TIDMHYR
RNS Number : 8629P
HydroDec Group plc
31 May 2018
31 May 2018
Hydrodec Group plc
("Hydrodec", the "Company" or the "Group")
Audited final results for the year ended 31 December 2017
Hydrodec Group plc (AIM: HYR), the clean-tech industrial oil
re-refining group, today announces audited results for the 12
months ended 31 December 2017.
Strategic highlights
-- Strategic focus during 2017 on core transformer oil
re-refining business and associated technology
-- Rigorous focus on execution, making effective cost savings
and delivering the first positive Group EBITDA in the Company's
history
-- New patent for the Hydrodec technology secured in key
geographies for a further 20 years from the initial application
date to 2034
-- Sale of historic carbon credits up to and including 2013 vintage
Financial highlights
-- Revenues for the year arising from the core re-refining
business increased by 6% to US$17.9 million (2016: US$16.8
million)
-- Gross margins improved to 15% (2016: 8%)
-- Improvement in overall sales mix between higher margin
transformer oil and lower margin base oil, with transformer oil
sales representing 52% of total Group oil sales in 2017, up from
39% in 2016
-- Administrative expenses fell 12% to US$5.8 million (2016:
US$6.6 million) representing 32% of total income (2016: 38%),
driven by further reduction in corporate costs with benefits from
initiatives implemented at the end of 2016 continuing to filter
through into 2017
-- Positive Group EBITDA from continuing operations of US$0.3
million, a significant improvement in the year (2016: US$2.4
million loss)
-- Net financial expense of US$1.3 million (2016: US$1.1
million) relates to the interest payable under the lease in the US
and interest accruing on the shareholder loans in the UK
-- The overall loss for the year reduced to US$4.3 million
(2016: US$7.8 million, including losses associated with the
discontinued business)
Operational highlights
-- Group sales volumes of premium quality SUPERFINE transformer
oil and base oil in 2017 lower at 29.3 million litres (2016: 33.3
million litres), reflecting feedstock constraints and higher
feedstock inventory at start of prior year due to Canton plant
recommissioning - demand for SUPERFINE products remains robust
-- Average utilisation rate of 60% achieved for the year at
Canton; feedstock remains key constraint to higher throughput
-- The US business was awarded a two year agreement to supply up
to 7.6 million litres annually of its SUPERFINE transformer oil to
a major transformer original equipment manufacturer ("OEM")
-- Reauthorisation of the PCB treatment permit from the US EPA
for a further 5 years with enhanced operating capabilities
including unlimited PCB treatment (previously limited to 2,000
parts per million) and the ability to store PCB containers
onsite
-- Successfully concluded an agreement with a major provider of
renewable energy and carbon mitigation strategies, products and
services, to market the carbon offsets generated through the
re-refining of used transformer oil by Hydrodec of North
America
Post period-end highlights and current trading:
-- Feedstock constraints in the US and Australia impacted sales
volumes and revenues in Q1 2018; however demand for products
remained strong and margins continue to improve
-- Recently all six processing "trains" in Canton have been
operating - the first time, save for a few days in January, since
August 2017 - due to improved feedstock supply driving
utilisation
-- Strategic initiatives continue in order to secure additional
and sustainable feedstock supplies going forward - the Group's key
focus for 2018
-- Focused on generating new partnerships and securing
additional feedstock in the USA - approaches to US utilities have
been initiated given the sale of carbon offset credits which,
uniquely in the market, provide opportunities for utilities to
partner with Hydrodec of North America to meet sustainability
goals
-- Superior quality of SUPERFINE transformer oil has been
further verified by independent laboratory tests and is evidenced
by higher pricing being achieved in the US relative to pricing
indices
-- Concluded successful sale of historic carbon credits from
2009 to 2013 vintages - targeting higher prices for more recent
credits
-- Additional working capital facility provided by Andrew Black,
the Company's largest shareholder and a non-executive Director,
extended up to GBP1.5 million and bearing no interest
Lord Moynihan, Executive Chairman and Interim Chief Executive
Officer of Hydrodec, commented:
"2017 was a landmark year for the Company, one in which our
continued focus on margins and operating efficiencies resulted in
positive full year EBITDA for the first time in the Company's
history. While feedstock availability remains a constraint,
management's key strategic focus is on securing additional and
sustainable feedstock supplies to drive increased utilisation. We
are actively looking at new partnerships and approaching major
utilities with a view to generating long-term feedstock supply
arrangements, made more attractive by the generation of carbon
credits in our re-refining process and the potential for utilities
to offset these against their carbon footprint.
While we have had a challenging start to 2018, we have seen
recent signs of improvement in the US with increased feedstock
availability and demand for our end product, pricing and margins
all remain strong.
The Board continues to review growth options for the Company,
including opportunities for internal and organic business growth as
well as strategic acquisition opportunities and partnerships if,
and only if, they are seen by the Board to add shareholder
value."
For further information please contact:
Hydrodec Group plc hydrodec@vigocomms.com
Lord Moynihan, Executive Chairman and Interim
Chief Executive Officer
Arden Partners plc (Nominated Adviser and
Broker) 0207 614 5900
Chris Hardie
Ciaran Walsh
Alex Penney
Vigo Communications (PR adviser to Hydrodec) 020 7830 9700
Patrick d'Ancona
Chris McMahon
Notes to Editors:
Hydrodec Group plc is a clean-tech industrial oil re-refining
group with operations in the USA and Australia.
Hydrodec's technology is a proven, highly efficient, oil
re-refining and chemical process principally targeted at the
multi-billion US dollar market for transformer oil used by the
world's electricity industry. MarketsandMarkets forecasts that the
global transformer oil market is expected to grow from USD 1.98
billion in 2015 to USD 2.79 billion by 2020 at a CAGR of 7.14%.
Used transformer oil is currently processed at two commercial
plants 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 (polychlorinated
biphenyls), 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 plants are located at Canton, Ohio, US and Bomen, New
South Wales, Australia.
