PureCircle announces new management following probe into accounting irregularities
Effective March 2, Peter Lai Hock Meng* (chairman of PureCircle’s Chinese subsidiaries) will become CEO, replacing Magomet Malsagov, who stepped down from the Chicago-based firm in November, relinquishing his responsibilities to chairman John Slosar on an interim basis.
Stephane Ducroux (who joined PureCircle in 2018) will assume the role of deputy CEO immediately, while Jimmy Lim Kian Thong will join as CFO on February 4, replacing Rakesh Sinha.
News of potential issues with PureCircle’s accounts first emerged in September 2019, when it postponed the publication of its results for the year ended June 30 2019 after an audit by PricewaterhouseCoopers identified a “potential issue relating to the classification and valuation of certain inventory items.”
In November, PureCircle said KPMG had provisionally determined that the issues “have had the cumulative effect of reducing inventory by approximately $23m and consequently increasing cost of goods sold by the same amount, spread across financial years 2018 and 2019, with potentially a relatively modest adjustment to 2017.”
'Some of these matters indicate potential impropriety'
However, this was not necessarily the end of the matter, it added: “During the course of the work of KPMG and PricewaterhouseCoopers, matters of concern have recently been identified in relation to how certain other transactions have been constructed and/or reflected in the Group's accounting records.
"Some of these matters indicate potential impropriety.”
We're working hard on closing out the audit hopefully by the end of January
Asked how the company - which is listed on the London Stock Exchange [the shares are currently suspended] - could have overvalued its inventory to the tune of $23m, VP of global marketing Alina Slotnik told FoodNavigator-USA that PureCircle was constantly developing new technologies and value-added products.
“Were constantly launching new ingredients from the same leaf and the same plant and the balance of ingredient volume that we produce at different price points and values off of that leaf stream is constantly changing. It's hard to characterize yet because our audit is just completing and the financials haven't been issued, and I don't know which specific kinds of inventories were re-classified, but it's about how different products in our portfolio are valued against each other."
Asked what KPMG had learned about other potentially problematic transactions cited in its November 14 statement, and whether the accounting issues were the result of impropriety or incompetence, Slotnik added: “Given that our audit has not yet been signed off, I can't say what the final determination will be."
She added: "We've been as transparent as possible and we're working hard on closing out the audit hopefully by the end of January and publishing the results of the audit in our financials shortly thereafter."**
Today's announcement is aimed at further reassuring our customers
As to how PureCircle is reassuring investors and trading partners, she said: “We've continued to supply our customers, operate as normal, our orders have been delivered on time and we haven't changed our production plans. Our ability to pay our vendors, deliver high quality product and support our customers hasn't changed."
She added: "Today's announcement is aimed at further reassuring our customers that we are putting a strong leadership team in place that provides strategic perspective and continuity as they have experience both within and outside of PureCircle. We've really grown up as a company, and our internal sophistication now is poised to match our external scale."
Asked if PureCircle had lost any customers as a result of the negative PR generated by the accounting issues, she said, "I don't believe so."
Writing on the site ShareProphets last September, UK-based short-seller Lucian Miers said: "Back in March, I suggested that PWC might like to brush up on the definition of a 'Current Asset' with regard to the huge levels of inventory carried by PureCircle relative to its annual sales.
"As the auditors ought to know, a current asset is something which can be turned into cash within one year and therefore, by this definition, surely cannot exceed one year’s Cost of Goods Sold. That it habitually does in the case of PureCircle is something that I have pointed out for years."
*Mr. Lai was a non-executive director at PureCircle from 2008-2017. He currently serves as advisor to the board on China matters and is the chairman of PureCircles subsidiaries in China. After beginning his career in the Monetary Authority of Singapore, he held various senior management positions in banking institutions including Morgan Grenfell Asia & Partners Securities, SocGen Crosby Securities, Citigroup Private Bank and OCBC Private Bank.
**According to a Jan 14 statement, the audited accounts, the Directors' report and the Auditors' report will be presented to shareholders "on a date no later than 90 days from 10 February 2020 [the date of the forthcoming AGM]."
