecutive Directors and Chairman are available to attend these meetings if requested. The Company’s brokers provide feedback from the shareholder and analyst meetings and present the results to the Board. The Group’s investor relations section on its website contains information on the Group’s financial results, its corporate policies, its press releases and announcements as well as analysts’ presentations. The Group holds a series of meeting with institutional investors whereas the principal method of communication with private investors are by way of Annual Report and Accounts, press releases and announcements, the Annual General Meeting and the Group’s corporate website (www. purecircle.com). a) Annual salary – the actual salary for each of the Executive Director that reflects the experience and performance of each individual and taking into account of market competitiveness; b) Annual incentive payment – the Executive Directors are entitled to annual bonus that relates to performance of the Company and other internal targets; and c) Share awards or options under the Long-Term Incentive Plan (“LTIP”) that are approved by the Remuneration Committee. The aggregate amount of emoluments received by Directors of the Group during the financial year are as follows: FY 2013 USD’000 FY 2012 USD’000 Magomet Malsagov 260 271 William Mitchell 294 270 Executive Directors Non-Executive Directors Paul Selway-Swift 88 88 John Slosar 40 34 Olivier Maes 45 39 Peter Lai Hock Meng 50 43 Sunny Verghese Nil Nil 777 756 Our Business and Strategy The Executive Directors’ remuneration packages comprise the following components:- Our Performance The Remuneration Committee sets the overall remuneration policy designed in line with the Company’s long-term business goals. Individual remuneration packages are determined by the Remuneration Committee within the framework of the following policy. Our Governance Remuneration Policy Our Financials 3.2 Report of the Remuneration Committee 31 Shareholder’s Information www.purecircle.com 32 PureCircle Annual Report 2013 Directors’ interests in share options/awards 1 July 2012 Granted Exercised 30 June 2013 Exercise price Date from which exercisable Expiry date Note 30,000 - - 30,000 158p 16 Apr 2010 16 Apr 2015 1 215,000 - - 215,000 Nil 30 Nov 2013 30 Jun 2015 2 211,000 - - 211,000 Nil 20 Sept 2014 30 Jun 2015 2 - 126,000 - 126,000 Nil 30 Jun 2015 30 Jun 2015 3 456,000 126,000 - 582,000 215,000 - - 215,000 Nil 30 Nov 2013 30 Jun 2015 2 66,000 - - 66,000 Nil 20 Sept 2014 30 Jun 2015 2 - 35,000 - 35,000 Nil 7 Jun 2015 7 Jun 2015 4 - 121,000 - 121,000 Nil 30 Jun 2015 30 Jun 2015 3 281,000 156,000 - 437,000 John Slosar 10,850 14,500 (20,250) 5,100 Nil 3 July 2013 3 July 2013 5 Olivier Maes 12,200 - (12,200) - N/A N/A N/A Peter Lai Hock Meng 13,550 18,100 (25,250) 6,400 Nil 3 July 2013 3 July 2013 36,600 32,600 (57,700) 11,500 Magomet Malsagov William Mitchell Non-Executive Directors 5 www.purecircle.com If the actual Group turnover is below the lower band, then the awards shall not vest and shall lapse at the end of the awards’ life. If the Group’s actual turnover is at the lower band, then the awards shall be exercisable as to 50%. If the Group’s actual turnover is at the upper band, then the awards shall be exercisable as to 100%. If the Group’s actual turnover is between the upper and lower band, a percentage above 50% and up to 100% of the awards shall vest. 3. Similar to Note 2 above, the awards granted can only be exercised if certain Group Sales Turnover target (performance condition) is satisfied. If the actual Group turnover is below the lower band, then the awards shall not vest and shall lapse at the end of the awards’ life. If the Group’s actual turnover is at the lower band, then the awards shall be exercisable as to 100%. If the Group’s actual turnover is at the upper band, then the awards shall be exercisable as to 200%. If the Group’s actual turnover is between the upper and lower band, a percentage above 100% and up to 200% of the awards shall vest. The Company’s Remuneration Committee is responsible for administering the Long-Term Incentive Plan (‘LTIP’) approved by the Board in June 2008. LTIP is a 10-year discretionary benefit offered by the Company to eligible employees, including the Executive Directors. The principal terms of the LTIP include: •A restriction on the Company issuing (or granting rights to issue) 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; and •Lapsed awards (due to unmet performance condition) do not count in calculating the total number of awards or options issued under the LTIP. Please refer to Note 23 Share Option Reserve of the Notes to the Financial Statements. Our Business and Strategy Our Performance The Group Sales Turnover target (performance condition) that has been approved by the Remuneration Committee has a yearly upper and lower band. PureCircle’s Group actual turnover will be measured against these “turnover target”. Subsequent to the FY2013 financial year-end but prior to signing of the audited accounts, these options were converted to shares. Additional share options totalling 12,700 options were granted, namely to John Slosar (3,800), Olivier Maes (4,200); and Peter Lai Hock Meng (4,700); in lieu of fees for period July to December 2013 at 20-days VWAP of GBP3.44 (or US$5.32 per share). Our Governance 2. Awards granted can only be exercised if certain Performance Conditions are satisfied. The Performance Conditions are measured every year commencing from the date of grant of the awards and ends on 30 June 2015. 5. The share options outstanding to Non-Executive Directors were issued in lieu of fees for period from January to June 2013 and were calculated using the 20-days volume weighted average price (“VWAP”) to 31 December 2012 of GBP2.43 per share (US$3.92 per share). Our Financials 1. Options granted on 15 April 2008. 4. Awards granted on 10 July 2012. Shareholder’s Information Share awards or options to Executive Directors are awarded by the Remuneration Committee under the Company’s LongTerm Incentive Plan. The following notes provide details of each option or award scheme in the table on page 32: 33 34 PureCircle Annual Report 2013 3.3 Director’s Report The Directors hereby submit their report and the audited financial statements of the Group and the statement of financial position and summary of significant accounting policies and other explanatory notes of the Company for the financial year ended 30 June 2013. Directors and their interests The interests (all of which are beneficial interests save as otherwise stated) of the Directors and of the persons connected with them as at 30 June 2013 are as follows: Number of shares Directors 412,1713 - 14,855,6121 582,0001 Peter Lai Hock Meng 180,3001 6,4001 Olivier Phillipe Marie Maes 404,1201 - Paul Selway-Swift Principal activities Magomet Malsagov The Company is engaged principally in the business of investment holding whilst the principal activities of the rest of the Group are the production, marketing and distribution of natural sweeteners and flavors. There have been no significant changes in the nature of these activities during the financial year. Number of options John Robert Slosar William Mitchell 2 5,1001 887,0001 437,0001 1,562,302 Held directly. 143,600 held directly and 1,418,702 held directly by his wife. 3 200,000 held directly and 212,171 held directly by his wife. 1 Business review and future developments The financial results of the Group and the financial position of the Group and of the Company for the financial year are shown in the annexed financial statements. Results and dividends PureCircle Group’s turnover for the financial year ended 30 June 2013 was USD71.2 million. The PureCircle Group’s loss attributable to the owners of the Company was USD9.5 million, equivalent to a loss per share of USD5.8 cents. The Group ended the year with net assets of USD142 million, gross assets of USD289 million and gross cash balances of USD49 million. The Directors do not recommend payment of a dividend in respect of the year ended 30 June 2013. 2 Significant shareholders At 30 June 2013, the Company had been notified of the following interests of 3% or more in its ordinary shares. Interest in Issued Shares Interest Wang Tak Company Limited 31,470,399 19.12% Olam International Limited Asian Investment Management Services Ltd and related parties 30,544,609 18.56% 15,969,229 9.70% Magomet Malsagov 14,855,612 9.02% Half Moon Bay Capital Ltd Wellington Management Company LLP 12,768,734 7.76% 7,261,801 4.41% 5,800,000 3.52% Beneficial Shareholders Swire Beverages Holdings Ltd www.purecircle.com 35 (d)prepare the Group financial statements, Company statement of financial position and the summary of significant accounting policies and other explanatory notes on the going concern basis unless it is inappropriate to assume that the Group will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and Company and to enable them to ensure that the financial statements comply with International Financial Reporting Standards. The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud or other irregularities. The Directors are responsible for information contained in the Directors’ report and other information contained in the accounts. Auditors The auditors, Messrs. PricewaterhouseCoopers, have expressed their willingness to continue in office. In accordance with a resolution of the Board of Directors dated 14 September 2013. Magomet Malsagov Chief Executive Officer William Mitchell Chief Financial Officer Our Performance (c)state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Group financial statements, Company statement of financial position and the summary of significant accounting policies and other explanatory notes; and Our Governance (b)make judgements and estimates that are reasonable and prudent Our Financials (a)select suitable accounting policies and then apply them consistently; Shareholder’s Information The Directors are responsible for the preparation of the financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the Group at the end of the year and of the results of the Group for the year in preparing those financial statements, the Directors are required to: Our Business and Strategy Statement of directors’ responsibilities 36 PureCircle Annual Report 2013 3.4 Board of Directors Paul Selway-Swift Magomet Malsagov William Mitchell Peter Lai Hock Meng Non-Executive Chairman Chief Executive Officer Chief Financial Officer Non-Executive Director Paul worked with the HSBC Group for 30 years. He was a director of The Hong Kong & Shanghai Banking Corporation from 1990 to 1998 and of HSBC Investment Bank plc from 1996 to 1998. He is currently the Chairman and a Director of Atlantis Investment Management (Ireland) Ltd and Li & Fung Ltd. Magomet has held the position of Chief Executive since founding the business in 2001. William joined PureCircle in June 2008 as Chief Financial Officer. Peter Lai Hock Meng has more than 30 years experience in financial services industry including central banking, investment banking, private banking, stock broking, venture capital, asset management, treasury management and private equity investments. He currently manages his own boutique corporate advisory firm based in Singapore and sits on the board of several other companies listed on the Singapore Exchange and the Hong Kong Stock Exchange as Independent Director. He was appointed Chairman of the Company in December 2007 and also chairs the Nomination Committee. The CEO, Magomet Malsagov, is responsible for the Executive management of the Group. He has responsibility to recommend and to implement the Group’s strategic objectives. He is a FCA who trained with PriceWaterhouse London. At PriceWaterhouse, he advised major international food and beverage businesses and private equity firms on mergers and acquisitions and post acquisition integrations. William was then part of the management buyin team that acquired Tetley Tea, the number two global tea brand, from Allied Domecq. As Chief Financial Officer, he supports the Chief Executive and his responsibilities include financial planning and reporting, group treasury, investor relations and the development of the Group’s