GLG LIFE TECH CORPORATION REPORTS 2016 FIRST QUARTER FINANCIAL RESULTS

GLG LIFE TECH CORPORATION REPORTS 2016 FIRST QUARTER FINANCIAL RESULTS

Vancouver, B.C. May 16, 2016 – GLG Life Tech Corporation (TSX: GLG) (“GLG” or the “Company”), a global and agricultural leader in the natural zero-calorie sweetener industry, committed to the sustainable development of high-quality zero-calorie natural sweeteners, announces financial results for the three months ended March 31, 2016. The complete set of financial statements and management discussion and analysis are available on SEDAR and on the Company’s website at www.glglifetech.com.

FINANCIAL HIGHLIGHTS

International stevia and monk fruit sales rose by 13% in the first quarter of 2016 over the comparable period in 2015. International sales, including stevia, monk fruit, and GLG Naturals+, continue to make up an increasing proportion of overall revenues, at 85% in the first quarter of 2016, compared to 82% in the first quarter of 2015. Revenues from China sales decreased substantially, contributing to a net decrease in sales of $0.6 million in the first quarter of 2016 compared to the first quarter of 2015. The increasing proportion of international sales reflects the Company’s strategy of moving away from sales of lowerpurity stevia extract sales to other China-based stevia providers to international customers that generate monthly recurring revenues from higher-purity stevia and monk fruit extracts.

Despite lower market prices for stevia and monk fruit extracts, the Company’s margins on international sales in the first quarter of 2016 remained consistent with the margins on international sales in the first quarter of 2015. Overall gross margin decreased by three percentage points (2% versus 5%) in the first quarter of 2016, relative to the first quarter of 2015, attributable to lower margins realized on China lowpurity sales in the first quarter of 2016.

Net Loss from continuing operations for the first quarter of 2016 was $4.3 million compared to $4.8 million in the first quarter of 2015, or a 9% improvement for the year. The basic loss and diluted loss per share from operations was $0.11 for the three months ended March 31, 2016, compared with a basic and diluted net loss from both continuing and discontinued operations of $0.13 for the same period in 2015 (a 15% improvement over the comparable period)

CORPORATE / SALES DEVELOPMENTS

Launch of GoZero™ Solutions

On February 1, 2016, GLG announced the launch of GoZero™ Solutions. This innovative portfolio provides GLG’s customers with unparalleled natural and Non-GMO zero-calorie sweetener options and proprietary formulations tailored to our customers’ specific calorie reduction needs.

The challenges to global food and beverage companies are well documented with respect to the need for reduced amounts of sugar in formulations. The global per capita sugar consumption peaked in the late 1990’s; however, it has been declining ever since due to an increase in health awareness and prevalence of diet-related health conditions, such as diabetes. Moreover, government regulations and guidelines, such as sugar taxes in the US and Mexico, and new dietary guidelines limiting the amount of added sugar in foods have made it challenging for food and beverage manufacturers to continue to use the same amounts of sugar in their formulations as they have used in the past. Added to this challenge, consumers’ willingness to consume artificial sweeteners has been declining due to a general mistrust in synthetic chemical compounds.

In fact, consumers are increasingly looking to incorporate natural, plant-based ingredients in their diets. The movement of the market toward zero-calorie, natural sweeteners has placed immense pressure on marketing, R&D and procurement teams to reformulate to reduce sugar and artificial sweeteners in their products.

However, the transition to stevia as a natural zero calorie sweetener has proved challenging due to its known aftertaste issues such as astringency and bitterness. But things are changing for the better, as GLG introduced its newest product line to global food and beverage companies – GoZero™ Solutions – to address all these challenges with going zero.

