The leading krill oil supplier recently completed a 50 percent capacity increase at its plant in Sherbrooke, Quebec, increasing yearly output from 60,000kg to 90,000kg.
Neptune said the integration of new technical equipment into the manufacturing line and the completion of the capacity expansion required a temporarily shut down of manufacturing and production in the plant, which started in mid-April and lasted several weeks during the fiscal quarter.
However, the firm continued to take orders and make volume commitments during the ramp-up period, which it said translated into “increasing backlog”.
Neptune now says it plans to utilize its new capacity to “maintain very high operating rates going forward to meet current and forecasted increasing demand”.
The expansion had been planned in order to fulfill increased current and forecasted demand. Neptune is the world leader in krill, and its branded NKO version contains about 38-50g/100g phospholipids, 15-19g/100g of EPA (eicosapentaenoic acid ) and 7-16g/100g of DHA (docosahexaenoic acid), depending on the dose in question.
Supply issues lead to litigation
However, the capacity expansion did not come without its challenges. One of Neptune’s customers – Schiff Nutrition, which manufactures dietary supplements – has lodged a complaint in a Utah district court, accusing the firm of reneging on supply commitments.
Schiff alleges Neptune informed it in March that it would be closing for “two or three weeks”, but when the closure continued Neptune failed to answer inquiries as to the state of play with the facility.
The Utah company alleges Neptune three times defaulted on an order of 4000kg of krill oil and then delivered a 500kg consignment it claimed was inferior quality, costing it in the vicinity of $1m in lost orders, reputation, extra processing costs and expense of sourcing another supplier.
Neptune has filed a response denying all allegations. The firm also filed counterclaims in federal district court in Utah, alleging that Schiff failed to pay Neptune for accepted shipments of NKO, and that Schiff caused its contractor to encapsulate NKO despite Neptune's objections that the resulting product would not meet specifications after encapsulation by Schiff's contractor.
Impact on revenues
In an update published last week, Neptune said the recent capacity expansion impacted its results, and it expects that consolidated revenues for the quarter ending August 31, 2009 will amount to around $1.4m, which partly reflects over $1m spent on research and development activities.