The company yesterday entered a new financing agreement, which allows it to secure up to $8.5m. The debt financing, obtained through financial organization Desjardins Group means that there are “no more concerns about raising additional capital now,” according to Neptune.
Around $3m of the new funds will be used to purchase customized equipment to optimize the extraction process, increase productivity and production capacity for its krill oil, said the firm. Neptune aims to reach a capacity of 120,000kg of its branded krill oil per year, which will essentially double current capacity.
NeptuneKrill Oil (NKO), a lipid derived from the planktonic family of crustacean, is rich in omega-3 as well as phospholipids and antioxidants. It was originally launched at the end of 2003 for the North American supplements market, where it has established a strong presence.
The company says that the planned capacity expansion is necessary in order to meet increased marketplace demand.
"This expansion of our capacity is crucial to meeting actual and forecasted strongly increasing customer demand for our products with our plant presently running at full capacity,” said Andre Godin, vice president of finance and administration at Neptune.
The firm also said that the new source of funds means that it will no longer be going ahead with a previously announced private placement of convertible debentures.
“Now we have the financial resources to quickly implement the first phase of our capacity expansion program and the financing provides the company with adequate financial resources to eliminate any pressure for raising additional capital such as the convertible debentures under current market conditions," said Godin.
Part of the additional financing will be channeled into improving cash flow by refinancing Neptune’s long-term debt.
Some $3.5m of the financing will be allocated to refinancing dept at a lower annual interest rate of 7.71 percent. The company said this will help save 2.5 percent in interest charge.
Neptune also said it has established a line of credit initially of $1m, which can be increased to $2m. Investissement Québec participated in this financing by guaranteeing up to 38 percent of the financing, excluding the line of credit.
"Obtaining better financing conditions, particularly in the context of the current credit environment, constitutes a validation of our financial strength and of our business plan," said Xavier Harland, director of finance.
Neptune said it will realize the second phase of its capacity expansion program through a partnership with a “worldwide leading” industrial manufacturing company conforming to nutraceutical and pharmaceutical Good Manufacturing Practice (GMP) standards.
The firm said it expects this will allow it to “offer substantially larger capacity within two years”, in response to the growing demands of its dietary supplement and functional food customers as well as pharmaceutical customers and strategic partners.
At the end of August, Neptune recorded a 26.3 percent revenue increase in the fiscal year ended May 31, 2008 – from $8.13m to $10.26m.
The company noted actual sales volumes had grown 54 per cent, a fact not reflected in the revenue increase due to the impact of the US dollar devaluation on more than 82 percent of the company's sales.
North American sales grew 6.34 percent to $6,749,000; European sales were up 10.5 percent to $1,727,000 while Asia-Pacific sales jumped 727 percent to $1,788,000.
Profits fell from $1.5m to $1m due to “expenses related to the devaluation of the US dollar, implementation of compliance with internal control regulations and management software and quality assurance program”.