MYECO GROUP LTD — Annual Report 2015

Aug 30, 2015

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TO: COMPANY ANNOUNCEMENTS OFFICE ASX LIMITED DATE: 31 August 2015

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30[th] JUNE 2015

Attached is the Preliminary Final Report (Appendix 4E) of Cardia Bioplastics Limited and its Controlled Entities pursuant to Listing Rule 4.3B.

REKHA BHAMBHANI Company Secretary

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APPENDIX 4E

PRELIMINARY FINAL REPORT FOR THE YEAR ENDED 30 JUNE 2015

CONTENTS
	PAGE
Results for Announcement to the Market	2
Preliminary Consolidated Statement of Comprehensive Income	4
Preliminary Consolidated Balance Sheet	6
Preliminary Consolidated Statement of Changes in Equity	7
Preliminary Consolidated Cash Flows Statement	8
Notes to the Preliminary Consolidated Financial Statements	9
Commentary on Results for the Year	20

1

PRELIMINARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Revenuefrom ordinary activities	Down	17.82%	to	$17,957,801
Loss from ordinary activities after tax attributable to members	Up	76.62%	to	($3,934,093)
Net Lossfor the year attributable to members	Up	76.62%	to	($3,934,093)
Dividends/Distributions No interim dividend was paid during the year and it is not proposed to pay a final dividend for the year. A dividend policy will be established when the Company achieves a regular profitable operation.

Brief Explanation of the above figures

Revenue

Brief Explanation of the above figures

General

A merger of Stellar Films Group Pty Ltd and Stellar Films (Malaysia) Sdn Bhd (“The Stellar Films Group”) with Cardia Bioplastics Limited which completed on 21 April 2015 resulted in:

• Stellar Films Group Vendors acquiring 55% of the issued shares in Cardia Bioplastics Limited.

• Cardia Bioplastics Limited changing its name to SECOS Group Limited.

• Refer page -20 for Advantages and Disadvantages of the merger.

Following merger, SECOS Group Limited is the parent entity from a legal perspective, however, pursuant to the requirements of Australian Accounting Standard AASB 3 'Business Combinations', Stellar Films Group is deemed to be the acquirer of the Company and accordingly, for reporting purposes, the above preliminary statement of comprehensive income incorporates:

• Trading results for Stellar Films Group for the full financial year ended 30 June 2015.

• Trading results for SECOS Group Limited for the period 21 April 2015 (being completion date for the merger) to 30 June 2015 and hence do not include first ten months of SECOS Group (formerly known as “Cardia Bioplastics”) revenues and business contributions.

• Comparative trading results for Stellar Films Group for the full financial year ended 30 June 2014.

Revenue

Revenue for the last year has decreased by 17.82% to $17,957,801 as compared to revenue of $21,850,657 due to:

2

PRELIMINARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

• Revenues were affected because of Stellar Australia having scaled down operations premerger. Stellar Australia operations have reopened in April 2015 post-merger with SECOS Group.

• Stellar Films Group’s Malaysian operations reducing sales due to change in customer mix and restructuring of supply between Australian and Malaysian plants.

Loss Position

The Company’s loss from its operating activities for the year was ( $3,934,093), an increase of 76.62% or $1,706,612 compared to last year ($2,227,481).

Current year’s increase in loss was primarily due to the following reasons:

• Profit margins were negatively impacted by high Australian dollar and Malaysian Ringgit and high polymer prices (due to increased oil prices); these factors also being present in the previous year but worsening over the 2015 financial year.

• Trading losses incurred by Stellar Films Group’s Australian manufacturing operation during its scaling down phase.

• Trading losses incurred by Stellar Films Group’s Malaysian manufacturing operations as production efficiency suffered during transitioning of Australian based customers to the Malaysian operation.

• Abnormal expenses including merger transaction costs of $309,446.

• Impairment of a receivable by an amount of $624,075. In addition, trade receivables across Stellar Films Group’s Australian and Malaysian based operations have been impaired by an amount of $96,564.

• Inclusion of Cardia’s operating losses of approximately $450,000 since the merger completion date.

The above losses are after recording a gain of $500,000 on the restructuring of ownership of the shares in Stellar Films (Malaysia) Sdn Bhd as part of the negotiated merger.

