- Revenue grew 41% year-over-year to $58.9 million
compared to the prior year
- EBITDA grew 55% year-over-year to $16.2 million
compared to the prior year
- Revenue increase was driven by new distribution
agreements signed in 2010 as well as the launch of new
products.
- Significant progress made in the development of the
China market opportunity for its stevia products.
- Key advances made in agriculture and industrial
processing
- Received three patents from State Intellectual Property
Bureau of the People's Republic of China.
GLG Life Tech Corporation (Nasdaq:GLGL) (TSX:GLG) ("GLG" or the
"Company"), the 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 year ended December 31, 2010.
BUSINESS HIGHLIGHTS
Annual revenue grew 41% year-over-year to $58.9
million - The overall growth was driven primarily by new
distribution contracts signed in 2010 and overall market growth for
stevia sales. New markets, particularly those in China contributed
to the geographic diversification of GLG's revenues.
Annual EBITDA rose 55% year-over-year to $16.2
million - The annual EBITDA increase is primarily
attributed to significant increases in revenues and increased usage
of the Company's proprietary stevia leaf which due to the higher RA
content leads to much more efficient yields.
Launch of China Market Strategy - 2010 was a
very important year for GLG as it announced in 2010 its intention
to focus first on the China market for developing its stevia
sweetener business as well as in China's fast growing consumer food
and beverage products. Several key milestones were achieved that
saw the Company realize benefits from this change in strategy. The
Company signed an exclusive 5 year supply agreement with Fengyang
Xiaogangcun Υongkang Foods High Tech Co. Ltd. ("FXY") in September
2010 with an initial purchase order for $US 12.6 million. The
two companies are working together on the Low Calorie Sugar (LCS)
market opportunity which includes the China Sugar
Reserve. Fenyang has facilities for the production of both
beverage as well as tabletop/sweetener products and GLG will supply
FXY high grade stevia extract for their products. The Company
recently announced that FXY is currently expanding is production
facilities located in Xioagang in the Anhui Province to produce LCS
which is expected to be completed in September 2011.
Formation of AN0C Joint Venture - The Company
further announced a new joint venture with China Agriculture Health
Foods Company in December 2010 where the new JV will focus on the
marketing, sales and distribution of all food and beverage products
under the brand Dr. Zhang's All Natural and Zero
Calorie. As of March 31, 2011, AN0C has lunched it
first six beverage products into the China market.
Key Distribution Agreements Signed - The
Company also announced key international distribution agreements in
2010 which has significantly diversified its customer base and
global reach of its distribution network. We estimate that
through these distribution agreements and our supply agreement with
Cargill we have approximately 83% coverage of the global sugar
market for our stevia extract products. Agreements were signed
in 2010 with Grupo Azucarero Mexico for Mexico, Central America and
Columbia, Global Agri (Katra) for the Middle East and India, Sugar
Australia for Australia and New Zealand and Chempoint for the US
and European markets.
BlendSureTM Product Line Launched - The
BlendSureTM product line was the result of several years of
research and development by GLG's leading technical team.
BlendSureTM maintains the great taste, all natural and zero‐calorie
advantages of stevia high intensity sweeteners on the market today
yet allows food and beverage manufacturers flexibility as it
relates to a cost of goods input. The proprietary formulas provide
stability and consistency and contain a total steviol glycosides
reading of 95% or greater, making them already acceptable in global
markets that follow the standards established by the Joint Expert
Committee on Food Additives (JECFA). BlendSure™ has met all of the
requirements for self‐affirmed GRAS (generally recognized as safe)
and has received a letter of certification from GRAS Associates,
whose experts specialize in the technical and regulatory aspects of
obtaining and defending GRAS status for the food, supplement, and
chemical industries. GLG filed its dossier for a no‐objection
letter from the FDA in 2010. The Company also received a
letter of no objection from the FDA for its RA 97 product.
Patents granted in 2010 – The Company received
official notice that three patents were granted in 2010 by the
State Intellectual Property Bureau of the People's Republic of
China. Patents were granted on the breeding methodology that
underpins all of the Huinong seed varieties, its proprietary waste
water management system and for its proprietary stevia leaf soaking
technology.
Advances in agriculture made in 2010 – The
Company made several announcements on its progress on agriculture
in 2010. The Company also announced two new seed
strains in 2010. The GLG H2 and H3 strains contain 66% and 76%
rebaudioside A levels in the raw plant leaf, respectively. The
naturally bred strains are a significant achievement for the GLG
team as the average stevia leaf currently available on the global
market contains a significantly lower percentage of rebaudioside A.
