SeaDragon reports $574,000 half-year loss due to raw material constraints

SeaDragon [NZX: SEA], which manufactures fish oil for health supplements, has reported a $574,000 half-year loss, 362 percent down on the same period last year after difficulties securing raw material saw its factory underused.

The Nelson-based company reported strong sales growth of 23 per cent to $2.6 million in the six months ending Sept. 30, ahead of the $2.4 million the company signalled when it released half-year sales figures in early October.

It said it expected full year sales and underlying profit to rise ahead of last year as the company continues to benefit from a more secure supply of raw material for its core squalene operations.

But it also said continued difficulties in securing raw material before it struck a new supply agreement at the beginning of this year and the resulting underuse of the company’s refining facilities led to the net loss. It compared to a net profit of $219,000 the prior year when it benefited from a one-off gain on the sales of its Snakk Media shares.

SeaDragon chairman Doug Wilson said demand for its squalene products continued to exceed supply by a considerable margin.

“Our September trading, when we generated more than 40 percent of half-year sales, demonstrates the potential of this business when not constrained by the supply of raw materials.”

Construction of its refined fish oil plant in Nelson is due for completion in the middle of next year after it entered a long-term lease for the new facility last month.

The company's shares gained 4.6 percent in trading today to close at 2.3 cents, 0.4 cents below a fair valuation calculated in an August analysis by Edison International, which assesses small cap and thinly traded companies at their request, but on an independent basis.

At that time, Edison said the company was highly dependent on the success of a new charter vessel, which would specifically target sharks for its supply of deep sea shark liver oil (DSSLO), with the first shipment due in September and two more scheduled in December and March.  However, an update to investors earlier this month said the first "discharge" from its new contract was now due this month, with additional material due to arrive in January.

"As always, we are dependent on the fishing fleet delivering to order," said chief executive Ross Keeley in an article in the Nov. 4 investor update. "When it comes to ocean-going vessels, things are never simple."

Edison noted at the time of its August report that supply issues remain SeaDragon's greatest challenge and the company had a history of under-delivery "due in no small part to the unpredictable nature of raw material supplies."

(BusinessDesk)