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, provides a business
update on its AN0C consumer products business in China and global
stevia business.
Part One - AN0C Business Update
China Beverage Industry Conditions
Overall the China beverage industry, most notably the
Ready-To-Drink (RTD) tea market, this year has been materially
weaker than originally expected by industry analysts. In February,
Euromonitor reported that total volume grew 19% for RTD tea in
2010, and forecasted 18% growth in 2011. Master Kong, which
holds over 50% of the Chinese RTD tea market, released second
quarter earnings at the end of August that were below its
guidance. Master Kong further commented that its RTD sales
growth in July and August was also below management
expectations. At the Barclay's Corporate Day held in early
September, Master Kong's management further cited an unusually cool
summer in China for a relatively weak recovery in beverage sales in
the third quarter. The Barclay research analyst reported that
competitive pressure has increased from both existing companies as
well as newer entrants in the beverage market in China. The
research analyst for Bank of America Merrill Lynch published a
report in mid-September on Uni-President, the second largest RTD
tea manufacturer in China with over 20% market share, commenting
that there was higher inventory, softer end-demand from cooler
weather, and intense competition in the RTD tea market in
China. Uni-President also reported second quarter beverage
results that were weaker than expected. PET costs, which is
the main raw material used to make plastic bottles and is the
largest cost in the RTD beverage product, has increased
substantially over the past year and is not expected to decline in
2011. For other beverage companies, another large cost
component is sugar which has also increased drastically over the
past two years. AN0C's value proposition of all-natural
zero-calorie sweetener has the benefit of using stevia and allows
AN0C to avoid the high sugar costs.
Given the background of softer industry demand and high
competition for the RTD Tea market in China, AN0C's products have
still made a strong impact on the market and Management remains
confident that their products and brand are well received by the
market. For example, in a consumer survey conducted in 20
target cities from June 25–July 3, about half of the over 1,300
participants connects the AN0C brand to the key messages of
zero-calorie and non-fattening. Furthermore, the same survey
reported that over 10% of participants replied that their next RTD
tea purchase would be an AN0C product.
However, AN0C products have not been able to avoid being
adversely affected by the other industry-wide factors such as
reduced consumer demand in June through August driven by a cooler
summer that have impacted the entire industry, most notably the
largest players in the China beverage industry who represent over
70% of the product volume.
RTD Tea Bottle Replacement Progress Impact Q3 Expected
Revenues
AN0C re-introduced its RTD teas in a new custom branded bottler
in the third quarter to better differentiate AN0C's product from
other competitors' products. It was initially expected that
only July sales would be reduced substantially in order to sell
through the inventory of the RTD teas in the old bottles that were
currently in retail outlets. As the unusually cooler weather
in China continued through the summer and overall inventory for the
industry remained high, the sell through of AN0C's RTD teas in the
old bottles has taken longer to sell in the KA stores than
originally anticipated. As these KA channels have been slower
to switch over to the new bottles, shipments of the new RTD teas in
August have also been lower than expected. The AN0C sales team
has recently been able to open up new distribution channels to
speed up the sell through of the remaining old bottles, for
example, through government organizations. AN0C Management
expects the new bottles to be available in 300 cities and counties
by the end of October.
OEM Production Issues Impact Q3 Expected
Revenues
In early September, AN0C received complaints from a few of its
distributors regarding product packaging and product appearance
quality of the RTD tea products being shipped to them. AN0C's
investigation found that two of its main OEM Partner's bottling
plants were responsible for these production
issues.
Through AN0C and its OEM Bottler's review in mid-September, it
was determined that the potential batches comprised approximately
200,000 cases of RTD tea that had been shipped and represented the
maximum size of the potential product issue. To date, approximately
2,000 cases have been actually found to be substandard. AN0C
Management and its OEM Bottler estimate that less than
2% from the potential batches will be accepted
back from distributors, which will be exchanged for new
shipments. The Company is still working with its distributors
to review the quality of the actual cases being requested to be
returned due to these appearance issues. Approximately 90 of
its approximately 600 distributors have been affected by these
product issues. The Company is visiting each of the affected
distributors individually to review the requested returns to
determine if they fall below accepted product appearance
standards. AN0C maintained the total number of its Tier I
distributors at approximately 600 throughout this OEM production
issue. AN0C products remain available in over 100,000 store
outlets and actual end customer complaints over these product
appearance issues have been minimal.
