SECOS Group Limited’s (ASX:SES) restructuring initiatives and global demand for resins is driving strong growth across its businesses.
The company develops and produces sustainable and eco-friendly bioplastics that are used primarily in the packaging industry.
The group’s patented products were instrumental in driving fiscal 2017 revenues of $22 million across its businesses in Australia, China, Malaysia and the US.
Management is forecasting sales to exceed $24 million in fiscal 2018 with the scope for substantial growth in 2019 as recent operational changes have a full year impact.
Increasing demand for proprietary residence
SECOS has benefited from the growth in global demand for its proprietary compostable and biodegradable resins.
The move to ban the use of traditional plastics in a number of geographic regions is driving demand for environmentally friendly alternatives.
SECOS expects to continue to benefit from this market shift, as governments around the world increasingly announce bans on traditional, environmentally unfriendly plastics.
China restructuring leads to 100% capacity utilisation with material cost savings
From an operational perspective, SECOS has gained an immediate benefit from the restructure of the company’s Nanjing manufacturing business.
While this resulted in a one-off expense of approximately $650,000, the business is achieving annualised fixed overhead cost savings of approximately $240,000.
The completion of this work will result in SECOS’ Nanjing resin plant operating at full output capacity for the first time.
Full order book for first quarter
Robust production is expected to continue in 2018 as its Chinese operations contribute materially to overall growth in revenue and cash flow.
SECOS’s resin orders are now booked out to the end of the current quarter, with orders expected to continue to grow into the June quarter.
Malaysian operations ramping up
SECOS’s Malaysian operations will commence producing resin in the June quarter to meet growing South East Asian orders.
This follows the expansion and upgrade of the new Malaysian plant.
SECOS expects to achieve further growth in orders and revenue in the June quarter as a result of government contract wins in Australia and initial resin orders from the US.