HYR.L Regulatory News (HYR)

20 June 2019

Hydrodec Group plc

("Hydrodec", the "Company" or the "Group")

AGM Statement

Hydrodec Group plc (AIM: HYR), the clean-tech industrial oil re-refining group, announces that at today's Annual General Meeting, Executive Chairman Lord Moynihan will make the following comments as he updates shareholders on progress across the business as the Board continues to execute its turnaround strategy.

'As we enter the second year of the two-year turnaround of your Company, I am pleased to report that our principal goals for 2018 were delivered. These included:

· Completed a placing and open offer, raising gross proceeds of approximately $14.3m and introducing a strong institutional investor base;

· Strengthened the balance sheet through the combined repayment and conversion into equity of $11.1m of debt;

· Renegotiated the ownership structure of Hydrodec of North America (HoNA) by acquiring an 85% ownership interest with managerial and operational control, and appointed new HoNA Board of Directors with David Dinwoodie as President, Ron Kubala as Plant Director and myself as Chair;

· Restructured the management team in Canton with Ed Superior as Sales & Procurement Director; and

· I can today announce that the sale of the Australian plant has been agreed in principle for A$2m (excluding decommission and other associated costs) with an expected closing date of 30 June. The conditions include a licensing agreement and the payment of royalties to Hydrodec for a minimum period of seven years. Full details will be announced at the time of closing.

As we move into the second year of the turnaround our objectives remain as set out by the Board in 2018:

· Increase feedstock levels through the plant at Canton; maximise utilisation of the plant and expand sources of new feedstock in the Canton plant;

· Build strong relationships with US utilities providing carbon credits as part of the commercial proposition for receiving their used transformer oil;

· Work with the team in Canton on the turnaround with David and I present in the States for some ten days a month to meet customers, utilities, opinion formers in Government as well as management and operators at Canton;

· Support the US Department of Energy who are implementing President Trump's request for a full Department of Energy study on re-refining used oil to be completed by the end of 2019; and

· Highlight the risks of blending used transformer oil as a possible substitute for fuel oil when the lower sulphur cap is introduced into the shipping industry by the International Maritime Organisation in 2020. 

Addressing these in turn, I am pleased to report the following progress.

Feedstock from new sources of supply at the Canton plant are at record levels. When combined with our feedstock from G&S, our total re-refining volumes to date are currently above levels achieved in the comparative period in 2018. The Board and Management remain confident in the outlook for 2019 and beyond.

Whilst remaining focused on naphthenic feedstock for our Superfine product, we have identified a new paraffinic product line for which there is an existing market and readily available feedstock at good volume. Negotiations are underway to make purchases that will enable us to raise plant utilisation and should be accretive to the overall performance of the business whilst we continue to move from spot purchases of naphthenic feedstock to contracted purchases. Over time, Hydrodec can manage the mix of products appropriately in line with market conditions to maximise value for shareholders.

The generation of our carbon credits resonates well with the US utilities who are looking to meet higher environmental standards applicable when managing their waste streams and any liabilities arising. We are now in contact with a wide range of US utilities, all of whom see the merit in ensuring their waste transformer oil comes to Hydrodec and is recycled against 'Certificates of Origination'; receiving carbon credits for the way they treat their own waste streams, thus strengthening their commitment to sustainability which is demanded by their shareholders and institutional investors alike. 

As we deepen our US focus, we have made further changes to reduce the central overhead costs in the UK. The business is run efficiently in Canton with a strong management team. David and I now work out of Canton every month. We have recently appointed Dia Ray as Finance Director.

On 21 December 2018, President Trump signed HR 1733 into law. This bipartisan Bill directs "the Secretary of State for Energy to review and update a report on the energy and environmental benefits of the re-refining of used lubricating oil". We are actively involved with the US Department of Energy on the report to seek the inclusion of used transformer oil and the importance of Certificates of Origination to denote the destination of all used oil and maximise the opportunities for re-refining used oil in the US. In July I will hold meetings with further utilities across the States; leading collectors of used transformer oil; marketing companies and senior members of the Federal Government.

The two-year turnaround programme is on target. We believe by the completion of the second year of the turnaround strategy we will report to next year's Annual General Meeting that the business will have achieved the objectives necessary to establish long-term relationships with US utilities both as the re-refiner of choice for their used transformer oil and as buyers of our Superfine product; thus delivering a market leading 'closed loop' strategy. At that point we will have built a sustained and sustainable platform for further expansion in the States; particularly in California where the value of carbon credits is at its highest.'

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Notes to Editors:

Hydrodec Group plc is a clean-tech industrial oil re-refining group with operations in the USA.

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 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 (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 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.