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. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
Executive Chairman and Interim Chief Executive Officer's
Report
I am pleased to provide this review of 2017 and also share the
Board's thoughts for the outlook for the Group, although I reflect
that the period under review relates to Chris Ellis' tenure as CEO.
On behalf of the Board I would like to take the opportunity to
thank Chris once again for all of his hard work in driving the
initial phases of the turnaround strategy for the business and
achieving the first year of positive Group EBITDA in Hydrodec's
history.
I would also like to record, on behalf of the Board and the
Company, our ongoing thanks to Andrew Black, our largest
shareholder, whose continuing support of the business, financially
and otherwise, in recent years, over a challenging period in the
Company's history, has been hugely appreciated. In this respect, we
also welcomed David Dinwoodie as Interim Chief Financial Officer in
April. We are confident we will be in a position to repay Andrew's
good faith and support as the Company seeks to implement in full
its turnaround strategy.
The focus in 2017 was to continue to deliver on the Board's
objective to develop the Group's core market leading transformer
oil re-refining technology and to grow that business in order to
access a larger proportion of the US$2 billion global transformer
oil market.
I am pleased to report that 2017 saw significant progress for
your Company as we achieved positive Group EBITDA for the first
time, reflecting the positive impact of the operational
improvements and cost reduction measures put in place over the last
two years. The plants continued to operate well and demand for our
products is strong - feedstock remains the key constraint to
business growth and resolution of this issue is the Board's
over-riding strategic focus.
Post period-end, the successful sale of carbon credits relating
to historic production provided a further endorsement of the
quality of our technology, our product and market leading green
credentials; whilst supporting an annuity-styled revenue stream for
the Group. We look forward to reporting further sales of the
remaining historic credits, together with establishing a price for
credits relating to current production. Carbon credits also open
the door to "closed-loop" utility partnerships in the USA.
Progress on these initial fronts has created strong foundations
for the business on which we will build.
Regional business review
USA
The Canton plant continued to produce a product of the highest
quality during 2017 following the operational improvements made
during 2016. This gave us the opportunity to further improve the
proportion of transformer oil sales, a key element of our strategy,
increasing to 58% for the year compared to 42% in 2016. This
improvement in mix enabled us to deliver further margin enhancement
with gross margins increasing by 40%. Most importantly, demand for
our product remains robust and the award of a two-year contract
from a major OEM in the US to supply up to 7.6 million litres
annually of SUPERFINE transformer oil underlines the quality of the
product the Company produces and represents further validation of
our technology.
Plant utilisation rate for the year was 60% (2016: 73%) as
feedstock remained the key constraint to further growth and
improved performance. In the US, the Group currently sources the
majority of its feedstock via its partner, G&S, but does not
currently source sufficient supplies to run the Canton plant at its
target levels of utilisation. There are competing uses for used
transformer oil - notably as a diesel extender, with current high
demand from Mexico - and the location of feedstock supplies, and
cost of transport, are key components in the Group's ability to
source feedstock at an appropriate price. The new interim executive
management team are working closely with local management to
increase supplies from G&S and other existing sources, and also
looking to develop new partnerships - including initiating direct
approaches to US utilities around "closed-loop" arrangements,
leveraging the Group's carbon offset credits to allow utilities to
meet their own sustainability goals. After a challenging start to
2018, the feedstock position is already showing signs of
improvement with scope for further increases through the year.
During the year, the Group received recognition from the Ohio
Environmental Protection Authority (EPA)'s Encouraging
Environmental Excellence Program (E3) which commends an
organisation's exceptional achievements in environmental
stewardship as well as related criteria developed by the Ohio EPA.
Along with our transformer oil output generating carbon credits,
this further supports a uniquely environmentally friendly business
model within the refining and re-refining industry and should
provide additional opportunities with those businesses whose
strategy has sustainability as a key element.
Australia
The relocated plant at Southern Oil's location in Bomen, New
South Wales continued to operate well under the tolling
arrangements and the quality of the oil produced there remains
high. The key to unlocking all of the operational benefits
available to us is driven by the availability of feedstock. The
more feedstock we are able to put through our production process
over the fixed monthly fee, the more profitable the operation will
become. 2017 provided some progress on this front with a 32%
increase in volumes for the period and a 38% increase in margins
compared to the prior year.
Carbon credits
Having received carbon credit approval from the American Carbon
Registry ("ACR") in 2016, Hydrodec's products can be sold with a
carbon offset creating an incremental revenue stream. This is a
highly distinctive feature for the Company, 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 of North America ("HoNA") generates carbon offsets
through the re-refining of used transformer oil, which would
otherwise ordinarily be incinerated or disposed of in an
unsustainable manner. The ACR recognised 165,000 credits for HoNA's
previous production between 2009 and 2013 and the Board was pleased
to announce, post the financial year end, that all of these
historic credits have now been contracted for sale and are expected
to generate US$190k of income. Whilst these historic credits only
generated nominal sums, the Company anticipates that it could
generate between 50,000 to 60,000 tons of carbon offset annually
going forward and the ongoing generation of such credits could
realise a value of between US$3 and US$5 per ton based on recent
industry reports.
Operating and commercial performance
Revenues for the year arising from the continuing core
re-refining business increased by 6% to US$17.9 million (2016:
US$16.8 million), reflecting improved product sales mix and
pricing.
Group sales volumes of premium quality SUPERFINE transformer oil
and base oil for the year were lower at 29.3 million litres (2016:
33.3 million litres), reflecting feedstock constraints and higher
feedstock inventory at the start of the prior year due to Canton
plant recommissioning - demand for SUPERFINE products remains
robust.
Gross margins improved significantly to 15% (2016: 8%), in part
driven by an improvement in the overall sales mix between higher
margin transformer oil and lower margin base oil, with transformer
oil sales representing 52% of total Group oil sales in 2017, up
from 39% in 2016.
An average utilisation rate of 60% was achieved for the year at
Canton, with feedstock remaining the key constraint to higher
throughput and the main strategic focus for the Board.
