TIDMHYR
RNS Number : 9875C
HydroDec Group plc
14 February 2020
14 February 2020
Hydrodec Group plc
("Hydrodec", the "Company" or the "Group")
Year-end Trading Update
New 3-year contract with Duke Energy
Hydrodec Group plc (AIM: HYR), the cleantech industrial oil
re-refining group, today provides the following trading update for
the financial year ended 31 December 2019.
Unaudited highlights for year ended 31 December 2019
-- Revenues approximately US$11.6 million (2018: US$14.9
million), impacted by working capital constraints
-- Gross unit margins declined reflecting the higher cost of feedstock in H1
-- Group adjusted EBITDA loss of approximately US$3.2 million (2018: US$1.2 million loss)
-- Sales volumes of premium quality SUPERFINE transformer oil
and base oil of 18.3 million litres (2018: 23.0 million litres),
reflecting feedstock and working capital constraints in H2 - demand
for SUPERFINE products remains robust
-- Canton plant utilisation at 45% on average for the year
(2018: 55%) - feedstock remains key constraint to higher throughput
and strategic initiatives
-- Progress made in securing sustainable, increased supplies
going forward, with the Group seeking to achieve utilisation rates
at the Canton facility of at least 60% in 2020
-- Reduction in corporate costs to US$1.8 million (2018: US$2.7 million)
Post period-end highlights
-- First direct contract with a major US utility, Duke Energy
("Duke"), to provide Hydrodec generated carbon credits in return
for Duke's used oil to be processed by Hydrodec using its patented
technology
-- One-year contract extension to continue to supply up to 10
million litres annually of its SUPERFINE transformer oil to a major
transformer original equipment manufacturer
Chris Ellis, Chief Executive Officer and Interim Executive
Chairman, commented:
"Since stepping back into the role of CEO in Q4 2019, the
conditions under which the Company has operated have been very
challenging, as was communicated in the Company's interim financial
statements released in September 2019 . Working capital
constraints, by necessity, have a material impact on our ability to
source feedstock, which in turn drives volume, margin and overall
financial performance. It is in this context that the 2019
performance should be viewed and whilst, overall, it is extremely
disappointing, there are some encouraging signs of early successes
with our sustainability strategy, and this, together with traction
with major US utility companies, gives me cause for greater
optimism going into 2020."
Financing update
Further to its announcement of 24 December 2019, the Company
confirms that it has agreed headline terms with its largest
shareholder, and non-executive Director, Andrew Black in respect of
the extension of his financial support. The Board would like to
express its gratitude to Mr Black for his unwavering support,
particularly over the last few months. Mr Black has continued to
support the Group, providing cash of approximately US$1.8 million
since 30 June 2019. A further announcement in respect of the loan
terms, together with the extension of the existing loans, will
follow once finalised and fully documented. Such terms will
constitute a related party transaction pursuant to AIM Rule 13.
The Company continues to work on a refinancing package in
respect of the Canton plant and assets in the early part of 2020.
The purpose of which is to replace the existing equipment lease,
which is over-collateralised, with an extended facility to provide
additional funds for feedstock, approved capital expenditure and
growth opportunities . In the meantime, as disclosed in the
Company's interim results, Hydrodec remains reliant on the on-going
support from Mr Black.
Recent developments and outlook
Whilst Q1 2020 operating performance will further reflect the
challenges the Company faces in terms of its working capital, the
Board is pleased to confirm that Hydrodec has signed a 3-year
contract with Duke Energy, a major US utility, to process its used
transformer oil with an option to extend for a further 2 years.
Under the terms of the contract, Duke Energy will be the first
utility to benefit directly from the carbon credits that Hydrodec
generates by processing used transformer oil supplied to it under
the contract in direct support of the utility's sustainability
goals.
This is a key pillar of the strategy for the Company and the
focus remains on expanding the number and value of significant
direct feedstock contracts of this type to drive higher utilisation
of the operations and improve the Group's EBITDA and cash-flow
generation in the future. Management is in discussions with several
of these utilities with the objective of signing more over the
coming months. In that context, today's announcement regarding the
contract with Duke Energy is a watershed moment for Hydrodec
strategically.
As well as focusing on expanding the number and value of
significant feedstock contracts to increase throughput in our
existing operations, the Board continues to undertake a strategic
review. As part of the review process the Board will continue to
pursue other strategic growth initiatives that will ultimately seek
to accelerate the Group's overall profitability.
Despite the positive impact of the Duke Energy contract, the
Group has revised its expectations for 2020 to be materially lower
than previous market expectations for this year due to ongoing
working capital constraints. However, the Board expects an
improvement on the financial results for 2019 with the Group
targeting positive EBITDA from US operations for 2020.
Chris Ellis, Chief Executive Officer and Interim Executive
Chairman, commented further:
"The Duke Energy contract is a game-changer for Hydrodec and a
clear signal that the environment in which the Company is operating
has changed significantly in our favour and that the sustainability
strategy that the Company has embarked upon has the potential to be
successful. As we build on the success of the Duke Energy contract,
there will continue to be challenges particularly in respect of
feedstock procurement in the short term, but I am confident in the
Group's ability to deliver a much improved performance in the
coming years and I look forward to reporting further progress."
For further information, please contact:
Hydrodec Group plc hydrodec@vigocomms.com
Chris Ellis, Chief Executive Officer
and Interim Executive Chairman
Arden Partners plc (Nominated Adviser
and Broker) 0207 614 5900
Corporate Finance: Ciaran Walsh, Victoria
Hodge
Equity Sales: Aimee Kerslake
Vigo Communications (PR adviser to
Hydrodec) 020 7390 0240
Patrick d'Ancona
Chris McMahon
Charlie Neish
The information communicated in this announcement is inside
information for the purposes of Article 7 of the Market Abuse
Regulation (EU) No. 596/2014.
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 Group's proprietary technology and
standing as a leader in its field.
Hydrodec's 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.
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
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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