Environmental sustainability trend drives sales growth for SECOS Group

Environmental sustainability is having a greater impact on all aspects of society, as well as SECOS Group’s (ASX: SES) bottom line.

In a market update to shareholders, SECOS has announced better than expected growth figures with strong demand for its biodegradable resin, reaching $800,000 in sales within the first half of FY2018.

SECOS reports that this represents an increase of over 400% compared to its performance in the first half of FY17 where SECOS registered sales figures of $155,000.

In further positive news for the company, SECOS has confirmed the re-opening of its Chinese production facility based in Nanjing. The facility has now returned to production and is expected to operate at full capacity. According to SECOS, the company has “gained an immediate benefit from the restructure” of its Nanjing operations late last year.

The restructure necessitated an eight-week period during the December quarter during where production was temporarily halted and seeing SECOS incur one-off expenses of approximately $650,000 relating to staff redundancies, machine maintenance, legal advice and implementation of global best practices on environmental and safety standards.

Having carried out the necessary changes, SECOS says it has “appointed a new management team in China and is achieving fixed overhead cost savings of approximately $240,000 per annum.”

SECOS’ growing production is expected to continue throughout the rest of 2018, with sales in the March quarter expected to be $1 million to $1.5 million higher than the December quarter, underpinning analyst forecasts for SECOS to exceed $24 million in sales in FY2018.

The company expects this robust production to continue in 2018 as its Chinese operations contribute materially to overall growth in revenue and cash flow. SECOS’ resin orders are now booked out to the end of the current quarter, with orders expected to continue to grow over the course of 2018.

Demand for SECOS products is growing as both consumers and producers move towards environmentally-friendly plastic products. Demand for non-pollutive plastics is growing exponentially with SECOS’ resin orders continuing their growth spurt following the surge in orders last year when SECOS launches its proprietary compostable and biodegradable resins.

The move to ban the use of traditional plastics in multiple geographies around the world is driving demand for environmentally friendly alternatives. SECOS expects to continue to benefit from this market shift, as local and state governments around the world increasingly announce bans on traditional plastics and their pollutive manufacturing methods.

One region with particularly high demand is Malaysia. SECOS says its Malaysian operations will commence producing resin sometime in the June quarter to meet growing Southeast Asian resin orders.

To capture and maximize the best possible commercial outcome, SECOS is upgrading its Malaysian plant and investing in new resin compounders. Its Malaysian production is expected to be brought online in March this year.

“We expect the strong growth in demand for bioplastics to empower SECOS to expand faster than ever before, particularly in key markets such as Malaysia, China and the US, where the Company has established strong foundations with many years of experience doing business,” said Stephen Walters, Managing Director at SECOS.

“This gives us confidence in our expectation for growth in SECOS’ resin sales to continue in line with growing market demand into FY19,” he added.