Seadragon forecasts smaller loss in FY18 on improved sales despite China, Europe challenges

Wednesday 20th September 2017

Seadragon says it is "cautiously confident" of success in the year ahead despite setbacks to its presence in the omega-3 market and "teething issues" with its products.

At Seadragon's annual meeting in Tauranga today, chair Colin Groves said the company expects normalised earnings before interest, tax, depreciation and amortisation to be a loss of between $2.4 million and $2.7 million in the six months ended Sept. 30. The annual result will be "a lower loss than last year - assuming we are able to meet our current sales expectations", Groves said. In the year to March 31, it reported a loss of $6.7 million as sales dropped 22.5 percent to $4.3 million, with a normalised ebitda loss of $4.4 million.

The Nelson-based company has enough capital for its immediate development plans, provided it meets sales expectations, and is reviewing its situation monthly, Groves said. Seadragon can draw down a further $1 million on a convertible note from Comvita last August, he said.

"We have faced and are dealing with a number of challenges," Groves said. "They range from changing market access rules and arduous customer approval processes. In the current financial year, we are looking to build sales momentum and we are cautiously confident of our success."

Seadragon processed 180 tonnes of raw tuna this financial year and needs to achieve sales of between 600-and-700 tonnes of refined tuna oil to cover its costs. Some of its initial products didn't meet specifications due to processing issues, weakening the price it could get for the product, chief executive Nevin Amos said.

The company has struggled to break into the Chinese market, but believes it has overcome regulatory barriers and is preparing to send sample batches to potential customers, Amos said. Regulation in Europe is "especially challenging" and limits its ability in that market, although it hopes process changes to the plant will help meet those requirements.

Seadragon isn't going ahead with a plan to redevelop its old omega-2 refinery for boutique applications and is instead exploring toll manufacturing of concentrated fish oil, "rather than tying up shareholders' capital in new plant", Amos, who has held the role for about a year, said in his speech to shareholders.

Amos said the company is trying to stay ahead of market developments. The omega-3 market is evolving from commodity fish oils to highly differentiated supplements with increasing demand for sustainably sourced and high potency products, he said.

Seadragon is negotiating a global exclusive licence for tuna and hoki oil powders and emulsions along with a toll manufacturing agreement, he said. The company is focused on opportunities from tuna oils, and is confident it can get 2,000 tonnes of unrefined tuna oil per year from contracts and spot market buying, but also wants to develop hoki products in the longer term.

The company's two target areas - food and beverages, and dietary supplements - are expected to grow as the wider market does. The company expects demand for omega-3 for use in food to grow at 6 percent per year between now and 2025 to reach US$16.4 billion, while demand for dietary supplements is expected to grow by 5.5 percent a year to US$7 billion by 2025.

The shares last traded at 0.6 of a cent and have dropped 25 percent this year.

(BusinessDesk)

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