3

PRELIMINARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For The Year Ended 30 June 2015

or The Year Ended 30 June 2015
Sales from main operations Cost of Sales (main operations) Trading Income Gross Profit Other Income Administrative Expenses Employment Benefits Marketing & Distribution Expenses Research & Development Expenses & Patent Costs Depreciation & Amortisation Borrowing Costs Net Foreign Exchange (Losses) /Gains Other Expenses Impairment –Trade & Other Receivables Impairment- Inventories Merger Transaction Costs Results from operating activities Share in Loss of Joint Venture Gain on Acquisition Impairment –Intangible Assets Loss before income tax Income Tax Expense Loss for the period after income tax Other comprehensive income Foreign currency translation differences of foreign operations Income tax on other comprehensive income Total comprehensive income for the period (Loss)/Profit attributable to: Members of the Company Non-Controlling Interest Loss for the year after income tax	Consolidated Group 2015 2014 $ $ 17,284,394 21,441,764 17,410,969 21,127,622 445,345 405,105
	318,770 719,247 228,062 3,788 (875,386) (901,805) (978,745) (764,528) (87,355) - (201,347) - (327,766) (256,750) (321,186) (276,641) (233,571) 53,101 (47,558) - (669,075) - (51,564) - (309,446) -
	(3,556,167) (1,423,588) (877,926) (803,893) 500,000 - - -
	(3,934,093) (2,227,481) - -
	(3,934,093) (2,227,481)
	184,204 (274,776) -
	(3,749,889) (2,502,257)
	(3,934,093) (2,227,481) - -
	(3,934,093) (2,227,481)

4

PRELIMINARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Total comprehensive income attributable to : Members of the Company Non-Controlling Interest Total comprehensive income for the period Earnings per share -Basic and Diluted earnings per share	2015 2014 $ $ (3,749,889) (2,502,257) - -
	(3,749,889) (2,507,257)
	(0.20) (5.57)

• Earnings per share has improved due to change in capital base of the Company postmerger.

5

PRELIMINARY CONSOLIDATED BALANCE SHEET

AS AT 30 JUNE 2015

AS AT 30 JUNE 2015
Notes	2015 2014
	$ $
CURRENT ASSETS
Cash and cash equivalents 2	2,627,392 86,350
Trade and other receivables	3,295,283 3,575,693
Prepayments	213,253 70,168
Inventories	2,940,901 2,576,946
TOTAL CURRENT ASSETS	9,076,829 6,309,247
NON-CURRENT ASSETS
Trade and other receivables	345,710 217,658
Investments accounted for using the equity method 4	85,380 488,011
Financial assets 5	563,400 -
Deferred Tax Assets	251,861 252,801
Plant and equipment	3,632,208 3,295,650
Intangible Assets 6	4,911,721 -
TOTAL NON-CURRENT ASSETS	9,790,280 4,254,120
TOTAL ASSETS	18,867,109 10,563,367
CURRENT LIABILITIES
Trade and other payables	5,132,275 5,105,029
Borrowings	3,298,257 3,612,550
Short-termprovisions	647,861 237,928
TOTAL CURRENT LIABILITIES	9,078,393 8,955,507
NON CURRENT LIABILITIES
Long-termprovisions	44,330 -
TOTAL NON CURRENT LIABILITIES	44,330 -
TOTAL LIABILITIES	9,122,723 8,955,507
NET ASSETS	9,744,386 1,607,860
EQUITY
Issued capital	11,967,159 400,004
Reserves	124,583 (378,881)
Accumulated Losses	(2,347,357) 1,586,737
Parent interest	9,744,386 1,607,860
Non-ControllingInterest	- -
TOTAL EQUITY	9,744,386 1,607,860