Additionally, production of vitamin enriched waters was also
impacted by the same OEM production issues. Fortunately these
batches were identified at the OEM plant and were not shipped to
AN0C's distributors. Total affected cases of vitamin enriched
waters were approximately 85,000 cases which represented a material
portion of Q3 expected shipments.
During this investigation, AN0C Management withheld additional
RTD tea and vitamin enriched water production orders to this OEM
Bottler until these production issues were resolved at the two OEM
bottling plants as well as an agreed settlement for damages was
reached. Any production issue that had the potential to
negatively impact the brand image required a very conservative
approach by the AN0C Management Team since the AN0C products are
positioned as a higher quality product than other national brands.
It was expected by Management at that time that resolution would be
reached quickly so orders for additional product could be issued to
its OEM Bottler in time for delivery in late
September. However, resolution on a settlement with AN0C's OEM
Bottler was only reached at the end of September. As such, no new
production orders were issued in time for additional product
shipment within the third quarter. The settlement will apply
to returned cases accepted by AN0C and the OEM bottler. AN0C
Management is now in a position to resume regular business
operations with this OEM Bottler with the settlement being
reached. Management expects to resume production orders to
this OEM after the National Holidays in China.
Mr. Katzu Cheng, President of AN0CTM stated, "In the long term
interest of maintaining the high-quality image and reputation of
the AN0C brand, we made the best decision to withhold additional
production orders until we had the confidence that production
issues had been resolved and we reached a fair settlement with our
OEM Bottler. Our Bottler is an important partner to AN0C in
the production of our products and we have worked together to
ensure a permanent resolution of these production issues. AN0C
Management is working on a plan to expand our OEM Bottling Partners
that will improve our ability to diversify our production of our
products across other OEM bottlers in the near future."
Dr. Luke Zhang, Chairman and CEO of both GLG and AN0C, further
commented, "Management remains steadfast in our conviction that
AN0C products that provide consumers healthier choices with zero
and reduced calorie beverage and food offerings have a large market
potential in China. It is extremely important that AN0C
handled these issues as they did in order to protect our brand and
our products to a very high standard of quality. We are not a
one or two product brand. We have many more products that are
awaiting launch, so ensuring that the AN0C brand continues to stand
for high-quality and healthy food and beverage products is an
extremely important objective. This situation remains a bump
along the road to building a successful consumer brand in China and
the AN0C team has successfully minimized the impact to the AN0C
brand and our valuable Distributor network."
Vitamin Enriched Waters Progress
AN0C launched its vitamin enriched water in August into 41 major
cities, marking AN0C's entry into a second beverage category in
China. Vitamin enriched water is a relatively new beverage
category in China, and there are only a few brands on the
market. Although the OEM production issues have impacted a
significant portion of vitamin enriched water production, AN0C
expects to be in 68 main cities and 43,000 outlets by the end of
October. AN0C has brought in new distribution partners that
specialize in vitamin enriched waters. AN0C Management expects
that this new category needs more time to grow and gain traction in
the Chinese beverage market, however, the initial feedback from the
market for this product has been encouraging.
New Product Launch Schedule
The Company is also providing an update on the product launch
schedule it originally presented on July 27th, 2011 and updated on
August 31st, 2011. There have been some changes to the
expected launch dates for the planned product launches. The
majority of these delays in product launches are attributable to
the above production issues with its main OEM Bottler. For
example, until the production issues for RTD tea and vitamin
enriched waters had been resolved, work with the OEM Bottler on
additional product launches had been curtailed. Additionally,
the OEM Bottler selected for AN0C's carbonated soft drinks does not
have the necessary plant capacity to support the AN0C CSD's product
launch until later in October due to work currently being
undertaken at their bottling plant.
