Crailar Doubles Production Despite Air Quality Issues

Crailar reported sales of $0.7 million and a net loss of $2.0 million, or $0.04 per share for the second quarter ended June 28, which includes a non-cash derivative liability gain of $0.3 million. This compares with sales of $0.2 million and a net loss of $3.0 million or $0.07 per share for the second quarter 2013, which includes a non-cash inventory impairment charge of $0.5 million. The company's Adjusted EBITDA for the quarter was a loss of $1.0 million, a reduction of $0.5 million from second quarter 2013's Adjusted EBITDA loss of $1.5 million.

 

During the second quarter, the company continued to optimize its European production facility purchased in December 2013 as it produced and shipped high quality Crailar Flax fiber. The company completed the installation of equipment necessary for the final step in the Crailar process in May. However, air quality issues and related worker welfare delayed operating the equipment until late in the quarter which impacted production. This delay resulted in approximately $0.1 million of Crailar Fiber remaining unshipped at the end of the quarter.

 

Produced using a fraction of water and chemical inputs compared with other natural fibers, Crailar Flax is being promoted as the newest natural fiber in decades. Crailar supplies the fiber to Ikea, Georgia-Pacific, Tuscarora Yarns, Target Corp., Cone Mills Cotswold Industries and Kowa Company for commercial use, and to Levi Strauss & Co., Ashland, PVH Corp. and Lenzing for evaluation and development.

 

 

The new equipment is producing fiber superior to our outsourced fiber and as a consequence we received order forecasts for Q3 2014-2015 from two customers in excess of our plant's current capacity. The installation eliminates the cost of outsourcing the final step of our production process and the company expects the internal cost to be substantially less.

 

 

The company incurred $0.3 million of incremental costs outsourcing certain production steps (prior to installing the aforementioned equipment) and training new employees. Although inefficiencies were created while the plant was undergoing modification, supplying customers was viewed as critically important as filling orders is necessary to create future demand. Additional equipment designed to provide energy, feedstock, chemical, and labor efficiencies are scheduled for installation during the Third quarter. Once installed, further cost and quality improvements are anticipated.

 

 

 

“We made substantial progress in the second quarter bringing all processing steps in-house and further improving the quality of our fibers. Production volumes were reduced as air quality challenges were managed but despite this challenge we more than doubled Crailar fiber production in the first quarter,” stated Kenneth C. Barker, Chief Executive Officer. “Customer feedback continues to be positive and we are encouraged by forecasts that exceed our current capacity. Our focus this quarter will be on increasing production volume, gross margin and fiber quality. We are hiring and training to support longer hours and additional equipment including a fiber cleaning installation.”

 

 

Cash and cash equivalents and investments at June 28, 2014 were $0.5 million down from $1.2 million at Dec. 31, 2013. The decrease in cash equivalents of $0.7 million resulted from $4.9 million of cash used in operations and $1.1 million of cash invested in property and equipment offset by $5.3 million of cash from financing activities from a private placement of equity of $3.1 million and $3.0 million from the IKEA working capital and equipment financing loan partially offset by loan pay-downs of $0.8 million.

 

 

Although capacity will be constrained by a customary three-week shutdown and equipment installation during the Third quarter, the company expects Third quarter 2014 sales to double sales for the second quarter 2014.