By: Mike Verespej
November 28, 2012
SPRINGDALE, ARK. (Nov. 28, 3:45 p.m. ET) — Wood-plastic composite decking manufacturer Advanced Environmental Recycling Technologies Inc. will debut its much-awaited — and the industry’s first — decking board that incorporates nanotechnology at the International Builders Show in Las Vegas in mid-January.
AERT’s new co-extruded deck board will be part of its MoistureShield product line. It is designed to compete with capstock composites, which have had a slight market edge in tough weather climates in the Northeast, along the Eastern seaboard, the upper portions of Minnesota and in Colorado.
The new nano co-extruded deck will hit the market as the company’s financial picture is improving.
Net income at AERT for the first nine months of 2012 was $1.4 million compared to a loss of $500,000 in the first nine months of 2011. Sales for those nine months were up 25 percent to $63.1 million and higher than full year sales in 2011 of $59.3 million.
In addition, the company’s gross margin in the first nine months of 2012 was 20.6 percent compared to 16.3 percent in the first nine months of 2011. All of that is in stark contrast to the previous five years of losses as the company hasn’t turned a profit since 2006 and has lost nearly $31 million the last three years.
From a brand perspective, the timing of the introduction of the new nano-board couldn’t be better, either, as MoistureShield sales are booming.
Moisture Shield product line sales in 2012 are expected to end up around 40 percent higher than a year ago — which is twice the projected 18-20 percent increase in sales for alternative decking in 2012, said Brent Gwatney, vice president, sales and marketing for the Springdale, Ark., company in a telephone interview Nov. 27.
“Like all of our products, the new co-extruded decking is still going to be a price-point product, but it is going to be a little higher in price than our other MoistureShield decking products — and more fade and scratch-resistant,” Gwatney said.
The MoistureShield brand product line — aimed at builders and contractors — currently includes the high-end Vantage Collection Pro Series and the lower-priced Essential product collection. AERT’s product line for consumers, ChoiceDek, is sold exclusively at Lowe’s Home Improvement stores.
Gwatney declined to identify the exact name of the nano-composite decking or where it will be made. But the AERT website proclaims that Nanopoly — or reformulated polyethylene plastics — is coming soon to its plant in Springdale. And one year ago AERT chairman, CEO and founder Joe Brooks said the product would be called NanoShield.
“This is not just an additive,” said Gwatney. “The use of nanotechnology creates a different surface for the product and helps with the longevity of the color and in preventing moisture absorption. It is a more natural looking [wood-like] product.”
The initial products will have high fade and mold and mildew resistance, more closely resemble wood, and provide superior slip resistance.
“We think it will help us gain market share in the Northeast, the Eastern seaboard” and other tough weather climates, he said. “Over the long-term, it has the potential to add as much as 20 percent more sales to the MoistureShield brand.”
“It’s a game changer because the nanotechnology coats the fibers so the decking doesn’t fade, scratch, or mar,” said Gwatney. “There is a lot we can do with nanotechnology with colors, reflective products and there is even the opportunity to harness energy and light your deck.”
AERT’s approach of using nanotechnology to create an improved WPC product goes against the industry trend toward the use and development of capped wood-plastic composites—which have a price premium of 4-5 times the price of wood decking.
The nanotechnology-enhanced materials for the AERT decking were developed in partnership with NanoMech Inc., which is located in Fayetteville, Ark., 10 miles south of AERT’s headquarters in nearby Springdale.
A year ago, AERT said it planned to dedicate two of its seven extrusion lines specifically for the co-extruded decking that incorporates nanotechnology. “It requires a whole new process before it gets to extrusion,” Gwatney said.
AERT said that in its proprietary process inorganic nano particles are bonded to treated wood particles—using grafting and coupling agents— to form a durable shell of similar composition that looks like real wood..
“We have invested over $54 million over the last five years building infrastructure and technology,” said AERT founder Brooks a little over one year ago at the Principia Partners Wood-Plastic and Fiber Composites conference in Charlotte in October 2011.