The following table provides the original and revised product
launch schedule:
|
Product |
# SKU's |
Original Schedule |
Revised Schedule |
Carbonated Soft drinks |
6 |
September, 2011 |
November, 2011 |
Herbal Teas |
1 |
September, 2011 |
November, 2011 |
Chrysanthemum Team |
1 |
September, 2011 |
November, 2011 |
Juice Milks |
3 |
September, 2011 |
December, 2011 |
Children's Drinks |
9 |
September, 2011 |
January, 2012 |
Protein Drinks |
3 |
October, 2011 |
December, 2011 |
Other Functional Health |
5 |
October, 2011 |
January, 2012 |
Total |
28 |
|
The delayed product launches represent 72% of the products
originally expected to be launched by AN0C in 2011, and therefore,
management expects these changed launch dates to impact its
expected revenue in 2011 which were originally expected to be
launched on average two months earlier.
Part Two - Stevia Business Update
The Company previously announced in August that it faced softer
demand from its global distributors due primarily to formulation
challenges experienced by their end customers with stevia
extracts. In response to this issue, the Company launched AN0C
Stevia Solutions to provide enhanced stevia sweeteners and pre-mix
solutions that solve these formulation challenges. The Company
began marketing its AN0C Stevia Solutions during the third quarter
and has subsequently generated considerable interest in its Dream
Sweetener and Low Calorie Health Sugar products. These new
products are uniquely formulated to provide either zero or lower
calorie sweetener solutions that enable Food and Beverage (F&B)
companies to substitute their existing high calorie sweeteners
without altering their existing formulations and taste. These
products represent a major innovation for F&B companies since
they can eliminate a lot of the time spent trying to figure out how
to mask the aftertaste of stevia. The Company expects revenues
to be generated from these new products starting in the fourth
quarter. GLG's existing distributors did not place any new
substantial orders during the third quarter and as a result stevia
revenues in the third quarter will be low compared to previous
quarterly results in 2011. The China Sugar Reserve Project is
predicated on the completion of the facilities at its China Partner
located in Xiaogang in the fourth quarter. These new
facilities are scheduled for completion in the next week and the
grand opening ceremony is planned for October 18th.
Dr. Zhang stated, "I am confident in the company's business
strategy, its growth opportunities, its people and the progress we
are making in realizing our business objectives. AN0C's
all-natural sweetened zero-calorie products have been well received
in the Chinese marketplace and we are ready to launch the next
series of all-naturally sweetened zero and low calorie
products. The recent strong interest that AN0C Stevia
Solutions generated in these past few months has further
underscored the demand that the food and beverage companies have
for an easy-to-use all-natural zero-calorie sweetener
solution."
Conference Call
GLG will host a conference call at 8am (Pacific Time) today,
October 6, 2011, to present the update to investors. A
PowerPoint presentation will be available for download from the
Investors section of GLG's website at:
http://www.glglifetech.com/Media_Center/Press_Releases/ .
Details of the call are as follows:
Teleconference Information
Date: Thursday, October 6, 2011
Time: 11:00 am Eastern Time / 8:00 am Pacific Time
Dial in: (877) 303-9126 (Canada and US) or (408) 337-0130
(International)
To access the live webcast of the conference call, please
visit:
http://investor.shareholder.com/media/eventdetail.cfm?eventid=103552&CompanyID=GLG&e=1&mediaKey=A20E0D2067A9240442DE09A8EBF1671A
A recorded replay of the call will be available from 2:00 pm
October 6, 2011 to midnight October 13, 2011. Please
dial: (855) 859-2056 (Canada and US) or (404) 537-3406
(International)
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
About AN0C™
AN0C focuses on the sale and distribution of all-natural
zero-calorie food and beverage products in China that are sweetened
with stevia provided by GLG Life Tech Corporation. GLG is a global
leader in the supply of high quality stevia extracts and holds an
80% controlling stake in AN0C with China and Healthy Foods Company
Limited (CAHFC) holding 20%. Dr. Luke Zhang, Chairman and CEO of
AN0C, is supported by an experienced team of senior executives
recruited from the beverage industry in China. For further
information, please visit www.an0c.com.
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: Sophia Luke, Vice President of Investor Relations
Phone: +1 (604) 669-2602 ext 104
Fax: +1 (604) 662-8858
Email: ir@glglifetech.com
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