Changing the World of Packaging Investor Presentation November 2019 (ASX: SES)
Company overview A leading global producer of eco-friendly bioplastics from its patented bio-based resin technology Snapshot SECOS is Australia’s leading Australian Company - listed on Australian Stock Exchange provider of renewable biopolymer SECOS saw significant growth in Bio-Polymer sales year on year => resin, film and bags market is changing rapidly, Brands are evaluating Compostable Technology in their offering New and emerging sales opportunities in USA, Mexico, Australia, Biopolymer South Africa, New Zealand, China, Malaysia, India, many countries (Compostable & BioHybrid™) given ‘plastic’ concerns. Resin SECOS has production plants in Malaysia (2) and China (1) Sales offices in Melbourne, Malaysia, China and USA servicing 14 Biopolymer & Traditional Countries worldwide Management and staff own >25% of company Film & Bags New Resin Grades and Film & Bag Applications have been developed and launched 2
Changing Regulatory Environment o Indian Government move to ban (yet to be implemented) single use plastics has driven demand in compostable resin & bags. Some Indian states have mandated compostable/biodegradable replacements o Mexico close to banning single use plastic bags; compostables are being touted as a suitable alternative o Europe issued damning report on oxo-biodegradable suggesting that they are not a solution. o Increased interest from Diaper & medical film producers to establish compostable alternatives => compostable diaper film sales underway ex-SECOS o Major brand engagement is demonstrating a high interest to reduce plastic use o New compostable markets are emerging which 12-18 months ago were embryonic – i.e., Courier bags; Food bags i.e., Grape bags & Box liners 3
Market Drivers Each year approx. 80 million tons of soft plastics is used in packaging (food & consumer) or the production of bags and pouches. Ellen MacArther foundation describes the end-use of this plastic packaging as follows: - 32% of plastic packaging* ends up as unsightly waste in our marine & land environment - 40% of plastic packaging* ends up in Council/City land-fill - only a small portion is recycled Changing regulation towards traditional plastics is being driven by graphic evidence of plastic build-up on land & in sea. This has led regulatory changes in Countries, States & Towns: • Banning or partial banning of single use plastics • This is turn is driving branded retailers to reduce plastic use in their packaging & branded bags *Ellen MacArthur Foundation 4
Options to reduce plastic use Increase use of recycle plastic (rPE) in packaging: o Most converters can purchase and use recycle plastic (rPE) in packaging production, however recycle solutions at end of life for plastic packaging remains challenging. o End of life soft plastic recycling is limited, for reasons such as : Soft plastic recycle streams of consistent quality are hard to obtain => leads to variability in mechanical properties. So many recycled sources leads to possible contamination of plastic Use of recycled plastics lacks legislation & guidelines o The difficulty to recycle soft plastics has meant a lot is going to costly landfill, which is against Circular Economy principals. o Conclusion: Compostable plastics are highly attractive where recycling limitations exist. 5
Options to reduce plastic use Oxo-Biodegradable – EU report recommends o ‘Oxo-degradable plastics are not a solution for the environment and that oxo- degradable plastic is not suited for long-term use, recycling or composting’’. Paper alternatives o Production of paper produces 6 times the green house gas emissions vs Compostable film alternative (RMIT University) Non-plastic replacements o Rope baskets, non-flexible solutions - potentially expensive Compostable polymers are a viable alternative to reduce plastic use. o Offer barrier properties not offered by Paper o Are Suitable for use in Food Applications o Can be diverted to Organic Waste Streams o Adoption to reduce plastic use does offer a good news story to customers of brands 6
SECOS Group – Product Development SECOS Product Pipeline: No. of - Development of new biopolymer resin Resin formulations/ Applications formulations (e.g. Home Compostable; Higher Mechanical Strength formulations). - Development of new film applications/bags/pouches to utilize cast & blown film assets (e.g. Compostable hygiene film for protective gowns & diapers; Courier Bags and other new applications). 7