joint ventures. Peter graduated with a BA in Economics from the University of Cambridge, England. He is also a CFA charter holder from the CFA Institute, USA, and a Fellow of the Chartered Institute of Marketing, UK. He joined PureCircle in June 2008 and is the Chairman of the Audit Committee. John Slosar Sunny Verghese Non-Executive Director Non-Executive Director Non-Executive Director Olivier is a French national who joined PureCircle in November 2006. He read business at Ecole des Hautes Etudes Commerciales (MBA HEC) Paris. Olivier has more than 25 years of experience in FMCGs markets. He formerly held CEO positions of various companies in Europe and Asia for Campofrio Food Group, Danone Group and Kraft Group. John is a Non-Executive Director who joined PureCircle in November 2006. Sunny is the Group Managing Director and Chief Executive Officer of Olam International Limited, a leading global supply chain manager of agricultural products and food ingredients that is listed on the main board of the Singapore Exchange (SGX) and ranks amongst the top 40 companies in Singapore in terms of market capitalization. Sunny is responsible for the strategic planning, business development and overall management for the Olam group of companies worldwide. Sunny is also the Chairman of International Enterprise Singapore, a statutory board under the Ministry of Trade and Industry, as well as Chairman of the Board of the Human Capital Leadership Institute. He was appointed Managing Director of Hong Kong Aircraft Engineering Co Ltd in 1996. In July 1998, he was appointed Managing Director of Swire Pacific’s Beverages Division. He was appointed Chairman of Swire Beverages on 1 July 2010 and Chairman of Hong Kong Dragon Airlines on 31 March 2011 in addition to his current role as Chief Executive of Cathay Pacific. John was a graduate of both Columbia University and Cambridge University. He was appointed as a Non-Executive Director of PureCircle in October 2008. Our Financials Shareholder’s Information Olivier chairs the Remuneration Committee. He is also currently on the Boards of Cathay Pacific Airways Ltd, John Swire & Sons (H.K.) Ltd, Swire Pacific Ltd and Swire Beverages. He joined the Swire Group in 1980 and has worked with the Group’s Aviation Division in Hong Kong, the United States and Thailand. Our Governance Our Performance Olivier Maes 37 Our Business and Strategy www.purecircle.com Our Financials www.purecircle.com 39 •the consolidated financial statements of PureCircle Limited (“the Company”) which comprise the consolidated statements of financial position as of 30 June 2013, and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes, and •the statement of financial position of the Company as of 30 June 2013 and a summary of significant accounting policies and other explanatory notes set out on pages 40 to 89 (collectively referred to as the “Financial Information”). Directors’ responsibility for the Financial Information The Directors of the Company are responsible for the preparation and fair presentation of the Financial Information in accordance with International Financial Reporting Standards. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of Financial Information that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on the Financial Information based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the Financial Information are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Information. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Financial Information, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the Financial Information give a true and fair view of the financial position of the Company and of the Group as of 30 June 2013, and of the Group’s financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. Other matters This report, including the opinion, has been prepared for and only for you, as a body and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. PricewaterhouseCoopers (No. AF: 1146) Chartered Accountants Kuala Lumpur 14 September 2013 Our Performance We have audited: An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the Financial Information. Our Governance (Incorporated in Bermuda) Registration No: 40431 Our Financials Independent Auditors’ Report to the Shareholders of Purecircle Limited preparation and fair presentation of the Financial Information in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Shareholder’s Information 4.1 Independent Auditors Report Our Business and Strategy 4 Our Financials 40 PureCircle Annual Report 2013 4.2 Statements of Financial Position at 30 June 2013 The Group The Company Note 2013 USD’000 2012 USD’000 2013 USD’000 2012 USD’000 Investment in subsidiaries 7 - - 107,299 33,173 Investment in joint ventures 8 - - 70 70 ASSETS Non-Current Assets Intangible assets 9 32,472 26,812 1,165 1,034 Property, plant and equipment 10 65,889 66,586 184 174 Biological assets 11 4,172 6,047 - - Prepaid land lease payments 12 3,181 3,102 - - Deferred tax assets 13 5,979 6,209 - - 111,693 108,756 108,718 34,451 - - Current Assets Inventories 14 92,802 73,656 Trade receivables 15 29,352 21,827 - - Other receivables, deposits and prepayments 16 6,315 4,778 168 127 Tax recoverable 47 44 - - Amount owing by subsidiaries 17 - - 52,950 98,308 Short-term deposits with licensed banks 19 37,599 9,733 2 690 Cash and bank balances 19 11,599 14,555 995 554 177,714 124,593 54,115 99,679 289,407 233,349 162,833 134,130 Total Assets EQUITY AND LIABILITIES Equity Share capital 20 16,460 15,449 16,460 15,449 Share premium 21 162,898 132,330 162,898 132,330 Foreign exchange translation reserve 22 1,432 1,868 - - Share option reserve 23 1,530 204 1,530 204 Accumulated losses Equity attributable to owners of the Company Non-controlling interest Total Equity The annexed notes form an integral part of these financial statements. (40,519) (31,027) (18,929) (14,420) 141,801 118,824 161,959 133,563 715 652 - - 142,516 119,476 161,959 133,563 www.purecircle.com 41 2012 USD’000 Deferred tax liabilities 13 59 594 - - Long-term borrowings 24 96,581 84,026 - - Deferred income 26 483 548 - - 97,123 85,168 - - Non-Current Liabilities Current Liabilities Trade payables 25 12,532 3,625 - - Other payables and accruals 26 7,566 5,932 874 567 Amount due to joint venture partners 517 789 - - Income tax liabilities 248 34 - - 28,905 18,325 - - 49,768 28,705 874 567 Total Liabilities 146,891 113,873 874 567 Total Equity and Liabilities 289,407 233,349 162,833 134,130 0.86 0.77 Short-term borrowings Net Assets Per Share (USD) 24 27 Approved and authorised for issue by the board of directors on 14 September 2013. Magomet Malsagov Chief Executive Officer William Mitchell Chief Financial Officer The annexed notes form an integral part of these financial statements. Our Performance 2013 USD’000 Our Governance Note Our Financials The Company 2012 USD’000 Shareholder’s Information The Group 2013 USD’000 Our Business and Strategy 4.2 Statements of Financial Position at 30 June 2013 continued 42 PureCircle Annual Report 2013 4.3 Consolidated Statement of Comprehensive Income for the Financial Year Ended 30 June 2013 The Group Note Revenue 28 2013 USD’000 2012 USD’000 71,206 45,412 Cost of sales (53,023) (40,516) Gross profit 18,183 4,896 Administrative expenses (20,672) (17,096) Other income 2,789 1,040 Other expenses (1,538) (8,045) Finance income 180 377 (8,420) (7,829) Finance costs Loss before taxation 30 (9,478) (26,657) Income tax 29 50 3,379 (9,428) (23,278) Exchange differences arising on translation of foreign operations (432) 297 Total comprehensive loss for the financial year (net of tax) (9,860) (22,981) Owners of the company (9,492) (23,255) Non-controlling interest 64 (23) (9,428) (23,278) (9,928) (22,971) Loss for the financial year Other comprehensive (loss)/income (net of tax): Items that may be reclassified subsequently to profit or loss: Loss for the financial year attributable to: Total comprehensive loss attributable to: Owners of the company Non-controlling interest 68 (10) (9,860) (22,981) Loss per share (US cents) - Basic 31 (5.80) (15.06) - Diluted 31 (5.80) (15.06) The annexed notes form an integral part of these financial statements. www.purecircle.com 43 4.4 Consolidated Statement of Changes in Equity Share Premium USD’000 15,449 132,330 Share Option Reserve USD’000 (Accumulated Loss) USD’000 Sub-total USD’000 Noncontrolling Interests USD’000 Total Equity USD’000 The Group 1,868 204 (31,027) 118,824 652 119,476 - - - - (9,492) (9,492) 64 (9,428) Exchange difference arising on translation of foreign operations - - (436) - - (436) 4 (432) Total comprehensive income for the financial year - - (436) - (9,492) (9,928) 68 (9,860) Balance at 01.07.2012 Loss for the financial year Other comprehensive income: Transactions with owners: Share option scheme compensation expense for the financial year Exercise of share options Issuance of shares Dilution of non-controlling interests - - 1,481 - 1,481 - 1,481 246 - (155) - 102 - 102 1,000 30,322 - - - 31,322 - 31,322 - - - - - - (5) (5) 1,011 30,568 - 1,326 - 32,905 (5) 32,900 16,460 162,898 1,432 1,530 (40,519) 141,801 715 142,516 Shareholder’s Information Balance at 30.06.2013 - 11 Our Performance Share Capital USD’000 Our Governance Attributable to owners of the Company Foreign Currency Translation Reserve USD’000 Our Business and Strategy for the Financial Year Ended 30 June 2013 Our Financials The annexed notes form an integral part of these financial statements. 44 PureCircle Annual Report 2013 4.4 Consolidated Statement of Changes in Equity for the Financial Year Ended 30 June 2013 continued Attributable to owners of the Company Share Capital USD’000 Share Premium USD’000 15,406 131,620 Foreign Currency Translation Reserve USD’000 Share Option Reserve USD’000 Sub-total USD’000 Noncontrolling Interests USD’000 Total Equity USD’000 (7,772) 142,390 (Accumulated Loss) USD’000 The Group 1,584 1,552 668 143,058 - - - - (23,255) (23,255) (23) (23,278) Exchange difference arising on translation of foreign operations - - 284 - - 284 13 297 Total comprehensive income for the financial year - - 284 - (23,255) (22,971) (10) (22,981) (595) - (595) Balance at 01.07.2011 Loss for the financial year Other comprehensive income: Transactions with owners: Share option scheme compensation expense for the financial year Exercise of share options Dilution of non-controlling interests Balance at 30.06.2012 - - - (595) - 43 710 - (753) - - - - - - - - - - (6) (6) 43 710 - (1,348) - (595) (6) (601) 15,449 132,330 1,868 204 (31,027) 118,824 652 119,476 The annexed notes form an integral part of these financial statements. www.purecircle.com 45 4.4 Consolidated Statement of Changes in Equity Share Premium USD’000 15,449 132,330 Share Option Reserve USD’000 (Accumulated Losses) USD’000 Total USD’000 The Company Balance at 01.07.2012 Loss for the financial year - 204 (14,420) 133,563 - - (4,509) (4,509) Transactions with owners: Share option scheme compensation expense for the financial year - - 1,481 - 1,481 1,000 30,322 - - 31,322 Exercise of share option 11 246 (155) - 102 1,011 30,568 1,326 - 32,905 Balance at 30.06.2013 16,460 162,898 1,530 (18,929) 161,959 15,406 131,620 1,552 (12,651) 135,927 - - - (1,769) (1,769) - - (595) - (595) Exercise of share option 43 710 (753) - - 43 710 (1,348) - (595) Balance at 30.06.2012 15,449 132,330 204 (14,420) 133,563 Issuance of shares The Company Balance at 01.07.2011 Loss for the financial year Transactions with owners: Share option scheme compensation expense for the financial year The annexed notes form an integral part of these financial statements. Our Performance Share Capital USD’000 Our Governance Attributable to owners of the Company Our Business and Strategy continued Our Financials for the Financial Year Ended 30 June 2013 Shareholder’s Information 46 PureCircle Annual Report 2013 4.5 Consolidated Statement of Cash Flows for the Financial Year Ended 30 June 2013 The Group Note 2013 USD’000 2012 USD’000 (9,478) (26,657) 136 134 (88) (77) CASH FLOWS FROM OPERATING ACTIVITIES Loss before taxation Adjustments for: Amortisation of prepaid land lease payments Amortisation of deferred income 160 - Depreciation of property, plant and equipment Amortisation of intangible assets 5,793 3,900 Interest expense 8,420 7,829 Interest income (180) (377) 54 50 1,481 (595) 40 - Inventories written off 209 291 Change in fair value of biological asset 628 (1) Unrealised exchange gain (1,234) (1,139) Operating cash flow before working capital changes 5,941 (16,642) (19,355) 24,330 Decrease/(Increase) in biological assets 1,352 (1,009) Increase in trade and other receivables (8,965) (6,284) Increase in trade and other payables 10,426 3,735 Net cash (used in)/from operations (10,601) 4,130 180 377 (8,420) (7,829) (28) (23) (18,869) (3,345) (5,949) (2,573) (4,299) (2,070) 147 106 (10,101) (4,537) Loss on disposal of plant and equipment Share based payment expense/(credit) Intangible assets written off (Increase)/Decrease in inventories Interest received Interest paid Tax paid Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Addition of intangible assets Addition of property, plant and equipment Proceeds from disposal of property, plant and equipment Net cash used in investing activities The annexed notes form an integral part of these financial statements. 