6

PRELIMINARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Issued Share Capital	Accumulated Losses	Foreign Currency Translation Reserve	Revaluation Reserve	Total Equity
	$	$	$	$	$
Balance at 1.7.2013	400,004	4,715,218	(104,105)	-	5,011,117
Loss for the Year	-	(2,227,481)		-	(2,227,481)
Other Comprehensive income for theyear	-	-	(274,776)	-	(274,776)
Total comprehensive income for theyear	-	(2,227,481)	(274,776)	-	(2,502,257)
Transactions with owners in their capacity as owners
Shares/Options issued duringtheyear	-	-	-	-	-
Cost of Capital	-	-	-	-	-
Subtotal	400,004	2,487,737	(378,881)	-	2,508,860
Dividends Paid	-	(901,000)	-	-	(901,000)
Balance at 30.6.2014	400,004	1,586,737	(378,881)	-	1,607,860
Balance at 1.7.2014	400,004	1,586,737	(378,881)	-	1,607,860
Loss for the Year		(3,934,093)	-	-	(3,934,093)
Other Comprehensive income for theyear	-	-	184,204	-	184,204
Total comprehensive income for theyear	-	(3,934,093)	184,204	-	(3,749,889)
Financial Asset Reserve acquired on merger	-	-	-	319,260	319,260
Transactions with owners in their capacity as owners
Shares/Options issued duringtheyear	11,941,658	-	-	-	11,941,658
Cost of Capital	(374,503)	-	-	-	(374,503)
Balance at30.06.2015	11,967,159	(2,347,356)	(194,677)	319,260	9,744,386

7

PRELIMINARY CONSOLIDATED CASH FLOWS STATEMENT

Notes 2015 2014	Notes 2015 2014
	$ $
Cash Flows from Operating Activities
Receipts from customers (inclusive of goods and services
tax)	18,426,015 23,247,824
Payments to suppliers and employees (inclusive of goods
and services tax)	(19,463,414) (22,442,184)
Interest	1,563 3,788
Borrowing Costs	(321,186) (276,641)
Research&Development TaxCreditsreceived	218,458 -
Net Cash Outflow from Operating Activities 7	(1,138,564) 532,787
Cash Flows from Investing Activities
Purchase of Fixed Assets	(263,285) (25,000)
Proceeds from sale of Fixed assets	6,889 -
Loans to Related Parties	(274,633) (433,066)
Cash Balance on BusinessAcquisition	834,807 -
Net Cash Outflow from Investing Activities	303,778 (458,066)
Cash Flows from Financing Activities
Proceeds from Borrowings	240,865 1,240,787
Repayment of Borrowings	(600,196) (291,127)
Proceeds from issues of ordinary shares and options	4,145,767 -
Payment of share issue costs	(374,503) -
DividendPaid	- (901,000)
Net Cash Inflow from Financing Activities	3,411,933 48,660
Net Increase/(Decrease) in Cash Held	2,577,147 123,381
Cash at the Beginning of the Financial Year	(418,960) (542,341)
Effect of exchange rates on cash holdings in foreign
currencies	18,856 -
Cash at the End of the Financial Year 2	2,177,043 (418,960)

8

NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

1. Revenue from Ordinary Activities
	2015 2014
	$ $
Revenue from continuing operations
Sales from main operations	17,284,394 21,441,764
TradingIncome	445,345 405,105
Total	17,729,739 21,846,869
Other Income
Interest	1,563 35
Research & Development Tax Credits received	219,677 -
Other Income	6,822 3,753
Total	228,062 3,788
Revenue from continuing operations	17,957,801 21,850,657
2. Reconciliation of Cash Cash at bank and on hand Bank Overdraft 3. Business Acquisition On 21 April 2015 SECOS completed (“Cardia Bioplastics” or “the acquired business”) merger with Stellar Films Group whereby the Company acquired 100% issued capital of Stellar Films Group. The Company is the parent entity from a legal perspective, however, pursuant to the requirements of Australian Accounting Standard AASB 3 'Business Combinations', Stellar Films Group is deemed to be the acquirer of the Company. The acquisition price consisted of issue of: 51,972,604 fully paid ordinary shares at a fair value price of $0.15 per share to Stellar Films Group Vendors. Total Consideration Assets and liabilities acquired at acquisition date : Cash & Bank Balance Inventories Plant & Equipment Trade & Other Receivables	2015 2014 $ $ 2,627,392 86,350 (450,349) (505,310) 2,177,043 (418,960) 2015 $ 7,795,891 7,795,891 834,807 836,864 894,643 1,202,672

9

NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

Prepayments Financial Assets Trade & Other Payables Employee Leave Liabilities-Short term Unsecured Loans Employee Leave Liabilities- Long Term Goodwill	32,596 563,400 (1,262,193) (67,738) (100,000) (50,881) 4,911,721
	7,795,891

The goodwill is attributable to the technology and global distribution network of the acquired business and the significant synergies expected to arise after the merger.