SECOS Group – Capabilities o SECOS Asian-based production assets have easy access to key biopolymer supply lines & significant Asian based markets. o SECOS is integrated between biopolymer resin and film, which offers advantages for packaging companies wishing to develop new film/bag opportunities. o IP – Formulation Patents and know-how which will engender new application developments. o Film competencies & knowhow => hygiene; medical; cast line & substantial blown-line experience o Extensive sales footprint extending (India, Sir Lanka, Japan, UK, Thailand, South Africa, Mexico, USA, Australia, New Zealand, & other countries) 8
SECOS – Biopolymer Resin Sales Development Resin Sales: - Product Extension has broadened the application opportunities for resin sales to converters: o Home Compostable (food grade) o Higher Mechanical Properties - Extension of sales territories via appointment of new sales agents - More consistent Council sales 9
SECOS – Biopolymer Film Sales Development SECOS Group: - Pick up in compostable film interest for hygiene & medical applications - New blown line installed in China to cater to narrow-width hygiene and medical film applications and other applications. - Intention is to increase compostable film production via utilization of existing Cast line capacity in Malaysia; following more development & trial work 10
SECOS – Biopolymer Bag Sales Development SECOS Group: - Recycle crisis & cost of land fill has driven the adoption of food organics & garden organic (FOGO) initiatives which often utilize compostable bags to divert food waste to organic treatment stations. - Compostable bags adoption in pet-waste market continues - As single use ultra thin plastic bags are banned, opportunities present themselves with retail brands searching for replacements to traditional carry bags, produce bags and food packaging. 11
SECOS – Traditional Film Sales Development Traditional Film Sales Traditional Film sales of Stellar Malaysia Plant is 12,000 increasing profitability: Traditional plastic sales growing when adjusted to reflect closure of the 11,500 o Improving sales volumes from acquisition of new customers 11,000 Sales $'000 o Transfer of Stellar Film Australia 10,500 customers to Malaysian sales following 10,000 Stellar Films Australia closure 9,500 9,000 2016 2017 2018 2019 Financial Year 12
Company Capitalization SECOS Group: - Company valuation improving - Focus on new product development & delivering new grades is adding to new opportunities we seeing in the market - Recycle Crisis; anti-plastic thematic driving interest - 12 month share price high - Company capitalization AU$37mil. 13
SECOS Group: Company Financials - Company debt substantially down - Reduction in Convertible Notes on issue - Reduction in funding earlier payment of receipts 14
SECOS Group: Company Financials Operating Cash Outflow - Operating cash outflow reducing with sales 2,500 2,000 - Disciplined approach to capex investment $'000 1,500 and overheads. 1,000 500 - Improvement in margins: - Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 o Cost down on raw materials as scale Quarter Ended improves QTR Contribution Margin % excl Stellar Aust o Output enhancements through low- cost debottlenecking activities Margin % Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 15
Board & Executive • Joined SECOS in Oct. 2018; brings 15 years • Joined Board in Sep-2016 polymer experience, and significant turnaround • Former partner of Ernst & Young USA experience. • Previously CEO of Australian of Hoechst SA & TOTAL Petrochemicals subsidiaries. Ian Stacey Donald Haller Jnr • GM of TOTAL Polystyrene Asia, based in China. Chief Executive Officer Non-Executive Director • Joined Board in Jul-2018 • Joined Board in Dec-2012 • Former Vice President Finance of ICI • Chairman since Oct-2013 • Former CFO of Securency • Executive and Director positions with various organisations and industries including Financial David Wake Richard Tegoni Services, Telecoms, Publishing and Arts Non-Executive Director Executive Chairman • Joined Board in Nov-2018 • 30+ years plastics and packaging experience • Chairman of GMHBA Ltd including executive position with Orica • Non-Executive Director of AG Coombs Group • Successfully transformed Stellar Film out of Pty Ltd Orica and later merged with SECOS • Chairman KM Property Funds Ltd. Jim Walsh Stephen Walters Non-Executive Director Executive Director - Directors all hold shares & are issued shares in lieu of salary - Key executives have solid industry experience 16
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