10 www.purecircle.com 47 4.5 Consolidated Statement of Cash Flows The Group 2013 USD’000 2012 USD’000 Drawdown of borrowings 44,046 11,233 Repayment of borrowings (21,264) (21,254) (40) (61) 31,322 - 102 - (1,373) 383 Net cash from/(used in) financing activities 52,793 (9,699) Net increase/(decrease) in cash and cash equivalents 23,823 (17,581) (313) (1,061) 23,171 41,813 46,681 23,171 Note CASH FLOWS FROM FINANCING ACTIVITIES Repayment of hire purchase Proceeds from private placement Proceeds from share options exercised (Increase)/Decrease in restricted cash Effects of foreign exchange rate changes on cash and cash equivalents Cash and cash equivalents at beginning of the financial year 19 Shareholder’s Information Our Financials Cash and cash equivalents at end of the financial year Our Business and Strategy continued Our Performance for the Financial Year Ended 30 June 2013 Our Governance The annexed notes form an integral part of these financial statements. 48 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 1 General Information The 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. (a) Standards, amendments and interpretations that are effective for the current financial year • Amendment to IAS 1, ‘Presentation of Items of Other Comprehensive Income’ (effective from 1 July 2012) requires entities to separate items presented in ‘other comprehensive income’ (‘OCI’) in the statement of comprehensive income into two groups, based on whether or not they may be recycled to profit or loss in the future. The amendments do not address which items are presented in OCI. Principal place of business: PT23419, Lengkuk Teknologi, Techpark @ Enstek, 71760, Bandar Enstek, Negeri Sembilan, Malaysia. (b) Standards, amendments and interpretations that have been issued and are relevant to the Group’s operations but are not yet effective The Company’s shares are publicly traded on the Alternative Investment Market (“AIM”) division of the London Stock Exchange. (i) Financial year beginning on/after 1 July 2013 The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the Directors dated 14 September 2013. 2 Principal Activities The Company is engaged principally in the business of investment holding whilst the principal activities of the rest of the Group are the production, marketing and distribution of natural ingredient including sweeteners and flavors. There have been no significant changes in the nature of these activities during the financial year. The principal activities of the subsidiaries and joint ventures are set out in Notes 7 and 8 to the financial statements. 3 Basis of Preparation The financial statements of the Group and Company have been prepared under the historical cost convention unless otherwise indicated in the significant accounting policies, and in compliance with International Financial Reporting Standards (“IFRSs”) and IFRIC Interpretations. he Group will apply the new standards, amendments to T standards and interpretations in the following period: • IFRS 10, ‘Consolidated Financial Statements’ (effective from 1 January 2013) changes the definition of control. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. It establishes control as the basis for determining which entities are consolidated in the consolidated financial statements and sets out the accounting requirements for the preparation of consolidated financial statements. It replaces all the guidance on control and consolidation in IAS 27, ‘Consolidated and Separate Financial Statements’ and IC Interpretation 112, ‘Consolidation– Special Purpose Entities’. • IFRS 11 “Joint arrangements” (effective from 1 January 2013) requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations arising from the arrangement, rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportionate consolidation of joint ventures is no longer allowed. The Group shall recognise its interests in joint ventures using the equity method, as disclosed below. www.purecircle.com 49 4.6 Notes to the Consolidated Financial Statements •IFRS 13, ‘Fair Value Measurement’ (effective from 1 January 2013) aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards. The enhanced disclosure requirements are similar to those in IFRS 7, ‘Financial Instruments: Disclosures’, but apply to all assets and liabilities measured at fair value, not just financial ones. •The revised IAS 27, ‘Separate Financial Statements’ (effective from 1 January 2013) includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. •The revised IAS 28, ‘Investments in Associates and Joint Ventures’ (effective from 1 January 2013) includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11. •Amendment to IAS 19, ‘Employee benefits’ (effective from 1 January 2013) makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits, and to the disclosures for all employee benefits. Actuarial gains and losses will no longer be deferred using the corridor approach. IAS 19 shall be withdrawn on application of this amendment. (ii) Financial year beginning on/after 1 July 2014 •Amendment to IAS 32, ‘Financial Instruments: Presentation’ (effective from 1 January 2014) does not change the current offsetting model in IAS 32. It clarifies the meaning of ‘currently has a legally enforceable right of set-off’ that the right of set-off must be available today (not contingent on a future event) and legally enforceable for all counterparties in the normal course of business. It clarifies that some gross settlement mechanisms with features that are effectively equivalent to net settlement will satisfy the IAS 32 offsetting criteria. (iii)Financial year beginning on/after 1 July 2015 •IFRS 9, ‘Financial Instruments - Classification and Measurement of Financial Asset and Financial Liabilities’ (effective from 1 January 2015) replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortised cost and fair value. The basis of classification depends on the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. The accounting and presentation for financial liabilities and for de-recognising financial instruments has been relocated from IAS 39, without change, except for financial liabilities that are designated at fair value through profit or loss (‘FVTPL’). Entities with financial liabilities designated at FVTPL recognise changes in the fair value due to changes in the liability’s credit risk directly in OCI. There is no subsequent recycling of the amounts in OCI to profit or loss, but accumulated gains or losses may be transferred within equity. The guidance in IAS 39 on impairment of financial assets and hedge accounting continues to apply. IFRS 7 requires disclosures on transition from IAS 39 to IFRS 9. Our Performance • IFRS 12, ‘Disclosures of Interests in Other Entities’ (effective from 1 January 2013) sets out the required disclosures for entities reporting under the two new standards, IFRS 10 and IFRS 11, and replaces the disclosure requirements currently found in IAS 28, ‘Investments in Associates’. It requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. •Amendment to IFRS 7, ‘Financial Instruments: Disclosures’ (effective from 1 January 2013) requires more extensive disclosures focusing on quantitative information about recognised financial instruments that are offset in the statement of financial position and those that are subject to master netting or similar arrangements irrespective of whether they are offset. Our Governance continued Our Financials 3 Basis of Preparation Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 50 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 3 Basis of Preparation continued Except for IFRS 11 and IFRS 12, the directors expect that the adoption of the other above standards and interpretations will have no material impact on the financial statements in the period of initial application. The nature of the impending changes in accounting policy on adoption of IFRS 11 and IFRS 12 are described below. IFRS 11 “Joint arrangements” Under IFRS 11, the Group will change its accounting policy for recognising its interests in joint ventures from proportionate consolidation to equity method. Under the equity method, the investment in associates is measured in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associate. The results of the joint ventures will no longer be proportionately consolidated but presented in one line as the Group’s share of profit or loss in Joint Ventures. Under the equity method, the Group’s revenue would decrease by USD1 million and the Group’s total assets and liabilities would decrease by USD7. 6 million and USD8.7 million respectively as at 30 June 2013. The Group is also currently in the process of assessing the full impact arising from the adoption of IFRS 11. 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 to a reasonably possible change in the United States Dollar, Chinese Renminbi, Euro and Sterling Pound exchange rates, with all other variables held constant of the Group’s loss: Changes in exchange rate Effect on profit after taxation USD ‘000 2013 United States Dollar Chinese Renminbi Sterling Pound Euro 9% 9% 20% 11% 915 2,402 165 257 2012 United States Dollar Euro 10% 10% 1,451 316 IFRS 12 “Disclosures of Interests in Other Entities” As the new standard only affect disclosures, it will not have any impact on the financial position or financial performance of the Group upon adoption. 