It’s been a rough time for bio-plastics company Cereplast Inc. Sales fell and about 45 of 70 workers were laid off. But the Hawthorne company has kicked off the new year with an ambitious agenda.
In the first few days of 2010, Chief Executive Frederic Scheer announced the company is moving its manufacturing operations to Indiana, expanding distribution into Europe, and laying the groundwork for a jump to a higher-profile stock exchange.
Cereplast isn’t a total loss to L.A.’s business world: It will open offices in El Segundo as its downsized corporate headquarters. But it’s another example of companies that have to move manufacturing out of state or shrink dramatically in order to afford keeping a base in the L.A. area.
“I’m still committed to staying here because we have a lot of brainpower that I brought in from other cities or recruited here and don’t want to keep moving around people,” Scheer said. “I will fight to stay here in Los Angeles as long as I can, but it’s just cheaper to be in another state.”
Cereplast makes biodegradable resins from corn, wheat and potatoes. The resins are sold to companies that use them to make plastic products such as plates, cups and baby booster seats. But Cereplast saw sales decrease by 50 percent in third quarter 2009 from the same period in 2008, and as a result had to cut back from 70 to 25 employees.
The company has signed a five-year lease for 3,000 square feet in El Segundo, down from its peak of 85,000 square feet in Hawthorne. The move of the production and research and development lines to Indiana is a way of saving money on costs such as electricity, which Scheer said is 70 percent cheaper in Indiana.
On the business side, Cereplast announced two weeks ago that it would implement a one-for-40 reverse split of its outstanding common stock in order to position it for listing on the NYSE Amex Equities or Nasdaq. It has been trading in recent weeks for about 10 cents on the OTC Bulletin Board; the reverse split would make it eligible for trading on a bigger exchange.
The company is part of a small but growing $1 billion bio-plastics niche.
“Cereplast was a founding father for the bio-plastics industry,” said Steven Mojo, executive director of the New York-based Biodegradable Products Institute, which Scheer helped establish. The institute, which is independent of Scheer and Cereplast, now represents 84 bio-products manufacturers, up from a handful when it was founded 10 years ago.
“Cereplast is poised to do well as people want to shift away from using petroleum products more and more with rising environmental consciousness,” Mojo said.
Plans to open a manufacturing facility in Seymour, Ind., south of Indianapolis, were announced in late 2007, but were delayed because of the recession. Scheer said it now makes more sense to shift production and 15 of 25 employees to Indiana for cost cutting. The remaining 10 will move from Hawthorne to El Segundo in coming weeks.
The company did about $5 million in sales last year, but that was down by 50 percent for some quarters because clients were delaying orders, Scheer said.
For example, Highland Park, Ill.-based Solo Cup was supposed to introduce a compostable cup made with Cereplast’s resin in a line called Bare in early 2009. But Solo postponed the line’s launch until November when market conditions improved.
“Our customers were just worried about having too much inventory and not enough demand, so that hurt us in the middle of the year especially,” Scheer said.
On the financial side, Cereplast in December closed a $2.23 million private placement to accredited and institutional investors. Scheer said he plans for the company to become profitable by third quarter 2010.
“We want to raise our profile and have more access to liquidity, and have seen cases recently where shareholder value appreciated significantly due to solid business developments coupled with the up-listing of a company’s shares,” Scheer said.
One solid business development could come from a more concentrated effort on European business in bio-plastics, which market research firm Frost & Sullivan said in a 2007 report has experienced exponential growth. Cereplast recently signed a distribution agreement for the European market.
Although bio-plastics only account for about 1 percent of the European plastics market, Mojo said that Europe is starting to catch up fast with the United States.
“It makes sense for Cereplast to ink the (distribution) deal because Europe seems pretty receptive to bio-plastics with the high cost of oil,” Mojo said.
Scheer said that the majority of his sales still go to companies in North America, such as Dorel Juvenile Inc., a Westmont, Quebec, company that has introduced a line of infant products made from Cereplast’s resin at large retailers in the United States under the brand Safety First-Nature Next. Products include infant toilets, booster seats, bathtubs and stools.
Dorel selected Cereplast after working with the company for a year to develop a resin that met its needs.
“This was the only bio-material that passed our rigorous testing standards,” said Dave Taylor, chief executive of Dorel Juvenile Group, the company’s U.S. division, based in Columbus, Ind.
Scheer anticipates more success stories now that he sees the first signs of recovery.
“Being in Los Angeles and tapping into the talent here has made us more successful despite the bad year behind,” Scheer said. “I’m looking forward to 2010.”