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GLG Life Tech Corporation Announces Third Quarter 2012 Results

Wednesday, November 14, 2012 8:41 PM

Continued Progress in Improving Stevia Sales and Financial Position

VANCOUVER, British Columbia, Nov. 14, 2012 (GLOBE NEWSWIRE) -- GLG Life Tech Corporation (TSX:GLG) ("GLG", the "Company", "we" and "our"), a vertically-integrated leader in the agricultural and commercial development of high quality stevia and all natural and zero calorie food and beverage products, announces financial results for the quarter ended September 30, 2012.

Our revenues were $5.8 million for the three months ended September 30, 2012 and were up 232% compared to $1.7 million for the three months ended September 30, 2011 driven by increased stevia product sales. Our revenues were $13.4 million for the nine months ended September 30, 2012 down 45% compared to $24.4 million for the nine months ended September 30, 2011 due to lower consumer product sales of our AN0C brand.

The gross loss during the period was significantly impacted by capacity and other fixed charges that were added to the cost of goods sold (approximately $1.7 million), and material sales of two products below list price (approximately $1.6 million).

General and Administrative Expenses have been significantly reduced by $7.2 million from $10.8 million in the third quarter of 2011 to $3.6 million for the third quarter of 2012.

We had a net loss attributable to the Company of $15.1 million for the three months ended September 30, 2012 or a $9.5 million improvement compared to a net loss of $24.6 million reported for the three months ended September 30, 2011. The loss for the third quarter includes an additional inventory write-down of $5.2 million related to the two products sold in the quarter below list price. We had a net loss attributable to the Company of $29.6 million for the nine months ended September 30, 2012 or a $13.3 million improvement compared to a net loss of $42.9 million for the comparable period in 2011.

EBITDA for the quarter ended September 30, 2012 was negative $3.5 million or a $5.3 million improvement compared to negative $8.8 million for the same period in 2011. EBITDA for the nine months ended September 30, 2012 was negative $9.1 million or a $7.7 million improvement compared to negative $16.8 million for the nine months ended September 30, 2011. The main drivers for the improvement in EBITDA are lower SG&A expenses in both the consumer products (AN0C) segment and stevia segment, which were offset by lower gross margin compared to the same period in 2011. The Company has been focused on reducing its cash burn rate in 2012 as it grows its stevia revenue base from the levels achieved in the second half of 2011.

Cash used by operating activities was $5.2 million in the nine month period ended September 30, 2012 compared to $29.9 million used in the same period of 2011 or a $24.7 million improvement. This decrease in cash used by operating activities can be attributed to an improvement in cash flow used in operations ($10.1 million) and an improvement in cash generated from non-cash working capital ($14.6 million) in the current period compared to the same period in 2011. 

The Company has reduced inventories from their peak balance of $96.1 million at September 30, 2011 to $44.8 million as at September 30, 2012 or a reduction of 53% through a combination of sales and write-downs. This reduction is an important achievement in order to work through the legacy inventory cost on its balance sheet as the Company moves to its new lower cost structure that it has achieved with its H3 and H4 proprietary stevia leaf varieties. 

The Company has made progress during the 9 months ended September 30, 2012 in reducing its short term banks loans by $5.5 million as well as decreasing its accounts payable of $4.6 million compared to these balances as at December 31, 2011. The Company continues to negotiate with its China Banks for the renewal of its short term loans. 


Sales and Market Factors

  • Stevia sales of $5.7 million in the third quarter combined with $6.7 million of stevia sales in the second quarter of 2012 totaling $12.4 million demonstrate the solid progress that the Company has made in rebuilding its stevia sales after reporting stevia sales of $1.7 million in the prior three quarters (July 2011 through March 2012).  
  • We continue to diversify our customer base, with 20 agents and distributors and 2 major flavor houses distributing our products. We have a number of new direct customers, including internationally recognized companies in the tabletop sweetener, food, beverage and pharmaceutical sectors. Q3 sales also reflect a successful expansion of the Company's customer base in Asia.
  • A recent Food Navigator article (October 24, 2012) has confirmed that issues such as sustainability and corporate social responsibility are leading to food and beverage companies increasingly seeking out companies that directly control their supply chain. They believe that the inevitable outcome will be industry consolidation towards credible suppliers. We believe that our "Seed to Shelf" vertical integration results in the transparency and traceability of our supply chain that food and beverages companies are looking for.

