The Company’s March 2022 Appendix 4C follows.
https://www.asx.com.au/asxpdf/20220427/pdf/458bxpb4jhpkfs.pdf
OUTLOOK
The company is on track to deliver strong growth over the coming quarters however some uncertainty regarding shipping timing and costs remain challenges for the Company.
The Company expects to report a net loss for the full year due to lower margins than the prior year driven by raw material input increases, freight and logistic cost increases, expenses associated with the multiple Covid-19 disruptions, and flooding at the Company’s Malaysian port.
SECOS has been successful in passing through price increases to customers as contracts permit, while still achieving increased sales. The price rises in the quarter were however not sufficient to fully offset rapidly rising raw materials and freight and logistic costs.
The Company supplies packaging materials that are a critical component of many of its customers own supply chain requirements, and the Company expects to be able to pass on further price increases in the near term. Cost pressures will remain a challenge in the short to medium term, however the Company has begun to see initial signs of lower freight and input costs flowing through which are expected to assist with margin improvement in the fourth quarter and coming year.
The Board expects margins to normalize as these input and freight costs reduce and as the continuing growth in bioplastic sales increases capacity utilisation at the new Malaysian plant, reducing the unit cost impact of fixed manufacturing costs. The Company’s outlook and growth will be underpinned by:
• Expanding available biopolymer production in Malaysia which has capacity to produce over 480 million compostable bags plus 3,600 tonnes of compostable resin per annum.
• Increased penetration of the Company’s MyEco retail products, with an emphasis on waste diversion, courier bags and food applications, which is already yielding positive results with the expansion to 970 Woolworths stores.
• Development of new products and resin grades, with particular emphasis on new, high value laminate structures for food packaging applications,
• Supplying sustainable film to evolving hygiene and packaging markets utilizing available capacity in the Company’s Malaysian cast-film manufacturing plant.
• Developing smarter and more effective ways to manage Covid-19 related supply chain disruptions while also maintaining a safe workplace for staff, suppliers, and customers. SECOS has mitigated this uncertainty by increasing stocks and using less congested ports to land goods and transit them to customers. SECOS is establishing warehouse options to provide supply back-up for North and Latin Americas, offering more predictable delivery outcomes at a lower overall delivered cost.
The Company continues to experience a rapidly expanding sales pipeline due to increasing demand for SECOS bioplastic products and technology. The strong demand for certified compostable alternatives continues to be driven by the worldwide shift to environmentally acceptable packaging, legislative and regulatory changes, consumer buying behaviors and knowledge, and the expansion of composting infrastructure and technology.
