Martek says supply issues soon resolved

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Related tags: Martek, Revenue, Docosahexaenoic acid

The stockpiles of Martek products being held by the firm's
customers caused a slowdown in revenue growth for the second
quarter but it claims that extra capacity coming on stream this
year will see a new surge in demand, reports Dominique
Patton.

Last month Martek​ shareholders launched a class-action lawsuit against the firm over claims that it had flooded customers with inventory in order to meet financial targets.

However the Columbia, Maryland company says it had not been aware of this build-up of stock by customers and believes it was a result of a spate of issues causing restricited supply of its products during 2003 and 2004.

Nevertheless, results reported today show that customers are buying less than in the first quarter of 2005, probably to use up this stock, and inventory levels at Martek have in turn increased.

The firm still reported a 33 per cent increase in revenue for the second quarter of 2005 compared to the same period in 2004, thanks to higher sales of product to its licensees. But the sales of $55.8 million, in line with an earlier forecast, were 10 per cent lower than the 2005 first quarter.

"This decline was primarily due to the previously disclosed build-up of inventory by certain customers and, to a lesser degree, delays by certain infant formula licensees in expanding internationally,"​ said a company statement.

Inventories at Martek reached $49.3 million at 30 April, compared with $30.4m on 31 October.

The company said this effect was the result of "the inability of Martek, including its third-party suppliers, to keep up with demand in fiscal 2004"​.

These factors are expected to affect results into the third quarter and the firm has already lowered its estimated revenues for this period to between $38 and $42 million, and to between $61 and $76 million for 4Q.

New capacity and supply arrangements for raw materials are expected to alter this sitation in the long-term however.

Four additional fermentors at the Kingstree facility are expected to be ready for commercial operation in the second half of fiscal 2005, and the firm today underlined its increasing supply from DSM's US plant. DSM previously provided the firm with 90 per cent of its ARA, made in Europe.

"With this expansion, a phase-in of the DSM expansion in Belvidere, New Jersey, and the expected commencement of dedicated downstream ARA processing capacity from another third-party provider, Martek expects to have production capacity of infant formula and food DHA products equivalent to approximately $500 million in annualized sales at some point in the second half of fiscal 2005,"​ the company said today.

CEO Henry Linsert explained that the company "should be able to begin accumulating a meaningful finished goods inventory supply in the second half of 2005, providing further assurance to its customers on supply".

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