ann: dec q report, page-2

A general review of significant Sales by business segments follows
Bags & Films
? first sales of compostable bags to a global consumer products company
commenced in the quarter with first shipments to the USA made. As announced to
the ASX in the September 2012 quarter, this company will provide Cardia
compostable bags as part of its product offering.
Packaging.
? continued sales of films for USA Hygiene products company for nappy backsheet
and packaging applications.
? continued sales of resins to Sealed Air for their Fill Air R5 product application.
OrganicWaste Management:
? continued sales to Brisbane City Council suppling dog waste bags.
? continued sales to supply kitchen waste bags for trials into four of China’s city
councils namely Shanghai-Pudong (now moving to commercial sales see below),
Nanjing, Hangzhou and Yuhang councils.
? initial trial order for agriculture films conducted in Australia


Wholesale materials trading business:
In the quarter, Cardia expanded a new revenue steam of trading particular raw
materials used in its Bioplastic manufacturing process, to wholesale customers.
Whilst margins are low, trading made a small gross profit in the December 2012
quarter with no cash flow or financial risk to Cardia. The company will look to expand
this opportunity as an additional revenue stream in 2013.
Trading revenue turnover in the December 2012 quarter reached $499,000.
New Sales agreements in the Quarter.
OrganicWaste management:
In the December 2012 quarter, Cardia secured an exclusive annual $1.2m supply contract
with China’s Pudong City District in Shanghai, to supply Cardia’s renewable kitchen waste
bags to approximately 20% of the 5 million householders in the Shanghai Pudong City
District.
The order follows a six months trial covering about 5% of householders. Cardia believes
there is potential to further expand the rollout in the future.
Shanghai-Pudong is one of four City Councils in China that has conducted waste
management trials using Cardia products. The other three Councils are still in trial
phase and are Nanjing, Hangzhou and Yuhang district councils with Cardia looking to
expand into other provinces of China.
Cardia’s management team in China, continues to develop and maintain strong
Government relationships to work with China City/District Councils.
Advances in Commercialisation
During the December 2012 quarter, Cardia again made good progress in advancing
some of its development projects within its business segments of bag & films, packaging
and organic waste management, closer to commercialisation.
The following is a general review of the most advanced development projects that
Cardia believes should convert into commercial contracts in 2103.
Bags & Films
? Continued to establish marketing presence for resins and finished goods (bags)
in the Americas.
? In Brazil, Governmentt legislation is expected to be more certain and formalised
in 2013. Potential sales of Cardia’s resin and bags are dependent on this
legislation. Close relationships have been maintained with convertors and
retailers in the quarter.
? Other opportunities have been pursued in the Americas with sales expected to
increase in 2013 as strong momentum for bioplastics gains support in this part of
the world.
? A market launch out of the USA is expected from a global Consumer Product
Company in early 2013 promoting the use of Cardia Compostable bags as part of
their product offering when purchasing one of their kitchen appliances. This
company commenced purchasing from Cardia in the December 2012 quarter in
line with Cardia’s expectation as announced in our ASX September 2012
quarterly as released.
Packaging:
? In-market trials with three major global hygiene companies and additional
development programs with a further two medium sized brand owners will
continue in 2013 with commercial outcomes expected in the second half and
later part of 2013.
? Ready to launch - USA manufacturer of pill (tablet) containers and a USA retailer
have signed off on all development work, validation and market trials for the
launch of the world’s first FDA-approved Biohybrid™ tablet containers. Cardia is
expecting first commercial orders in early 2013.
Cardia continues to work with several national and international brand owners and
packaging companies on integrating Cardia’s bioplastic resins into their existing
packaging solutions.
Individually these projects are at various stages of development – ranging from
initial production trials to market validation, and some are more advanced and
moving towards commercial launch.
Organic waste management:
Cardia is marketing to Governments, Councils, Hospitals, Universities, restaurants, large
corporation & mining companies to develop organic waste management systems and
solutions that divert food waste to a composting facility where waste is then turned
into a value added compost product.
The process also involves working with waste management companies and logistic
companies (waste collection, composting facility companies and compost bin
manufactures) to design a total solution for organic waste management.
With this in mind the following are the most advanced of these opportunities.


China
Cardia continues to supply renewable kitchen waste bags to house holders in China
under market trials with four China councils – Shanghai-Pudong, Nanjing, Hangzhou
and Yuhang and expects a decision on commercial arrangements following the
successful trials in Pudong resulting in a $1.2m sales exclusive supply agreement in
2013.
If all other trials convert to commercial sales contracts this may have a material effect
on sales from this Business unit.
The other three Councils in trial phase are Nanjing, Hangzhou and Yuhang and
Cardia is looking to expand into other provinces of China.
Malaysia
All development work, logistics and other procedural matters are in place for initial
trials on a home organic waste management system in a selected residential area of
Malaysia waiting for sign off and a planned start in the first half of 2013.
Australia.
New opportunities are being pursued to source similar supply agreements to the Cardia
supply agreement with Brisbane City Council. Marketing and strategy is in place to
supply compostable bags to various councils, hospitals, mining and other large
corporates in Australia and overseas for organic waste management in 2013.
In addition to activities in China, Malaysia and Australia as per above, Cardia has
underway or planned early stage organic waste management trials in New Zealand,
Canada, USA, Brazil and the UK. Cardia expects this business unit to provide strong
sales growth in 2013.
Other Activities:
CO2S Pty Ltd
Cardia Bioplastics Limited wholly owned subsidiary, CO2Starch Pty Ltd (CO2S)
entered into a strategic research partnership with the University of Sydney,
Australia with approved funding from the Australian Research Council (ARC).
The research partnership was formed to develop a world-first breakthrough in
biodegradable clean technology using CO2 as a material input for PPC polymer that
has reduced levels of heavy metals, in particular zinc glutarate (ZnGA) used in the
production of sustainable resin PPC polymers, to an acceptable level required to
meet international compostability accreditation.
The research will also look at applications outside of packaging and into biomedical
products and regenerative medicine that has the potential to be used to treat many
bone diseases such as osteoporosis.
Cardia is aiming to commercialize a catalyst technology that makes it possible to
manufacture purified polymer products with less petroleum and put CO2 to good
use, rather than emitting it into the atmosphere or storing it underground.
Cardia has its own patented PPC + starch blending technology and has commenced
discussions with Petrochemical companies that are looking at ways of turning their
CO2 emission into a positive business scenario. PPC resins use less virgin oil and
have a lower carbon footprint and now Cardia has the potential to develop PPC
resins with low impurities. This PPC resin provides a business opportunity for a new
generation of greener plastics for use in commercial products.
Appendix 4C follows.
Pat Volpe
Chairman
Please direct any enquires to
Pat Volpe +61 39830 7676
Chairman
Mr Frank Glatz +61 40093 0530
Managing Director
About Cardia