GLG’s GoZero™ Solutions offer:
1. Largest portfolio containing the most complete set of zero-calorie, natural sweeteners including
stevia, enzymatically modified stevia, monk fruit and bitter blockers
2. Better tasting stevia and monk fruit with ClearTaste™ natural bitter blocker
3. Custom formulations for customers
4. Fast prototyping of reduced or zero calorie formulations for R&D groups
5. Superior taste and flavor profile tailored to specific food matrices
6. Fast response and support from our experienced support team
7. Cost effective solutions
8. Clean labels
9. Reduction in use of sugar while maintaining taste
10. Removal of artificial sweeteners from the formulation
11. Halal, Kosher, Non-GMO, and natural solutions
12. Organic and conventional format

 

GoZero™ Solutions is the result of over 15 years’ hard work of more than 60 agricultural scientists, product innovation and food application specialists, and food engineers. This concerted effort enabled GLG to formulate a diverse product portfolio applicable to a wide range of food, beverage, and dietary supplement products that are cost-effective and superior in taste, flavor, and quality.

Major Advances in High-Purity Leaf for Reb M

On February 29, 2016, GLG announced a major agricultural breakthrough in its agricultural R&D program. Through this program, GLG aims to revolutionize the global food and beverage industry by providing companies with the ability to replace sugars and artificial sweeteners with naturally-sourced Rebaudioside M (“Reb M”). The program’s latest accomplishment is a stevia leaf strain with Reb M levels more than ten times higher than conventional stevia leaf

Reb M, one of several steviol glycosides found in the stevia plant, is highly desired in the industry as a natural, zero-calorie sugar and sweetener replacement, one that very closely resembles sugar. To date, the impediment to utilizing Reb M has been its scarce presence in the stevia leaf, making commercial use cost-prohibitive. Bringing a naturally-sourced Reb M extract to the market on a commercial scale requires a dramatic increase in the presence of Reb M glycosides in the leaf.

A dramatic increase in Reb M is just what GLG achieved. Through development of its Reb M seedling using its non-GMO patented breeding methodology, GLG has now produced more than a 1000% increase in Reb M levels in stevia leaf. Conventional stevia leaf has Reb M concentrations at less than 0.1% of dry leaf weight, and less than 1% of total steviol glycosides (“TSG”). In GLG’s seedling, Reb M constitutes over 1% of dry leaf weight, and over 8% of the TSG’s. Further, TSGs constitute about 13% of dry leaf weight in GLG’s new seedling, which is above the industry average of 10-12% of dry leaf weight.

The 1000% increase in Reb M glycosides in its new variety is the result of two key factors: (1) an expanded Reb M seedling development program that GLG undertook in 2015 and (2) the 25 years’ experience of its chief agronomist. The 2015 program involved evaluating thousands of different stevia strains, requiring an extensive program to identify and promote the most promising strains. GLG’s 2014 breakthrough with its high Rebaudioside C (“Reb C”) seedlings clearly demonstrated the promise of its patented Non-GMO seedling hybridization technology to significantly increase scarce glycosides. And in 2015, GLG announced a stevia leaf strain with significantly enhanced levels of both Rebaudioside D (“Reb D”) and Reb M. This latest achievement, focused specifically on Reb M, further demonstrates GLG’s agricultural prowess.

GLG is in the process of filing for patent protection for its Reb D and Reb M seedlings. And GLG has filed two GRAS applications with the FDA for high-purity Reb D (GRN 548) and Reb M (GRN 512), with purity levels ranging from 80% to 95% to be used as a sweetener.

Partnership with MycoTechnology Corporation for Improved Taste of Stevia

On January 7, 2016, GLG, in conjunction with MycoTechnology Corporation (“MycoTech”), together announced a commercial partnership agreement to incorporate MycoTech’s ClearTaste™ product to improve the taste of stevia and monk fruit. The partnership combines GLG’s strengths in the natural sweetener space with the benefits of MycoTech’s innovative ClearTaste product, a certified USDA organic bitter blocking technology, in order to improve the taste of stevia and monk fruit.

There is a major trend underway in which mass produced, low nutritional quality foods, loaded with added sugar, salt and fat are being replaced with healthy, natural, low and zero-calorie alternatives. The changing consumer landscape has food manufacturers looking for natural high-intensity sweetener alternatives such as stevia and monk fruit. However, food manufacturers have also struggled with stevia’s aftertaste and astringent flavor profile.

MycoTech developed ClearTaste, derived from mushrooms, which as to stevia has the effect of removing its less desirable aftertaste. ClearTaste is a natural, GMO-free and chemical-free ingredient solution that works by harnessing the natural extracts found in gourmet mushrooms. The compounds are unique to fungi and are highly effective at improving the flavor profiles of stevia and monk fruit.

