Bioplastics play Secos Group places health subsidiary under review
Biodegradable plastics maker Secos Group is reviewing its underperforming subsidiary Stellar Films Australia — which, despite the name, makes films and laminates for use in various products, not excellent works of cinema.
Secos Group (ASX:SES) says that the Stellar Films business, which targets market segments like baby diapers, incontinence products for humans and pets, hygiene products and medical disposals, is high-cost and low-margin.
The company has hired independent consultant Promentor to undertake a strategic review.
The move is interesting as Secos was only formed from the merger of Stellar Films and resin producer Cardia Bioplastics three years ago.
The stock was steady at 7.2c after the news — down from a 12-month high of 17.5c at the start of the year.
Richard Tegoni, the group’s chairman, said the company was looking to boost its Australian performance by pouring more time, energy and resources into its bioplastic assets “while reducing our exposure to certain underperforming traditional plastic assets”.
He said that Secos had seen a significant increase in demand for its biodegradable plastics, telling Stockhead earlier this year that even if all the companies in the sector worked together they would not be able to meet demand.
“Our Australian cast film operations have faced multiple headwinds, including high fixed costs, and the rising prices of energy and freight which have become a common challenge for many Australian manufacturing businesses,” Mr Tegoni told investors.
“These business improvement opportunities may include significant restructuring of our fixed overheads and production costs in Australia, greater utilisation of our Malaysian and Chinese operations, and a continued shift away from lower-margin and more capital intensive product segments.
“Any changes adopted would be in support of the Group’s strategy to be a world leader in bioplastics.”
The company’s financials suggest Secos is moving in the right direction, albeit slowly.
It boosted revenue in the 2018 financial year by 6 per cent to $23.6 million, though the full-year loss blew out 5pc to $3.1m. It has $1.9m in the bank, compared with $1.8m this time last year.