Interview with Richard Tegoni, Chairman, SECOS Group

SECOS Group Limited (ASX: SES) is a leading developer and manufacturer of sustainable packaging materials. SECOS supplies its proprietary biodegradable and compostable resins, packaging products and high-quality cast films to a blue-chip global customer base. SECOS Group is integrated from resin production, into film (cast and blown) production and can develop bespoke compostable solutions for a range of applications.

Mr. Richard Tegoni, Chairman of SECOS Group shared some of his views on the environmental packaging market and the company’s development outlook.

ASIA PACIFIC BUSINESS: Sustainable packaging is no doubt a worldwide trend, tell us how big is the market?

Richard Tegoni: The sustainable packaging market was valued at USD$201.60 billion in 2014 and is projected to grow by a CARG of 7.17% from 2015 to 2020

SECOS focuses on the flexible or soft plastic market because these plastics are the most difficult and expensive to recycle. They are also often used together with food packaging and organic waste disposal which are strongly synergistic with compostable plastics produced by SECOS.

By disposing of compostable plastic with organic products such as food via an organic waste stream or composting facility, we solve both the problem of producing plastic and we remove organic waste from landfill.

ASIA PACIFIC BUSINESS: What are some of the biggest challenges you see in the packaging industry in addressing climate change and environmental problems? Tell us some features of your products, and how does SECOS add value to your customers?

Richard Tegoni: The biggest challenge for the packaging industry in addressing climate change and environmental problems is to cure key industry players from their addition to petroleum-based plastics. If we do nothing and continue to produce and consume traditional plastic, we will have more bits of plastic in the sea than fish by 2050. If we do nothing to reduce and replace traditional plastic use, then we will see petrochemical production double by 2050 and go on to contribute up to 20% of total global green-house emissions.

Our challenge is to cut through the Petrochemical lobby so that real environmentally suitable alternatives such as fully certified compostable products can replace conventional plastics.

One of the most highly prioritized solutions to plastic waste is recycling but this also remains the largest barrier for change because if we believe plastic is being recycled then it condones packaging companies to produce more plastic.

There is an over dependence on recycling plastics however the economics of recycling is more than questionable. To create recycle plastic you usually need to have virgin resin production included to produce a raw material that can reinforce the mechanical properties needed. Otherwise, virgin resin is required to top up recycle resins to make products fit for purpose. That means petrochemical companies will keep producing virgin plastics and even if a portion is recycled, they will ultimately end up in the environment.

Of course, the market is so large one solution cannot solve the entire problem. Developed Economies, particularly Western Europe, USA, and Australia, have more developed organic waste streams which facilitates the use of compostable plastics over conventional plastics. This is particularly important because more landfills, cities and local governments are trying to divert organic (food and garden) waste from being disposed of in land fill and instead direct them to Organic waste streams.

The diversion of food waste and organic waste generally out of land fill is critical to mitigate methane production, which is produced from decomposing food in landfill. Compostable products are very important here, as we know from local Australian Council work, that householders who have lined their bins with compostable bags increase the amount of food that is diverted to land fill.

We also believe increasing use of compostable film in food packaging makes sense as food and compostable film can be disposed of via the same organic waste stream. Organic waste treatment turns organic into a mulch and soil conditioner which is often then sold for that purpose to farms and other land care requirements.

ASIA PACIFIC BUSINESS: We learnt SECOS is selling products in many regions around world, in which markets do you see the greatest potential? Any investment plan to increase the capacity?

Richard Tegoni: The markets in Latin America, USA and Canada are showing the most growth potential and SECOS is already supplying over twenty countries with a strong presence in Australia and parts of ASIA. SECOS operates as a fully integrated provider of sustainable products including resins and films used by convertors, together with both white label and own branded finished products sold directly to consumers.