Financial Reporting Standards Change from US GAAP to IFRS

The Accounting Standards Board of the Canadian Institute of Chartered Accountants requires all publicly accountable enterprises to report under International Financial Reporting Standards (IFRS) for the years beginning on or after January 1, 2011. However, National Instrument 52-107 ("NI 52-107") allows SEC issuers to file with Canadian securities regulators financial statements prepared in accordance with US GAAP. Beginning January 1, 2011, GLG was considered an "SEC issuer" under NI 52-107 and, as a result, the Company prepared its financial statements in accordance with US GAAP.

The Company's deregistration under Sections 12(b) and 12(g) of the United States Exchange Act of 1934, as amended (the "Exchange Act"), became effective on or about September 9, 2012, and September 20, 2012, respectively.

In addition, as of September 2012, the Company's obligation to file reports under Section 15(d) of the Exchange Act was suspended.   

Since the Company no longer technically qualifies as an SEC Issuer under NI 52-107, it is now required to prepare financial statements in accordance with IFRS as of September 30, 2012. Therefore, the Company's September 30, 2012 interim financial statements must be filed using IFRS as required by sec. 3.2 of NI 52-107. 

Consistent with past practice, the Company has prepared its financial statements for the period ended September 30, 2012 in accordance with US GAAP. However, the Company is working diligently to complete the transition process from US GAAP to IFRS and prepare restated financial statements in accordance with IFRS for the period ended September 30, 2012. The Company plans to file such restated financial statements prepared in accordance with IFRS as soon as possible.

Regulatory Update

The Company filed its 2011 Annual Financial Statements and associated documents as well as the interim Q1 and Q2 2012 filings on August 14, 2012. In September 2012, the BCSC commenced a Continuous Disclosure Review of the Company's year-end 2011 filings, first quarter 2012 and second quarter filings. The Company received its first letter under this review on September 5, 2012. The review is ongoing. 

Third Quarter 2012 Financial Results Highlights 

The following summary of financial performance should be read in conjunction with the Company's interim consolidated financial statements and Management Discussion and Analysis for the period ending September 30, 2012, which can be found at www.glglifetech.com and on SEDAR at www.sedar.com. 

In thousands Canadian $, except per share amounts 3 Months Ended Sep 30 % Change 9 Months Ended Sept 30 % Change
  2012 2011   2012 2011  
Revenue $5,778 $1,740 232% $13,432 $24,367 (45%)
Cost of Sales  $9,697 $4,833 101% $21,672 $23,217 (7%)
 % of Revenue 168% 278% (110%) 161% 95% 66%
Gross Profit (Loss) ($3,919) ($3,093) 27% ($8,240) $1,150 (816%)
 % of Revenue (68%) (178%) 110% (61%) 5% (66%)
Expenses  $3,587 $10,756 (67%) $11,607 $31,208 (63%)
 % of Revenue 62% 618% (556%) 86% 128% (42%)
Loss from Operations  ($7,506) ($13,849) (46%) ($19,847) ($30,058) (34%)
 % of Revenue (130%) (796%) 666% (148%) (123%) (24%)
Other Expenses ($7,881) ($12,827) (39%) ($10,289) ($16,164) (36%)
 % of Revenue (136%) (737%) 601% (77%) (66%) (10%)
Net Loss before Income Taxes and Non-Controlling Interests ($15,387) ($26,676) (42%) ($30,136) ($46,222) (35%)
 % of Revenue (266%) (1533%) 1267% (224%) (190%) (35%)
Net Loss after Income Taxes and Non-Controlling Interests ($15,091) ($24,628) (39%) ($29,623) ($42,893) (31%)
Loss per share (Basic & Diluted) ($0.46) ($0.74) (38%) ($0.90) ($1.35) (33%)
Total Comprehensive Loss ($16,881) ($13,128) 29% ($33,193) ($33,243) (%)
 % of Revenue (292%) (754%) 462% (247%) (136%) (111%)
Asset Impairment Losses $5,168 $12,189 0% $5,274 $12,189 0%
 % of Revenue 89% 701% 0% 39% 50% 0%
Consolidated Depreciation & Amortization $3,658 $2,714 35% $8,723 $7,142 22%
 % of Revenue 63% 156% (93%) 65% 29% 36%
Stock based Compensation $253 $764 (67%) $1,406 $2,386 (41%)
 % of Revenue 4% 44% (40%) 10% 10% 1%
EBITDA (1) ($3,498) ($8,822) (60%) ($9,135) ($16,789) (46%)
 % of Revenue (61%) (507%) 446% (68%) (69%) 1%

"EBITDA is a non-GAAP financial measure. GLG calculates it by adding to net income before taxes (1) Depreciation and amortization expense as reported on the cash flow statement, (2) Other Income (Expenses), (3) Stock-based compensation expense, (4) non-cash asset impairment losses and (5) Non-controlling interest. This might not be the same definition used by other companies. For the discussion of EBITDA, and the reconciliation of EBITDA to net income before taxes and after minority interest under US GAAP, please see 'Non-GAAP Financial Information".