4 Financial Risk Management 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 programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. (a) Financial Risk Management Policies (i) Foreign Currency 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. Management considered the current economic environment in arriving at the reasonable possible change in the above exchange rates. (ii) Interest Rate Risk 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: 2013 2012 Effective Interest Rate (%) Term loans 7.44 2013 USD ‘000 2012 USD ‘000 7.29 125,178 102,030 Borrowings issued at variables rates expose the Group to cash flow interest rate risk which is partially offset by cash held at variable rates. The Group analyses its interest rate exposure on a regular basis by taking into consideration refinancing, renewal of existing position and alternative financing. Based on these scenarios, the Group calculates the impact on the income statement of a defined interest rate shift on the Group’s borrowing position. www.purecircle.com 51 4.6 Notes to the Consolidated Financial Statements (iii)Credit Risk The Group trades only with recognised, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, the payment profile of the customers and credit exposure are monitored on an ongoing basis with the result that the Group’s exposure to bad debt is not significant. The Group also establishes an allowance account for impairment that represents its estimate of losses in respect of trade and other receivables. The Group and the Company’s maximum exposure is the carrying amount as disclosed in Notes 15, 16 and 17 to the financial statements. At 30 June 2013, one customer comprised 11% of total receivables and it took 18 customers (FY2012: 7) to comprise 81% (FY2012: 63%) of total receivables. See Note 15 for ageing of trade receivables that are past due but not impaired. The Group’s cash and cash equivalents and short-term deposits are placed with creditworthy financial institutions and the risks arising thereof are minimised in view of the financial strength of these financial institutions. The Group and Company consider that the credit risk relating to amounts due from jointly controlled entities and subsidiaries respectively to be low. Both the jointly controlled entities and subsidiaries are expected to repay fully the amounts owed to the Group and Company respectively as these related entities are expected to continue on a going concern basis. At year end, the Group believes there is no credit risk provision required for these receivables. Liquidity and cash flow risks arise mainly from general funding and business activities. The Group’s cash flow is reviewed regularly to ensure commitments are settled when they fall due. Cash flow forecasting is performed both in the operating entities and on a Group consolidated basis. The Group monitors rolling forecasts of its liquidity requirements including projected sales revenues and inventory and capital expenditure requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or financial covenants on any of its borrowing facilities. The Group invest surplus cash into financial interest bearing accounts and money market deposits. The following tables detail the remaining contractual maturities at the reporting date of the Group’s and the Company’s non-derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the reporting date) and the earliest date the Group and the Company can be required to receive or pay: Our Performance As at balance sheet date, if interest rates on borrowings is 1% higher/lower for a year with all other variables held constant, post-tax profit for the year would be USD1,232,000 (2012: USD922,000) lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowing. (iv)Liquidity and cash flow risks Our Governance continued Our Financials 4 Financial Risk Management Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 52 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 4 Financial Risk Management (iv)Liquidity and cash flow risks continued continued Carrying Amount USD’000 Total Contractual Undiscounted Cash Flow USD’000 Within 1 Year or on Demand USD’000 More than 1 Year but Less than 2 Years USD’000 More than 2 Years but less than 5 Years USD’000 More than 5 Years USD’000 517 517 517 - - - 20,098 20,098 20,098 - - - 125,486 141,025 37,285 103,694 46 - The Group 2013 At 30 June 2013 Financial liabilities: Amount due to joint venture partners Trade and other payables Borrowings The Group 2012 At 30 June 2012 Financial liabilities: Amount due to joint venture partners Trade and other payables Borrowings 789 789 789 - - - 9,557 9,557 9,557 - - - 102,351 121,944 25,753 12,407 83,780 4 Carrying Amount USD’000 Total Contractual Undiscounted Cash Flow USD’000 Within 1 year or on Demand USD’000 More than 1 Year but Less than 2 Years USD’000 More than 2 Years but Less than 5 Years USD’000 874 874 874 - - 567 567 567 - - The Company 2013 At 30 June 2013 Other payables and accruals The Company 2012 At 30 June 2012 Other payables and accruals www.purecircle.com 53 4.6 Notes to the Consolidated Financial Statements 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 principal accounting policies applied in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The capital structure of the Group consists of debts, which include the borrowings disclosed in Note 24, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, share premium, reserves and retained earnings. (a) Financial assets The Group’s policy is to maintain a strong capital base by having low to moderate gearing. 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: Debts (i) Less: Gross cash Net debt (ii) Equity (iii) Net debt to equity ratio 2013 USD ‘000 2012 USD ‘000 125,486 (49,198) 102,351 (24,288) 76,288 78,063 141,801 118,824 54% 66% (i)Receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for impairment. An allowance for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. (ii) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current. (b)Financial liabilities (i)Payables (i) Debts relate to borrowings disclosed in Note 24 to the financial statements. (ii)Net debt is calculated as total borrowings (including “current and non-current borrowings”) as shown in the consolidated statement of financial position less cash and cash equivalents (iii)Equity includes all capital and reserves of the Group attributable to the equity holders of the Company. (c) Fair value estimation There are no significant fair value estimates to be made for the financial instruments measured at fair value for the Group and the Company as at the reporting date. Liabilities for trade and other payables, including amounts owing to related parties, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. (ii) Interest-bearing loans and borrowings All loans and borrowings are recognised initially at fair value of the consideration received, net of directly attributable transaction cost incurred, and are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction cost) and the redemption value is recognised in the profit or loss over the period of the loans and borrowings using the effective interest method. Our Performance (b)Capital risk management Our Governance 5 Summary Of Significant Accounting Policies continued Our Financials 4 Financial Risk Management Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 54 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 5 Summary Of Significant Accounting Policies continued (c) 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 entity operates. The functional and presentation currency of the Company is United States Dollar (“USD”). The consolidated financial statements are presented in United States Dollar (“USD”) which is the Company’s presentation currency. (ii) Transactions and balances Transactions of the Company in foreign currency are converted into USD at the approximate rates of exchange ruling at the transaction dates. 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. Non-monetary assets and liabilities are translated using exchange rates that existed when the values were determined. (iii)Foreign operations The results and financial position of the subsidiaries are translated into the presentation currency as follows: (a) assets and liabilities, including goodwill and fair value adjustments arising on the acquisition of foreign operations, for each statement of financial position presented are translated at the closing rate at the reporting date; (b) income and expenses for each profit or loss are translated at the average exchange rates for the year; (c) all resulting exchange differences are recognised as a separate component of equity; and (d) on disposal, accumulated translation differences are recognised in the profit or loss as part of the gain or loss on sale of the foreign operation. (d)Basis of Consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries. (i)Subsidiaries Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated 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 and the equity interests issued by the Group. 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. Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. The excess of the consideration transferred 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. www.purecircle.com 55 4.6 Notes to the Consolidated Financial Statements The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. 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. (iii)Jointly controlled entities Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. The Group’s interests in jointly controlled entities are accounted for by proportionate consolidation. The Group combines its share of the joint venture’s individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Group’s financial statements. 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. (f) Investments in subsidiaries, associates and joint venture Investments in subsidiaries, associates and joint venture are stated at cost in the statement of financial position of the Company, and are reviewed for impairment at the end of the financial year if events or changes in circumstances indicate that their carrying values may not be recoverable. On the disposal of the investments in subsidiaries, associates and joint venture, the difference between the net disposal proceeds and the carrying amount of the investments is taken to the profit or loss. (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. Our Performance (ii) Transactions with non-controlling interests Goodwill that arises upon acquisition of subsidiaries is included in intangible assets. The carrying value of goodwill is reviewed for impairment annually. 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. Our Governance Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (e)Goodwill on consolidation Our Financials 5 Summary Of Significant Accounting Policies continued Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 56 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 5 Summary Of Significant Accounting Policies continued (i) Intellectual property The intellectual property consists of the internal investment and external acquisition costs of the patents, trademarks, technological processes and all intellectual and industrial property rights (“intellectual property rights”) in connection therewith on the production of natural sweetener, pharmaceutical products and chemical derivatives of bio-organic and physiologically active compounds. The acquisition cost is capitalised as an intangible asset as it is able to generate future economic benefits to the Group. The useful life of these intellectual property rights, other than patented development costs is considered to be indefinite based on the Directors’ annual reassessment of the useful life; there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group. Intellectual property rights are stated at cost less impairment losses. They are not amortised but tested for impairment annually or more frequently when indicators of impairment are identified. The intellectual property rights are assessed to have an indefinite useful life because the Group’s natural sweeteners and flavors are expected to become mass volume ingredients in all foods and beverage categories. Similar to the sugar market, there is no expected end to the useful life of the natural sweeteners and flavors such as stevia. Accordingly, the Directors believe the useful life for intellectual property rights is indefinite. The Directors will continue to reassess the basis of that useful life of the intellectual property rights on an annual basis. Patented development costs are subject to estimated useful life of no more than 20 years and amortised starting from the financial year when the product are first viable for commercial use. (ii) Product development All research costs are recognised in the profit or loss as incurred. Expenditure incurred on projects to develop new products 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 resource to complete the project and the ability to measure reliably the expenditure during the developments. These intangible assets 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 are first viable for commercial use. Product development expenditures which do not meet these criteria are recognised in the profit or loss when incurred. (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. www.purecircle.com 57 4.6 Notes to the Consolidated Financial Statements Extraction and refinery plant and machinery Office equipment, furniture and fittings and motor vehicles 2%– 5% 5%–10% 20% The depreciation method, useful life and residual values are reviewed, and adjusted if appropriate, at each reporting date. 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 year the asset is derecognised. 