KUALa LUMPUR, MALAYSIA — PureCircle, Inc., a global supplier of stevia-based sweeteners, is exploring refinancing options. After accounting irregularities that happened under previous management were discovered, adjusted financial figures have the company struggling with debt.

Dato’ Robert Cheim Dau Meng, who was appointed chairman on Feb. 10, gave a company update on March 31.

“This has been a difficult time for PureCircle,” he said. “The company's systems and governance have been found wanting, and whilst I have only recently taken over as chairman, I would like to apologize to shareholders. Over the last six months PureCircle changed its management team, refreshed the board and started to put in place the controls necessary to ensure that similar errors do not occur in the future.”

 Kuala Lumpur-based PureCircle and its lenders have agreed to a full waiver of all previous defaults and secured an additional $8.6 million liquidity through an unsecured subordinated loan from shareholders, he said.

"Notwithstanding this, the board is actively considering various refinancing options, namely securing definitive new equity infusion, full debt refinancing or sale and leaseback of the refinery plant facilities as alternatives to raise cash to fund the business and operations," Mr. Cheim Dau Meng said.

Because of the accounting irregularities, historical inventory was overstated, and historical cost of sales was understated, Mr. Chiem Dau Mang said.

“We identified a culture within the organization of ‘make the numbers’ as a priority over doing things properly,” he said.

Proper accounting controls were over-ridden and inappropriate transactions were recorded as management at the time wanted to meet loan covenants and satisfy lenders, he said.

Magomet Malsagov, PureCircle’s chief executive officer at the time of the accounting irregularities, stepped down from that position in November 2019 and has since left the company. Peter Lai Hock Meng is the new CEO. Rakesh Sinha resigned as a company director in November 2019 and since then has resigned as chief financial officer.  Jimmy Lim Kian Tong is the new CFO.

PureCircle on March 31 gave its overdue financial results for the fiscal year ended June 30, 2019, as well as adjusted financial results for the fiscal year ended in June 2018. The company reported a net loss after tax of $79.7 million in fiscal 2019, which compared to a net loss after tax of $1.7 million in fiscal 2018.

Gross profit fell to $1.2 million in fiscal 2019 from $38.3 million in fiscal 2018. Gross profit was impacted by charges of $19.7 million to write inventory down to its net realizable value and $14.8 million to provide for slow-moving inventory. Impairment on intangible assets of leaf and product developments had a negative impact of $15.7 million, and $6.8 million in one-off cost was due to professional fees during the accounting investigation.

PureCircle will delay publishing financial results for the six months ended Dec. 31, 2019, because the coronavirus (COVID-19) pandemic has disrupted working practices. Operations at a refinery facility in Malaysia were suspended on March 18 because of a government movement control order made in response to the COVID-19 pandemic, but the company has secured approval to reopen and restart production.

“(PureCircle) is cautiously optimistic that customers will continue to place sales orders, but it is difficult to estimate the impact of COVID-19 on future sales orders, and there may be a reduction compared to prior years should customers reduce orders or delay product launches,” Mr. Lai Hock Meng said. “The group has not noted any terminations of supplier relationships over the past three months as we have a long-standing good relationship with our suppliers. We are monitoring closely the relationship in the coming months to ensure smooth production when we restart the manufacturing operation and work towards improving the difficult situation.”

Mr. Cheim Dau Meng noted a positive:  PureCircle is producing Rebaudioside M, a new stevia-based sweetener, at scale.

“These new sweeteners can now be found in an increasing number of food and beverage products, and our sales pipeline is showing increasing market acceptance of Reb M and bio Reb M,” he said.

He said work on more productive stevia cultivars is paying off.

“In FY 2020, about 25% of our leaf grown in China will be of a variety developed by us that has some 40% more steviol glycosides than previous stevia varieties,” Mr. Cheim Dau Meng said. “This hardy variety grows well and promises significant unit cost reductions for our products going forward. In FY 2021, we are planning so that nearly of the leaf grown for PureCircle by its contracted farmers will be of this new, highly productive variety.”