In thousands Canadian $ 3 Months Ended Sep 30, 2012 9 Months Ended Sept 30, 2012
  Stevia Business AN0C
Stevia Business AN0C
Revenue $5,653 $125 $12,978 $454
Cost of Sales $9,552 $145 $21,122 $550
Gross Profit (loss) ($3,899) ($20) ($8,144) ($96)
Gross Profit % -69% -16% -63% -21%
G&A (cash) $1,877 $566 $5,314 $1,903
 EBITDA  ($3,210) ($287) ($7,712) ($1,424)
 EBITDA as a % of revenue  (57%) (230%) (59%) (314%)

(1) EBITDA is a non-GAAP financial measure. GLG calculates it by adding to net income before taxes (1) Depreciation and amortization expense as reported on the cash flow statement, (2) Other Income (Expenses), (3) Stock-based compensation expense, and (4) Non-controlling interest. This might not be the same definition used by other companies. For the discussion of EBITDA, and the reconciliation of EBITDA to net income before taxes and after minority interest under US GAAP, please see 'Non-GAAP Financial Information".

Liquidity and Capital Resources

In thousands Canadian $ 30-Sep-12 31-Dec-11
 Cash and Cash Equivalents  $3,107 $4,487
 Working Capital  ($23,252) ($9,801)
 Total Assets  $199,729 $233,783
 Total Liabilities  $101,630 $103,379
 Loan Payable (<1 year)  $65,066 $70,574
 Loan Payable (>1 year)  $6,767 $0
Total Equity $98,100 $130,404

Market and Outlook

More than 40 countries have either approved stevia for use or are in the final stages of approval. Combined, it is estimated that more than 1,000 products worldwide now contain stevia, ranging from yogurt to energy bars. 2012 has seen the formal approval of stevia in South Africa, The Philippines and Indonesia. Approval in Canada and India are expected in 2013. Datamonitor (2012 Food Navigator article) estimates stevia product launches in North America to reach approximately 230 products in 2012 up from a few dozen launches per year in 2006 to 2008 timeframe.

Applications of stevia have been diverse. Global new product introductions break down to 36% snacks, 30% beverages, 12% sweeteners, 5% dairy, 4% sauces and seasonings, and 13% other (Mintel). Coca-Cola alone has thirty products among its brands using the product. Starbuck's Refresher drinks, a new entrant in the $8 billion energy drink market, is sweetened with Stevia. Zevia brand soda is sold in over 10,000 locations. Vitaminwater Zero outsells the previous version which had 10 calories and sells over $100 million per year.

An emerging trend is for stevia to be combined with sugar to lower the caloric content. Tropicana 50 juice has captured over $300 million in sales. Coca-cola is selling low-calorie Nestea and Sprite in France. In Australia, Pepsi introduced Pepsi NEXT (30% stevia content) in September of 2012, marking the first use of stevia in a main-line brand.

World sugar prices remained in the range $400 to $500 per tonne throughout 2012. There are a number of conflicting forecasts for sugar moving forward. Some analysts expect a surplus in 2012 and lower sugar prices and others see relatively stable sugar prices in their current range. OECD-FAO expects sugar prices to remain on a higher plateau and to average higher in real terms (when adjusted for inflation) through to 2020 when compared with the last decade. Severe weather (particularly drought) could lead to an increase in sugar prices. A Reuters poll in July 2012 forecast NYSE Liffe white sugar futures at $595 a tonne at the end of 2012. Higher sugar prices will usually facilitate food and beverage companies interest in stevia when it can offer not only a zero calorie natural sweetener benefit but also a lower relative cost.

GLG's International Stevia Sales Business Outlook

We sell our high-grade stevia extract directly to a number of customers (including large food/beverage companies, food ingredient companies, and flavour houses) internationally. Additionally, we have partnered with distributors that resell GLG's products in a number of markets globally. The Company now has distributors and/or agents marketing its products globally.

GLG's international stevia business sales team is based in Vancouver and is focused on supporting our regional distributors as well as direct relationships with food and beverage companies. GLG has doubled the number of their distributors and has also added sales agents in some key markets to drive sales in 2012. GLG's China and Asian stevia sales team is based in Shanghai and Qingdao. This team targets both end customers as well as regional distributor sales support. 

