Martek sales up in 2006 despite restructuring
fourth quarter and fiscal year ended October, 2006 despite
weathering the significant cost of restructuring its operations
this year.
Operating profits were reported at $29.6mn up from $22.9mn in 2005. Total sales were also up at $270.7mn over for the same period, from $270.7 the previous year. The restructuring charge totalled $4.7mn in the last quarter, slashing net income to $0.6m compared to $4.9m for the prior year period. Taking on these costs - incurred through restructing plant operations and laying off 15 percent of its work force - is an indication of the company's confidence in its strategy to expand from infant formulas into functional foods for all age groups. "The restructuring is to better serve our customers and capitalize on growth opportunities down the road," Martek head of investor relations, Kyle Stults, told NutraIngredients-USA.com. "It also came about because we improved our production process which increased productivity." Martek unveiled a new manufacturing process for the production of microalgae-derived DHA at 20 percent less cost a year ago. Angela Tsetsis, VP of corporate development at the Columbia, MD-based company told NutraIngredients-USA.com at the time: "As time goes on and awareness of DHA increases, the cost factor will become more important. We are trying to stay ahead of the market." While price considerations are always a factor in ingredient sourcing, cost pressures are generally more severe in the mass market, compared to specialist, targeted products like infant formula. The company has given no precise indication as to what level of savings it expects to make as a result of the restructuring, but said manufacturing costs and operating expenses will start feeling the effect in the first quarter of fiscal year 2007. October's restructuring announcement came during the same month as the signing of a 15-year exclusive supply agreement with WhiteWave Foods to develop soy beverages. Martek also has licensing agreements in place with Kellogg and General Mills, both of which are thought to be developing products using life'sDHA. "We have begun to see the early stages of launches of new food and supplement products containing life'sDHA," said Martek CEO Steve Dubin. "I believe that the current level of business development activities in the food and supplement areas will lead to even more and larger launches in 2007 and look forward to seeing a variety of products enriched with life'sDHA being made available to consumers of all ages." Studies have shown the omega-3 fatty acid DHA (docosahexaenoic acid) supports the mental and visual development of infants. It is also the subject of manifold studies on the general population for indications including heart health, eye heath, cognitive function and joint health. In the past, Martek has claimed to supply 80 percent of the North American infant formula market, and the company attributed the 24 percent spike in total revenue year over year to higher sales of its nutritional products for its infant formula licensees. "Our attention is now focused on reducing our cost of ARA production," said Dubin. The company said during 2007 fiscal year it will work with the third party supplier of its other omega-3 ingredient, ARA, to improve prices for the future. ARA (arachidonic acid) is also used to fortify infant formulas. The company's Winchester production workforce was set to be reduced by approximately 100 people and a large portion of production to be transferred to its Kingstree, South Carolina, site. Martek will assist the displaced employees by providing a transition period for compensation and benefits, severance payments, and professional outplacement services.