The assets and liabilities arising from the acquisition are recognised at fair value which is equal to its carrying value.

Cardia Bioplastics Limited has contributed a loss of approximately ($516,267) to group’s results since acquisition.

4. Associate Entity

4. Associate Entity
Name	Ownership interest		Aggregate share of profits/(losses), where material
	2015	2014	2015	2014
	%	%	$	$
Akronn Industries Sdn Bhd	50.8%	50.8%	($877,926)	($803,893)

5. Financial Assets

5. Financial Assets
	2015	2014
	$	$
Non-Current
Available –for-sale financial assets
Unlisted Investments, at fair value	563,400		-

• (a) Non-current- Available for sale financial assets consist of 18,780,000 ordinary shares in Bioglobal Limited (“Bioglobal”). As at 30 June 2015, these assets have been valued at 3 cents per share based on the offer price for the last capital raising by Bioglobal that occurred in August 2015.

• (b) All of the group’s financial assets are classified as Tier 3 assets. This assessment has remained unchanged for the year ended 30 June 2015.

10

NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

6. Intangible Assets

Goodwill Net carrying value	Economic Entity 2015 2014 $ $
	4,911,721 -

Impairment Disclosures

All Goodwill is allocated to the Company’s distribution division, being a cash generating unit.

The recoverable amount of the cash-generating unit is determined based on value-in-use calculations. Value-in-use is calculated based on the present value of cash flow projections for the next three years. The cash flows are discounted using estimated discount rate based on Capital Asset Pricing Model adjusted to incorporate risks associated with a particular segment.

Management has based the value-in-use calculations on three year budget forecasts of Bioplastics business. Revenue has been projected on the below mentioned assumptions. Costs are calculated taking into account historical gross margins as well as estimated weighted inflation rates over the period which is consistent with inflation rates applicable to the locations in which the unit operates. Discount rates are pre-tax and reflect risks associated with the distribution division.

The following assumptions were used in the value-in-use-calculations:

• a. Revenue is premised on a “zero based budget” approach whereby each customer, or potential customer, has been specifically assessed having regard to current indications of demand, customer contacts or as assessed by the relevant sales manager.

Long term contracts typically include expenditure “rise and fall” clauses. Accordingly, Revenue is forecast to alter in line with relevant changes to the Company’s direct manufacturing costs.

• b. Projected cash flows have been discounted using discount rate of 13%. (2014: 15%)

• c. Gross profit margins are forecast to be in a range of 20%-45% dependent upon product and each geographic region. (2014: 20%-45%)

• d. The annual growth rate of 2% has been estimated in the calculation of terminal value.

Based on the above assumptions, the recoverable amount of the cash generating unit has been determined to exceed its carrying amount as at 30 June 2015 and accordingly; no impairment loss has been recognised.

7. Reconciliation of Loss After Income Tax to Net Cash Flows from Operating Activities

	2015	2014
	$	$
Operating Loss after income tax	(3,934,093)	(2,227,481)
Depreciation & Amortisation	327,766	256,750
Depreciation included in Costs of goods sold	360,231	494,429
Foreign Currency translation differences	186,145	(201,474)
Share in loss of Joint Venture	877,926	803,893

11

NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

Impairments	720,640 -
Gain on Acquisition	(500,000) -
Profit on sale of Fixed Assets	(6,962) -
Changes in operating assets and liabilities, net of
Business acquisition effects
(Increase)/decrease in receivables	688,235 1,400,955
(Increase)/decrease in other operating assets	1,040,853 (86,603)
Increase/(decrease) in creditors	(1,042,086) (311,988)
Increase/(decrease)inprovisions and payables	142,781 404,306
Net cash outflow from operating activities	(1,138,564) 532,787

8. Events Occurring After Reporting Date

Other than the matters discussed below, there has not arisen in the interval between the end of the financial year and the date of this report, any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company to affect the operations of the consolidated entity, the results of these operations or the state of affairs of the consolidated entity in subsequent years.

• On 24 August 2015, Mr Gideon Meltzer resigned as a Non-Executive Director of the Company.