Our notable sales wins to date in 2012 include:

• Several international tabletop sweetener companies

• Global food service company

• Global pharmaceutical company

• Global dairy company

• International flavour house

• North American Ready To Drink beverage company

• North American functional food and beverage company

• South American sweetener company

• European water company

• European consumer packaged goods company

• European ice cream company

• European tabletop companies

• Several China food and beverage companies

As well as direct sales to other stevia extract providers.

Examples of new products launched by GLG's customers include: flavoured water and fruit filling in Europe, multiple stevia-sweetened beverages in the US, powdered blends and power bars in Europe, tabletop applications in the US, Europe and South America, a beverage in Latin America, two flavoured milks in Asia Pacific and additional multiple beverage applications in Asia-Pacific region.

In anticipation of the growth of stevia consumption, many small entrants and traders entered the market, leading to an expansion of supply in advance of customer demand and downward pressure on stevia extract pricing. We do not see this as sustainable for the stevia industry as the impact of traders has been to push the price down in advance of real cost reductions and stevia extract producers and farmers have taken on the loss as a result of the low industry pricing. We expect that there will be a reduction in the number of suppliers in the next 12 to 18 months due to the losses currently being incurred by stevia suppliers driven by the current low pricing and high cost structure and the increased level of due diligence being undertaken on stevia suppliers by key customers which includes demands for product traceability, consistent product quality and commitment to corporate social responsibility including environmental issues such as waste water management. GLG has been able to demonstrate its integrated supply chain capabilities during numerous factory visits by large customers and is in the process to reduce its cost structure through the success of its agriculture program. The successful growing and harvest of GLG's proprietary H3 and H4 leaf varieties are expected to significantly decrease its cost of stevia extract production through the higher yield from these stevia plant varieties.

The H3 plant variety has already been harvested in 2011 and tests in GLG primary processing plants confirmed plant size, RA content and expected yield results. The H3 plant variety has approximately 76% RA in the plant leaf, which is 26% higher than the first generation (H1) seeds, and will generate 46% more leaf per acre than the earlier H1 plants. The Huinong 4 ("H4") leaf is also available now for planting, providing GLG with a significant cost reduction in its production of high-purity stevia extracts in 2012 and beyond. H4 results show a 16% increase in leaf yield over the H3 plants while maintaining a similar 76% RA content. The Company sent out samples of its stevia primary extract to several large multinationals in 2012 to demonstrate the achievement of a stevia primary extract that has achieved approximately 70% rebaudioside A content using the H3 leaf compared to its H2 leaf that achieved 55 to 60% rebaudioside A content from first extract yield. The Company must complete the sale of existing stevia inventory on hand to flow this legacy inventory cost from its financial statements before the benefit of the expected lower costs from the H3 leaf can be realized. Lower H3 and H4 leaf cost coupled with GLG's production facilities resuming full operations are expected to lead to the recovery of gross profit margins in the future.  We therefore would expect a material improvement to margins after the next harvest of H3 and H4 leaf in 2013.

The second key component to driving stevia sales is the traceability and transparency of our supply chain, and our corporate social responsibility commitment. Our seed to shelf vertical integration leads to stevia extract consistency from batch to batch, a competitive price and scalability of both our agricultural operations and our production operations. These are very important supply chain attributes that our customers look for when selecting a stevia supplier.

AN0C Stevia Solutions

Our experience with formulating AN0C consumer products in China has started to positively influence the other markets where we operate. For example, the Company is able to demonstrate its success in formulating all-natural zero-calorie drinks to international food and beverage customers. A key new initiative that has generated significant interest in our international stevia business and that we expect will increase the speed at which food and beverage customers will launch products is our AN0C Stevia Solutions Company. Through this new company, we are providing turn-key formulations for our beverage and food products to Chinese, Asian, and international food and beverage companies.  

New formulation development includes beverages, candy, jelly, egg rolls, jam, biscuits, bread, cakes, baked goods, preserved foods, snack food, stevia tablets and stevia chewing gum. The AN0C Stevia Solutions team has also formulated Dream Sweetener, which is a ready to use sweetener solution that has overcome many of the traditional disadvantages of working with stevia extracts. AN0C Stevia Solutions has made continued progress working with many of the leading China based food and beverage companies on formulating new products with stevia.

GLG's China Operations

The Company believes that China presents one of the largest market opportunities for its high-grade stevia products and in consumer products containing stevia, due to increasing household disposable income and increasing health- consciousness. Government policy in China has started to come into place to support the replacement of sugar with stevia.  