Markets that introduce regulations to ban plastic use offer the greatest potential because compostable alternatives become a highly sort after alternative. The potential is exacerbated within countries that have well established organic waste treatment facilities. With improved consumer awareness of the damage plastic is causing to our environment, truly environmentally friendly alternatives including compostable plastics are becoming more mainstream. This has been evidenced from SECOS’ sales success for its MyECO® branded compostable range sold via Woolworths and Coles within Australia.

SECOS has adequate capacity to grow to $50-$60 million in sales output especially since the launch of a new biopolymer plant in March this year that added the equivalent of $25 million in potential sales revenue if sold to full capacity. Future capacity expansion will be driven from customer demand.

ASIA PACIFIC BUSINESS: Competition in the packaging industry is getting more and more fierce, what are some of the latest trends that you’ve been observing? What is SECOS’s competitive advantage? Do you have a target in mind in terms of market share and company’s profitability?

Richard Tegoni: The most obvious trend is the reduction in margin and commoditization for traditional plastic products as the move to sustainable packaging is causing packaging companies unwilling to move to sustainable alternatives with less options to expand.

SECOS’ competitive advantage is its ability to produce sustainable products across the value chain, including resins, films and finish products. Unlike many competitors, SECOS has access to multiple manufacturing assets across ASIA and can supply globally.

These attributes make for a powerful manufacturing solution however SECOS is an R&D centric business and collaborates with worldwide brands to develop the best sustainable packaging products. It has taken over a decade to bring together these capabilities and the results are paying off with more companies choosing SECOS as their partner in sustainable packaging.

ASIA PACIFIC BUSINESS: Where do you see SECOS in the next five to ten years?

Richard Tegoni: Once SECOS has established consistent revenues and profits from its existing core product range and customers, it will work to develop new products and enter new markets that emerge for compostable and sustainable solutions. Our recent investment in our global research and development centre located in Melbourne represents our commitment to future growth and to maintain market positioning over time.

ASIA PACIFIC BUSINESS: Do you see SECOS as a target for larger companies that wish to get into the sustainable packaging space?

Richard Tegoni: Yes, I do. It makes perfect sense that a larger company invest in SECOS to leapfrog the competition but for many incumbent plastic manufacturers they are so focused on protecting the plastic industry that they may see us as a treat instead of an opportunity. I do think this mindset is starting to change and even more could be achieved with likeminded partners.

ASIA PACIFIC BUSINESS: Richard, please tell us about yourself, your personal experience. Can you share something about your journey with SECOS and what inspires you about being in this industry?

Richard Tegoni: I initially invested and joined the board of the business when it was a small tech only company called Cardia Bioplastics. At the time the business had spent many years and dollars developing the technology but had failed to commercialize it. I was appointed Chairman of the company shortly after joining and it didn’t take long to realize the only way to commercialize the technology was via an established plastic company, so I negotiated the merger of Cardia with a highly regarded Australian hygiene film manufacturer called Steller Films Group. After several years of market development, the rest is history and SECOS now produces some of the world’s highest quality bioplastics.

From the outset I always saw composting as such an obvious solution to the plastic problem. After all, its what we did before we started packaging everything and anything we needed or didn’t need. What wasn’t so obvious was how to break the worlds addiction to conventional plastic especially when most people believed that plastic was being safely recycled. After all, we were all being made to separate our plastic waste into separate bins for more years than I can remember.

The ban of exporting plastics to ASIAN countries offered a true inflection point for our business because it exposed the scam of recycling plastics, and this was followed by award winning programs such as the War On Waste that left many feeling cheated. Compostable plastics has since taken a permanent spot in the solution to reducing plastic waste however the recycling boggy remains a challenging conundrum for both Government and industry. Our view is clear; the more compostable alternative the less plastic needs to be produced in the first place and the less plastic that needs to be recycled. From what we are seeing, consumers are catching on so our expectations for growth in the coming years remain strong.

For me, I set out to invest in a small $4-$5m tech company which is now one of the major players in the global compostable biopolymer markets and I am keen to see the journey through.