Higher yields enable not only improves land and resource
utilization, but also reduces GLG's cost of production. Further,
the two varieties are larger in plant mass, yielding in excess of
22% more leaf per acre. The new H2 strain is currently being
filtered into the crop for this year's stevia leaf
harvest. Two patents were also filed in 2010 for these
two agricultural developments.
Advances in industrial processing made in
2010 – The Company announced that it had made several
advances in the separation of steviole glychosides including
Rebaudioside B, C, D and Steviolbioside and had filed patent
applications in China for these advances. GLG's research and
development team has successfully created technology to separate
rebaudioside B, rebaudioside D and steviolbioside from the other
steviol glycosides, a unique process enabling GLG to continually
provide its customers with higher purity, better tasting
products.
Continued success in obtaining financing for its
operations and 2010 stevia leaf
purchases. -The Company has had continued
success in renewing its loans and obtaining new short term loans
and credit facilities to finance its operations and stevia leaf
purchases. During the year ended December 31, 2010 the Company
renewed and obtained loans totalling $100.1 million.
Completion of Equity Financing–Subsequent to
year-end, the Company announced the closing of its previously
announced public offering (the "Offering") of 5,290,000 units
("Units") (inclusive of 690,000 Units issued pursuant to the
exercise in full of the over-allotment option), on a bought deal
basis, at a price of $11.00 per Unit for total gross proceeds of
$58,190,000. Each unit consists of one common share and one
half of one common share purchase warrant (a "Warrant"). Each whole
Warrant will entitle the holder thereof to acquire one common share
of the Company at the exercise price of C$15.00 per common share
for a period of 36 months following the date of closing of the
offering. The Offering was conducted through a syndicate of
underwriters.
Fourth Quarter 2010 and Year Ended December 31, 2010
Financial Results Highlights
The following results from operations have been derived from and
should be read in conjunction with GLG's consolidated financial
statements for the year ended December 31, 2010, and its audited
consolidated financial statements for previous years. Certain
prior year's figures have been reclassified to conform to the
current financial information presentation.
|
In thousands Canadian |
3 Months
Ended |
% |
Year
Ended |
% |
$ except per share |
Dec 31 |
Change |
Dec 31 |
Change |
amounts |
2010 |
2009 |
|
2010 |
2009 |
|
Revenue |
$19,300 |
$13,264 |
46% |
$58,927 |
$41,884 |
41% |
Cost of Sales |
$15,646 |
$8,327 |
88% |
$41,365 |
$29,790 |
39% |
% of Revenue |
81% |
63% |
18% |
70% |
71% |
(1%) |
Gross Profit |
$3,654 |
$4,937 |
(26%) |
$17,562 |
$12,094 |
45% |
% of Revenue |
19% |
37% |
(18%) |
30% |
29% |
1% |
Expenses |
$3,848 |
$3,548 |
8% |
$14,737 |
$11,720 |
26% |
% of Revenue |
20% |
27% |
(7%) |
25% |
28% |
(3%) |
Income (loss) from
Operations |
($194) |
$1,389 |
(114%) |
$2,825 |
$374 |
655% |
% of Revenue |
(1%) |
10% |
(11%) |
5% |
1% |
4% |
Other Income (Expenses) |
($2,284) |
($1,317) |
73% |
($5,191) |
($3) |
172933% |
% of Revenue |
(12%) |
(10%) |
(2%) |
(9%) |
0% |
(9%) |
Net Income (loss) before Income Taxes
and Non-Controlling Interests |
($2,478) |
$72 |
(3542%) |
($2,366) |
$371 |
(738%) |
% of Revenue |
(13%) |
1% |
(13%) |
(4%) |
1% |
(5%) |
Net Income (loss) after Income Taxes
and Non-Controlling Interests |
($3,185) |
$488 |
(753%) |
($2,934) |
$758 |
(487%) |
Earnings (loss) per share
(Basic) |
($0.12) |
$0.02 |
(700%) |
($0.11) |
$0.04 |
(375%) |
Earnings (loss) per share
(Diluted) |
($0.12) |
$0.02 |
(700%) |
($0.11) |
$0.04 |
(375%) |
Total Comprehensive Income
(loss) |
($4,810) |
($1,341) |
259% |
($3,644) |
($13,551) |
(73%) |
% of Revenue |
(25%) |
(10%) |
(15%) |
(6%) |
(32%) |
26% |
Consolidated Depreciation &
Amortization |
$2,874 |
$2,258 |
27% |
$10,034 |
$6,385 |
57% |
% of Revenue |
15% |
17% |
(2%) |
17% |
15% |
2% |
Stock based
Compensation |
$968 |
$754 |
28% |
$3,308 |
$2,479 |
33% |
% of Revenue |
5% |
6% |
(1%) |
6% |
6% |
0% |
EBITDA (1) |
$3,514 |
$4,586 |
(23%) |
$16,186 |
$10,450 |
55% |
% of
Revenue |
18% |
35% |
(17%) |
28% |
25% |
3% |
(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 Canadian GAAP, please see 'Non-GAAP
Financial Information".