9. Issued and Listed Securities

The Company had 124,623,163 fully paid ordinary shares on issue of which 124,223,159 shares were listed.

No other securities have been issued.

10. NTA Backing

	2015 2014
	$ $
Net tangible asset backing per ordinary share	0.04 4.02

11. Operating segments

Segment Information

Operating segments are premised on the internal reports that are reviewed and used by the Board of Directors in assessing performance and determining the allocation of resources.

The Group is managed primarily on the basis of product category and service offerings as the diversification of the Group’s operations inherently have different risk profiles and performance assessment criteria. Operating segments are therefore determined on the same basis.

Reportable segments disclosed are based on aggregating operating segments where the segments are considered to have similar economic characteristics and are also similar with respect to the following:

-the products sold and/or services provided by the segment; - the manufacturing process;

-the distribution method; and

• -any external regulatory requirements.

12

NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

The following operating segments have been identified

(i) Manufacturing Division (ii) Distribution Division

Types of products and services by segment

(i) Manufacturing Division

The manufacturing segment develops and manufactures sustainable resins derived from renewable resources for the global packaging and plastic products industries and also manufactures high quality cast films for the personal care, hygiene, pet care and medical product industries

The Manufacturing segment, which includes the manufacturing units in China, Malaysia and Australia is responsible for distribution and sales of products locally and overseas.

The manufacturing segment also sells products to the distribution segment.

(ii) Distribution Division

Distribution segment includes Group’s cash generating unit that is designated to develop and distribute the Group’s strategic products both locally and overseas.

Basis of accounting for purposes of reporting by operating segments

Accounting policies adopted

Unless stated otherwise, all amounts reported to the Board of Directors, are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Group.

Inter-segment transactions

An internally determined transfer price is set for all inter-segment sales. This price is based on what would be realised in the event the sale was made to an external party at arm’s length. All such transactions are eliminated on consolidation of the group’s financial statements.

Inter-segment loans payable and receivable are initially recognised at the consideration received/to be received net of transaction costs. If inter-segment loans receivable and payable are not on commercial terms, these are not adjusted to fair value based on market interest rates.

Corporate charges are allocated to reporting segments based on the segments’ overall performance of revenue generation within the Group. The Board of Directors believes this is representative of likely consumption of head office expenditure that should be used in assessing segment performance and cost recoveries.

Segment assets

Where an asset is used across multiple segments, the asset is allocated to that segment that receives majority economic value from that asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location.

13

NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

Segment liabilities

Liabilities are allocated to segments where there is a direct nexus between the incurrence of the liability and the operations of the segment. Segment liabilities include trade and other payables.

Unallocated items

The following items of revenue, expenses, assets and liabilities are not allocated to operating segments as they are not considered part of the core operations of any segment.

• Non –recurring items of revenue or expense

• Depreciation & Amortisations

14

NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

Operating segments (continued) Segment Performance

Operating segments (continued) Segment Performance
	Manufacturing	Distribution	Total
	Division	Division
Year ended 30.06.2015	$	$	$
Revenue
External Sales	16,717,648	566,746	17,284,394
Inter –segment sales	575,059	-	575,059
Trading Income	445,345	-	445,345
Interest revenue	76	1,487	1,563
R&D Tax Rebate Refund	-	219,677	219,677
Other Income	6,822	-	6,822
Total Segment Revenue	17,744,950	787,910	18,532,860
Reconciliation of segment revenue to
group revenue
Inter-segment elimination	(575,059)		(575,059)
Total Group Revenue	17,169,891	787,910	17,957,801
Segment Net Loss before Tax	(2,332,425)	(124,948)	(2,457,373)
Reconciliation of segment result to
group net loss before tax
Inter-segment elimination	-	-	-
-Amount not included in segment
result but reviewed by Board
Corporate Charges	(259,136)	(11,892)	(271,028)
Equity accounted losses of Joint ventures	(877,926)	-	(877,926)
Depreciation & amortisation	(321,548)	(6,218)	(327,766)
Net Loss before tax from continuing
operations	(3,791,035)	(143,058)	(3,934,093)