Another key focus has been on managing the cost base
appropriately, and significant reductions in operating and
corporate costs have been realised. Administrative expenses fell
significantly by 12% to US$5.8 million (2016: US$6.6 million)
representing 32% of total income (2016: 38%) and a reflection of
efforts in this area.
Positive Group EBITDA of US$0.3 million from continuing
operations represents a significant improvement for the year (2016:
US$2.4 million loss) and the first positive annual EBITDA in the
Group's history.
The overall loss for the year reduced to US$4.3 million (2016:
US$7.8 million, including losses associated with the discontinued
business).
Internally the business continues to be managed and performance
measured by reference to EBITDA, it being the closest indicator of
cash generated from operations. As this is not a statutory
accounting measure, the table below reconciles this figure to the
statutory operating loss:
2017 2016
-------- --------
US$'000 US$'000
-------- --------
EBITDA 303 (2,396)
Interest costs (1,286) (1,086)
Taxation 129 445
Depreciation and loss on
disposal (2,471) (2,730)
Amortisation (627) (1,667)
Share based payment costs 17 (9)
Transaction and deal costs (44) -
Foreign exchange adjustment (276) 1,137
Statutory operating loss (4,255) (6,306)
-------- --------
Finance costs
Net financial expense was US$1.3 million (2016: US$1.1 million)
and relates to the interest payable under the lease in the US and
interest accruing on the shareholder loans in the UK.
Operating cash flow and working capital
In 2017, the Group had net cash inflow from operating activities
of US$1.4 million (2016: US$4.4 million outflow). The movement in
working capital of US$1.3 million was principally through improved
terms with feedstock suppliers including the Group's US partner,
G&S.
The amount of working capital required by the Group's operations
continues to be closely monitored and controlled, and forms a key
part of management information. While the improving operational and
financial performance in 2017 led to the positive EBITDA position,
the Group is not yet sufficiently cash generative from its
operations to meet all central costs, having taken account of the
need to retain sufficient working capital in the operations. As a
result, the Company announced in April 2018 that it had agreed an
additional working capital facility (the "Facility") with Andrew
Black, the Company's largest shareholder and a non-executive
Director (the "Lender"). The Facility was initially for up to
GBP500,000, bears no interest and is secured over the assets of the
Company. The Company has announced today that it has agreed with
the Lender to extend this Facility up to GBP1.5 million.
The Facility is repayable on 31 December 2018, however the
Lender has agreed to provide the Company with an option to extend
the repayment date on the Facility, and the repayment date on all
other existing working capital facilities provided by the Lender,
to 30 June 2019. Any such extension of the loans would be at the
sole discretion of the Company.
Liquidity and financing activities
The Group's principal financing facilities are a seven year
US$10 million finance lease arrangement with First Merit fully
drawn and repayment under which commenced on 1 October 2015, and
shareholder loans from Andrew Black of US$11 million as at 31
December 2017, currently repayable on 31 December 2018. The
interest on these shareholder loans is accrued and rolled-up in
order that ongoing interest payments are not a cash drain on the
Company. As noted above, an additional facility of up to GBP1.5
million bearing no interest has been made available by Mr Black
post period end and the Company has acquired the option, at the
Company's sole discretion, to extend the repayment date of these
shareholder loans to 30 June 2019.
The Company also has in place a lease financing arrangement of
US$1.2 million with its partner in Australia, Southern Oil, in
respect of the infrastructure costs incurred for the establishment
of its facilities at the site in Bomen. Additional working capital
has been provided by overdraft facilities in the USA and
Australia.
The Group's net debt at 31 December 2017 was US$20.5 million
(2016: US$19.2 million).
Capital expenditure in 2017 totalled US$0.5 million (2016:
US$0.5 million), primarily incurred in the US in relation to
operational improvements of the plant at Canton and also on the
patent renewal.
Financial reporting
The financial information has been prepared under IFRS and in
accordance with the Group's accounting policies. There have been no
changes to the Group's accounting policies during the year ended 31
December 2017.
Going concern
As set out in note 1 to the Group financial statements, taking
into account the Group's current forecast and projections,
available facilities and on-going support from Andrew Black (a
non-executive Director of the Company and its largest shareholder),
the Directors have a reasonable expectation that the Company and
the Group have adequate resources to continue operating for at
least the next 12 months. Accordingly, the Directors continue to
adopt the going concern basis in preparing the Annual Report and
financial statements.
Related party transaction
As Andrew Black is a non-executive Director and a substantial
shareholder of the Company (as defined in the AIM Rules for
Companies ("AIM Rules")), the agreement by Mr. Black to increase
the amount available under the working capital loan facilities (as
referred to above), when aggregated with previous agreements
between Mr. Black and the Company in respect of the facilities in
the previous 12 months, constitutes a related party transaction for
the purposes of the AIM Rules.
The Directors, with the exception of Andrew Black and David
Dinwoodie who were excluded from the Board's discussions to approve
the proposed loan, consider that, having consulted with the
Company's Nominated Adviser, Arden Partners plc, the terms of the
increase in the facilities are fair and reasonable insofar as
shareholders are concerned.
Outlook
Despite a challenging Q1 2018, and subject to delivering its
principal objective of accessing further feedstock, Hydrodec's
business continues to offer significant upside with a strong
forward order book in the US; the first material sale of carbon
credits and excellent quality production. The Board is pleased to
report that recently all six processing "trains" in Canton have
been operating - the first time, save for a few days in January,
since August 2017 - due to improved feedstock supply driving
utilisation.
The Board is also focused on developing a stronger balance sheet
and finalising the Board's review of its various growth options,
which it intends to conclude and implement by the end of September
2018. These include opportunities for internal and organic business
growth as well as strategic acquisition opportunities and
partnerships if, and only if, they are seen by the Board to add
shareholder value.
We look forward to updating shareholders further in due
course.
