Vancouver, B.C. May 15, 2019 – GLG Life Tech Corporation (TSX: GLG) (“GLG” or the “Company”), a global leader in the agricultural and commercial development of high-quality zero-calorie natural sweeteners, announces financial results for the three months ended March 31, 2019. 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.
The Company reported revenues of $2.0 million in the first quarter of 2019, a $2.2 million decrease compared to the first quarter of 2018 ($4.3 million). The Company also reported a decrease of four percentage points in gross profit margins for the first quarter 2019 (4%), relative to the same period in 2018 (8%).
However, after excluding the effect of idle capacity charges on gross profit margins (a non-IFRS measure), the Company reported a ten percentage point increase in gross profit margins, at 30% in the first quarter of 2019 versus 20% in the first quarter of 2018. The Company attributed these improved margins to improvements in production efficiencies and a change in product mix towards higher margin valued-added stevia products. The change in product mix – selling more products with higher margins but lower prices – also contributed to lower revenues; the primary driver for the lower revenues was a decrease in stevia shipments.
The Company continues to reduce its SG&A expenses, which decreased by 3% in the first quarter year-over-year.
For the three months ended March 31, 2019, the Company had a net loss attributable to the Company’s shareholders of $4.8 million, a decrease of $0.8 million or a 15% improvement over the comparable period in 2018 ($5.6 million). The Company reported a net loss per share of $0.12 for the first quarter 2019, a $0.03 improvement year-over-year.
New Executive Management Team
Earlier this year, under the guidance of the Company’s Board of Directors, including its Chairman and Chief Executive Officer, Dr. Luke Zhang, the Company formed a new executive management team to help the Company improve its financial position, develop new strategic initiatives, and implement best practices in corporate governance, financial planning and analysis, and sales and operations planning.
On January 2, 2019, the Company announced that it had hired one of its Directors, Mr. Paul Block, to serve as President of the Company. Mr. Block assumed that role when the former President, Mr. Brian Meadows, resigned from that role. At that time, the Company also announced that it had promoted Mr. Simon Springett to Chief Operating Officer of the Company. On April 11, 2019, the Company announced that it had hired Mr. Eric Finnsson to serve as Chief Financial Officer of the Company. Together, Dr. Zhang, Mr. Block, Mr. Springett, and Mr. Finnsson make up the Company’s executive management team.
One of the most critical items that management is addressing is the development and implementation of plans to stem the losses that the Company has suffered in recent years and to ameliorate the Company’s financial position. As a result of those sustained losses, the Company lacks the cash necessary to fully fund the business operations and its strategic product initiatives. Without an infusion of cash later this year, the Company could cease to be a going concern.
To address that cash need, management has prioritized the sale of its idle assets to generate cash. This will also significantly improve the Company’s balance sheet. Management expects that it will close on the sale of its idle Qingdao “Runhao” secondary purification facility in June or July of this year, and expects that the Company will retain some of the proceeds from that sale to help fund its operations while the remaining proceeds will extinguish a significant portion of the debt held by China Cinda Assets Management (which owns 98% of the Company’s Chinese bank debt). Management is also evaluating options for the sale of its idle “Runyang” primary processing facility in Jiangsu province to further address those same goals.
Another factor contributing to the Company’s financial situation is the competitive price pressure in the stevia market over the last year that has reduced mainstream “Reb A” products (such as Reb A 80 and Reb A 97) to the lowest price levels in years. While these products have historically formed the core of the Company’s product sales, the margins on sales of these products have grown increasingly slim. To address this, the Company is taking a three-pronged approach.
First, the Company is taking immediate steps to reduce its SG&A costs as well as its production costs. Its North American operations have already taken steps to reduce SG&A costs and it is in the process of eliminating non-essential costs in its Chinese operations. For the last several years, the Company’s production capacity has been far greater than its projected order levels as it had sought rapid increases in orders for Reb A products. The Company’s goal is now to “right-size” its Chinese operations – i.e., to optimize its staffing and production planning to meet the Company’s projected production requirements while retaining the ability to accommodate growth in future order volumes. Management expects that this will enable the Company to sell its goods at more competitive and/or more profitable prices to secure additional order volumes and/or retain additional margin.