15

NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

Operating segments (continued) Segment Performance

Year ended 30.06.2014 Revenue External Sales Inter –segment sales Trading Income Interest revenue Other Income Total Segment Revenue Reconciliation of segment revenue to group revenue Inter-segment elimination Total Group Revenue Segment Net Loss before Tax Reconciliation of segment result to group net loss before tax Inter-segment elimination -Amount not included in segment result but reviewed by Board Corporate Charges Equity accounted losses of Joint ventures Depreciation & amortisation Net Loss before tax from continuing operations	Manufacturing Division Distribution Division Total $ $ $ 21,441,764 - 21,441,764 - - - 405,105 - 405,105 35 - 35 3,753 - 3,753
	21,850,657 - 21,850,657 - - -
	21,850,657 - 21,850,657
	1,166,838 - 1,166,838 - - - - - - 803,893 - 803,893 256,750 - 256,750
	2,227,481 - 2,227,481

16

NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

Operating segments (continued)

As at 30.06.2015 Segment Assets Reconciliation of segment assets to group assets Inter-segment eliminations Segment Assets after inter- segment eliminations Segment asset increases for the period - Capital expenditure Included in segment assets are Goodwill Investment in Joint Venture As at 30.06.2014 Segment Assets Reconciliation of segment assets to group assets Inter-segment eliminations Segment Assets after inter- segment eliminations Segment asset increases for the period - Capital expenditure Included in segment assets are Goodwill Investment in Joint Venture	Manufacturing Division Distribution Division Total $ $ $ 16,727,576 11,028,380 27,755,956 - (8,888,847) (8,888,847)
	16,727,576 2,139,533 18,867,109
	263,285 - 263,285 - 4,911,721 4,911,721 85,380 - 85,380 Manufacturing Division Distribution Division Total $ $ $ 10,563,367 - 10,563,367 - - -
	10,563,367 - 10,563,367
	25,000 - 25,000 - - - 488,011 - 488,011

17

NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

Operating segments (continued) Segment Liabilities

As at 30.06.2015 Segment Liabilities Reconciliation of segment liabilities to group liabilities Inter-segment eliminations Total Group Liabilities As at 30.06.2014 Segment Liabilities Reconciliation of segment liabilities to group liabilities Inter-segment eliminations Total Group Liabilities	Manufacturing Division Distribution Division Total $ $ $ (14,797,432) (812,523) (15,609,955) 6,487,231 - 6,487,231
	(8,310,201) (815,523) (9,122,724)
	Manufacturing Division Distribution Division Total $ $ $ 8,955,507 - 8,955,507 - - -
	8,955,507 - 8,955,507

18

NOTES TO THE PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS

Operating segments (continued) Revenue by geographical region Sales revenue attributable to external customers is disclosed below, based on the location of the external customer Australia Asia Americas Others Total Revenue Non Current Assets by geographical region The location of segment assets by geographical location of assets is disclosed below: Australia Asia Total Assets	2015 2014 $ $ 1,855,776 2,688,405 14,275,827 15,544,504 393,624 1,254,550 759,166 1,954,305
	17,284,394 21,441,764
	2015 2014 $ $ 6,344,314 640,002 3,445,966 3,614,118
	9,790,280 4,254,120

Major customers

The Group has a number of customers to whom it provides products. The Group has supplied a single external customer in the manufacturing segment who accounted for 24.83% (2014: 18.20%) of external revenue. The next two significant customers accounted for 13.98% (2014: 8.34%) and 7.38% (2014: 7.38%) of external revenue respectively.

19

COMMENTARY ON RESULTS FOR THE YEAR

Returns to Shareholders

Not applicable.

Material Factors Affecting the Preliminary Consolidated Financial Statements

a) Revenue and Expenses

Revenue for the last year has decreased by 17.82% to $17,957,801 as compared to revenue of $21,850,657 due to:

• Reopening of the Stellar Australia manufacturing operation in April 2015 post-merger with Cardia, after having scaled down operations pre-merger.

• Stellar Films Group’s Malaysian operations reducing sales due to change in customer mix for supply between Australian and Malaysian plants.

b) Assets and Liabilities

The Company maintained its policy of writing off all R&D and Patent expenditure relating to the product development of its business units.