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 longterm assets and depreciated accordingly when the assets are completed and ready for commercial use. Cost of capital work-in-progress includes direct cost, related expenditure and interest cost on borrowings taken specifically to finance the purchase of the assets, net of interest income on the temporary investment of those borrowings. (i) Impairment of non-financial assets Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation but are tested annually for impairment. 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 (j) Biological assets Biological assets comprise stevia plants in the Group’s controlled nurseries (nursery plants) that are used to mass produce seedlings for third party farmers. Seedlings produced from the nursery plants are deducted from the biological assets at fair value less cost to sell. Seedlings harvested from nursery plants are carried at their deemed cost under IAS 2 as inventories, which are then stated at lower of this deemed cost and net realisable value subject to any impairment loss. Biological assets are stated at fair value less cost to sell. Fair value gains or losses on biological assets are recognised in the profit or loss. Where little biological transformation has taken place since initial cost incurrences, or the impact of the biological transformation on price is not expected to be material, the cost of the biological assets is considered by management to approximate fair value. (k)Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined 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. Our Performance Buildings Our Governance 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: 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). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Our Financials 5 Summary Of Significant Accounting Policies continued Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 58 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 5 Summary Of Significant Accounting Policies continued (l) Income taxes 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 profit or loss, 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. (m)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 approved for appropriation. (n)Cash and cash equivalents Cash and cash equivalents comprise cash in 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. Restricted cash comprise cash balances held in an account solely for the purpose of utilising the forward contract facility, trade finance facility and credit card facility provided by a licensed financial institution. (o)Employee benefits (i) Short-term benefits Wages, salaries, paid annual leave, bonuses and nonmonetary benefits are accrued in the period in which the associated services are rendered by employees of the Group. (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 one 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 (options) of the Group. The fair value of the employee services received in exchange for the grant of the options or shares 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 options or 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 options that are expected to become exercisable. www.purecircle.com 59 4.6 Notes to the Consolidated Financial Statements (q)Provisions A provision is recognised if, as a result of past event, 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 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 ownerships 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. (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 performance of the operating segments. (t) Revenue recognition (i) Sale of goods Revenue from the sale of stevia products is recognised when the significant risks and rewards of ownership of the stevia products have passed to the buyer and customers’ acceptance and where applicable, net of sales tax, returns and trade discounts. (ii) Interest income Interest income is recognised on an accrual basis, based on the effective yield on the investment. (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 expenses incurred are recognised in the profit or loss as other income on a systematic basis in the same periods in which the expenses are recognised. 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 asset. Our Performance The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution in the subsidiary. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity. 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. Our Governance When the options 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 options are exercised. 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. Our Financials 5 Summary Of Significant Accounting Policies continued Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 60 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 6 Critical Accounting Estimates and Judgements Estimates and judgements are continually evaluated by the Directors and management and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and judgements that affect the application of the Group’s accounting policies and disclosures, and have a significant risk of causing a material adjustment to the carrying amounts of assets, liabilities, income and expenses are discussed below. (i) Goodwill and other assets carrying values (a)Key assumptions for value-in-use calculations The recoverable amount of a cash generating unit (“CGU”) is determined based on value-in-use calculations using cash flow projections based on financial budgets approved by management covering a 5-year period including a terminal value as required by IAS 36 ‘Impairment of Assets’. The key assumptions used in the CGU’s value-in-use computation are: (i) Growth rate The average sales growth rate used is based on planned capacity and forecasted demands. The short to medium term growth rates used are in the range of 25% to 30% per annum (2012: 30% to 50%). The long term growth rate used is 2% (2012: 2.0%) per annum, based on sweetener industry’s long term growth rate ranging from 2% to 4% per annum. (ii) Gross margin Changes in selling price and direct costs are based on past results and expectations of future changes in the market. (iii)Discount rate The discount rate used is 12% (2012: 12.0%) per annum which approximates the CGUs’ average cost of funds and risk factor. (b)Sensitivity to changes in assumptions The Directors believes that a reasonable change in any of the above key assumptions would not cause the carrying value of the intangible assets to be impaired. (ii)Indefinite useful life of intellectual property rights The intellectual property rights are assessed to have indefinite useful lives because over the long term the Group’s natural sweeteners and flavors are expected to become mass volume ingredients in all foods and beverage categories. Similar to the sugar market, there is no expected end to the useful life of the natural sweeteners and flavors such as stevia. Accordingly, the Directors believe the useful life for intellectual property rights is indefinite. The Directors will continue to reassess the basis of the useful life of the intellectual property rights on an annual basis. 7 Investment in Subsidiaries The Company At 1 July Addition during the financial year Advances to subsidiaries treated as quasi-investment At 30 June 2013 USD’000 2012 USD’000 33,173 22,156 29,445 11,017 44,681 107,299 33,173 The advances to subsidiaries are treated as an extension of its investments in subsidiaries. www.purecircle.com 61 4.6 Notes to the Consolidated Financial Statements Name of Company Country of Incorporation Effective Equity Interest 2013 2012 Principal Activities Held directly by PCL PureCircle Sdn. Bhd. (“PCSB”) PureCircle Mexico Inc. (“PCMEX”)* Malaysia 100% 100% Production and distribution of natural sweeteners and flavors. Mexico 100% - Sales and marketing of natural sweeteners and flavors. PureCircle S.A. Switzerland 100% 100% Investment holding and sales and marketing of natural sweeteners and flavors. PureCircle Australia Pty. Ltd. Australia 100% 100% Sales and marketing of natural sweeteners and flavors. PureCircle USA Holdings Inc. United States of America (“USA”) 100% 100% Investment holding. PureCircle (UK) Limited England and Wales 100% 100% Sales and marketing of natural sweeteners and flavors. PureCircle Kenya Limited (“PCK”) Kenya 100% 100% Supply and development of stevia agronomy. PureCircle South America Sociedad Anonima (“PCSAM”) Paraguay 100% 100% Supply and development of stevia agronomy. PureCircle (China) Limited (“PCC”) Hong Kong 100% 100% Investment holding. PureCircle USA Inc. United States of America (“USA”) 100% 100% Sales and marketing of natural sweeteners and flavors. Held by PCSB PureCircle (Jiangxi) Co. Ltd. (“PCJX”)** The People’s Republic of China (“The PRC”) 98.62% 98.58% Supply chain, production and distribution of natural sweeteners and flavors. PureCircle (Shanghai) Co. Ltd.*** The People’s Republic of China (“The PRC”) 100% 100% Sales and marketing of natural sweeteners and flavors. PureCircle Stevia Sdn. Bhd. Malaysia 51% 51% Dormant. Held by PCC PureCircle China Agriculture Development Co. Ltd The People’s Republic of China (“The PRC”) 100% 100% Supply and development of stevia agronomy. During the financial year: (i) the Company incorporated a wholly-owned subsidiary (99.8% held through PCSB), PureCircle Mexico Inc. for sales and marketing of natural sweeteners and flavors; and (ii) the Company increased its investment by USD29 million in PCSB through the capitalisation of prior years’ intercompany loan by way of redeemable preference shares; * 0.2% held directly by the Company and 99.8% held through PCSB ** Held through PCSB. During the year, it increased its investment in PCJX by USD1 million in paid-up capital. The non- controlling interest of PCJX did not fully match this investment so the Group’s interest increased from 98.58% to 98.62%. ***Held through PCSB. During the year, it increased its investment in PureCircle (Shanghai) Co. Ltd. by USD1 million in paid- up capital. Our Performance Details of the subsidiaries are as follows: Our Governance continued Our Financials 7 Investment in Subsidiaries Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 62 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 8 Investment in Joint Ventures Details of joint ventures are as follows: Name of Company Country of Incorporation Effective Equity Interest 2013 2012 Principal Activities Natural Sweet Ventures LLC (“NSV”) USA 50% 50% Production, marketing and distribution of natural sweeteners. Tereos PureCircle Solutions France 50% 50% Production, marketing and distribution of natural sweeteners. NP Sweet AS Denmark 50% 50% Production, marketing and distribution of natural sweeteners. The Group’s share of the results of the joint ventures, each of which is unlisted, and their aggregated assets and liabilities as at the reporting date, are as follows: 2013 USD’000 2012 USD’000 509 289 Assets/(liabilities) Non-current assets Current assets 7,407 8,421 Current liabilities (8,733) (9,607) (817) (897) 2013 USD’000 2012 USD’000 Revenue 2,550 1,233 Expenses (3,083) (2,531) (533) (1,298) Net assets/(liabilities) Income/(expenses) Loss for the financial year The Group recognises its interests in joint ventures using the proportionate consolidation method. On 13 September 2013, the Group sold its 50% shareholding interest in Natural Sweet Ventures (“NSV”) to its partner Imperial Sugar. See note 35 – Events after the Reporting Period. www.purecircle.com 63 4.6 Notes to the Consolidated Financial Statements Goodwill USD’000 Total USD’000 13,445 12,031 1,806 27,282 465 5,484 - 5,949 The Group Cost At 1 July 2012 Additions Write off (30) (10) - (40) Foreign exchange translation difference 256 (347) - (91) 14,136 17,158 1,806 33,100 470 - - 470 43 117 - 160 2 (4) - (2) 515 113 - 628 13,621 17,045 1,806 32,472 Intellectual Property Rights USD’000 Product Development USD’000 Goodwill USD’000 Total USD’000 13,178 10,186 1,806 25,170 351 2,222 - 2,573 At 30 June 2013 Accumulated amortisation At 1 July 2012 Charge for the financial year Foreign exchange translation difference At 30 June 2013 Net carrying amount at 30 June 2013 The Group Cost At 1 July 2011 Additions Foreign exchange translation difference At 30 June 2012 (84) (377) - (461) 13,445 12,031 1,806 27,282 496 - - 496 Accumulated amortisation At 1 July 2011 Foreign exchange translation difference (26) - - (26) At 