Naturally Splendid Enterprises Ltd. (TSX-V:NSP, OTC:NSPDF) said its immediate focus will be to continue the sales activities of PlanteinTM Plant-Based Foods while reducing overheads.
In a statement announcing its nine months ended September 30, 2022 results, CEO Craig Goodwin said: “Our focus will now be entirely on leveraging the 10-year exclusive manufacturing and distribution agreement with Flexitarian Foods including locating and securing alternative manufacturing facilities, most likely in the province of Ontario.
“All other divisions and/or lines are being permanently discontinued.
READ: Naturally Splendid dished up Plantein entrees at Grocery Innovations Canada trade show
"The positives include our recent launch into retail, and the return to trade shows where our products have been getting exceptional reviews, as well as our expanding relations with our national distributors.
"However, the company has experienced significant challenges as well, the most notable being the continued delay of customized manufacturing lines being assembled in Shanghai, China. The delay to date has been due to a combination of shortage of computer chips, combined with ongoing Covid challenges and subsequent quarantining in Shanghai."
Goodwin added: "The delay in receiving all the required manufacturing equipment in a timely fashion has resulted in slower than anticipated uptake with larger sales opportunities and has necessitated this pivot in our strategies. This delay has created the necessity and opportunity to amend the current manufacturing strategy".
While presented with challenges regarding the manufacturing build-out, the company developed plans with its Australian partners, Flexitarian Foods to maintain inventory levels while the process of the evaluation and implementation of alternative manufacturing strategies is initiated.
National Distributor Network
The company continues to work with and build relationships and sales through its extensive network, including some of the largest food distributors in Canada such as CANEXFoods, Sysco (NYSE:SYY) Canada, Gordon Food Services (GFS) and Greenbridge Foodservice.
While it has ended its relationship with a previous food broker, it has retained the services of Steven Ley, a 35-year food industry veteran, who will work closely with senior management in both Naturally Splendid and Flexitarian Foods, growing sales of PlanteinTM in Canada.
Responses from the trade shows have been extremely positive and it has opened several new retail accounts recently.
Overhead reduction
In the immediate short term, the company has embarked on an aggressive cost-reducing mandate which includes reducing hours for most all staff members, temporary layoffs, and the elimination of certain positions.
As reported earlier this month, George Ragogna has stepped down as CFO, and company co-founder Bryan Carson has assumed the role of CFO in an interim capacity. An agreement has been reached with the current Director of Sales, who will be resigning effective November 30, 2022.
Senior staff, including CEO Craig Goodwin, Interim CFO Bryan Carson and Senior Consultant Ragogna, have agreed to accrue wages during this past reporting period and have continued to do so during this resetting phase.
The company is in discussions with current landlords to significantly reduce its footprint in Pitt Meadows, BC, with plans to reduce the square footage from 25,386 square feet to 8,164 square feet, which will realize a 68% reduction of rent overheads once completed.
The combination of restructured positions and remuneration, as well as reduced leased premises, is expected to reduce overheads by 45%.
Remaining leased premises
The company has developed plans with Flexitarian Foods, to maintain inventory levels while beginning the process of the evaluation and implementation of alternative manufacturing strategies.
Upon establishing a manufacturing facility in Ontario, it is anticipated that the Pitt Meadows location will remain a packaging and distribution facility. Operations in both the Toronto and Vancouver regions will provide the company with operations in two of Canada's largest markets and optimizes operational efficiencies.
Relocating manufacturing
The new manufacturing strategies include securing a suitable facility in Ontario to manufacture plant-based entrees.
The search for a new premise has been initiated, and it is anticipated that a facility previously utilized for food manufacturing will be identified and secured. Equipment already purchased will be shipped to the new facility once located.
Reduction of divisions and product lines
Upon completion of a review of all divisions and operations within the organization, Prosnack Natural Foods will no longer manufacture bars and bites.
The bar manufacturing business, including Elevate MeTM, NATERA, Woods WildTM, as well as contract manufacturing previously suspended, has now been permanently halted.
The company will investigate opportunities to sell the brands manufactured in this division. Equipment that was specific to manufacturing bars and bites will be liquidated.
It also anticipates selling wholly owned divisions, CHII Naturally Pure Hemp as well as Pawsitive FX.
With the focus on PlanteinTM opportunities, resources for the entities were reduced, resulting in lower sales. Brands and inventories will be liquidated with these two divisions.
Goodwin said: "The plant-based food category is going through a transitional period, with many companies being affected and we have not escaped this transition unscathed. However, consumers are increasingly turning to plant-based foods because of their concerns about their personal health and in some cases, for concerns about the planet.
“As the plant-based market matures, consumers are demanding higher quality products, most notably beginning with taste. And in that department, we are confident we have top-of-class products with our PlanteinTM line".
Financial results
Gross profit margins increased by 5.6% of sales in the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.
Naturally Splendid recorded a net loss and comprehensive loss of $2,218,019 for the nine months ended September 30, 2022, compared to a net loss of $2,486,566 during the nine months ended September 30, 2021.
During the nine-month period ending September 30, 2022, selling and distribution expenses decreased by around $33,000, largely due to facility costs.
Administrative expenses decreased in 2022 compared to 2021 by $123,525. The decrease was primarily due to a decrease in management and consulting fees and bank charges and interest.
Naturally Splendid recorded sales of $249,519 during the nine months ended September 30, 2022, compared to $619,653 for the nine months ended September 30, 2021, due to the suspension of the sales of its private-label bars and bites, branded hemp and its Natera Sport products.
Cost of sales during the nine months was $203,135 compared to $539,187 in 2021. The company's sales were from its new line of plant-based entrees which maintain a higher gross margin. The Company continues to focus on its higher-margin products and new commercial opportunities with its plant-based entrees.
Naturally Splendid is a plant-based food manufacturing and technology company that produces and distributes nutritious and delicious plant-based commodity products.
It has an exclusive 10-year manufacturing and distribution agreement for Canada with a division of Australia's largest plant-based food manufacturer, Flexitarian Foods Pty. Ltd.
Contact the author at jon.hopkins@proactiveinvestors.com