Natural Nutrition Commercial Start Up Provides Accelerated Growth for EnWave Corp.
After the successful commercial start up at Gay Lea Foods last month, EnWave Corp. (ENW – $1.04) now installed a REV dehydration machine at the facilities of Natural Nutrition Limited, a Chilean fruit processor focused on the production of high-quality, nutrient-rich products. Production has already commenced and EnWave will receive its first royalties from this agreement in the current quarter.
In addition, the Company signed a Technology Evaluation and License Option Agreement with Ultima Foods Inc, a major Canadian yogurt and fresh dairy products manufacturer. Formulation and product development is underway at EnWave’s own facility in Ferndale, Washington for which it will receive a fee.
Several other important milestones will be reached in the coming weeks. These will again validate the Company’s microwave vacuum drying technology and will also significantly increase Enwave’s revenues.
Installation and Start Up at Natural Nutrition
EnWave this week started up a 10kW commercial Radiant Energy Vacuum (REV) dehydration machine at Natural Nutrition in the South American country of Chile. The unit can produce up to 50 tons of finished product per year.
Natural Nutrition holds an exclusive license to process blueberry products using EnWave’s REV technology and the non-exclusive right to process apple, plum, strawberry, cherry, peach, grape, raspberry and blackberry products. In exchange, Natural Nutrition must pay EnWave a royalty on the revenue derived from the sale of the aforementioned products. We heard that the royalty rate is within the regular range of between 3 and 5 percent.
In order for Natural Nutrition to keep its exclusive license, it must purchase an additional nutraREV machine within one year from the commissioning of the first machine and a third within one year from the start up of the second unit.
Natural Nutrition aims to position itself as a benchmark and leader in Latin America, North America and Europe for the production of high-quality dried fruit with high nutritional value, supplying the market demand for snack fruit, nutraceuticals and functional ingredients.
Noteworthy, in this case, is the very short cycle from the initial introduction to the start of commercial production. It was only in the second half of 2014 that EnWave built and installed a small commercial-scale nutraREV machine for Natural Nutrition to support initial market development efforts and commercial production. Shortening the entire sales cycle has become very important at EnWave. Where it used to take several years, the Company now aims to reduce the cycle to a maximum of 18 months.
Ultima Foods Agreement
Ultima Foods, a joint venture of two of Canada’s largest dairy cooperatives Agropur and Agrifoods, has over 700 employees and produces more than 100 million kilos (220 million lbs) of fresh dairy products each year at its Granby, Quebec plant. Ultima is a big player in the market, with 2 production plants, 3 distribution centers and 5 sales offices across Canada.
Since 1971, Canadian yogurt consumption has increased from 471g (1 lb) to 8.7kg (19 lbs) per person each year. From drinkable yogurts and tubes to probiotics and unique flavors, Ultima’s products, sold under the Iögo and Olympic brands, have played a vital role in this tremendous growth.
For more than 40 years, Ultima Foods has been a Canadian leader in the manufacturing and marketing of yogurt and fresh dairy products. And when the company started looking for an innovative way to produce and deliver yogurt products to consumers, it ended up at EnWave.
The agreement that both companies signed gives Ultima the exclusive right to develop dehydrated yogurt applications using EnWave’s REV technology. Initially, EnWave will work closely with Ultima to optimize several formulations. If successful, EnWave will build a small scale machine for first production that will allow Ultima to do a market study. EnWave will of course receive payment for their provided services and for the small scale machine.
Upcoming Catalysts
In the next few weeks there are several events that will have a very positive impact on EnWave.
Bonduelle’s 120kW quantaREV commercial scale production unit is scheduled to come online very shortly. This will generate an attractive production-based royalty for EnWave, and, if successful, several more units could be ordered by Bonduelle, a global leader in the production of vegetables.
Moreover, this will be the first full-scale quantaREV machine in production, which will undoubtedly trigger the interest of many other companies. Similar to the installation of the 100kW nutraREV machine at Enwave’s Ferndale facility, this will provide the Company with a direct exhibit of the potential of the quantaREV system. It will truly be a commercial technology as supposed to a theoretical model.
quantaREV is designed for high-volume, low-temperature dehydration of solids, liquids, granular or encapsulated products. It uses a continuous belt design in a controlled vacuum-microwave environment with an eventual target of dehydrating several tonnes of material per hour. This low temperature technology is designed to provide a higher-quality end product than what is currently achieved with spray drying or air drying.
Next to Bonduelle, EnWave will soon start earning a 5% royalty on all products sold by Gay Lea Foods that are processed using REV technology. In addition, Gay Lea, a large dairy co-operative comprised of over 1,200 Canadian farmers, must purchase a 100kW REV unit within the next 12 months in order for it to maintain it exclusivity rights.
In addition, a 100kW commercial nutraREV unit is being installed at Hormel Foods Corporation, a multinational manufacturer and marketer of high-quality, brand-name food and meat products. Once operational, royalties should vary between $300,000 and $500,000 per year at full utilization. Hormel will use the machine to launch new, innovative dried meat snack products. When successful, Hormel could buy additional machines.
And it doesn’t stop there. The long awaited launch of Cheddar and Gouda Moon Cheese snacks, as part of a sixteen week long trial program at 3,500 locations of a major coffee chain in the United States is set to begin.
Commencing in June, the standard 2oz cheese packs will be promoted in-store during the first nine weeks of the program, while the following seven weeks will be used to collect sales data and to determine whether the product can sell without extra promotion. Based on this trial period, the coffee chain will decide if it’s justified to continue distributing the product. If sales go well, it may even expand distribution to more stores.
This is an excellent deal for EnWave. If, for example, only 2 packs of Moon Cheese are sold per day in each store, the 16-week trial period would generate $1.56 million in sales at a realistic $2 wholesale price per pack.
Conclusion
The Natural Nutrition start up and Ultima Foods agreement are two more building blocks that slowly but surely make EnWave an important player in the $400 billion dollar dehydration market.
The catalysts described above, the two new deals this week, and EnWave’s low stock price justify adding shares to our position.
We’ll soon start work on updating EnWave’s quarterly research report. Thanks to the positive outlook, chances are high we’ll increase our price target for the Company.
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