30 June 2012 470 - - 470 12,975 12,031 1,806 26,812 Net carrying amount at 30 June 2012 Our Performance Product Development USD’000 Our Governance Intellectual Property Rights USD’000 Our Financials 9 Intangible Assets Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 64 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 9 Intangible Assets continued Intellectual Property Rights USD’000 Product Development USD’000 Total USD’000 472 562 1,034 The Company At 1 July 2012 Additions during the financial year At 30 June 2013 - 131 131 472 693 1,165 Intellectual Property Rights USD’000 Product Development USD’000 Total USD’000 472 531 1,003 - 31 31 472 562 1,034 The Company At 1 July 2011 Additions during the financial year At 30 June 2012 Intellectual property rights comprise the patents, trade mark technology process and all intellectual and industrial property rights in connection therewith on the production of natural sweetener, pharmaceutical products and derivatives of bioorganic and physiologically active compounds. As at 30 June 2013, the carrying value of indefinite life intangible assets is USD11,094,000. Goodwill is allocated to the Group’s single cash generating unit (CGU) identified according to its only operating segment. See note 6(i) for key assumptions used in the value-in-use calculations. www.purecircle.com 65 4.6 Notes to the Consolidated Financial Statements 1,158 20,225 61,428 Capital Work-in Progress USD’000 Total USD’000 3,453 996 87,260 933 1,922 The Group Cost At 1 July 2012 Additions 8 16 1,420 Disposals/write-offs - (18) (605) (422) - 4,299 (1,045) Reclassification - - 733 162 (895) - Foreign exchange translation reserve 3 500 901 33 (32) 1,405 1,169 20,723 63,877 4,159 1,991 91,919 - 1,911 16,830 1,933 - 20,674 Charge for the financial year - 367 4,646 780 - 5,793 Disposals/write-offs - (4) (523) (317) - (844) At 30 June 2013 Accumulated depreciation At 1 July 2012 Foreign exchange translation reserve - 81 313 10 - 404 At 30 June 2013 - 2,355 21,266 2,406 - 26,027 At 30 June 2013 1,169 18,368 42,611 1,750 1,991 65,889 At 30 June 2012 1,158 18,314 44,598 1,520 996 66,586 Net book value Our Performance Buildings USD’000 Extraction and Refinery Plants USD’000 Our Governance Freehold Land USD’000 Office Equipment, Furniture and Fittings and Motor Vehicles USD’000 Our Financials 10 Property, Plant and Equipment Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 66 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 10 Property, Plant and Equipment continued Office Equipment, Furniture and Fittings and Motor Vehicles USD’000 Capital Work-in Progress USD’000 Total USD’000 3,704 3,065 86,866 934 2,070 Freehold Land USD’000 Buildings USD’000 Extraction and Refinery Plants USD’000 1,204 17,145 61,748 Additions - 74 854 208 Disposals - - (12) (283) - The Group Cost: At 1 July 2011 Reclassification (295) - 2,699 304 - (3,003) - (46) 307 (1,466) (176) - (1,381) 1,158 20,225 61,428 3,453 996 87,260 - 1,909 12,709 1,550 - 16,168 Charge for the financial year - 873 3,493 584 - 4,950 Disposals - - (7) (132) - (139) Foreign exchange translation reserve At 30 June 2012 Accumulated depreciation: At 1 July 2011 Reclassification - (882) 899 (17) - - Foreign exchange translation reserve - 11 (264) (52) - (305) At 30 June 2012 - 1,911 16,830 1,933 - 20,674 At 30 June 2012 1,158 18,314 44,598 1,520 996 66,586 At 30 June 2011 1,204 15,236 49,039 2,154 3,065 70,698 Net book value www.purecircle.com 67 4.6 Notes to the Consolidated Financial Statements 10 Property, Plant and Equipment continued Office Equipment, Furniture and Fittings and Motor Vehicles USD’000 Capital Work-in Progress USD’000 Total USD’000 At 1 July 2012 13 162 175 Additions 50 - 50 Reclassification 162 (162) - At 30 June 2013 225 - 225 1 - 1 The Company Our Business and Strategy for the Financial Year Ended 30 June 2013 Our Performance Cost: Charge for the financial year 40 - 40 At 30 June 2013 41 - 41 At 30 June 2013 184 - 184 At 30 June 2012 12 162 174 67 - 67 Additions 13 162 175 Disposals (67) - (67) At 30 June 2012 13 162 175 2 - 2 Charge for the financial year 12 - 12 Disposals (13) - (13) 1 - 1 At 30 June 2012 12 162 174 At 30 June 2011 65 - 65 Net book value: The Company Our Financials At 1 July 2012 Our Governance Accumulated depreciation: Cost: At 1 July 2011 Accumulated depreciation: At 1 July 2011 At 30 June 2012 Net book value: Shareholder’s Information 68 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 10 Property, Plant and Equipment continued The carrying values of plant and equipment charged to financial institutions to secure banking facilities granted to the Group are as follows: The Group 2013 USD’000 Freehold land 2012 USD’000 607 604 Building 14,844 14,683 Extraction and refinery plants 42,501 44,355 842 950 Office equipment, furniture & fittings Capital work-in progress 1,992 244 60,786 60,836 The carrying values of plant and equipment acquired under hire purchase terms are as follows: The Group Motor vehicles 2013 USD’000 2012 USD’000 51 120 11 Biological Assets The Group 2013 USD’000 2012 USD’000 Non-current At fair value At 1 July Expenditure incurred (Loss)/gain arising from changes in fair value Seedlings transferred and sold Foreign exchange translation reserve At 30 June 6,047 5,229 - 1,666 (628) 1 (1,352) (655) 105 (194) 4,172 6,047 There were approximately 41 million seedlings have been transferred and sold from the nursery plants in FY2013 (FY2012: 20 million) with a fair value of USD1.4 million (FY2012: USD0.7 million). At the end of financial year, the Group’s nursery plant material comprised: 2013 USD’000 2013 Million 2012 USD’000 2012 Million 4,172 5.4 6,047 4.1 The Group Nursery plants www.purecircle.com 69 4.6 Notes to the Consolidated Financial Statements The Group 2013 USD’000 2012 USD’000 At 1 July 3,102 3,094 Additions 38 - (136) (134) 177 142 At 30 June 3,181 3,102 Cost 3,476 3,008 (511) (375) Accumulated amortisation Foreign exchange translation reserve At 30 June 216 469 3,181 3,102 Our Governance Foreign exchange translation reserve 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. The prepaid land lease payments have been pledged as security for banking facilities granted to the Group. 13 Deferred Tax The Group 2013 USD’000 2012 USD’000 6,209 3,573 (254) 2,636 24 - 5,979 6,209 At 1 July 594 1,458 Credit to profit or loss (Note 29) (540) (864) 5 - 59 594 5,858 6,209 121 - Deferred tax assets At 1 July Credit to profit or loss (Note 29) Foreign exchange translation reserve At 30 June Deferred tax liabilities Foreign exchange translation reserve At 30 June Represented by: Deferred tax assets Tax losses Others Offsetting - - 5,979 6,209 59 594 Deferred tax liabilities Intangible assets Offsetting - - 59 594 Our Financials Amortisation for the financial year Our Performance 12 Prepaid Land Lease Payments Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 70 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 13 Deferred Tax continued Deferred tax assets are recognised for tax loss carry-forwards 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. The group did not recognise deferred tax assets of USD4,843,686 (2012: USD4,351,588) in respect of losses amounting to USD19,374,746 (2012: USD17,406,352) that can be carried forward against future taxable income. An analysis of tax losses with expiry dates for which deferred tax assets have been recognised is as follows: The Group 2013 USD’000 2012 USD’000 FY2016 234 288 FY2017 397 1,724 FY2018 - 140 FY2019 - 54 FY2029 1,677 1,726 FY2030 1,325 1,319 FY2031 732 850 FY2032 728 - Indefinite Total 765 108 5,858 6,209 14 Inventories The Group Raw materials 2013 USD’000 2012 USD’000 13,687 12,946 Work-in-progress 11,569 10,863 Finished goods 67,546 49,847 92,802 73,656 www.purecircle.com 71 4.6 Notes to the Consolidated Financial Statements Jointly controlled entities At 30 June 22,852 14,473 6,500 7,354 29,352 21,827 The Group’s normal trade credit terms range from 30 to 60 days (2012: 30 to 60 days). Terms for jointly controlled entities are 30 days after consumption or onward sales of products. Other credit terms are assessed and approved on a case-bycase basis. In line with all business, management reviews the credit terms and collectability of all balances on an on-going basis and exercises judgement in assessing the recoverability of amounts due. Trade receivables that are three months past due or less are not considered impaired. As of 30 June 2013, trade receivables amounting to USD7,533,000 (2012: USD1,226,000) were past due but not impaired. These related 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: The Group 2013 USD’000 2012 USD’000 6,911 777 Past due but not impaired: Up to 3 months 3 to 6 months 314 280 6 months and above 308 169 7,533 1,226 At 30 June Of the past due amounts outstanding as at 30 June 2013, USD7 million (2012: USD484,000) had been received in cash by 7 September 2013. 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 trade receivables at the reporting date was as follows: The Group 2013 USD’000 2012 USD’000 United States Dollar 8,510 9,756 Euro 2,364 2,861 Our Performance Third party trade receivables 2012 USD’000 Our Governance The Group 2013 USD’000 Our Financials 15 Trade Receivables Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 72 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 16 Other Receivables, Deposits and Prepayments The Group 2013 USD’000 Other receivables Prepayments Deposits As at 30 June 4,571 1,435 The Company 2012 USD’000 2013 USD’000 2012 USD’000 3,412 - - 1,160 119 84 309 206 49 43 6,315 4,778 168 127 Other receivables include amounts due from farmers for planting material and other miscellaneous amounts due to the Group. These receivables have a different credit risk profile from the Group’s core trade customer base. Receivables from farmers are assessed by the Group’s local agricultural management who assess credit risk at an individual debtor level on the basis of knowledge of each farmer’s circumstances. Other amounts due are assessed on a specific balance by balance basis. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. 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 other receivables at the reporting date was as follows: The Group 2013 USD’000 Australian Dollar United States Dollar Euro Ringgit Malaysia Sterling Pound The Company 2012 USD’000 2013 USD’000 2012 USD’000 19 - 19 - 267 68 - - - 13 - - 71 58 71 58 9 17 9 17 17 Amount Owing by Subsidiaries The amounts owing by subsidiaries are unsecured, repayable on demand and are denominated in United States Dollars. www.purecircle.com 73 4.6 Notes to the Consolidated Financial Statements 2013 USD’000 2012 USD’000 Trade receivables 29,352 21,827 - - Other receivables 4,571 3,412 - - - - 52,950 98,308 49,198 24,288 997 1,244 83,121 49,527 53,947 99,552 517 789 - - 12,532 3,625 - - 7,566 5,932 874 567 125,486 102,351 - - 146,101 112,697 874 567 Loans and receivables at amortised cost Amount owing by subsidiaries Cash and bank balances Other financial liabilities at amortised cost Amount due to joint venture partners Trade payables Other payables and accruals Borrowings 19 Cash and Cash Equivalents The Group 2013 USD’000 2012 USD’000 Short term deposits with licensed banks (a) 37,599 9,733 Cash at bank and on hand (b) 11,599 14,555 Deposits, cash and bank balances 49,198 24,288 (203) (176) Bank overdraft (Note 24) Restricted cash Cash and cash equivalents (2,314) (941) 46,681 23,171 Cash deposit of USD2,314,000 (2012: USD941,000) is pledged as security for banking facilities. Our Performance The Company 2012 USD’000 Our Governance The Group 2013 USD’000 Our Financials 18 Financial Instruments by Category Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 74 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 19 Cash and Cash Equivalents continued (a) Short term deposits with licensed banks The weighted average interest rates of the short-term deposits at the reporting date was 1.44% (2012: 1.78%) per annum. The short-term deposits have weighted maturity period of 37 days (2012: 32 days). 