SeaDragon poised for significant growth
NZX & Media Release
30 May 2014. Link here.
Financial results for the year to 31 March 2014
Highlights:
• Significant new squalene sales contract demonstrates the benefits of a secure raw material supply
• Making good progress on the new refined fish oil plant in Nelson
• Financially well positioned with $5.2m of cash on hand and no external debt.
Australasia’s largest refiner and blender of fish oils SeaDragon (NZX:SEA) today reports a year of good progress putting in place the foundations for its future growth.
SeaDragon has made solid progress on its new refined fish oil plant in Nelson, raising capital to fund the plant and advancing the first stages of the development work.
In addition it has addressed supply constraints which will deliver an improved performance from its existing squalene operations, with agreements to secure raw materials sufficient to keep the facility operating at full capacity for the next 12 to 18 months. On the back of this, it has also entered into a significant sales contract covering the latter half of the 2015 financial year and the first half of the 2016 financial year.
The company has reported an operating profit of $431,000. However, the reversal of non-cash revaluation gains has led to a net loss after tax of $3.2 million, down from a $3.4 million profit a year earlier, with a change in the non-cash revaluation reserve on the Snakk Media shares accounting for $3.7 million of the fall.
SeaDragon Chairman Dr Doug Wilson said: “SeaDragon is in good shape, with the company having no external debt and $5.2 million of cash in the bank following a series of successful capital raising initiatives during the year. We are now well positioned to expand our Omega-3 fish oil activities, opening up a new frontier of growth for the company.”
Sea Dragon Chief Executive Ross Keeley said: “Demand for our core range of refined oil products was strong throughout the year and remains so. But it was frustrating we have been unable to capitalise on this potential due to a constrained raw material supply.
“The recently announced raw material supply agreement, for material to be landed in August and November of this year and in March of 2015, will substantially overcome these difficulties. Our squalene business remains attractive, but we are looking forward to 2015 when the new refined fish oil plant will allow us to reduce our reliance on this business.”
Financial results
Sales for the year to 31 March 2014 fell to $3.1 million from $8.9 million in the prior year as our squalene operations were unable to meet strong demand due to continuing difficulties securing raw materials. The prior year also benefitted from the refining of krill oil as well as a one-off opportunistic contract to sell krill oil which contributed $6.5m to revenues.
Operating profit for the period rose to $431,000 from a loss of $296,000 in 2013 as SeaDragon benefited from a $2 million gain from the sale of the 25 million shares it held in Snakk Media.
The Snakk Media gain was partially offset by a reported increase in operating costs and depreciation and amortisation charges. However, these figures are not directly comparable as the 2013 financial year only included a five month contribution from the marine oils business, which was acquired in October 2012.
Squalene operations
“Securing raw materials for the squalene operations in a timely manner and at a cost-effective price has remained challenging over the year.
For instance, one of the boats of our key suppliers was tied up for an extended period during the main fishing season. Meanwhile, changes in fishing activity associated with reductions in quota or permitted catch also continued to hamper supply.
However, following the receipt of the oil and livers from the supply contract announced to the market in March, our current factory will now be able to be run at full capacity for at least the next 12-18 months; more than meeting production budgeted for the 2015 financial year and beyond.
SeaDragon is now considering the launch of an alkoxyglycerol product, which is derived from the material left after squalene is fractionated and removed from the raw materials and is said to offer a variety of health benefits.
Demand for our products remains strong. Customers are sympathetic to the raw material supply constraints and we continue to enjoy their support.
Factory progress
SeaDragon is making good progress on the development of its new refined fish oil plant in Nelson. We are close to finalising resource consents for the factory and expect to commence construction of the plant within the next few months.
The plant will be configured primarily to produce Omega-3 fish oils sourced from Hoki; Salmon; Tuna and Anchovies.
Our oil refining equipment supplier Desmet Ballestra visited SeaDragon in mid-May as part of the contracted support they provide to the project, and provided input into the building design and utility provision to ensure compatibility with their equipment.
We remain on track to commence commercial production in 2015 and we continue to receive queries from potential customers looking for supply.
The factory will open a new frontier of growth for SeaDragon. The market for Omega-3 fish oils has grown by an average 7.3% a year for the last five years in the Asia Pacific Region.
We believe Omega-3 fish oils sourced from New Zealand Hoki and Salmon stocks can command a premium since they are produced from sustainable sources and offer unique blends of EPA and DHA Omega-3 fatty acids.
New Zealand producers of Omega-3s are better placed than our international competitors because customers value our ‘clean green’ reputation and our high-quality food standards.
Balance sheet
SeaDragon is financially well positioned to embark on its next phase of development. It has no external debt and has $5.2 million of cash on hand and an undrawn borrowing facility of almost $1m.
The strong balance sheet, which follows the successful completion of a share placement, share purchase plan and sale of the Snakk Media shares in the second half of the 2014 financial year, will enable the company to fund the planned refined fish oil plant in Nelson and will assist our working capital requirements.
Earn out shares
In line with the 2012 agreement for SeaDragon to acquire the marine oils business, the company will issue 12.95 million shares to the vendors MerSea Holdings Ltd and Bioscience Managers on 31 July 2014. The issue is the final consideration due under the sales and purchase agreement and reflects the marine oils business achieving a net profit before tax, depreciation, amortisation of $1.2 million in the two years to
31 March 2014.
Outlook
SeaDragon is in good shape and well placed to take advantage of the significant opportunities ahead of it. Relationships with our suppliers remain strong and demand is robust. The new supply agreement will underpin SeaDragon’s squalene business for the year ahead. Meanwhile, we are making good progress on the new refined fish oil plant in Nelson. The factory promises to open a new frontier of growth for the business and reduce our reliance on the squalene operations.
We are looking ahead to the current financial year with optimism.
Contact
Ross Keeley
SeaDragon Chief Executive Officer
Telephone: 03 547 0336
About SeaDragon: www.seadragon.co.nz
SeaDragon (NZX:SEA) is Australasia’s largest refiner and blender of high-quality internationally certified concentrated fish oils and fractions, including Omega-3 oils. Our oils are sourced from fish caught in the clean and pure waters around New Zealand, in the Southern Ocean, and elsewhere. We have more than 20 years’ experience processing fish oils and we are recognised for the quality and purity of our products. We supply health supplement manufacturers around the world to meet the burgeoning demand for pure, high-quality fish oils, which are scientifically proven to deliver significant human health benefits such as lowering the risk of heart disease, improving brain function and joint health. The majority of our supply is exported.
Attachment: 300514 – SeaDragon poised for significant growth
Attachment: https://www.nzx.com/files/attachments/194733.pdf
SEA – Correction to 2014 Preliminary Announcement. Link here.