Revenue
Revenue for the three months ended December 31, 2010, which were
derived entirely from stevia sales, was $19.3 million, an increase
of 46% over $13.3 million in revenue for the same period last year
due an increase in sales from new distributors and existing
customers compared to prior periods where the majority of sales
were made in the US to one customer.
Revenue for the twelve months ended December 31, 2010 was $58.9
million compared to $41.9 million for the same period in the
previous year – an increase of $17.0 million or 41%.
As at December 31, 2010, 100% of the Company's sales are in
foreign currencies and translated into Canadian dollars for
financial reporting purposes. Approximately 76% of sales for the
twelve month period are in US dollars and 24% are in RMB.
Cost of Goods Sold
Cost of sales for the three months ended December 31, 2010 was
$15.6 million compared to $8.3 million in cost of sales of the same
period last year. The increase of 88% is primarily due to the
increase in revenues. Cost of goods sold as a percentage of
sales increased from 63% in the fourth quarter of 2009 to 81% in
the fourth quarter of 2010 (18 percentage points). There are
several factors that have contributed to this increase. For
RA 80 products, while actual production costs were approximately
flat in the fourth quarter in 2010 relative to the same period in
2009, the USD pricing for RA 80 products was 20% lower in the
fourth quarter of 2010 relative to the pricing in place in the
fourth quarter of 2009. Additionally, pricing incentives were
granted to a number of GLG's new distributors to assist them launch
their business which increased the cost of sales as a percentage of
revenues in the fourth quarter of 2010. Another factor
contributing to the higher cost of sales in the fourth quarter of
2010 was Runhao's higher start-up costs and relatively low capacity
utilization. It is anticipated that Runhao's production costs are
expected to further decrease as volume and manufacturing experience
continues in 2011. Another contributing factor was the 3.3%
appreciation of the RMB against the USD which was entirely absorbed
in the cost of sales in the fourth quarter of 2010 relative to the
same period in 2009. Lastly, a change in reporting in 2010 of
intangible amortization from general and administration expenses to
the cost of sales also contributed to the 18 percentage point
increase in the costs of sales as a percentage of revenue compared
to those reported in 2009 (reporting change accounted for two
percentage points of the reduced gross profit margin for the
quarter in 2010).
Cost of sales for the twelve months ended December 31, 2010 was
$41.4 million, an increase of 39% over $29.8 million in cost of
sales for the same period last year. However, as a percentage
of revenues cost of sales were 70% for the twelve months ended
December 31, 2010 compared to 71% for the comparative period in
2009. The decrease in cost of sales as a percentage of
revenues was driven by cost efficiencies from higher use of
proprietary leaf as well as higher manufacturing efficiencies at
our leaf processing facilities for the full year 2010 compared to
the same period in 2009 which included a period of higher operating
costs due to the start-up of two leaf processing
facilities. Cost per unit decreases in leaf processing costs
was offset by several factors. The first factor was due to lower
pricing for RA 80 products resulting in lower margins in the third
and fourth quarter. Secondly a 3.3% appreciation of the RMB
relative to the USD impacted margins for USD denominated sales.
Thirdly, higher start-up costs and relatively low utilization at
Runhao resulted in higher finished good product costs. Lastly, a
change in reporting in 2010 of intangible amortization from general
and administration expenses to the cost of sales increased the 2010
cost of sales compared to those reported in 2009 (reporting change
accounted for two percentage points of the reduced gross profit
margin for the 2010 fiscal year).
Gross Profit
Gross profit for the three months period ended December 31, 2010
was $3.7 million, a decrease of 26% over $4.9 million in gross
profit for the comparable period in 2009. The absolute
decrease in gross profit can be attributed to the factors detailed
in the cost of sales section. The gross profit margin for the three
months period ended December 31, 2010 was 19% compared to 37% for
the three months ended December 31, 2009.