Available-for-Sale Financial assets are required to be assessed for impairment at each reporting date and the impairment loss if any shall be recognised in profit or loss in accordance with the requirements of AASB 139: Financial Instruments: Recognition and Measurement. Accordingly, the Company’s financial Assets have been assessed for impairment and loss has been recognised wherever required-Refer Note 5 to Preliminary Consolidated Financial Statements.

In accordance with AASB -136, Goodwill acquired on the acquisition of Cardia Bioplastics Limited by Stellar Films Group has been allocated to Distribution segment of the business, being cash generating unit.AASB-136 also requires Goodwill to be tested annually for impairment and impairment loss to be recognised if the carrying amount of the cash generating unit exceeds the recoverable amount of the unit. No Impairment loss on Goodwill has been recognised during the year- Refer Note 3 to Preliminary Consolidated Financial Statements.

c) Trends

There were no other significant performance trends during the year.

d) Other Factors that Affected Results for the Year or which are likely to affect Results in the Future

SECOS Group has successfully completed its merger with Stellar Films Group in April 2015. The Merged Group has its own advantages and disadvantages that will affect Group’s result in the future.

20

COMMENTARY ON RESULTS FOR THE YEAR

Advantages for Merged Group:

The Merged Group will offer :

• a) enhanced market access and reach in absorbent hygiene products market and the emerging Bioplastics industry;

• b) well positioned to globally expand sales and marketing with unique environmentally friendly hygiene products that meet customer demands;

• c) highly focused management team with internationally recognised industry experts in sustainable packaging;

• d) strong IP and patent position on technology and comprehensive range of high performance sustainable packaging products;

• e) sales to high profile brand owners, retailers, packaging companies and councils;

• f) joint development with leading consumer goods and global packaging companies;

• g) established global operations and distributor network;

• h) cost-effective manufacturing in Nanjing, China, Port Klang, Malaysia and Deer Park, Australia, with low cost expansion options; and

• i) only ASX-listed stock focused on sustainable packaging.

Disadvantages of Merged Group will be:

• a) be a new business with its own strategy, which may be different to the former Cardia growth strategy on bioplastics;

• b) determine its business priorities and strategy implementation in the context of the Merged Group’s priorities, its strategy, opportunities and resources available, which may change compared to the former Cardia business;

• c) have the absorbent hygiene disposable product market as its major target market and will therefore be more dependent on this market to deliver its overall business success; and

• d) operate a much larger customer base with customers more spread around the world. Due to the competitive nature of the industry, lower margin and/or longer trading term customers will be part of the new customer portfolio.

ACCOUNT AND AUDIT

There were no changes in accounting policies during the year and this report is based on accounts which are in the process of being audited.

Going Concern Assumption

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COMMENTARY ON RESULTS FOR THE YEAR

As anticipated, the Consolidated Group’s revenue from sales has been insufficient to cover operational costs of the business and hence the company experienced operating losses during the year ended 30 June 2015. The Company’s continuing viability, its ability to continue as a going concern and to meet its debts and commitments as they fall due, are subject to the company being successful in:

• Accessing additional capital - The Company has a track record of raising capital; during 12 months to June 2015, the Company has successfully raised approx. $4.2 million through rights issue and share placements after the completion of the merger.

• Continuing to develop profitable cash flows from current activities - The Group has been working on a number of development projects with global brand owners and international packaging companies. Some of these projects are in commercial negotiations and others have advanced to “in-market trials” stages. Whist no assurances can be given, it is expected that on successful outcomes, these can significantly contribute positively to the group’s cash flows. The Group has already been successful in converting some of these development projects to commercial orders, the details of which have been communicated via the Company’s ASX announcements.

Moreover, SECOS’ New Board is continuously seeking and have put in measures in place to redirect resources to activities that are cash-flow positive in the short-term.

• Controlling costs- The Group will continue to look for avenues to reduce costs as it develops its operations.

• Ability to divest non-core assets to increase cash position- The Group may consider divesting some of its non-core assets, the proceeds of which would yield a net inflow to future cash flows. The Group managed to sell its equity interest in P-Fuel Limited last year.

The Directors are seeking to raise capital and in line with the above matters have prepared the Preliminary final report on a going concern basis. At this time the Directors are of the opinion that no asset is likely to be realised for an amount less than the amount at which it is recorded in the Report.

Rekha Bhambhani Company Secretary Dated: 31[th] August 2015

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