Lord Moynihan
Executive Chairman and Interim CEO
Consolidated Income Statement
For the year ended 31 December 2017
2017 2016
Note USD'000 USD'000
Continuing operations
Revenue 2 17,850 16,828
Other income 2.3 111 445
Total income 17,961 17,273
Cost of sales (15,266) (15,952)
Gross profit 2,695 1,321
Administrative
expenses (5,793) (6,613)
Operating loss
before impairment (3,098) (5,292)
Impairment of property,
plant and equipment 2.2 - (373)
Operating loss
after impairment (3,098) (5,665)
Finance costs 3 (1,286) (1,086)
Loss on ordinary
activities before
taxation 2.2 (4,384) (6,751)
Taxation 129 445
Loss for the year
from continuing
operations (4,255) (6,306)
Discontinued operations
Loss from discontinued
operations, net
of tax - (1,503)
Loss for the year (4,255) (7,809)
--------- ---------
Loss for the year
attributable to:
Owners of the parent
company (3,936) (7,145)
Non-controlling
interest 9.1 (319) (664)
(4,255) (7,809)
--------- ---------
Loss per Ordinary
Share
From continuing
operations
Basic and diluted,
cents 4 (0.57) (0.84)
From continuing
and discontinued
operations
Basic and diluted,
cents 4 (0.57) (1.05)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2017
2017 2016
USD'000 USD'000
Total loss for the year (4,255) (7,809)
Other comprehensive income
Items that may be subsequently
reclassified to profit
and loss:
Foreign currency translation
differences on foreign
operations 72 (1,101)
Foreign currency translation
differences on discontinued
operations - (216)
72 (1,317)
-------- ----------
Total comprehensive income
for the year (4,183) (9,126)
-------- ----------
Total comprehensive income
for the year attributable
to:
Owners of the parent
company (3,864) (8,462)
Non-controlling interest (319) (664)
(4,183) (9,126)
-------- ----------
Consolidated Statement of Financial Position
As at 31 December 2017
2017 2016
Note USD'000 USD'000
Non-current assets
Property, plant and
equipment 36,627 38,318
Intangible assets 6,677 6,586
43,304 44,904
----------- -----------
Current assets
Trade and other receivables 5 2,054 1,969
Inventories 585 460
Cash and cash equivalents 126 114
2,765 2,543
Current liabilities
Bank overdraft (340) (688)
Trade and other payables 6 (5,288) (3,787)
Other interest-bearing
loans and borrowings 7 (14,140) (2,981)
(19,768) (7,456)
----------- -----------
Net current liabilities (17,003) (4,913)
Non-current liabilities
Employee obligations (39) (63)
Other interest-bearing
loans and borrowings 7 (6,177) (15,612)
Provisions (777) (776)
Deferred taxation (1,062) (1,093)
(8,055) (17,544)
----------- -----------
Net assets 18,246 22,447
----------- -----------
Equity
Called up share capital 8 6,200 6,200
Share premium account 130,539 130,539
Merger reserve 48,940 48,940
Profit and loss account (174,985) (171,103)
Equity attributable
to owners of the parent
company 10,694 14,576
----------- -----------
Non-controlling interest 7,552 7,871
Total equity 18,246 22,447
----------- -----------
Consolidated Statement of Cash Flow
For the year ended 31 December 2017
2017 2016
USD'000 USD'000
Cash flows from operating activities
Loss before taxation (4,384) (8,254)
Net finance costs 1,286 1,113
Adjustments for:
Gain on disposal of discontinued
operations - (52)
Amortisation, depreciation and
impairment 3,093 4,726
Loss on disposal of property,
plant and equipment 5 19
Share-based payments (17) 9
Foreign exchange movement 133 (470)
-------- --------
Operating cash inflow/(outflow)
before working capital movements 116 (2,909)
(Increase)/decrease in inventories (89) 510
Increase in trade and other receivables (85) (1,312)
Increase/(decrease) in trade and
other payables 1,470 (611)
Decrease in provisions - (80)
Taxes paid - (9)
Net cash inflow/(outflow) from
operating activities 1,412 (4,411)
-------- --------
Cash flows from investing activities
Purchase of property, plant and
equipment (335) (540)
Purchase of intangible assets (120) -
Proceeds from disposal of property,
plant and equipment 7 10
Disposal of discontinued operations,
net of cash disposed of - 1,760
Proceeds from sale of interest
in subsidiary - 322
Net cash (outflow)/inflow from
investing activities (448) 1,552
-------- --------
Cash flows from financing activities
Proceeds from loans 1,601 4,665
Capital contribution from NCI - 250
Interest paid (483) (640)
Repayment of lease liabilities (1,698) (1,618)
Net cash (outflow)/inflow from
financing (580) 2,657
-------- --------
Net increase/(decrease) in cash
and cash equivalents 384 (202)
Cash and cash equivalents at beginning
of year (574) (303)
Effect of movements in exchange
rates on cash held (24) (69)
Closing cash and cash equivalents (214) (574)
======== ========
Reported in the Consolidated Statement
of Financial Position as:
Cash and cash equivalents 126 114
Bank overdraft (340) (688)
-------- --------
Net cash balance (214) (574)
======== ========
Consolidated Statement of Changes in Equity
For the year ended 31 December 2017
Total
Total attributable
Employee Foreign Capital Share Profit profit to Non-controlling
Share Merger benefit exchange redemption option and and owners interest
premium reserve trust reserve reserve reserve loss loss of
Share account account the Total
capital parent equity
USD USD USD USD USD USD USD USD USD USD USD USD
'000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000
At 1 January
2016 6,200 130,539 48,940 (1,150) (9,174) 420 883 (152,662) (161,683) 23,996 5,619 29,615
Transactions
with owners
in their
capacity
as owners:
Capital
contribution
from NCI - - - - - - - - - - 250 250
Sale of
interest
in HoNA - - - - - - - (966) (966) (966) 2,666 1,700
Share-based
payments - - - - - - 9 - 9 9 - 9
Transfer
to retained
earnings
in respect
of
forfeit/waived
options - - - - - - (226) 226 - - - -
Effect
of foreign
exchange
rates - - - - - - (1) - (1) (1) - (1)
Total
transactions
with owners
in their
capacity
as owners - - - - - - (218) (740) (958) (958) 2,916 1,958
-------- ---------- --------- ---------- ----------- ------------ --------- ------------ ------------ -------------- ----------------- ----------
Loss for
the year - - - - - - - (7,145) (7,145) (7,145) (664) (7,809)
Other
comprehensive
income:
Currency
translation
differences - - - - (1,101) - - - (1,101) (1,101) - (1,101)
Currency
translation
differences
on
discontinued
operations - - - - (216) - - - (216) (216) - (216)
Total
other
comprehensive
income
for the
year - - - - (1,317) - - - (1,317) (1,317) - (1,317)