The initial term of the agreement is five years during which GLG will be MycoTech’s preferred vendor of stevia and monk fruit products. GLG further enjoys certain exclusivities in the commercial agreement with MycoTech products and the agreement also allows GLG to work directly with MycoTech to produce new products using both companies’ technology in return for purchase commitments with MycoTech.

Launch of P-Pro Plus

On March 9, 2016, GLG announced, in partnership with MycoTech, the launch of P-Pro Plus, a revolutionary product that complements the many benefits of pea protein with MycoTech’s groundbreaking 100% natural and USDA Organic certified bitter blocker, ClearTaste™, to offer a pea protein without any of the taste profile issues many food, beverage, and dietary supplement manufacturers experience with pea protein by itself.

Pea protein has recently drawn a lot of attention for being highly sustainable, vegan, vegetarian-friendly, hypoallergenic, a good source of amino acids, easy to digest and a good alternative to soy protein products. Pea protein promotes not only its protein content, but also fiber, vitamins and minerals. As a legume, peas return nitrogen to the soil and are considered a highly sustainable food source. Increased demand for more sustainable protein globally and more vegan and allergen-free options is driving development of more plant-based protein sources. Pea protein products can replace a significant percentage of other proteins in many applications and can offer cost savings. Furthermore, pea protein isolate can replace soy isolate on a weight-for-weight basis without a negative organoleptic impact.

Adding plant protein sources to food and beverage applications presents some challenges, however, such as change in flavor profile of the finished product. The number one challenge faced by food and beverage formulators introducing or transitioning their products to include plant-based proteins, such as pea protein, remains balancing the benefits of these natural ingredients with a taste profile that appeals to the mainstream palate. The partnership between GLG and MycoTech overcomes this challenge, providing food, beverage and sport supplement companies the ability to produce natural healthful products without the bitter taste profile and off-notes that are traditionally associated with pea protein.

P-Pro Plus offers not only the many benefits of regular pea protein, but also a taste profile that formulators and consumers alike will appreciate. We expect that this improved taste profile will broaden market appeal, reach new product segments and result in deeper market penetration of pea protein. P-Pro Plus is available in both conventional and organic varieties and in various mesh sizes and protein purity levels and can be tailored to your individual product needs.

SELECTED FINANCIALS

As noted above, the complete set of financial statements and management discussion and analysis for the three months ended March 31, 2016, are available on SEDAR and on the Company’s website at www.glglifetech.com.

Results from Operations

The following results from operations have been derived from and should be read in conjunction with the Company’s annual consolidated financial statements for 2015 and the condensed interim consolidated financial statements for the three-month period ended March 31, 2016

Revenue

Revenue for the three months ended March 31, 2016, was $5.5 million compared to $6.2 million in revenue for the same period last year, a decrease of 10% comprising a 6% decrease in international sales and a 27% decrease in China domestic sales. Although revenue decreased, international sales ($4.7 million) as a percentage of total sales (85%) were up by three percentage points over the same period in 2016 ($5.0 million in international sales, or 82% of sales). International stevia and monk fruit sales rose by 13% in the first quarter of 2016 over the comparable period in 2015; the net 6% decrease in international sales for the quarter was attributable to a drop in GLG Natural+ sales.

Cost of Sales

For the quarter ended March 31, 2016, the cost of sales was $5.5 million compared to $5.8 million in cost of sales for the same period last year ($0.3 million or 7% decrease). Cost of sales as a percentage of revenues was 98% for the first quarter 2016, compared to 95% for the comparable period.

The increase in cost of sales as a percentage of revenue for the three months ended March 31, 2016, compared to the prior comparable period, was driven by a significant increase in cost of goods for China ow-purity stevia product sales in the first quarter of 2016 compared to cost of goods for similar low-purity stevia sales made in the comparable period in 2015. The lower cost of sales in the first quarter of 2015 is due to a one-time decrease of cost of products sold relating to significant impairment charges taken on low-purity inventory in 2014. When this material was sold in the first quarter of 2015, the cost of sales reflected a materially written-down cost. This increase in cost of sales as a percentage of revenue was partially offset by a decrease in idle capacity charges in the first quarter of 2016, relative to the comparable period. Cost of sales as a percentage of revenue of international sales remained even over the comparable periods.