AN0C Consumer Business

The introduction of the AN0C consumer products had the effect of increasing interest in sweetening food and beverages with stevia. The Chinese media are publicizing the dangers of consuming too much sugar, while governments are proposing and implementing policies such as the Municipal Capital Health Bureau targeting healthier foods and beverages in schools in Beijing to reduce childhood obesity. 

While the launches of our RTD tea, vitamin enriched water products, zero calorie tabletop, and two functional health beverages in 2011 did not achieve the desired market penetration, due to lower temperatures through the summer months, intense competition, and certain problems with the bottles, the Company still believes that there is significant opportunity for its consumer products. Although AN0C has limited marketing funds available in 2012, AN0C will continue leveraging its existing brand equity investment as well as its distribution channels to launch the products into the Chinese market.   The products will be positioned in the medium to premium segment and target health-conscious consumers or those that have certain medical considerations. Increased emphasis will be given to marketing efforts in schools and hospitals as well as through health product channels. AN0C expects to focus most of its sales efforts in the China East region as this region is expected to continue to be the primary market for its products in 2012. 

The China Sugar Reserve Opportunity

China's continued growth in GDP and expansion of its middle class has resulted in strong growth in China's food and beverage Industry. This, in turn, has resulted in strong growth in domestic sugar demand. Domestic production of sugar in China, though showing dramatic domestic growth estimated at 15.1% in beet sugar and 18.3% in cane sugar in 2012 (Czarnikow Group), has not been sufficient to meet the growing demand in China which has resulted in a shortfall of sugar supply In October 2012, the Czarnikow Group estimated that China would import 1.5 million tons in the agricultural year starting October 2012. 

 OECD-FAO reported that that per capita consumption of sugar in China and India is only 11.9 kilograms and 21.6 kilograms, respectively, much lower than the 34.2 kilograms in developed countries in the Organization for Economic Cooperation and Development (OECD) or the world average of 24.1 kilograms. According to the OECD-FAO report, China is also seeing tightening government controls on the production and use of artificial sweeteners, and forecasts that China will become the largest importer of sugar with the need to import 5 million tonnes of sugar by 2020. China has also seen a large increase in health related problems including growth in diabetes and obesity rates. 

GLG's Chinese partner has started operations at its first 10,000 metric tonnes of Low-Calorie Health Sugar ("LCHS") production line which was completed in mid-October 2011. Our Chinese partner is in the process of planning the next phase of LCHS capacity with the construction of an additional 50,000 MT line however this new line is not expected to be developed in 2012.

GLG's confidence in the project remains high as continued dialogues with the China Sugar Reserve ("CSR") and other China Government officials have indicated their strong interest in moving this project forward, as it fulfills both mandates of securing domestic sources of sweeteners and provides a sweetener to combat health related problems. The Company has been involved in discussions on the project in 2012, however additional orders related to this project are not expected in 2012 In addition, our partner has ongoing discussions with Chinese domestic food and beverage companies for the use of LCHS. 

Forward-looking statements: This press release contains certain information that may constitute "forward-looking statements" and "forward looking information" (collectively, "forward-looking statements") within the meaning of applicable securities laws. Such forward-looking statements include, without limitation, statements evaluating the market, potential demand for stevia and general economic conditions and discussing future-oriented costs and expenditures. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes" or variations of such words and phrases or words and phrases that state or indicate that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved.

While the Company has based these forward-looking statements on its current expectations about future events, the statements are not guarantees of the Company's future performance and are subject to risks, uncertainties, assumptions and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Such factors include amongst others the effects of general economic conditions, consumer demand for our products and new orders from our customers and distributors, changing foreign exchange rates and actions by government authorities, uncertainties associated with legal proceedings and negotiations, industry supply levels, competitive pricing pressures and misjudgments in the course of preparing forward-looking statements. Specific reference is made to the risks set forth under the heading "Risk Factors" in the Company's Annual Information Form for the financial year ended December 31, 2011. In light of these factors, the forward-looking events discussed in this press release might not occur.

Further, although the Company has attempted to identify factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

As there can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements, readers should not place undue reliance on forward-looking statements.

Financial outlook information contained in this press release about prospective results of operations, capital expenditures or financial position is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information as of the date hereof. Such financial outlook information should not be used for purposes other than those for which it is disclosed herein.

The GLG Life Tech Corporation logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=7994

CONTACT: Stuart Wooldridge Investor Relations
         Phone: +1 (604) 669-2602 ext. 104
         Fax: +1 (604) 662-8858
         Email: ir@glglifetech.com

GLG Life Tech Logo

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(Source: Quotemedia)


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