-------- ---------- --------- ---------- ----------- ------------ --------- ------------ ------------ -------------- ----------------- ----------
Total
comprehensive
income
for the
year - - - - (1,317) - - (7,145) (8,462) (8,462) (664) (9,126)
-------- ---------- --------- ---------- ----------- ------------ --------- ------------ ------------ -------------- ----------------- ----------
At 31
December
2016 6,200 130,539 48,940 (1,150) (10,491) 420 665 (160,547) (171,103) 14,576 7,871 22,447
-------- ---------- --------- ---------- ----------- ------------ --------- ------------ ------------ -------------- ----------------- ----------
Total
Total attributable
Employee Foreign Capital Share Profit profit to Non-controlling
Share Merger benefit exchange redemption option and and owners interest
premium reserve trust reserve reserve reserve loss loss of
Share account account the Total
capital parent equity
USD USD USD USD USD USD USD USD USD USD USD USD
'000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000
At 1 January
2017 6,200 130,539 48,940 (1,150) (10,491) 420 665 (160,547) (171,103) 14,576 7,871 22,447
Transactions
with owners
in their
capacity
as owners:
Share-based
payments - - - - - - (17) - (17) (17) - (17)
Effect
of foreign
exchange
rates - - - - - - (1) - (1) (1) - (1)
Total
transactions
with owners
in their
capacity
as owners - - - - - - (18) - (18) (18) - (18)
-------- ---------- --------- ---------- ----------- ------------ --------- ------------- ------------ -------------- ----------------- ----------
Loss for
the year - - - - - - - (3,936) (3,936) (3,936) (319) (4,255)
Other
comprehensive
income:
Currency
translation
differences - - - - 72 - - - 72 72 - 72
Total
other
comprehensive
income
for the
year - - - - 72 - - - 72 72 - 72
-------- ---------- --------- ---------- ----------- ------------ --------- ------------- ------------ -------------- ----------------- ----------
Total
comprehensive
income
for the
year - - - - 72 - - (3,936) (3,864) (3,864) (319) (4,183)
-------- ---------- --------- ---------- ----------- ------------ --------- ------------- ------------ -------------- ----------------- ----------
At 31
December
2017 6,200 130,539 48,940 (1,150) (10,419) 420 647 (164,483) (174,985) 10,694 7,552 18,246
-------- ---------- --------- ---------- ----------- ------------ --------- ------------- ------------ -------------- ----------------- ----------
Notes to the Financial Statements
For the year ended 31 December 2017
1. Corporate information and accounting policies
Hydrodec Group plc (the 'Company') is a public company
incorporated, domiciled and registered in England in the UK. The
registered number is 05188355 and the registered address is Dorset
House, Regent Park, Kingston Road, Leatherhead, KT22 7PL.
The Group's principal activity is the re-refining of used
transformer oil into, and the sale of, new SUPERFINE oil.
Basis of preparation
The Group's consolidated financial statements have been prepared
in accordance with the principal accounting policies adopted by the
Group, with International Financial Reporting Standards ('IFRS') as
issued by the International Accounting Standards Board ('IASB') and
as adopted by the European Union ('EU'), and with those parts of
the Companies Act 2006 applicable to companies reporting under
IFRS.
The financial statements were approved by the Board on 31 May
2018. They are presented in US Dollars, which is the presentational
currency of the Group.
The preparation of financial statements in accordance with IFRS
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Although these estimates are based on
management's best knowledge of current events and actions, actual
results may ultimately differ from those estimates.
These results are audited, however, the financial information
set out in this announcement does not constitute the Group's
statutory accounts, as defined in Section 435 of the Companies Act
2006, for the year ended 31 December 2017, but is derived from the
2017 Annual Report. Statutory accounts for 2016 have been delivered
to the Registrar of Companies and those for 2017 will be delivered
in due course. The auditors have reported on those accounts; their
reports were unqualified.
The accounting policies used in completing this financial
information have been consistently applied in all periods shown.
These accounting policies are detailed in the Group's financial
statements for the year ended 31 December 2016 which can be found
on the Group's website.
Going concern
As described in the Executive Chairman and Interim Chief
Executive's Report, the Group has reported much improved financial
results for 2017.
The Group operates from two sites and is therefore dependent on
their continuing operational reliability and rateability, with the
ability to source sustainable and increased supplies of feedstock
being both a principal risk and a key strategic focus for the
Board. In the US, the Group currently sources the majority of its
feedstock via its partner, G&S, but does not currently source
sufficient supplies to run the Canton plant at its target levels of
utilisation. There are competing uses for used transformer oil -
notably as a diesel extender, with current high demand from Mexico
- and the location of feedstock supplies, and cost of transport,
are key components in the Group's ability to source feedstock at an
appropriate price. The new interim executive management team are
working closely with local management to increase supplies from
G&S and other existing sources, and also looking to develop new
partnerships - including initiating direct approaches to US
utilities around "closed-loop" arrangements, leveraging the Group's
carbon offset credits to allow utilities to meet their own
sustainability goals. After a challenging start to 2018, the
feedstock position is already showing signs of improvement with
scope for further increases through the year.
The impact of continued improvements in operational performance
and efficiencies, coupled with current and forecast improvements in
pricing and margins, results in base case projections for the
combined USA and Australian operations for the period to June 2019
showing a steadily improving position. In addition to targeting
improvement in the performance of the Group's existing facilities,
the Board and management will also consider other opportunities for
growth in the Group's key market of the US and elsewhere.