 

Capacity charges charged to the cost of sales ordinarily would flow to inventory and are a significant component in reports cost of sales. Only two of GLG’s manufacturing facilities were operating during the first quarter of 2016, and capacity charges of $0.7 million were charged to cost of sales (representing 13% of cost of sales) compared to $1.0 million charged to cost of sales in same period of 2015 (representing 17% of cost of sales).

  1. Capacity utilization of stevia and monk fruit manufacturing plants.
  2. The price paid for stevia leaf and monk fruit and their respective quality, which are impacted by crop quality for a particular year/period and the price per kilogram for which the stevia and monk fruit extracts are sold. These are the most important factors impacting the gross profit of GLG’s stevia and monk fruit business.
  3. Other factors which also impact stevia and monk fruit cost of sales to a lesser degree include:
    • water and power consumption;
    • manufacturing overhead used in the production of stevia and monk fruit extract, including supplies, power and water;
    • net VAT paid on export sales;
    • exchange rate changes; and
    • depreciation.

GLG’s stevia and monk fruit businesses are affected by seasonality. The harvest of the stevia leaves typically occurs starting at the end of July and continues through the fall of each year. The monk fruit harvest takes place typically from October to December each year. GLG’s operations in China are also impacted by Chinese New Year celebrations, which occur approximately late-January to mid-February each year, and during which many businesses close down operations for approximately two weeks. GLG’s production year runs October 1 through September 30 each year.

Gross Profit (Loss)

Gross profit for the three months ended March 31, 2016, was $0.1 million, compared to $0.3 million for the comparable period in 2015. The gross profit margin was 2% in the first quarter 2016 and 5% for the same period in 2015

The decrease in gross profit for the first quarter of 2016, relative to the comparable period in 2015, was attributable to a significant decrease in margins for China low-purity stevia product sales in the first quarter of 2016 compared to margins realized for similar low-purity stevia sales made in the comparable period in 2015. The higher margins in the first quarter of 2015 are due to a one-time decrease of cost of products sold relating to significant impairment charges taken on low-purity inventory in 2014. When this material was sold in the first quarter of 2015, the cost of sales reflected a materially written-down cost, resulting in increased margins. This decrease in gross profit attributable to lower purity stevia China sales was partially offset by a decrease in idle capacity charges in the first quarter of 2016, relative to the comparable period. Margins on international sales of high purity stevia and monk fruit remained even over the comparable periods.

Net Loss Attributable to the Company

For the three months ended March 31, 2016, the Company had a net loss attributable to the Company of $4.3 million, an improvement of $0.5 million or 9% over the comparable period in 2015 ($4.8 million loss). The decrease in net loss was driven by (1) a decrease in other expenses ($1.3 million), which was offset by (2) an increase in SG&A expenses ($0.6 million) and (3) a decrease in gross profit ($0.2 million).

Quarterly Basic and Diluted Loss per Share

The basic loss and diluted loss per share from operations was $0.11 for the three months ended March 31, 2016, compared with a basic and diluted net loss from both continuing and discontinued operations of $0.13 for the same period in 2015. For the three months ended March 31, 2016, the Company had a net loss attributable to the Company of $4.3 million, a decrease of $0.5 million or a 9% improvement over the comparable period in 2015 ($4.8 million loss). The decrease in net loss was driven by (1) a decrease in other expenses ($1.3 million), which was offset by (2) an increase in SG&A expenses ($0.6 million) and (3) a decrease in gross profit ($0.2 million)

Liquidity and Capital Resources

The Company continues to progress with the following measures to manage cash flow of the Company: paying down short-term loans, reducing accounts payable, negotiating with creditors for extended payment terms, working closely with the banks to restructure its loans, arranging financing with its Directors and other related parties, and reducing operating expenditures including general and administrative expenses and production-related expenses.

Total loans payable (both short-term and long-term) is $99.1 million as of March 31, 2016, a decrease of $4.9 million compared to the total loans payable as at December 31, 2015 ($104.0 million). The decrease in loans was primarily driven by the depreciation of the USD against the Canadian dollar ($5.9 million), which was offset by accrued interest of $1.0 million as of March 31, 2016.