Second, the Company is increasing its focus on specialty stevia products, relative to its Reb A products. These specialty products are more differentiated than Reb A products and can bring more revenue opportunities and more meaningful margin contributions to the Company’s bottom line. The Company is also working on securing a new line of business in the sweetener space distinct from its bulk stevia sales that has the potential to significantly increase the Company’s revenues and margins.
Third, the Company is progressing with its plans to enter the CBD market, leveraging its production expertise and equipment towards an investment that would jump start its ability to quickly begin producing high-quality low-cost CBD products. While it does not expect to begin generating revenues from this new endeavor in 2019, it is forecasting significant revenues and margins for 2020 and beyond. Management continues to work on securing the necessary funding to close on this investment.
While the Company continues to face substantial risks and 2019 remains a pivotal year for the Company, management remains optimistic about the future opportunities for the Company. With the expected land sale heading towards closing, right-sizing efforts underway, the optimization of production efficiencies, costs, and planning, and the Company’s refocused product strategies, management is proceeding down the best available path to increased financial stability and profitability.
As noted above, the complete set of financial statements and management discussion and analysis for the three ended March 31, 2019, 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 2018 and the condensed interim consolidated financial statements for the three-month period ended March 31, 2019.
Revenue for the three months ended March 31, 2019, was $2.0 million compared to $4.3 million in revenue for the same period last year. Sales decreased by 53% or $2.2 million for the period ending March 31, 2019, compared to the prior period. The sales decrease of $2.2 million was driven by a 57% decrease in stevia sales, primarily resulting from a significant decrease in orders from the Company’s distribution partner. The Company attributes this decrease to reduced customer demand due to existing inventories and to competitive price pressure in the global stevia market. Monk fruit and other sales increased significantly on a percentage basis, but monk fruit and other sales make up a relatively small percentage of overall revenues. International sales continue to make up over 90% of the Company’s revenues (92% in first quarter 2019 versus 93% in first quarter 2018).
Cost of Sales
For the quarter ended March 31, 2019, the cost of sales was $1.9 million compared to $3.9 million in cost of sales for the same period last year ($2.0 million or 51% decrease). Cost of sales as a percentage of revenues was 96% for the first quarter 2019, compared to 92% for the comparable period, an increase of 4 percentage points.
The increase in cost of sales as a percentage of revenue for the three months ended March 31, 2019, compared to the prior comparable period, was attributable primarily to the decrease in stevia order volumes, which resulted in a significant increase in idle capacity charges when measured as a percentage of cost of sales.
Capacity charges charged to the cost of sales ordinarily would flow to inventory and are a significant component of the cost of sales. Only two of GLG’s manufacturing facilities were operating during the first quarter of 2019, and capacity charges of $0.5 million were charged to cost of sales (representing 27% of cost of sales) compared to $0.5 million charged to cost of sales in the same period of 2018 (representing 13% of cost of sales). The higher capacity charges for the quarter were driven by lower volume production for the period ended March 31, 2019, compared to the first quarter of 2018.
Gross Profit (Loss)
Gross loss for the three months ended March 31, 2019, was $0.1 million, compared to a gross profit of $0.3 million for the comparable period in 2018. The gross profit margin was 4% in the first quarter 2019 compared to 8% for the same period in 2018, a 4 percentage point decrease.
This decrease in gross profit for the first quarter of 2019, relative to the comparable period in 2018, was attributable primarily to an increase in capacity charges driven by lower volume production for the period ended March 31, 2019, compared to the prior period. Apart from the effect of these capacity charges, stevia margins improved significantly in the first quarter of 2019, relative to the first quarter in 2018, due to a change in the product mix ordered by our customers, with a higher percentage of sales coming from higher-margin premium products compared to the first quarter of 2018.
Net Loss Attributable to the Company
For the three months ended March 31, 2019, the Company had a net loss attributable to the Company of $4.8 million, a decrease of $0.8 million or 15% over the comparable period in 2018 ($5.6 million). The $0.8 million decrease in net loss was driven by (1) an increase in net losses attributable to non-controlling interests ($1.0 million), which were offset by (2) 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 $0.12 for the three months ended March 31, 2019, compared with a basic and diluted net loss of $0.15 for the comparable period in 2018.
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, Chief Operating Officer
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, beverages, and dietary supplements. 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 and supplement industries, GLG’s Naturals+ product line enables 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 published March 31, 2018. 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.