However, while the projections to June 2019 show sufficient cash
in totality to fund all of the Group's corporate costs (excluding
the repayment of the loans from Andrew Black referred to below), in
order to facilitate certain UK payments and also to provide
additional working capital support for the business, an additional
facility has been secured with Andrew Black, a non-executive
Director and the Company's largest shareholder, demonstrating his
continued support for the Group.
At 30 April 2018, the Group's indebtedness (excluding finance
lease liabilities of USD 7.5 million which are secured over
specific assets of the Group and are being repaid in accordance
with their terms) was funded by a combination of overdraft
facilities in the USA and Australia of USD 2.1 million, and
committed loan facilities from Andrew Black, including accrued
interest, of GBP8.9 million (USD 12.3 million). This includes a new
facility from Andrew Black entered into in April this year for
GBP0.5 million (USD 0.7 million) which bears no interest. In order
to fund additional working capital requirements and to provide
headroom for additional downside risk in the period covered by the
projections, the Company has today announced a further extension to
the committed facilities for GBP1.0 million (USD 1.4 million),
further details of which are set out in notes 7 and 10. This latest
extension to the facility also bears no interest. Where the
existing facilities from Andrew Black provide for interest to be
payable, this rolls-up and is accrued rather than requiring cash
interest payments during the term. Furthermore, Andrew Black has
indicated to the Board his continued support of the business in
order to allow the Group to meet its liabilities as they fall due
during the period covered by the projections. The key risks
considered by the Directors in making their assessment as to the
adequacy of headroom under the existing facilities and on-going
support from Andrew Black include a reduction in volume of
production/sales and a decline in projected pricing.
The committed loan facilities currently have a repayment date of
31 December 2018. However the Company has the option to extend the
repayment period of these facilities to 30 June 2019 on their
respective prevailing terms. The Board will keep the position under
review and may elect to extend the repayment period and/or source
alternative funding or re-financing. Looking to the position beyond
30 June 2019, given Andrew Black's past and continuing support
together with the steady improvement in operational performance,
the Board expects that it would be able to negotiate a further
extension to the redemption date beyond 30 June 2019 if necessary
while continuing to explore options for refinancing.
Taking into account the Group's current forecasts and
projections, the available facilities and on-going support from
Andrew Black, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in
operational existence for at least the next 12 months from the date
of approval of these financial statements. In preparing these
financial statements the Directors have given consideration to the
above matters and on that basis, they believe that it remains
appropriate to prepare the financial statement on a going concern
basis.
2. Revenue and Operating Loss
2.1 Segment analysis
Subsequent to the disposal of Hydrodec (UK) Limited and Hydrodec
Re-refining (UK) Limited (the 'discontinued operations'), in March
2016, the Group has one main operating segment, Re-refining, which
is classified as the treatment of used transformer oil and the sale
of SUPERFINE oil. The operating segment arises from two geographic
locations, USA and Australia.
The financial information detailed below is frequently reviewed
by the Board (the Chief Operating Decision Maker) and decisions
made on the basis of adjusted segment operating results.
Year ended 31 December
2017 USA Australia Unallocated Total
Income Statement
USD'000 USD'000 USD'000 USD'000
Revenue 13,442 4,408 - 17,850
Other income 67 3 41 111
---------- ------------ -------------- ----------
EBITDA 1,519 196 (1,412) 303
Depreciation and
loss on disposal
of property, plant
and equipment, (1,994) (474) (3) (2,471)
Amortisation - (281) (346) (627)
Loss for the year
on continuing operations (1,023) (727) (2,505) (4,255)
---------- ------------ -------------- ----------
At 31 December 2017
Balance Sheet USA Australia Unallocated Total
USD'000 USD'000 USD'000 USD'000
Total assets 32,969 6,777 6,323 46,069
Total liabilities (11,313) (3,733) (12,777) (27,823)
---------- ------------ -------------- ----------
Net assets 21,656 3,044 (6,454) 18,246
---------- ------------ -------------- ----------
Revenue from a single customer accounted for 39% of the Group's
total revenues for the year ended 31 December 2017. The total amount
of revenue from this customer amounted to USD 7.0 million (2016:
USD 6.7 million). These revenues were reported in USA segment above.
Year ended 31 December
2016 USA Australia Unallocated Total
Income Statement
USD'000 USD'000 USD'000 USD'000
Revenue 13,158 3,670 - 16,828
Other income 400 2 43 445
---------- ------------ -------------- ----------
EBITDA 307 (544) (2,159) (2,396)
Depreciation, loss
on disposal of property,
plant and equipment,
and impairment (1,924) (408) (398) (2,730)
Amortisation - (273) (1,394) (1,667)
Loss for the year
on continuing operations (1,682) (787) (3,837) (6,306)
---------- ------------ -------------- ----------
At 31 December 2016
Balance Sheet USA Australia Unallocated Total
USD'000 USD'000 USD'000 USD'000
Total assets 34,642 6,759 6,046 47,447
Total liabilities (11,951) (3,547) (9,502) (25,000)
---------- ------------ -------------- ----------
Net assets 22,691 3,212 (3,456) 22,447
---------- ------------ -------------- ----------
2.2 Loss on ordinary activities
The loss before taxation is stated after charging/(crediting)
the following amounts:
Continuing Discontinued Continuing Discontinued
2017 2017 2016 2016
USD'000 USD'000 USD'000 USD'000
Government income (1,425) - (1,031) -
Cost of sales
- inventory expenses 5,823 - 6,783 133
- other direct costs 5,599 - 5,379 2,925
- employee benefit expense 1,501 - 1,583 814
- depreciation 2,343 - 2,207 301
Share-based payments (17) - 9 -
Payroll costs (excluding
share-based payments) 3,678 - 4,627 1,315
Depreciation and impairment
of property, plant and
equipment 123 - 504 47
Loss on disposal of property,
plant and equipment 5 - 19 -
Amortisation 627 - 1,667 -
Operating lease rentals
- land and buildings 83 - 206 157
Exchange loss/(gain) 276 - (1,137) (4)
Fees payable to the Company's
auditor for the audit
of the annual accounts 52 - 60 -
Fees payable to the Company's
auditor and its associates
for other services:
- audit of the Company's
subsidiaries 32 - 35 -
2.3 Other income
Continuing Discontinued Continuing Discontinued
2017 2017 2016 2016
USD'000 USD'000 USD'000 USD'000
Settlement proceeds 47 - 400 -
Carbon credit sale 3 - - -
Other income 61 - 45 -
111 - 445 -
----------- ------------- ----------- -------------
Settlement proceeds
Subsequent to the incident at Canton in December 2013, Zeton
Inc., the main contractor for the rebuild, installed faulty heat
exchangers which leaked and caused a safety hazard. Hydrodec filed
a claim against Zeton Inc. in 2015 and a total settlement of USD
0.4 million was received during the year ended 31 December 2016.