The Company continuesto work with its Chinese banks on restructuring its Chinese debt in 2016. In 2015, the Construction Bank of China successfully transferred GLG’s debt to China Cinda Assets Management Co. and the Agricultural Bank of China successfully transferred GLG’s debt to China Hua Rong Assets Management Co., each of which is a state-owned capital management company (“SOCMC”). The total of all China bank loans transferred to SOCMC’s now account for approximately 74% of the Company’s outstanding Chinese debt. The nature of the business of these SOCMCs differs from banks, in that they take a long-term outlook on management of debt.

The Company is still in discussions with these SOCMCs as to final terms – including interest rate and term of the debt – for the transferred debt. Until such terms are confirmed in a formal agreement, the terms of the original loan are represented in the financial statements.

The Company’s main initiative to improve its negative working capital position is a potential debt restructuring involving the State Owned Capital Management Companies and China Banks where the Company’s operating subsidiaries owe $66,065,835 in short-term debt. The Company’s plan for restructuring has three options: (1) restructure this short-term debt to longer-term debt, (2) convert all or a portion of this short-term debt into equity of the Company’s Chinese operating subsidiaries or (3) sell one or more of its idle facilities to generate funds to repay loans.

NON-GAAP Financial Measures

Gross Profit (Loss) Before Capacity Charges

This non-GAAP financial measure shows the gross profit (loss) before the impact of idle capacity charges are reflected on the gross profit margin. GLG had only 50% of its production facilities in operation in first quarter of 2016 and idle capacity charges have a material impact on the gross profit (loss) line in the financial statements.

Gross Profit (Loss) before capacity charges for the three months ended March 31, 2016, was $0.8 million or 14% of first quarter revenues compared to $1.3 million or 21% of first quarter revenues in 2015. Gross Profit (Loss) before capacity charges decreased from the comparable period due primarily to a significant decrease in margins for China low-purity stevia product sales in the first quarter of 2016 compared to margins realized for similar low-purity stevia sales made in the comparable period in 2015. The higher margins in the first quarter of 2015 are due to a one-time decrease of cost of products sold relating to significant impairment charges taken on low-purity inventory in 2014. When this material was sold in the first quarter of 2015, the cost of sales reflected a materially written-down cost, resulting in increased margins.

Earnings Before Interest Taxes and Depreciation (“EBITDA”) and EBITDA Margin

EBITDA for the three months ended March 31, 2016, was negative $1.4 million or negative 26% of revenues, compared to negative $0.6 million or negative 9% of revenues for the same period in 2015. EBITDA declined by $0.8 million or 17 percentage points for the three-month period ended March 31, 2016. The decrease in EBITDA for the quarter is primarily attributable to lower gross profit and an increase in sales, general and administrative expenses.

Additional Information Additional information relating to the Company, including our Annual Information Form, is available on SEDAR (www.sedar.com). Additional information relating to the Company is also available on our website (www.glglifetech.com).

For further information, please contact:
Simon Springett, Investor Relations
Phone: +1 (604) 285-2602 ext. 101
Fax: +1 (604) 285-2606
Email: [email protected]

About GLG Life Tech Corporation

GLG Life Tech Corporation is a global leader in the supply of high-purity zero calorie natural sweeteners including stevia and monk fruit extracts used in food and beverages. GLG’s vertically integrated operations, which incorporate our Fairness to Farmers program and emphasize sustainability throughout, cover each step in the stevia and monk fruit supply chains including non-GMO seed and seedling breeding, natural propagation, growth and harvest, proprietary extraction and refining, marketing and distribution of the finished products. Additionally, to further meet the varied needs of the food and beverage industry, GLG has launched its Naturals+ product line, enabling it to supply a host of complementary ingredients reliably sourced through its supplier network in China. For further information, please visit www.glglifetech.com.


Forward-looking statements: This press release may contain certain information that may constitute “forward-looking statements” and “forward looking information” (collectively, “forward-looking statements”) within the meaning of applicable securities laws. 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 that 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, 2015. In light of these factors, the forwardlooking 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.

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