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Bioplastics company Cereplast one to watch in 2010

Following a recent $7.5 million fundraising and new contract wins, sustainable plastics company Cereplast (NASDAQ:CERP) is on firm footing for the remainder of the year, and is poised as the one company for investors to watch as the bioplastics industry grows due to new and improved economic and policy measures.

Cereplast designs and manufactures proprietary starch-based, renewable plastics. These resin families replace a significant portion of petroleum-based additives with bio-based material such as starches from tapioca, corn, wheat and potatoes, meeting the demand from consumers and manufacturers for sustainable plastics.

The company, which posted its second quarter results this week, saw many developments in the last three months. In May, Cereplast announced that Bunge Alimentaris, the Brazilian subsidiary of major agribusiness Bunge, would expand the use of Cereplast Resins as a compostable food packaging solution throughout Brazil.

It also introduced 11 new grades of bioplastic resins for a wide range of applications to meet the increasing demand for improved productivity across all conventional plastic processing techniques, while also improving physical property performance.

At the time of the company`s introduction in June, chairman and CEO Frederic Scheer commented: "Now with the oil spill resulting in substantial environmental damage down in the Gulf of Mexico, the need for reduced dependency on petroleum is more evident than ever - Cereplast Compostables resins are a simple solution that companies can apply to their existing manufacturing processes while creating new brand opportunities and more eco-friendly options for consumers."

Indeed, many are beginning to see the eco-friendly benefits of bioplastics. Recently, the European Commission published a report focusing on bio-based initiatives to guide EU politics in the coming decade. European Bioplastics, a European branch association representing industrial manufacturers, processors and users of bioplastics and biodegradable polymers and their derivative products, estimates the 2020 market potential for bioplastics will be a factor of 3 times greater if effective policy support measures are put in place. Specifically,

European Bioplastics estimates 770,000 metric tons of bioplastics production without political support and 2,550,000 tons with supporting political measures. The latter would represent an increase in bioplastics market share from its current 0.5% to 5% within ten years.

Cereplast is likely to benefit from this potential growth, as though the company is yet not profit-making, it is increasing production partially thanks to a stronger working capital position after raising fresh capital in June. Just two months ago, the bioplastics business entered into agreements to ship 16 million pounds of bioplastic resins in 2010, representing up to a whopping 400% increase in shipments over 2009. It also expanded distribution agreements in South East Asia, Southern China, South America, Europe and in the United States with Ashland Distribution.

In its second quarter results, Cereplast recorded that its gross margin as a percentage of net sales increased to 30.8% from 8.6% for the same period last year. Gross profit rose 157.3% to $199,211, primarily on account of cost savings from its new bioplastics manufacturing facility in Seymour, Indiana, capable of producing approximately 80 million pounds of bioplastic resin once operating at full capacity, it said.

The company even expects its revenues for 2010 to increase more than 190% over last year to between $8-$10 million, and to achieve operational profitability by the fourth quarter.

As part of its growth strategy, Cereplast has made new appointments to its team, including Heather E. Sheehan, who was announced this week as the new senior vice president and chief financial officer.