Gross profit for the twelve months ended December 31, 2010 was
$17.6 million, an increase of 45% compared to gross profit of $12.1
million for the same period in the previous year. Gross profit
margin for these periods was 30% and 29% respectively and this
increase was driven by the same factors detailed in the cost of
sales section.
General and Administration Expenses
General and administration ("G&A") expenses include sales,
general and administration costs ("SG&A"), depreciation and
amortization expenses on non-manufacturing fixed assets and
stock-based compensation.
|
In thousands Canadian $, except per
share amounts |
3 Months Ended Dec
31 |
% Change |
Year Ended Dec
31 |
% Change |
|
2010 |
2009 |
|
2010 |
2009 |
|
|
|
|
|
|
|
|
SG&A |
$2,455 |
$2,402 |
2% |
$10,012 |
$7,832 |
28% |
Stock Based Comp |
$968 |
$754 |
28% |
$3,308 |
$2,479 |
33% |
G&A
Amortization |
$425 |
$392 |
8% |
$1,417 |
$1,409 |
1% |
Total G&A
Expenses |
$3,848 |
$3,548 |
8% |
$14,737 |
$11,720 |
26% |
% of Revenue |
20% |
27% |
(7%) |
25% |
28% |
(3%) |
Sales, General, and Administration (SG&A)
Expenses
SG&A for the three months ended December 31, 2010 was $2.5
million compared to $2.4 million in the same period in
2009. The slight increase of $0.1 million was due to higher
salaries and wages in the 2010.
SG&A for the twelve months ended December 31, 2010 were
$10.0 million compared to $7.8 million in the comparative period in
2009. The key expense categories that increased were the
following:
- Professional fees increased $0.9 million in 2010 which
represents approximately 41% of the total $2.2 million change in
SG&A. A large portion of the professional fees incurred
for SOX compliance and litigation related expenses were one-time in
nature and these costs are expected to decrease significantly going
forward.
- Salaries increased by $1.1 million in 2010 which represents
approximately 50% of the $2.2 million increase in SG&A and was
due to additional sales and marketing staffing expenditures in both
North America and China as well as an increase in administrative
salaries in China.
Stock-based compensation was $1.0 million for the fourth quarter
of 2010 compared with $0.8 million in the same quarter of
2009. The number of common shares available for issue under
the stock compensation plan is 10% of the issued and outstanding
common shares. During the quarter, compensation from vesting
stock based compensation awards was recognized, due to previously
granted options, new granted and restricted shares.
Stock-based compensation was $3.3 million for the twelve months
ended December 31, 2010 compared to $2.5 million for the same
period of the previous year. The increase is primarily related to
the recognition of stock-based compensation related to the vesting
of stock-options and restricted shares granted in June 2010.
G&A related depreciation and amortization expenses for the
three months ended December 31, 2010 was $0.4 million and is
consistent with the G&A related depreciation and amortization
expenses of $0.4 million for the comparable period in
2009. For the twelve month period ended December 31, 2010
there was an increase of 1% as compared to the same period of the
previous year. This is due to the re-classification of
amortization of patents to cost of sales from G&A. This
re-classification was offset by the increase in amortization of
G&A related assets in China at GLG's Runhai, Runhao and Runyang
subsidiaries which came into operation during the second quarter of
2010.
Other Expenses
|
In thousands Canadian $, except per
share amounts |
3 Months Ended Dec
31 |
% Change |
Year Ended Dec
31 |
% Change |
|
2010 |
2009 |
|
2010 |
2009 |
|
Other Income (Expenses) |
($2,284) |
($1,317) |
73% |
($5,191) |
($3) |
172933% |
% of Revenue |
(12%) |
(10%) |
(2%) |
(9%) |
0% |
(9%) |
Other expenses for the three months ended December 31, 2010 was
$2.3 million, a $1.0 million increase as compared to $1.3 million
for the same period in 2009. There were two items that
primarily contributed to the change for the three months ended
December 31, 2010 were the following:
- Increase in interest expenses of $0.8 million in the three
months ended December 31, 2010 compared to the same period in 2009.
This was driven by the increase in short term loan balances. In the
three months periods in both 2010 and 2009 interest expense was due
to the Company's bank loans in China.
- Increase in foreign exchange loss of $0.1 million from the
Company's US dollars-denominated monetary assets and
liabilities.
Other expenses for the twelve months ended December 31, 2010 was
$5.2 million, a $5.2 million increase as compared to $3.0 thousand
of the same period in 2009. This increase in other expenses
was driven by:
- Increase in interest expenses of $1.7 million in the twelve
months ended December 31, 2010 compared to the same period in 2009.