That includes investments in plastics identification and reformulation technologies and the addition of a Nanoscale Material Science and Engineering building on its Springdale site.
“We believe nano-technology will be one of the next technology leaders for this industry,” said Brooks at that conference. “AERT’s NanoShield board will represent a game-changing product with unmatched performance and characteristics. There will no fade and it will have enhanced, brighter fade-resistant colors. There is superior slip resistance and it will have a real wood look, although I can’t say that we’ve caught up to Mother Nature yet.”
In its third-quarter conference call earlier this month, Brooks and president Tim Morrison both expressed strong optimism for 2013.
“AERT has continued to push forward, streamline its operations and improve throughout the year under tough economic conditions,” said Brooks.
For example, the company’s plastic recycling plant in Watts, Okla., has enabled the company to cut it raw materials costs by 20-30 percent from what they were when that plant opened 2 ½ years ago.
“Our recycling operation continues to focus on recycling a broader range of material—specifically aimed at reducing our raw material costs,” said AERT president Tim Morrison. “Recent improvements in our process also have resulted in significant improvements in the quality of the recycled resin and many more feedstock options.”
In addition, said Brooks, “our MoistureShield line continues to grow and we have several exciting new products that we will roll out next year. We will continue to gain market share in the U.S., North America and abroad.”
“Because of the relationships we have established with large distributors, the seeds have been planted for sales growth for 2013 and beyond for MoistureShield,” he said. “AERT is positioned well for the future.”
Brooks is also buoyed by recent technology advancement at the company’s plastics recycling plant in Watts, Okla., a number of green-related projects that will soon be forthcoming, and a diversification initiative that will move the company into making more than just decking.
“In three years, the resin side could be twice the size the decking is,” Brooks told the Arkansas Business News in an article last April that is posted on the AERT website.
To help advance that strategy, the company earlier this month secured a $15 million line of credit with AloStar Bank and Commerce—-a $7 million loan at 5.5 percent interest secured by real estate and $8 million at five percent interest secured by its inventories and receivables.
“That is an exciting development for AERT which facilitates the continued implementation of our business strategy,” Morrison said.
At the Watts plant, for example, Brooks said “new recently patented technology allows AERT to clean, blend and reform lower-grades of plastic scrap into value-added compounds.”
In addition, he said “AERT is nearing the completion of a plastics recycling system that will soon allow the company to provide finished green compounds to vendor partners on a much larger scale.”
As just one example, Brooks pointed to recycled blended compounds that AERT developed and is selling to a company in Oklahoma that makes plastic caulking tubes for caulking and adhesives.
“We utilized their scrap with a blended recycled product from AERT to develop a better product with more impact resistance and a high percent of recycled content—-at a competitive price,” he said. “This is an example of what we’re looking to do at we move forward.”
Brooks said AERT now has a state-of-the-art plastics lab at Watts, as well as an extrusion line for development work and limited production. “And a high-speed, high-volume resin blending line will be coming online in the near future,” he said.
“We have many exciting products underway built around sustainable plastics,” Brooks said. “AERT is working with its strategic partners to build a better way to make recycled compounds” for product such as injection-molded buckets, posts, flooring, wall panels and trash bags.
He also said that AERT would be launching a new plastics recycling venture with a new company called Green Country Recycling, based in Westville, Okla.
“They have a high-speed extrusion line and melt filtration equipment and are adjacent to a Kansas City Southern railroad line”—which will facilitate the in-bound shipments of compounds to the plant and outbound shipments of finished products.
“The future is getting greener and much better,” said Brooks. “We are building the infrastructure to have state-of-the-art extrusion facilities and to be able to dig deeper into the waste stream for materials for our recycling plant in Watts. You have to be able to position yourself to be the low-cost producer because you can’t just keep charging more and more. There is a limit to what people will want to pay.”