Neptune to focus on cutting costs, shoring up supply arrangements now that production has reached pre-fire level

By Hank Schultz contact

- Last updated on GMT

Neptune to focus on cutting costs, shoring up supply arrangements now that production has reached pre-fire level

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Neptune Technologies & Bioressources trimmed its year-over-year net loss by more than $3 million in its third quarter earnings statement.  For the future the company said it plans to focus on cutting costs at its restarted krill oil production plant and improving supply arrangements with the fishery companies from which it gets its raw material.

A key development in the quarter which ended Nov. 30, 2014 was the achievement of a 150-ton annual production level at the company’s rebuilt extraction facility in Sherbrooke, Quebec. That facility was destroyed in an explosion and subsequent fire in early November, 2012 in which three workers lost their lives. The company has been digging out from the burden of that disaster since, a process which is now largely complete.

Process efficiencies

The next phase of the process is to find a way to cut costs at the restarted facility, said Neptune’s chairman Pierre Fitzgibbon in an earnings call with analysts that was transcripted on the site seekingalpha.com​. Process efficiencies will be a key part of any decision on the eventual expansion of the facility, he said. Work on expanding the facility to a 300-ton annual capacity was underway at the time of explosion.  Before that tragedy, Neptune had planned to hit the 300-ton level by early 2015​.

“We, as you know, have reached the 150-ton level, sort of late in the year, and the focus right now is really to work . . . (on) the process improvement, try to reduce our costs because the focus was to ramp up and this is a brand new plant. So there are some work to be done and I would say there are few months ahead of us ,”​ Fitzgibbon said.

“After that, how do we get from 150 to 300 is a key question and I think there's an issue of cost of capital and an issue of market,”​ he said. “With minimum capital, we can ramp up this production from 150 to over 200. To move from that level to 300 will require more significant capital and I think that's the time where we need to really look at the market.”

Supply arrangements

Another key focus of the company for the near future will be improving its supply arrangements with fishery companies, said incoming CEO Jim Hamilton​, who will formally start his duties in early February.  Neptune had limped along with third-party supply agreements during the time when it had no production capacity of its own.  Now that the company is back to the annual capacity it had before the fire, the time has come to revitalize its supply chain, Hamilton said.

“The quality of the krill resource has a direct impact on our production cost given the yield that it derives. And I think we are working much closer with fisheries companies to make sure that we  . . . get the best krill possible. We are working very, very closely with this company to see how can we integrate better,”​ Hamilton said.

“(We are) concentrating our volume, making sure that we have exclusivity and we have a supply agreement for the long term. Then we can work on price, we can work on mechanics to improve the quality,”​ said interim CEO André Godin.

Earnings details

Neptune reported nutraceutical revenues of $4.8 million for the three-month period ended November 30, 2014, up from $4.4 million for the three-month period ended November 30, 2013. Adjusted EBITDA was negative $2 million for the current quarter, an improvement from the negative $4.2 million for the same period a year previously. Neptune reported a net loss of $3.3 million for the quarter, an improvement from the net loss of $6.9 million the company reported in the third quarter of fiscal 2013.

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