This was driven by the increase in short term loan balances. In the
three months periods in both 2010 and 2009 interest expense was due
to the Company's bank loans in China.
- Increase in foreign exchange loss of $3.5 million in the twelve
months ended December 31, 2010 compared to the same period in
2009. These losses were derived from the Company's US
dollars-denominated monetary assets and liabilities.
Income Tax Recovery (Expenses)
During the quarter ended December 31, 2010 the Company recorded
income tax expense of $0.7 million, an increase of $1.1 million
compared to the same period in 2009. The tax expense was $0.6
million for the twelve months ended December 31, 2010 compared to
$0.2 million income tax recovery for the comparative period in
2009.
|
In thousands Canadian $, except per
share amounts |
3 Months Ended Dec
31 |
% Change |
Year Ended Dec
31 |
% Change |
|
2010 |
2009 |
|
2010 |
2009 |
|
Income tax recovery
(expense) |
($708) |
$395 |
(279%) |
($587) |
$243 |
(341%) |
Income tax expense as a percent of
revenue |
(4%) |
3% |
(7%) |
(1%) |
1% |
(2%) |
The increase in the income tax expense was mainly driven by the
increased profitability at some of the Company's Chinese
subsidiaries.
Net Income
|
In thousands Canadian $, except per
share amounts |
3 Months Ended Dec
31 |
% Change |
Year Ended Dec
31 |
% Change |
|
2010 |
2009 |
|
2010 |
2009 |
|
Net income (Loss) |
($3,185) |
$488 |
(753%) |
($2,934) |
$758 |
(487%) |
percent of revenue |
(17%) |
4% |
(21%) |
(5%) |
2% |
(7%) |
There was an increase in our net loss of $3.7 million for the
three months ended December 31, 2010 compared to the same period in
2009. This net loss was driven by: (1) a decrease in gross profit
of $1.3 million, (2) an increase in G&A expenses of $0.3
million, (3) an increase in income tax expenses of $1.1 million,
(4) an increase in interest income and expenses of $0.9 million and
(5) an increase in foreign exchange loss of $0.1 million.
There was an increase in our net loss of $3.7 million for the
twelve months ended December 31, 2010 compared to the same period
in 2009 was driven by: (1) an increase of $3.0 million for general
and administrative expenses (2) a net increase of $1.8 million for
interest expense and interest income (3) a net foreign exchange
fluctuation of $3.5 million, (4) an increase in tax expense of $0.8
million and (5) a decrease in non-controlling interests of $0.1
million. These items were slightly offset by the net increase
of $5.5 million in gross profit.
EBITDA
EBITDA for the quarter ended December 31, 2010 was $3.5 million,
compared to $4.6 million in EBITDA for the same period in 2009 and
$16.2 million for the twelve months ended December 31, 2010
compared to $10.5 million for the same period of 2009. The
main driver for the increase in EBITDA for the twelve months ended
December 31, 2010 compared to the corresponding periods of 2009 was
higher stevia revenue and gross profit in 2010 as compared to 2009
(see Gross Profit explanation above for additional
information). The decrease in the quarter ended December 31,
2010 was due to lower gross profit.
|
In thousands Canadian $, except per
share amounts |
3 Months Ended Dec
31 |
Year Ended Dec
31 |
|
2010 |
2009 |
2010 |
2009 |
EBITDA |
$3,514 |
$4,586 |
$16,186 |
$10,450 |
EBITDA as a % of
revenue |
18% |
35% |
28% |
25% |
Capital Expenditures (CAPEX)
GLG's capital expenditures of $1.9 million for the fourth
quarter of 2010 reflected a decrease of 88% in comparison to $16.7
million in the fourth quarter of 2009. The expenditures decreased
89% on a year-over-year basis. During 2009, the capital
expenditures were driven by the completion of the leaf processing
facilities by the Runhai (Mingguang) and Runyang (Dongtai)
subsidiaries and the set-up and construction of the Company's new
rebiana facility that started operations in December
2009. Capital expenditures during 2010 were $2.4 million for
the purchase of testing and production equipment and $2.0 million
for the building and property improvements at two of the Company's
primary processing plants.