The Company made a further claim against API Heat Transfer, the
company responsible for manufacturing the faulty heat exchangers,
and a further settlement of USD 47,500 was received during the year
ended 31 December 2017.
Carbon credit sale
In September 2016, the Group received carbon credit approval
form the American Carbon Registry ("ACR") enabling the Group's
product to be sold with a carbon credit offset, creating a future
incremental revenue stream. The Group agreed its first trade of a
proportion of its historic credit during the year ended 31 December
2017.
Other income
Other income relates primarily to the recharge of employee
services provided by the Group to third party entities.
3. Finance Costs
Continuing Discontinued Continuing Discontinued
2017 2017 2016 2016
USD'000 USD'000 USD'000 USD'000
Bank overdrafts and
leases 489 - 612 27
Shareholder loan 797 - 474 -
1,286 - 1,086 27
----------- ------------- ----------- ---------------
4. Loss per Ordinary Share
Basic loss per Ordinary Share is calculated by dividing the net
loss for the year attributable to ordinary shareholders by the
weighted average number of Ordinary Shares in issue during the
year. The calculation of the basic and diluted loss per Ordinary
Share is based on the following data:
Continuing Continuing
and discontinued and discontinued
Continuing operations Continuing operations
operations operations
2017 2017 2016 2016
USD'000 USD'000 USD'000 USD'000
Losses
Losses for the purpose
of basic loss per
Ordinary Share (4,255) (4,255) (6,306) (7,809)
------------- ------------------ ------------- ------------------
Number Number Number Number
'000 '000 '000 '000
Number of shares
Weighted average
number of shares
for the purpose of
basic loss per share 746,683 746,683 746,683 746,683
------------- ------------------ ------------- ------------------
Loss per Ordinary
Share
Basic and diluted,
cents per share (0.57) (0.57) (0.84) (1.05)
------------- ------------------ ------------- ------------------
Due to the losses incurred in the years reported, there is no
dilutive effect from the existing share options or share-based
employment compensation plan.
5 Trade and other receivables
2017 2016
USD'000 USD'000
-------- --------
Trade receivables 1,297 1,427
Prepayments and accrued income 442 421
Other receivables 280 97
VAT recoverable 35 24
2,054 1,969
-------- --------
Trade receivables principally comprise amounts receivable in
respect of revenue and are short term.
No interest is generally charged on trade receivables.
Other receivables include the sum of USD 2,877 (2016: USD
25,507) in respect of the sale of a further 12.45% interest in
Hydrodec of North America LLC to G&S Oil Recycling Group LLC
which took place during the year ended 31 December 2016. See note
9.
Other receivables include the sum of USD 55,000 which is cash
held in a restricted use bank account in connection with EPA
environmental expenditure.
At 31 December 2017, trade receivables include amounts which are
past their due date against which the Group has recognised an
allowance for impairment because there is some doubt as to whether
the amounts are recoverable.
The analysis of trade receivables is as follows:
2017 2016
USD'000 USD'000
Less than one month 954 1,399
Past due but not impaired 343 28
-------- --------
1,297 1,427
Past due impaired 62 -
1,359 1,427
-------- --------
Credit sales are only made after credit approval procedures are
completed, and the carrying value represents the Group's maximum
exposure to credit risk.
The Directors consider that the carrying amount of trade and
other receivables approximates to their fair value.
6. Trade and other payables
2017 2016
USD'000 USD'000
-------- --------
Trade payables 3,986 2,382
Other payables 11 180
VAT payable 11 17
Other taxation and social security 33 44
Accruals 1,247 1,164
5,288 3,787
-------- --------
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and on-going costs. No interest is
generally charged on trade payables.
The Group has financial risk management policies to ensure that
all payables are paid within the credit time frame.
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
7. Other interest bearing loans and borrowings
2017 2016
USD'000 USD'000
-------- --------
Current liabilities
Finance lease liabilities 1,800 1,662
Unsecured bank facility 1,319 1,319
Shareholder loan 11,021 -
14,140 2,981
-------- --------
Non-current liabilities
Finance lease liabilities 6,177 7,774
Shareholder loan - 7,838
6,177 15,612
-------- --------
Finance lease liabilities
The Group has two arrangements which have been classified as
finance leases. The first is denominated in USD and was for a
principal sum of USD 10.0 million, bearing interest at the rate of
3.96% and is repayable on a fixed repayment basis over 7 years. The
second arrangement is denominated in Australian dollars, bearing
interest at the rate of 5.55% and is repayable on a fixed repayment
basis over 7 years.
Minimum Minimum
lease lease
payments Interest Principal payments Interest Principal
2017 2017 2017 2016 2016 2016
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Less than
one year 2,105 305 1,800 2,028 366 1,662
Between one
and five
years 6,604 427 6,177 7,989 729 7,260
More than
five years - - - 518 4 514
8,709 732 7,977 10,535 1,099 9,436
---------- ----------- ------------ ---------- ----------- ------------
The Group's obligations under finance leases are secured by the
lessor's rights over certain assets. The amount outstanding in
respect of the lease in which there is a general title to certain
tangible assets held in the USA is USD 6.8 million (2016: USD 8.2
million).
Unsecured bank facility
The unsecured bank facility at 31 December 2017 represents a
working capital facility in the USA.
