HYR.L Regulatory News (HYR)

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 £1.5 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:

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:

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 £500,000, 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 £1.5 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 £1.5 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

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2017

Consolidated Statement of Financial Position

As at 31 December 2017

Consolidated Statement of Cash Flow

For the year ended 31 December 2017

Consolidated Statement of Changes in Equity

For the year ended 31 December 2017

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 £8.9 million (USD 12.3 million). This includes a new facility from Andrew Black entered into in April this year for £0.5 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 £1.0 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. 

2.2 Loss on ordinary activities

The loss before taxation is stated after charging/(crediting) the following amounts:

2.3 Other income

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

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:

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

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:

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

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

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.

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.

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 (£2.15 million) which originally bore interest at 7% per annum;

· a second facility of USD 5.7 million (£4.25 million) which originally bore interest at 8% per annum; and

· a third facility agreed on 11 May 2017, originally for USD 0.7 million (£0.5 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 (£0.3 million) to USD 1.1 million (£0.8 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 (£0.07 million). The Company has subsequently agreed an option to further extend the repayment date to 30 June 2019. See note 10.

8. Share capital

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:

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:

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.

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 (£0.5 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 (£1.5 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.