|
In thousands Canadian
Dollars |
Fourth
Quarter |
% Change |
Twelve
Months |
% Change |
|
2010 |
2009 |
|
2010 |
2009 |
|
Capital
Expenditures |
$1,918 |
$16,653 |
(88%) |
$4,467 |
$40,875 |
(89%) |
Liquidity and Capital Resources
|
In thousands Canadian
Dollars |
2010 |
2009 |
Cash and Cash
Equivalents |
$23,817 |
$16,018 |
Working Capital |
$6,999 |
$6,381 |
Total Assets |
$277,182 |
$229,586 |
Total Liabilities |
$129,399 |
$84,743 |
Loan Payable (1 year) |
$6,134 |
$13,797 |
Total Equity |
$147,779 |
$144,819 |
Non-GAAP Financial Information
The following table provides reconciliation of EBITDA, a
non-GAAP financial measure, to Canadian GAAP net income.
|
In thousands Canadian $, except per
share amounts |
3 Months Ended Dec
31 |
Year Ended Dec
31 |
|
2010 |
2009 |
2010 |
2009 |
Income (Loss) Before Income Taxes and
Non-Controlling Interests |
($2,478) |
$72 |
($2,366) |
$371 |
Add: |
|
|
|
|
Net Interest
Expense |
$1,468 |
$899 |
$4,331 |
$3,709 |
Non-Controlling
Interest |
$2 |
$22 |
$19 |
$144 |
Depreciation and
Amortization |
$2,874 |
$2,258 |
$10,034 |
$6,385 |
Foreign Exchange Loss
(Gain) |
$682 |
$581 |
$860 |
($2,638) |
Non-Cash Share
Compensation |
$968 |
$754 |
$3,308 |
$2,479 |
EBITDA |
$3,514 |
$4,586 |
$16,186 |
$10,450 |
EBITDA as a % of
revenue |
18% |
35% |
28% |
25% |
Outlook
China
The Company believes that China presents the largest market
opportunity for its high-grade stevia products and future
growth. There are two opportunities that the Company sees and
is currently developing.
(1) Zero or reduced calorie consumer
products - The Company announced the AN0CTM joint venture
in December 2010 and has launched the first six AN0CTM beverage
products in late March 2011. AN0C is expected to contribute to
a material new revenues in 2011 (see AN0C revenue outlook section
for details). China's per capita GDP is expected
to grow from RMB 9,315 in 2007 to RMB 28,195 in 20171 and with its
expected growth will come increased consumption in the food and
beverage sector in China. Since China opened its door to the
world in 1978, the China food industry has kept a 13.1% average
annual growth rate from 1980 to 2001. In 2001, the total China food
industry revenue reached RMB 900 billion (equivalent to about US$
130 billion). More recently, from 2002 to 2009, the food
industry in China kept a 23% average annual growth rate and in
2009, the total revenue reached RMB 4.7 trillion (equivalent to US$
693 billion). The Company believes that China's food industry
will continue its fast growth for the next 10-20 years, as the
Chinese middle class population and wealth continues to
increase.
(2) Industrial sales of stevia extract
for use by the food and beverage Industry- 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 has
not been sufficient to meet the growing demand for sugar in China
which has resulted in a shortfall of sugar production. In
2009, China imported over 1.5 million metric tons of sugar worth
approximately US$1.1 billion. The latest statistics that the
Company has for 2010 show that the shortfall is expected to reach 3
million metric tons of sugar for 2010. This sugar shortage is
expected to grow as the population continues to grow and per capita
sugar consumption increases. China has also seen a large
increase in health related problems including growth in diabetes
and obesity rates.
As a result of these two major issues, GLG has been in
discussions with FXY, its China partner, and the Chinese central
government on a plan to address: (a) the domestic sugar shortage,
(b) health concerns over too much sugar in the diet and; (c) the
creation of more wealth for China's farmers through stevia
production. The plan is to provide to the China Sugar Reserve
("CSR") a blend of sugar and stevia to reduce calories by 67%
relative to traditional natural sugar-based sweeteners for use in
food and beverage products in China. We believe that the
blended sugar/stevia approach to sweeteners in China offers the
following advantages:
A. stevia is more agriculturally efficient compared with sugar
as it requires approximately 1/12th the land to grow; B. stevia
provides higher income to farmers than other crops (approximately
two to three times). C. we believe that a sugar/stevia blend ("Low
Calorie Sugar") is a healthier sweetener, with half the calories of
sugar while providing a similar taste and mouth feel sugar. We
believe that the use of Low Calorie Sugar will help to address the
growing concerns over obesity and diabetes rates in China; and D.
