In its first earnings statement since the conclusion of its long-standing intellectual property battle with its krill competitors, Neptune CFO Andre Godin said the company is coming to the end of the of a difficult period.
Over the past 18 months, Neptune suffered the destrction of its sole production facility in Sherbrooke, Quebec in an explosion and fire in early November 2012 and had to bear steep legal fees as it took its IP battle to the International Trade Commission.
The company announced in a conference call today that the Sherbooke facility will be back in production within about three months. And the krills wars are at an end; Neptune has entered into a licensing and production agreement with Rimfrost, and Aker has agreed to a royalty arrangement. Godin said the final piece of that puzzle is almost in place with Enzymotec having signed a preliminary settlement sheet.
Well positioned going forward
“As we approach the end of this difficult period we are well placed to emerge stronger than ever before,” Godin said.
The company said the Sherbrooke plant will be capable of 150 metric ton annual capacity for its premium NKO krill oil product when it reaches full capacity later this year. Godin also said the Rimfrost agreement gives the company access to an additional 800 metric tons of krill oil over the next three years.
In the interregnum while Neptune was out of production the company maintained its customer base to a large degree through the purchase of bulk krill oil and through margin concessions with existing customers. The costs of those arrangements were reflected in the bottom line, as the year-over-year results declined steeply.
End of tunnel
But the end of the tunnel is near, company officials said. Among the recent good news was the fact that the company has received approval to sell its NKO and EKO krill oil ingredients in China, potentially the biggest market for omega-3 products. The company already has sales representation in the country, Godin said.
“In China we have already done some ground work. There are already some players in the pipeline. We think that 2014 will basically be breaking ground in that market,” said Mike Timperio, senior vice president of global sales for Neptune.
And the end of the krill wars means the millions of dollars spent by the various players on legal fees can now be put to more productive uses.
“We firmly believe that everyone benefits when industry recognizes the intellectual property of innovative companies. This new spirit of cooperation allows us to work together to increase awareness of phospholipids omega 3s,” Godin said.
“We do expect the industry to grow at remarkable speed over the next three years,” Timperio said.
For the third quarter of 2013 that ended on Nov. 30, Neptune reported nutraceutical revenues in Canadian dollars of $4.4 million, a decline from $6.6 million a year earlier. Adjusted EBITDA was a negative $4.4 million, reflecting the high cost of mainting market share during Neptune’s production blackout. That compared to a gain of $408,000 in the quarter that ended Nov. 30, 2012.