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 short-term deposits with licensed banks at reporting date was as follows: The Group United States Dollar Ringgit Malaysia Sterling Pound Chinese Renminbi The Company 2013 USD’000 2012 USD’000 2013 USD’000 2012 USD’000 61 - - - 2 - 2 - 761 690 761 690 26,297 - - - (b)Cash at bank and on hand 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 cash at bank and on hand at reporting date was as follows: The Group United States Dollar Euro Sterling Pound Ringgit Malaysia Chinese Renminbi The Company 2013 USD’000 2012 USD’000 2013 USD’000 2012 USD’000 3,322 5,574 - - 294 367 - - 96 64 89 64 26 16 26 16 388 - - - www.purecircle.com 75 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 20 Share Capital The movements in the authorised and paid-up share capital are as follows: The Group 2013 Par Value USD Number of Shares (’000) 0.10 At 1 July 0.10 Exercise of share options 0.10 Issuance of shares 0.10 At 30 June 0.10 164,602 The Company 2013 USD’000 Number of Shares (’000) USD’000 250,000 25,000 250,000 25,000 154,492 15,449 154,062 15,406 110 11 430 43 10,000 1,000 - - 16,460 154,492 15,449 Our Business and Strategy The Group At 1 July Exercise of share options Issuance of shares At 30 June The Company 2013 USD’000 2012 USD’000 2013 USD’000 2012 USD’000 132,330 131,620 132,330 131,620 246 710 246 710 30,322 - 30,322 - 162,898 132,330 162,898 132,330 22 Foreign Exchange Translation Reserve The foreign exchange translation reserve arose from the translation of the financial statements of the foreign subsidiaries into the Group’s presentation currency of USD. The Group USD’000 At 1 July 2011 Exchange differences arising on translation of foreign operations for the financial year ended 30 June 2012 At 30 June 2012 Exchange differences arising on translation of foreign operations for the financial year ended 30 June 2013 At 30 June 2013 1,584 284 1,868 (436) 1,432 Our Governance 21 Share Premium Our Financials Issued and fully paid-up Shareholder’s Information At 1 July/30 June Our Performance Authorised 76 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 23 Share Option Reserve The expense recognised for employee services received during the year is shown in the following table: The Group Expense/(credit) arising from equity-settled share-based payment transactions The Company 2013 USD’000 2012 USD’000 2013 USD’000 2012 USD’000 1,481 (595) 1,270 (1,522) The Group At 1 July Share option scheme compensation expense/(credit) Transfer to share capital and share premium At 30 June The Company 2013 USD’000 2012 USD’000 2013 USD’000 2012 USD’000 204 1,552 204 1,552 1,481 (595) 1,481 (595) 1,685 957 1,685 957 (155) (753) (155) (753) 1,530 204 1,530 204 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 Company’s share price and/or sales growth. The awards are conditional on employment service requirements. However, in the future the LTIP also allows for internal target measures to be used where such measures are themselves drivers of shareholder value. 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 options granted is estimated at the date of the grant using Black-Scholes, taking into account the terms and conditions upon which the options were granted. 2013 2012 Weighted average exercise price per share Number of options ‘000 Weighted average exercise price per Number of options ‘000 At 1 July 0.06 4,773 0.11 2,577 Granted - 1,904 - 2,983 Exercised - (113) - (430) Lapsed - (208) - (357) 0.05 6,356 0.06 4,773 At 30 June www.purecircle.com 77 4.6 Notes to the Consolidated Financial Statements Weighted average fair value at grant date (Sterling pound) Exercise price per share Vesting requirements Expiry 132 0.51 Sterling pound 1.58 Remain as employee of the Company 17 April 2015 Award 2 30 November 2010– 30 June 2015 1,748 1.29 Nil Sales target and three years’ service -NA- Award 3 20 September 2011– 30 June 2015 2,298 0.81 Nil Sales target and three years’ service -NA- Award 4 14 March 2012– 14 September 2015 105 2.53 Nil Three years’ services -NA- Award 5 7 June 2012– 7 June 2015 320 1.36 Nil Three years’ services -NA- Award 6 1 July 2012– 7 June 2015 35 1.46 Nil Services rendered -NA- Award 7 1 July 2012– 30 June 2013 11 2.43 Nil Services rendered 30 June 2013 Award 8 8 August 2012– 31 July 2015 75 2.01 Nil Three years’ service -NA- Award 9 3 October 2012– 4 July 2015 1,632 2.10 Nil Sales target and three years’ service -NA- Total 6,356 Number of options outstanding Grant-vest Award 1 15 April 2008 – 15 April 2010 The number of exercisable options as at the reporting date was 132,500 (2012: 212,705). The related weighted average share price at the time of exercise was GBP2.41 (2012: GBP1.08) per share. Our Performance Details of share options granted that are outstanding as at 30 June 2013 are as follows: Our Governance continued Our Financials 23 Share Option Reserve Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 78 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 24 Borrowings The Group 2013 USD’000 2012 USD’000 203 176 28,665 18,109 37 40 28,905 18,325 96,513 83,921 68 105 Current portion: - Bank overdraft (a) - Term loans (b) - Hire Purchase (c) Non-current portion: - Term loans (b) - Hire Purchase (c) Total non-current portion 96,581 84,026 125,486 102,351 There is no foreign currency exposure in relation to the borrowings of the Group in 2013 and 2012. (a) Bank overdraft Bank overdraft is secured by corporate guarantee of the Company. (b)Term Loans The term loans bore a weighted average effective interest rate of 7.44% (2012: 7.29%) per annum at the reporting date. www.purecircle.com 79 4.6 Notes to the Consolidated Financial Statements The Group 2013 USD’000 2012 USD’000 - Term loan 1 - 1,458 - Term loan 2 1,527 838 Current portion: Secured: - Term loan 3 5,271 5,247 - Term loan 4 20,654 9,486 - Term loan 5 - 287 Unsecured: - Term loan 6 Total current portion 1,213 793 28,665 18,109 3,758 3,110 Non-current portion: Secured: - Term loan 2 - Term loan 3 92,755 80,811 Total non-current portion 96,513 83,921 125,178 102,030 Our Performance continued Our Governance 24 Borrowings Our Business and Strategy for the Financial Year Ended 30 June 2013 Our Financials (i) a fixed and floating charge over present and future assets and the freehold property of a subsidiary; (ii)corporate guarantee by the Company; and (iii)legal charge over landed property of a subsidiary. Term loan 3 is a five year working capital facility starting from June 2010 with four year drawdown period to June 2014. Based on the drawdown on 30 June 2013, this has a monthly revolving service requirement covering USD10.5 million of repayments up to June 2015 and then a USD87.5 million lump sum repayment in June 2015. Term loan 4 is secured as follows:(i) a legal charge over certain assets of a subsidiary; and (ii)a legal charge over the prepaid land lease payments of a subsidiary. Term loan 5 is secured by corporate guarantee of the Company. There is no outstanding amount in 2013. Term loan 6 is unsecured. Shareholder’s Information Term loans 1 to 3 are secured by way of:- 80 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 24 Borrowings continued (c) Hire Purchase The Group leases motor vehicles under finance leases with lease terms of 5 to 9 years (2012: 5 to 9 years). At the end of the lease term, title to the assets will be transferred to the Group upon full payment being made. The Group 2013 USD’000 2012 USD’000 Analysis of hire purchase: - No later than one year 46 50 - Later than 1 year and no later than 5 years 85 125 - Later than 5 years Less: Future finance charges Present value - 5 131 180 (26) (35) 105 145 The present value of hire purchase is as follows: - No later than one year 37 40 - Later than 1 year and no later than 5 years 68 -101 - Later than 5 years - 4 105 145 The hire purchases are secured by the rights to the leased motor vehicles which revert to the lessor in the event of defaults. The hire purchase bore a weighted average effective interest rate of 3.34% (2012: 3.13%) per annum at the reporting date. 25 Trade Payables The normal trade credit terms granted to the Group range from 0 to 90 days (2012: 0 to 90 days). 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 trade payables at the reporting date was as follows: The Group United States Dollars 2013 USD’000 2012 USD’000 814 51 Chinese Renminbi 40 - Sterling Pound 64 - www.purecircle.com 81 4.6 Notes to the Consolidated Financial Statements The Company 2012 USD’000 2013 USD’000 2012 USD’000 483 548 - - 1,857 2,112 149 124 Non-current Deferred income Current Deferred income Accruals 38 39 - - 5,671 3,781 725 443 7,566 5,932 874 567 Our Governance Other payables 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. The foreign currency exposure profile of other payables at the reporting date was as follows: The Group The Company 2013 USD’000 2012 USD’000 1,179 840 - - 318 80 16 16 Sterling pound 43 32 43 32 Australian Dollars 37 21 37 21 Ringgit Malaysia 67 34 67 34 United States Dollars Euro 2013 USD’000 2012 USD’000 27 Net Assets Per Share The net assets per share is calculated based on the net assets book value at the reporting date of USD141,801,000 (2012: USD118,824,000) divided by the number of ordinary shares in issue at the reporting date of 164,601,552 (2012: 154,491,552). Our Financials The Group 2013 USD’000 Our Performance 26 Other Payables, Accruals and Deferred Income Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 82 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 28 Revenue Revenue represents the invoiced value of products sold less sales tax, returns and trade discounts. 29 Income Tax Expense/(Credit) The Group 2013 USD’000 2012 USD’000 325 96 Current tax: Current tax on profits for the year (Over)/under accruals in respect of prior years (89) 25 236 121 Deferred tax: (203) (176) Origination and reversal of temporary differences (286) (3,500) (50) (3,379) The Company was granted a tax assurance certificate dated 18 August 2007 under the Exempted Undertakings Tax Protection Act, 1966 pursuant to which it is exempted from any Bermuda taxes (other than local property taxes) until 28 March 2016. The subsidiary, 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 2009. Upon the expiry of the 10-year incentive period, PCSB will be entitled to a concessionary tax rate of 20% on income derived from qualifying activities for a further period of 10 years. A reconciliation of income tax expense applicable to the loss before taxation at the applicable tax rate to income tax expense at the effective tax rate of the Group is as follows: The Group 2013 USD’000 2012 USD’000 Loss before taxation (9,478) (26,657) Tax at the applicable tax rates in the respective countries (1,226) (3,103) Tax effects of: Non-deductible expenses 897 739 Non-taxable income (124) (709) Overprovision of taxation (89) (605) Tax losses not recognised 492 299 Income tax expense (50) (3,379) www.purecircle.com 83 4.6 Notes to the Consolidated Financial Statements 2012 USD’000 31,545 26,644 6,089 4,034 Charges: Raw materials and consumables used Depreciation and amortisation 777 745 Share based payment expense Directors remuneration 1,481 - Interest expenses 8,420 7,829 Loss on fair value of biological assets Changes in inventories of finished goods Foreign exchange loss Wages and salaries Defined contribution retirement plan Operating lease 628 - 17,699 13,872 - 2,144 10,860 9,357 925 766 91 30 Credits: Amortisation of deferred income Foreign exchange gain Gain on fair value of biological assets Interest income Share based payment credit 88 77 2,500 - - 1 180 377 - 595 31 Loss Per Share The basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue: The Group Loss attributable to equity holders of the Company (USD’000) Weighted average number of ordinary shares in issue (thousands) Basic/Diluted loss per share (US Cents) 2013 USD’000 2012 USD’000 (9,492) (23,255) 163,515 154,395 (5.80) (15.06) The calculation of diluted earnings per share does not assume the issue of potential ordinary shares under the Company’s Long Term Incentive Plan as it would have an anti-dilutive effect. Our Performance The Group 2013 USD’000 Our Governance Included in the loss from ordinary activities before taxation are the following charges and credits: Our Financials 30 Loss from Ordinary Activities Before Taxation Our Business and Strategy for the Financial Year Ended 30 June 2013 Shareholder’s Information 