Low Calorie Sugar requires sixty-seven percent less sugar to
produce, so the blend helps to address the growing sugar shortage
issue.
|
|
|
1 Freedonia Beverage Containers
in China Report, May 1, 2009. |
The China Sugar Reserve Opportunity for GLG
Although no definitive agreement has been entered into with
respect to the CSR opportunity, based on a series of discussions
between CSR, GLG and its partner FXY, the Company expects the CSR
opportunity to be developed as follows:
- all Low Calorie Sugar products to meet the specifications of
the CSR have now been approved;
- FXY has been approved as a supplier to the CSR for these
products;
- the first phase of delivery for the CSR opportunity is expected
to be in the fourth quarter of 2011;
- GLG and its China partner are now working on a delivery plan
for the first phase of the opportunity, which is expected to
require approximately 500 metric tons of high grade stevia sales
from GLG (see revenue outlook for 2011 revenue assumption);
- the total size of the opportunity that is under discussion is
expected to be approximately one million metric tons of Low Calorie
Sugar which will require approximately 5,000 MT of high grade
stevia and one million metric tons of sugar;
- FXY has confirmed that it will use GLG's BlendSure as the high
grade stevia used for its LCS product and;
- the Company is working on the plan to plant sufficient stevia
and expand capacity to meet the 5,000 MT high grade stevia
requirement. GLG currently has approximately 2,000 metric tons
of BlendSure capacity.
Distribution Relationships in Key Markets
Given the significance of the China market opportunity to the
Company's expected future growth, the Company's distribution
arrangements in other key markets will be its main approach to
sales outside of China. The Company signed a number of
these distribution agreements in 2010 for South America, Australia,
New Zealand, Mexico, the US, India and the Middle East. These
distribution agreements are expected to contribute significantly to
stevia revenues outside of China in 2011. The Company
continues to see global demand for stevia extracts to be used
either in a zero calorie application or a blend of sucrose and
stevia for reduced calorie/better-for-you products.
The Company is currently in discussions with other distributors
to further its 2011 business development goals, which are expected
to be announced throughout the balance of 2011 for Europe, the US,
and South America.
Business Outlook Summary
- Sugar is now close to record 30 year prices and we believe that
sugar prices will remain high in the future driven by supply
shortages and material increases in demand.
- Global shortages for sugar are now occurring, which are
expected to impact most local markets in the world through a
combination of supply shortages and higher ingredient prices that
food and beverage Companies will need to pay.
- Health concerns over obesity and diabetes remain high and are
driving both government policy (e.g. Mexico, China) and new product
introductions.
- The natural products market in North America has shown strong
growth in the past five years and is expected to also show strong
growth in other global markets where the Company distributes its
products.
As a result of these key trends and issues, the Company sees
continued strong growth ahead in 2011 and beyond for its
products. GLG has successfully demonstrated in 2010 that a
stevia/sugar blend not only meets the tastes requirement for
sweeteners, but also is now more cost effective than
sugar. AN0CTM's products also are expected to demonstrate
consumer products can be sweetened with stevia in both a zero
calorie or reduced calorie variety while providing a similar taste
to fully sugar sweetened products in the Chinese market in
2011.
2011 Outlook
GLG financial guidance for 2011 includes both its stevia
sweetener business as well as its new consumer products business
(AN0CTM). This is a pivotal year for the Company as it continues to
grow its stevia business and launch its consumer products joint
venture AN0CTM.
The Company's guidance for 2011 prepared in accordance with US
GAAP is as follows:
$Canadian Millions |
Lower End |
Upper End |
Revenue |
$160 |
$200 |
Earnings Before Interest Tax & |
$30 |
$39 |
Depreciation (EBITDA)1 |
|
|
Capital Expenditures (CAPEX) |
$5 |
$10 |
A breakdown of 2011 guidance by the Company's two main business
segments (stevia sweeteners and consumer products) is as
follows:
$Canadian Millions |
Lower
End |
Upper End |
|
|
|
Stevia Revenue |
$90 |
$100 |
AN0C Revenue2 |
$70 |
$100 |
|
|
|
Stevia EBITDA |
$30 |
$33 |
AN0C EBITDA3 |
$0 |
$6 |
|
|
|
Stevia CAPEX |
$5 |
$10 |
AN0C CAPEX |
$0 |
$0 |
|
|
|
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. |
2. At 100%
Consolidation |
3. At 80% Consolidation to
reflect 20% minority interest in joint venture |
Stevia Revenue Forecast
The stevia sweetener business is expected to grow 53 to 70% from
2010 with the largest portion expected to come from China. The
Company has assumed the initial delivery of the healthy sugar order
to the China Sugar Reserve will commence in the fourth quarter of
2011 and the full delivery of the first unit in 2012. Key
growth markets outside of China include the US, Mexico, South
America, the Middle East, India and Australia. Other key
assumptions include raw sugar prices remaining in the range of $600
to $800 per metric ton and the RMB to USD exchange rate declining
approximately 3% in 2011. The Canadian dollar to the US dollar
exchange rate is assumed to be at par for the year. Q1 has a
traditionally low activity level, revenue in the first half of 2011
is expected to be similar to the amount generated in both 2009 and
2010 and is expected to account for approximately 20 to 25% of the
full year revenue forecast. Q2 revenue is expected to be 65%
of the first half of stevia revenue as our distributors are
expected to require more products in Q2 after they work for product
inventories delivered in the fourth quarter of 2010 and new
distributors are signed up in 2011.
