SeaDragon Releases 2013 Interim Report

SeaDragon Releases 2013 Interim Report

SeaDragon has closed out a productive six months. Demand for our refined fish oils continues to outstrip supply. We have made good progress advancing plans for our new purpose-built refined fish oil plant south west of Nelson. Excitement is building around the opportunities the new factory creates in international markets.

Sales for the six months to 30 September 2013 were $2.08 million, a 113% increase on the $977,000 recorded in the prior year by SeaDragon’s then-privately-owned main operating business SeaDragon Marine Oils Limited (“SDMO”). SeaDragon’s operating profit for the six months ended 30 September 2013 was $219,000. This represents a sharp turnaround on the $211,000 loss made in the prior six months ended in September 2012.

The transition of SDMO to the NZX just over a year ago and the associated recapitalisation of the business is continuing to deliver on its promise. It has lifted working capital to a level that has allowed us to fund more raw material purchases, which has in turn allowed us to lift our sales significantly.

SeaDragon’s shark liver-derived Squalene products remain in high demand and we now enjoy a $2 million order book. Squalene is a natural moisturiser used in the cosmetics industry and is taken as a health supplement to boost immunity and as a remedy for respiratory ailments.

Securing sufficient raw materials continues to be a key focus for the business. Supply is improving as fishing vessel operators are beginning to understand that SeaDragon can enhance the economics of their operations as we can pay for material they have tended to discard as by-product and we now have a diversified range of suppliers.

Profit from continuing operations for the six months rose to $219,000. It is the first profit from continuing operations that SeaDragon’s holding company has achieved in more than 13 years and reverses last year’s loss of $211,000.

The result was lifted by a $801,000 profit on SeaDragon’s August sale of 10 million shares in Snakk Media. The sale represented 40% of the 25 million Snakk shares and in early November, post balance date, we sold a further 10 million shares, reducing our holding to 5 million shares.

Despite making a handsome profit on the sale, we took a $2.7 million impairment charge on the available-for-sale assets, to reflect the sale price of 9c a share and the Snakk share price prevailing at balance date.

Snakk has never been core to our business and we believe the capital invested in the company is better deployed leveraging our internationally-recognised expertise in manufacturing high quality ingredients for health supplement markets.

Our planned refined fish oil plant on the outskirts of Richmond, 20km from Port Nelson is at the heart of our development ambitions and we are making good progress preparing for its construction. In its first phase, the plant is to be dedicated to the production of Omega-3 fish oil produced primarily from Southern Ocean sourced Hoki. When completed, the factory will have the capacity to produce annually 5000 tonnes of refined fish oil worth as much as $50 million.

Worldwide demand for Omega-3 fish oil is growing rapidly, supported by a compelling body of scientific literature on the human health benefits of Omega-3 rich diets. SeaDragon expects its oils to attract a premium over the anchovy oils that dominate world Omega-3 supply. This is due to international recognition of SeaDragon’s manufacturing expertise and the cachet of product purity, sustainability, safety and integrity enjoyed by New Zealand-sourced products.

A heads of agreement with the refined fish oil plant’s prospective landlord and a contract for the supply of equipment are close to completion. The purpose-built plant supersedes plans to extend our existing Nayland Road site, which would have limited SeaDragon’s future development due to the site’s size and a shift in the land use in the surrounding suburb away from light industry to retail and hospitality. In short, the new factory will future proof the business.

In August we were gratified to receive support for our plans from New Zealand Trade and Enterprise, which has committed $286,000 from its International Growth Fund. The money will be used to develop our brand, assist our development of new raw material sources and new markets and products. It will also assist SeaDragon to overcome regulatory barriers.

Costs associated with preparations for the development of the new plant as well as the costs of compliance with our NZX listing lifted general and administration expenses for the Group to $884,000. Reflecting these costs as well as the write down in the value of our Snakk investment, we recorded a total comprehensive loss for the six month period of $2.47 million.

Our balance sheet remains strong and we are well positioned to fund our growth aspirations. At 30 September 2013 our net borrowings were $493,000. This debt was repaid using the proceeds of the most recent Snakk share sale. Post balance date, we raised $2 million with a placement of shares to Eligible Investors and the Board plans to undertake a Share Purchase Plan shortly.

SeaDragon’s success depends on the expertise and enthusiasm of its people. We are well served by our team. In June we appointed New Zealand capital markets veteran Tim Preston as a director. He replaced Donald Gibson, who stepped down in June. Tim is assisting with the introduction of SeaDragon to the wider investment community. We thank him, the rest of the board, management and staff for their efforts over the period and their commitment to the future of the business.

In the coming six months we expect to make continued progress on our refined fish oil plant and continue to grow our presence in international markets. SeaDragon is in good shape and we are looking to the future with optimism.

ends

© Scoop Media