84 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 32 Significant Related Party Transactions (a) Identities of related parties The Group has related party relationships with: (i) its subsidiaries as disclosed in Note 7 to the financial statements; (ii) its joint ventures as disclosed in Note 8 to the financial statements; and (iii) 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 parties during the financial year are set out below: (i) Related Parties The Group 2013 USD’000 2012 USD’000 Gross sales of goods to jointly controlled entities 3,080 8,796 Proportionate accounting (1,540) (4,398) 1,540 4,398 Related Parties Net sales of goods to jointly controlled entities recognised (ii) Key management personnel K ey management includes executive and non-executive directors. The compensation paid or payable to key management for employee services is shown as below: The Group Paul Selway-Swift Magomet Malsagov John Robert Slosar Olivier Phillipe Marie Maes Peter Lai Hock Meng William Mitchell 2013 USD’000 2012 USD’000 88 88 260 271 40 45 50 34 39 43 294 270 777 745 The Group Remuneration Professional services rendered Share based payment expense 2013 USD’000 2012 USD’000 687 617 - 11 90 117 777 745 www.purecircle.com 85 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 32 Significant Related Party Transactions Our Business and Strategy continued (b) In addition to the information detailed elsewhere in the financial statements, details of the Group’s transactions and balances with related parties during the financial year are set out below: (ii) Key management personnel The interests of the Directors as at 30 June 2013 are as follows: continued continued At 30.6.2013 308,171 104,000 - 412,171 Magomet Malsagov 15,055,612 - (200,000) 14,855,612 John Robert Slosar 1,442,052 120,250 - 1,562,302 377,010 27,200 - 404,210 Olivier Phillipe Marie Maes Peter Lai Hock Meng 145,050 35,250 - 180,300 William Mitchell 757,000 130,000 - 887,000 Number of option over ordinary share of USD0.10 each At 1.7.2012 Award Exercise At 30.6.2013 Magomet Malsagov 456,000 126,000 - 582,000 John Robert Slosar 10,850 14,500 (20,250) 5,100 Olivier Phillipe Marie Maes 12,200 - (12,200) - 13,550 18,100 (25,250) 6,400 281,000 156,000 - 437,000 The Company Direct Interests Peter Lai Hock Meng William Mitchell (iii) Balances with related parties The Group 2013 USD’000 2012 USD’000 Amount due from jointly controlled entities 13,000 14,708 Proportionate accounting (6,500) (7,354) 6,500 7,354 (517) (789) Amount due to joint venture partners Our Governance Sold/ transfer Our Financials Paul Selway-Swift Bought/options exercised Shareholder’s Information The Company Direct Interests Our Performance Number of ordinary share of USD0.10 each At 1.7.2012 86 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 33 Segmental Reporting Management determines the Group’s operating segments based on the criteria used by the Chief Executive Officer (CEO) for making strategic decisions. Management considers the Group to be a single operating segment whose activities are the production, marketing and distribution of natural sweeteners and flavowwrs. From a geographical perspective, the Group is a multinational with operations located on all continents, but managed as one unified global organization. The Group’s markets and its supply chain are based in the Americas, EMEA (Europe, Middle East and Africa) and Asia Pacific. 2013 USD’000 2012 USD’000 Trading Revenue 71,206 45,412 Cost of sales (52,398) (40,490) Gross margin 18,808 4,922 26% 11% Gross margin % Other income and foreign exchange 2,789 (1,104) Selling and administrative expenses (18,918) (17,018) 2,679 (13,200) EBITDA 4,851 (15,171) Adjusted EBITDA 8,768 (9,166) 8,768 (9,166) Adjusted operating profit/(loss) Reconciliation of Adjusted EBITDA to loss for the financial year: Adjusted EBITDA Other expenses: - Share based and related (2,379) (104) - Other (1,538) (5,901) (3,917) (6,005) 4,851 (8,240) 50 (15,171) (7,452) 3,379 EBITDA Finance costs Taxation Depreciation and amortisation (6,089) (4,034) Loss for the financial year (9,428) (23,278) www.purecircle.com 87 4.6 Notes to the Consolidated Financial Statements 33 Segmental Reporting continued 2013 USD’000 2012 USD’000 Cash Flow Operating cash flow before working capital changes (Increase)/Decrease in inventories 5,941 (16,642) (19,355) 24,330 (Increase)/Decrease in receivables (8,966) (6,284) Increase/(Decrease) in payables 10,426 3,735 Net cash (for)/from operations (10,601) 4,130 Net cash from/(used in) financing activities 52,793 (9,699) Gross cash at end of the financial year 49,198 24,288 65,889 66,586 Our Business and Strategy for the Financial Year Ended 30 June 2013 Our Performance 92,802 73,656 22,852 14,473 6,500 7,354 Receivables from jointly controlled entities 49,198 24,288 Total assets Cash and bank balances 289,407 233,349 Borrowings 125,486 102,351 76,288 78,063 Net debts Geographical information 30 June 2013 Sales Non-current assets 30 June 2012 Sales Non-current assets Bermuda USD’000 Asia USD’000 Europe USD’000 Americas USD’000 Goodwill Total USD’000 - 14,933 7,808 48,465 1,084 91,111 1,807 15,885 1,806 111,693 Bermuda USD’000 Asia USD’000 Europe USD’000 Americas USD’000 Goodwill Total USD’000 1,806 108,756 - 16,510 5,195 23,707 949 85,274 5,083 15,644 71,206 45,412 Basis of attributing sales by geographical region is based on location of sales. The primary performance indicators used by the Group are revenues, gross margin %, adjusted EBITDA, net cash from operations, gross cash and borrowings. EBITDA is calculated as net profit for the year reported on the face of the profit and loss account, adjusted for interest, taxation, depreciation and amortisation. Adjusted EBITDA is calculated as EBITDA adjusted for the non-cash items of share based payment expense and gain/(loss) on biological assets. Our Financials Inventories Third party trade receivables Shareholder’s Information Property, plant and equipment Our Governance Statement of financial position 88 PureCircle Annual Report 2013 4.6 Notes to the Consolidated Financial Statements for the Financial Year Ended 30 June 2013 33 Segmental Reporting continued In prior year, the other expenses reflect the costs associated with the decision to scale back production temporarily so as to reduce inventories to levels better aligned with current market usage. Foreign exchange: As a US$ reporting Group, it is the Group’s policy to put US$ denominated long term intercompany loans from the parent company into operating subsidiaries as natural economic foreign exchange hedges against movements in local currency which impact local operating costs when reported in US$. The Group recorded foreign exchange gain of $2.5m in FY2013 due to US$ currency strengthened against Ringgit Malaysia. In FY2012 the Group recorded foreign exchange loss of $2.1m due to currency weakening against the US$ in Malaysia. 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. *The Europe segment includes sales to and results of the Group’s European jointly controlled entities – see note 32. 34 Commitments (a) Capital commitments Capital expenditure at the reporting date is as follows: The Group Approved and contracted for Property, plant and equipment 2013 USD’000 2012 USD’000 544 1,741 (b)Operating lease commitments he group also leases corporate office under non-cancellable operating lease agreements. The lease expenditure charged to T the income statement during the year is disclosed in note 30. The future aggregate minimum lease payments under non-cancellable operating lease are as follows: Group and Company 2013 2012 91 91 308 399 399 490 The present value of operating lease is as follows: - No later than one year - Later than 1 year and no later than 5 years www.purecircle.com 89 4.6 Notes to the Consolidated Financial Statements 35 Events After the Reporting Period (a) Disposal of Joint Venture On 13 September the Group sold its 50% shareholding interest in Natural Sweet Ventures (“NSV”) to its partner Imperial Sugar. Consideration of USD1 for the disposal resulted in a USD0.8 million non-cash book loss. The impairment loss of USD0.8 million has been reflected fully in the Group’s results to 30 June 2013. Going forward PureCircle will supply stevia to Imperial Sugar. (b)Long-Term Incentive Plan (LTIP) Options – new options granted to directors he Board of the Company had on 8 July 2013 granted options under the Group’s Long-Term Incentive Plan (LTIP) to certain T Non-Executive Directors in lieu of their fees covering six months period from 1 July 2013 to 31 December 2013 amounting to 12,700 shares. These options have an exercise price of GBP3.44 per share (USD5.25 per share), calculated based on 20 days volume weighted average price (“VWAP”) to 1 July 2013 and shall vest on 1 January 2014. Our Business and Strategy for the Financial Year Ended 30 June 2013 Our Performance (a) Short-Term Receivables/Payables The carrying amounts approximate their fair values due to the relatively short-term maturity. (b)Long-Term Borrowings he carrying amounts approximate the fair values of these instruments as the long-term borrowings are based on floating T market interest rates. Our Financials The following methods and assumptions are used to estimate the fair value of each class of financial instruments: Shareholder’s Information Fair value is defined as the amount at which the financial instrument 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. Our Governance 36 Fair Values of Financial Assets and Liabilities 90 PureCircle Annual Report 2013 5 Shareholder’s Information Internet PureCircle Offices Nominated adviser PureCircle Group operates three websites which are updated regularly to cater for different information needs: Registered office Clarendon House 2 Church Street Hamilton HM 11 Bermuda. RFC Corporate Finance Limited Level 14, 19-31 Pitt Street Sydney NSW 2000, Australia Level 15, QV1 Building. Investors and corporate stakeholders www.purecircle.com Consumers www.steviapurecircle.com Corporate Head Quarters Health professionals, customers, policy makers, consumers www.globalsteviainstitute.com 10th Floor, West Wing Rohas Perkasa No. 9 Jalan P. Ramlee 50250 Kuala Lumpur, Malaysia. T +603 2166 2206 F +603 2166 2207 Investor Relations Request for further copies of the annual report or other investor relations matters should be addressed to PureCircle’s office. Annual General Meeting The Annual General Meeting (AGM) will be held on 2 December 2013, a formal notice of AGM will be sent to shareholders together with the annual report for financial year 2013. 2014 Financial Year and Corporate Calendar Half year end 31 December 2013 Interim results March 2014 Year end 30 June 2014 Final results September 2014 Malaysia Sales & Marketing Head Office USA 915 Harger Road, Suite 250 Oak Brook, IL 60523, USA. T +630 361 0374 F +630 361 0384 Regional Sales Contact details: US or Canada: [email protected] Latin America: [email protected] Europe, Middle East or Africa: [email protected] Asia Pacific: [email protected] Auditors PricewaterhouseCoopers Chartered Accountants Level 10, 1 Sentral Jalan Travers, Kuala Lumpur Sentral PO Box 10192 50706 Kuala Lumpur, Malaysia. This report has been printed on FSC certified paper that is environmentally-friendly ECF (elemental chlorine free) and recyclable. Level 15, QV1 Building 250 St George’s Terrace Perth WA 6000 Australia. Brokers Mirabaud Securities Limited 33 Grosvenor Place London SW1X 7HY United Kingdom. Liberum Capital Limited Ropemaker Place, Level 12 25 Ropemaker Street London EC2Y 9LY United Kingdom. Macquarie Capital (Europe) Limited Ropemaker Place 28 Ropemaker Street London EC2Y 9HD United Kingdom. Share Registrar In Jersey (Shares) Computershare Investor Services (Channel Islands) Limited PO Box 83, Ordnance House 31 Pier Road, St Helier Jersey JE4 8PW, Channel Islands. In the UK (Depositary Interests) Computershare Investor Services plc The Pavilions, Bridgwater Road Bristol BS13 8AE, United Kingdom. designed and produced by dewende.com Shareholder’s Information Our Financials Our Governance Our Performance Our Business and Strategy www.purecircle.com 91 92 PureCircle Annual Report 2013
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