80m lbs / year = capacity in Seymor, IN . expected to be at capacity by mid-2011 . operating 24x7 today, flawless execution so far
. full-scale lab in Seymour . in-house analysis, resin testing . Q4 = new equipment and plant automation (higher output, lower labor) . rail spur operational by July 2011 . will improve logistics efficiency
German office open . active in DE, FR, IT: sales only for now (5 people in Europe today) . local manuf planned, exploring opportunities now . EU demand far outstrips supply... EU is huge for CERP . excellent support from environmental legislation there
At $107/bbl, bio-resins are at PRICE PARITY with petroleum-based plastic resin . so financial incentives are just coming into play, in addition to sustainable and legal ones
EU (entire EU) is considering banning PE-based bags (not just Italy)! Significant proportion on EU demand is unadressed today.
Increased interest in hybrid resins (up to 50% renewable), for automotive & electronics applications. At $100/bbl, hybrid resins are at PRICE PARITY. Hybrid resins will grow faster in US than compostables.
With price parity comes increased interest from plastics manufacturers, who don't care about the ecological advantages at all but see opportunities to cut material costs.
Reiterate $24-32m in revenue for 2011.
Cash = $2.4m, working capital $5.2m.
Kelvin is new CTO, as of tomorrow. Strenth added to mgmt team in last few months.
DE (Germany) sales were $1m in 2010, via distributors. Cereplast has several large distributors, including Schulmann, a multi-billion dollar co.
Demand for EU is "quite substantial". Cerp has, at any one time, 50 containers in-transit -- this presents a logistical risk. Contemplating possibility of local manuf in EU -- exploring options at this time (buy a plant, built a plant, out-sourcing, etc.). Also, weak US dollar (vs. Euro) cannot last. Need 12-14 months lead time to increase capacity in EU.
By mid 2011, Seymor will be at full-capacity. Therefore CERP is "extremely actively" looking for expansion options (in EU).
AR is high because of the 60-90day payment terms from EU customers, and it will likely remain this way going forward.
Scheer believes the US is the largest market for bio-based resin. Scheer believes that for the next 2-3 years, the largest % of their business will be the sustainable (hybrid) resins. At least 1 more year before CERP can have EU manufacturing (early 2013). By then, US market will have grown, and Seymor will be entirely dedicated to US clients (and will likely be expanded by then too), but until end 2013, Seymor will still be used for EU contracts.
Jan & Feb 2011 alone saw $4.5m in sales! These contracts are generally multi-year, hence it's reasonable to assume these volumes will stay stable the entire year (i.e. low-end of 2011 guidance is in the bag?)
Gross margins in Q4 were 10.9% and 17% on the year. Why the drop? Q4 revenue was mostly overseas orders -- sales sacrificed margin for traction in the EU (i.e. discounts were given for new EU customers). They expect margin to climb back to ~20% by the end of 2011.
Break-even projections: being EBITDA positive would happen at $35m in revenue and 20-25% margin. But as there is limited history, it's hard to project. They are in a phase of balancing critical mass and margin now, and prefer to grow the business than focus on being cash-flow positive.
Raw materials are not commodities: use certain types of starches that are not considered commodities, so less volatile and not necessarily pegged to the price of food stocks.
Today, CERP's main problem is keeping up with demand. Customers are "complaining that we don't ship fast enough."
"We do not sell oversear, less than a full container". A container is 40,000 lbs of product. The $3.9m in revenue in Q4 represnts about 2m lbs of resin (so resin sells on average for roughly $2/lb).
90% of product sold is only 5 distinct resins (but they have dozens).
Banning plastic bags: started in Ireland, parts of Canada, Italy (20% of grocery bags in EU are used in Italy). EU contemplating a complete ban on plastic bags. Trend set to continue across the globe.
For FY2011 breakdown of revenue projection is: 70% compostable, 30% sustainable (hybrid). But if oil rises, hybrid resins sales will increase faster.
PLA (key ingredient for CERP) is supplied 100% from NatureWorks LLC, and it represented 25% of total COGS. Other suppliers exist (growing) in China, Germany, Netherlands.. but NatureWorks produces 95% of it globally today. Cerp may consider engaging new suppliers in the future.
Algae project update: 1st product going to market in the next few weeks, but algae-based products will not be a significant % of revenue for another 5-8 years.
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