Shareholder loan
The shareholder loan represents an amount due to Andrew Black, a
non-executive Director and significant shareholder in the
Company.
2017 2016
USD'000 USD'000
-------- --------
Facility 9,688 7,380
Interest and fees 1,333 458
Amount outstanding 11,021 7,838
-------- --------
The shareholder loan is secured over assets of the Group.
The loan consists of three working capital facilities:
-- an initial facility of USD 2.9 million (GBP2.15 million)
which originally bore interest at 7% per annum;
-- a second facility of USD 5.7 million (GBP4.25 million) which
originally bore interest at 8% per annum; and
-- a third facility agreed on 11 May 2017, originally for USD
0.7 million (GBP0.5 million) which bears interest at 10% per annum
and was subject to an arrangement fee of 2.5%. On 27 December 2017,
the parties agreed to extend the third facility by USD 0.4 million
(GBP0.3 million) to USD 1.1 million (GBP0.8 million).
Accumulated interest and fees to 31 December 2017 have been
added to the principal loan amount.
On 27 December 2017, the parties agreed to increase the rate of
interest payable in respect of the initial and second facilities to
10% per annum. At this time, the repayment date for the facilities
was extended from 31 December 2017 to 31 December 2018 in return
for a one-off extension fee of 1% of the total amount of each
facility being USD 0.09 million (GBP0.07 million). The Company has
subsequently agreed an option to further extend the repayment date
to 30 June 2019. See note 10.
8. Share capital
2017 2016
USD'000 USD'000
-------- --------
Allotted, issued and fully paid
Ordinary Shares of 0.5 pence each
At 1 January and 31 December 6,200 6,200
-------- --------
2017 2016
Number of Number of
shares shares
------------ ------------
At 1 January and 31 December 746,682,805 746,682,805
------------ ------------
9. Investments
The Company had investments in the following subsidiary
undertakings as at 31 December 2017 which principally affected the
losses and net assets of the Group:
Country of Proportion Principal activity
incorporation of ownership
and principal interest
operations
Hydrodec Holdco Limited UK 100% Holding company
Hydrodec Development Corporation UK 100% Technology company
(UK) Limited*
Hydrodec Inc USA 100% Holding company
Hydrodec of North America LLC** USA 62.55% Oil treatment services
Hydrodec Development Corporation Australia 100% Technology and holding company
Pty Limited
Hydrodec Australia Pty Limited*** Australia 100% Oil treatment services
Hydrodec Japan Co Limited Japan 100% Holding company
Hydrotek Eco Japan Co Limited**** Japan 100% Patent holding company
* Held through Hydrodec Holdco
Limited
** Held through Hydrodec Inc
*** Held through Hydrodec Development Corporation
Pty Limited
**** Held through Hydrodec Japan
Co Limited
On 4 March 2016, Hydrodec Holdco Limited, a wholly-owned
subsidiary of the Company, disposed of Hydrodec (UK) Limited and
Hydrodec Re-Refining (UK) Limited.
9.1 Subsidiary with material non-controlling interests
On 16 April 2013, the Group sold a 25% interest in Hydrodec of
North America LLC ('HoNA') to G&S Oil Recycling Group LLC
('G&S') for a total consideration, based on a multiple of
earnings, which management estimated to be USD 3.31 million.
Additionally, a royalty stream of 5% of net revenue is payable to a
member of the Group under the terms of the strategic partnership
with G&S.
The terms of the agreement with G&S included the potential
for the sale of a further 24.9% interest in HoNA to G&S in two
equal tranches of 12.45%, subject to certain criteria being met.
The additional investment would be triggered by the successful
expansion of the Canton facility's existing four trains, by a
further four trains, in increments of two trains (Stage 1 and Stage
2). The expansion was to be funded equally by the Group and
G&S, and the terms of the agreement intended that the
subsequent investment, and ownership of the additional trains,
would be within newly incorporated entities, owned equally by the
partners to ensure ownership was representative of the capital
contributed by each party.
An additional two trains were funded equally by the parties as
part of the rebuild of Canton and upon subsequent commencement of
production at the end of December 2015, the key qualifying
condition for the Stage 1 closing was met. Accordingly, on 14
October 2016, a further sale of 12.45% interest in HoNA was made
for a total consideration of USD 1.7 million.
The details of the sale were as follows:
USD'000
Value of 12.45% interest 2,666
Consideration received (1,700)
--------
966
--------
At 31 December 2017, there was an amount outstanding in respect
of the sale of USD 2,877 (2016: USD 25,507) which is included in
other receivables. See note 5.
The additional two trains were constructed on the Canton site
and not within a separate legal entity reflecting the equal
funding, as prescribed under the terms of the agreement. It was
therefore agreed that G&S would be allocated 41.65% share of
net income from 14 October 2016 to reflect their contractual
entitlement.
Proportion of
ownership interest Total comprehensive
and voting rights income allocated
held by NCI to NCI Accumulated NCI
2017 2016 2017 2016
2017 2016 USD'000 USD'000 USD'000 USD'000
---------- ---------- ---------- ---------- -------- --------
Hydrodec of North
America LLC 37.45% 37.45% (319) (664) (742) (423)
---------- ---------- ---------- ---------- -------- --------
No dividends were paid to the NCI during the years reported.
10. Post balance sheet events
On 4 April 2018, the Company agreed an additional working
capital facility of USD 0.7 million (GBP0.5 million), from Andrew
Black, a non-executive Director and significant shareholder in the
Company. The facility is secured over the assets of the Group, is
non-interest bearing and is not subject to any arrangement or other
fees. This facility was further extended to USD 2.1 million (GBP1.5
million) on 31 May 2018. The principle of this additional facility
was originally due for repayment on 31 December 2018, but the
Company has subsequently agreed an option to extend the repayment
date on all of the shareholder loans from Andrew Black to 30 June
2019.
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
FR UAVRRWBAVOAR
(END) Dow Jones Newswires
May 31, 2018 07:05 ET (11:05 GMT)
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