MyEco Group Faces Cash Flow Challenges Despite Strong Sales and Margin Gains
MyEco Group Ltd has reported a robust 32% increase in sustainable product sales for Q2 FY25, driven by a remarkable 156% jump in MyEco branded product sales. Despite negative operating cash flow due to inventory build-up, the company is poised for continued growth in the second half of the fiscal year.
- Total sustainable product sales rose 32% year-on-year to $4.1 million in Q2 FY25
- MyEco branded global sales surged 155.8% to $1.6 million, led by US market expansion
- Gross margins improved significantly to 26.3% from 19.3% in the previous quarter
- Negative operating cash flow of $1.4 million driven by inventory build-up for anticipated orders
- Strategic repositioning underway to align operations with growth in branded products
Strong Sales Momentum in Sustainable Products
MyEco Group Ltd (ASX: MCO), a developer and manufacturer of sustainable packaging and materials, has reported a strong performance in its December 2024 quarter (Q2 FY25). Total sales of sustainable products increased by 32% compared to the prior corresponding period (PCP), reaching $4.1 million. This growth was primarily driven by a record surge in sales of MyEco branded products, which soared 155.8% year-on-year to $1.6 million, underscoring the company’s successful global expansion strategy.
The US market was a standout contributor, with MyEcoWorld® sustainable bags experiencing a staggering 295.9% quarter-on-quarter growth. This was supported by increased orders from key distributors such as Jewett Cameron Company, supplying major retailers including Costco.com and Costco Mexico. Additionally, the rollout of compostable carry-bags in 76 Ritchies stores in Australia further bolstered sales, with $0.7 million in advance orders lined up for Q3 FY25.
Improved Margins Amid Operational Scaling
Alongside the sales growth, MyEco Group reported a significant improvement in gross margins, which rose to 26.3% in Q2 FY25 from 19.3% in the previous quarter. This margin expansion reflects higher sales volumes and a more favourable customer mix, signaling operational efficiencies as the company scales its branded product offerings.
However, the company’s net operating cash flow was negative $1.4 million for the quarter, primarily due to increased production costs aimed at building inventory to meet anticipated demand in the second half of FY25. Cash receipts from customers increased by $0.8 million quarter-on-quarter to $5.0 million, while payments to suppliers and employees rose by $1.4 million, reflecting this strategic inventory build-up.
Mixed Performance in Resin and Film Segments
While branded product sales flourished, MyEco Group’s sustainable resin and film sales declined. Resin sales dropped 41.5% year-on-year and 49.5% quarter-on-quarter, impacted by volatile market conditions in Latin America, including longer delivery lead times and challenging credit terms. The company plans to focus resin capacity on its high-growth MyEco branded products rather than expanding resin sales in LATAM.
Sustainable film sales, a smaller segment, also fell by 9.2% year-on-year and 34.0% quarter-on-quarter. Nonetheless, MyEco Group continues to develop high-speed compostable wrapping films targeting large-volume markets such as pallet and magazine wrap, with trials underway and distribution channels being established.
Strategic Repositioning and Market Outlook
The company is actively repositioning its operations and sales strategy to better align with the anticipated growth of MyEco branded products. This includes refining its structure and exploring adjustments in the resin business to improve medium-term profitability. The board and management are focused on transforming MyEco Group into a globally recognized sustainable products brand, with innovation in biopolymer technology underpinning long-term value.
Looking ahead, MyEco Group expects sales growth to continue in the second half of FY25, driven by organic growth in branded products and expanding council and waste management contracts. The recent successful tender for Ballarat Council in Victoria, servicing 51,000 households, is projected to add $0.9 million in revenue in Q4 FY25. The company is also engaged with government and research bodies to develop new sustainable packaging solutions and support regulatory acceptance of compostable alternatives.
Navigating Regulatory and Market Challenges
MyEco Group has played a leadership role in advocating for the continued use of certified compostable caddy liners in food organics and garden organics (FOGO) programs, particularly in Victoria. The company has highlighted environmental benefits and raised concerns about unregulated paper alternatives. While awaiting government decisions on potential bans, MyEco Group notes that other Australian states are moving towards mandatory use of compostable liners, supporting its market positioning.
Bottom Line?
MyEco Group’s strong sales growth and margin improvement set the stage for a pivotal second half of FY25, but cash flow management will be critical to sustain momentum.
Questions in the middle?
- How will MyEco Group manage cash flow pressures amid increased production and inventory build-up?
- What impact will regulatory decisions in Victoria have on the adoption of compostable products?
- Can the company successfully reposition its resin business to align with evolving market conditions?
