TIDMHYR
RNS Number : 4040U
HydroDec Group plc
29 March 2019
29 March 2019
Hydrodec Group plc
("Hydrodec", the "Company" or the "Group")
Pre-close Trading Update
Hydrodec Group plc (AIM: HYR), the cleantech industrial oil
re-refining group, is pleased to provide a trading update for the
financial year ended 31 December 2018.
Introduction
In early 2018 the Board determined that a turnaround strategy
was required to position Hydrodec to maximise its ability to
address the full potential of its markets with its world leading
re-refining technology. The process was regarded as requiring two
years to deliver.
Chairman Lord Moynihan took on an executive role and David
Dinwoodie was appointed initially as Chief Financial Officer and
later as Chief Executive Officer. They conducted a fundamental
review of the Group, completed in August, and determined a
refinancing of the business was required. This would provide the
necessary funds to pay down debt in the business to provide a solid
financial platform, improve supplies of feedstock and rebalance the
Company's stake in Hydrodec of North America (HoNA) to strengthen
operational control of the Company's key facility. This transaction
was successfully completed in the autumn and, in December,
Hydrodec's ownership interest in HoNA was renegotiated from 58% to
85%.
Having completed these key initial aspects of the turnaround
strategy, 2019 will see a focus on delivering substantial feedstock
uplift which will help underpin the Company's US utility-targeted
strategy, supported by its generation of carbon credits. As part of
this process, recent appointments have been made at Canton
reflecting a heightened focus on marketing and feedstock
procurement.
Demonstrable progress has been made already reflecting the
benefit of these changes, and the Company is pleased to announce
that it has agreements for more than 400k gallons of feedstock from
two US Department of Energy contracts due to commence in April.
On 21 December 2018, President Trump signed a bi-partisan Bill
calling for a 12 month review of the Government's oil recycling
strategy which the Company sees as a highly significant opportunity
to promote its US strategy, aligning its aims with the
sustainability agenda of customers in the US. This agenda's
increasing profile is seen as hugely positive by the Board for the
Company's activities in the US in 2019.
Unaudited Highlights for year ended 31 December 2018
-- Significantly increased ownership interest in HoNA from 58% to 85%
-- Completed a fundamental review of the business and its
financing, culminating in a placing and open offer, which raised
approximately $14.5 million cash
-- Group adjusted EBITDA from continuing operations on a
normalised basis was broadly in line with the prior year. The
adjusted EBITDA loss of approximately US$1.1 million (2017: loss of
US$0.02 million) was principally driven by one-off corporate costs
associated with business reorganisation and the strategic
review
-- Strong commercial and operational performance at Canton when feedstock secured:
o Revenues increased by 10.5% to approximately US$14.9 million
(2017: US$13.4 million), driven by improved pricing and sales
mix
o Gross unit margins in Canton increased by 25 bps from 12.8% to
13.1%
o Sales volumes of premium quality SUPERFINE transformer oil and
base oil in 2018 lower at 23.0 million litres (2017: 25.6 million
litres), reflecting previously announced feedstock constraints -
demand for SUPERFINE products remains strong and management are
confident that all potential production volumes can be sold at
prevailing prices
o Operating EBITDA in HoNA was US$1.53 million (compared to
US$1.52 million in 2017) as the general operating environment for
oil related businesses positively impacted the Group's pricing and
margins in 2018 and offset the lower volumes
o Further improvement in sales mix between higher margin
transformer oil and lower margin base oil, with transformer oil
sales in continuing operations representing 67% of total oil sales
in 2018, up from 58% in 2017
o Plant utilisation rates averaged 54.9% for the year. Feedstock
remains the key constraint to higher throughput but significant
progress is being made in securing sustainable, increased supplies
going forward
-- Corporate costs were higher in the year at US$2.67 million
(2017: US$1.41 million) owing principally to one-off costs
described above. Corporate costs are expected to fall below
previous levels in 2019 and management will seek to make additional
savings throughout the year
-- Proceeds of the first sale of carbon credits in respect of
credits generated by production in 2013 were received in July 2018.
Management expect carbon credits to be a key differentiator of
Hydrodec's offering in the future
Outlook
This update confirms demonstrable progress in achieving the
objectives set out in our strategic plan.
The current year has seen a slow start for feedstock collections
owing to cold weather caused by the polar vortex across the US
Midwest and short-term issues related to Venezuelan oil. The Group
however is pleased to report that all six trains came on line this
week. Accordingly, daily feed rates are now well ahead of this time
last year.
There is a relentless focus on increasing feedstock supply and
the business will prioritise volumes ahead of margin over the next
six months. While there will continue to be challenges in what is
still a volatile market, the team is demonstrating success in
building a network of feedstock suppliers with a strong pipeline
including more than 400k gallons of feedstock from two US
Department of Energy contracts due in April.
The Australian sales process is progressing at a slower pace
than envisaged owing to disputes in accessing the site and because
the plant has not been operated by our tolling partner Southern Oil
Refining for a number of months. Management anticipate bids for the
Australian business being received shortly and are also exploring
the potential relocation of the plant to the USA; and will be in
California in April to move discussions forward.
David Dinwoodie, Chief Executive Officer of Hydrodec, commented:
"I am pleased to report that Hydrodec has begun to deliver on the
milestones set out in our strategic review. We have successfully
renegotiated the ownership and governance structure of HoNA and are
building a wider range of key relationships in the market. As
demonstrated by the agreements for more than 400k gallons of
feedstock from two US Department of Energy contracts due to
commence in April, we are already seeing the green shoots of growth
in feedstock supply and I am confident that volumes and therefore
production will exceed our original expectations. As such, 2019
will prove to be an exciting year for the business as we build on
the work undertaken following the review."
For further information, please contact:
Hydrodec Group plc hydrodec@vigocomms.com
Lord Colin Moynihan, Executive Chairman
David Dinwoodie, Chief Executive Officer
Arden Partners plc (Nominated Adviser and Broker) 0207 614 5900
Ciaran Walsh
Alex Penney
Vigo Communications (PR adviser to Hydrodec) 020 7390 0230
Patrick d'Ancona
Chris McMahon
Notes to Editors:
Hydrodec's technology is a proven, highly efficient, oil
re-refining and chemical process principally targeted at the
multi-billion US$ market for transformer oil used by the world's
electricity industry. MarketsandMarkets forecasts that the global
transformer oil market is expected to grow from US$1.98 billion in
2015 to US$2.79 billion by 2020 at a CAGR of 7.14% from 2015 to
2020. Used transformer oil is processed with distinct competitive
advantage delivered through very high recoveries (near 100%),
producing 'as new' high quality oils at competitive cost and
without environmentally harmful emissions. The process also
completely eliminates PCBs, a toxic additive banned under
international regulations.
In 2016 Hydrodec received carbon credit approval from the
American Carbon Registry ("ACR"), enabling its product to be sold
with a carbon offset and creating an incremental revenue stream.
The Group is now generating carbon offsets through the re-refining
of used transformer oil, which would otherwise ordinarily be
incinerated or disposed of in an unsustainable manner. This is a
highly distinctive feature for the Group, confirming (as far as the
Board is aware) Hydrodec as the only oil re-refining business in
the world to receive carbon credits for its output. This is a
significant endorsement of the Company's proprietary technology and
standing as a leader in its field.
Hydrodec's main operating plant is located at Canton, Ohio,
US.
Hydrodec's shares are listed on the AIM Market of the London
Stock Exchange. For further information, please visit
www.hydrodec.com.
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
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END
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