Stevia EBITDA Forecast
Stevia is expected to generate $30 to $33 million of EBITDA in
2011. Lower EBITDA profitability in the first half of 2011 has been
assumed due to an expected decline in the RMB to US dollar exchange
rate and relatively lower revenues in the first half. EBITDA
margins are expected to improve in the last half of 2011 with the
expected introduction of Huinong 2 ("H2") special leaf variety in
the 2011 harvest year. It is expected the Company will grow
100% of its stevia leaf requirements in 2011 with the H2
strain. As previously announced, the H2 strain is expected to
deliver reduced stevia leaf processing costs starting in late third
quarter 2011. Also, as approximately 75% of the projected
revenues are expected to be generated in China, any future
appreciation of the RMB against the USD will have a much lower
impact on GLG's projected EBITDA.
Capex Forecast
The Company is expected to incur some maintenance capital
expenditures for its four stevia processing facilities in China and
does not expect to increase capacity in 2011 based on the stevia
revenue forecast for 2011. The current revenue generating capacity
of its four facilities is between $250 and $300 million per
annum.
AN0CTM Revenue Forecast
The AN0CTM revenue forecast assumes the launch
of 12 beverage products including six iced tea drinks, three juice
drinks and three dairy drinks in 2011, with the initial product
launch occurring in late first quarter or early second quarter.
There are two major sales seasons in China for the beverage market,
which have historically been January through March and July through
September. GLG will be able to catch only the second major sales
season for 2011. However, 2012 and beyond sales will include both
major selling periods.
AN0C™ revenue in the first half of 2011 is expected to be
approximately 20% of full year forecasted revenue. Other key
assumptions for the revenue forecast include the Company's
expectation that the China food and beverage market will grow 20%
in 2011 and that the Company will be able to launch its products in
China nationwide, covering both major and regional cities in most
provinces.
AN0CTM EBITDA Forecast
AN0CTM's EBITDA is expected to generate between $0 and $6
million EBITDA in 2011. First priority for the development of
the AN0CTM business is to take a leading position
in the marketplace and to build a number one brand (both GLG
corporate and AN0CTM for consumer products) in the all natural,
zero calorie food and beverage sector. With this achievement it is
expected that AN0CTM should achieve the largest
market share for the all natural and zero calorie market segment
with plans to penetrate most of the other major food and beverage
market segments in 2011. These are the most important objectives
for AN0CTM in 2011 rather than EBITDA
generation.
The AN0CTM senior executive team has many years
of experience in operating profitable, multi-billion dollar
beverage companies in China and has developed a plan to get the
business to positive EBITDA in the first year of
operation. GLG joint venture partner, China Agriculture and
Healthy Foods Company Limited ("CAHFC") also has lower ingredient
costs by utilizing GLG stevia extracts relative to the use of
sugar. On a sweetness equivalency, CAHFC has lowered its sweeteners
cost by 40 to 50% by using GLG BlendSure™ stevia extract in the
production of AN0CTM's food and beverage products, as compared to
sugar.
About GLG Life Tech Corporation
GLG Life Tech Corporation is a global leader in the supply of
high purity stevia extracts, an all natural, zero-calorie sweetener
used in food and beverages. The Company's vertically
integrated operations cover each step in the stevia supply chain
including non-GMO stevia seed breeding, natural propagation, stevia
leaf growth and harvest, proprietary extraction and refining,
marketing and distribution of finished product. GLG's advanced
technology, extraction technique and premier, high quality product
offerings make it a leading producer of high purity, great tasting
stevia extracts. For further information, please visit
www.glglifetech.com.
The GLG Life Tech Corporation logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=7994
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, 2010. 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.
CONTACT: Brian Meadows, Chief Financial Officer
Phone: +1 (604) 641-1368
Fax: +1 (604) 844-2830
Email: ir@glglifetech.com
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