HYR.L Regulatory News (HYR)

3 February 2021

Hydrodec Group plc

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

Financing update

Proposed joint venture

Litigation of discontinued business

18 months results update

Hydrodec Group plc (AIM: HYR), the cleantech industrial oil re-refining group, today provides the following update: 

Financing update

The Company has continued to work on a refinancing package in respect of the Canton plant and assets in order to replace the existing equipment lease, which is over-collateralised, with an extended facility to provide additional funds for feedstock, approved capital expenditure and growth opportunities.

Despite delays, due in part to the global pandemic, progress continues to be made. The Company has an agreement in principle with one party to provide funding of up to US$6.75 million and is in advanced stage negotiations with its existing US bank to conclude arrangements.

In recent months Hydrodec has been reliant on the support of its major shareholder, Andrew Black, who has lent approximately US$0.2 million further in cash since 1 October 2020, the date of the Company's previous update.

If there are further delays in completing the refinancing, the Company's cash and working capital positions could be impacted accordingly.

Proposed joint venture

Further to its announcement on 1 October 2020 of having signed non-binding heads of terms for a proposed joint venture (JV) in the US, the Board is pleased to announce that the Group expects, subject to the resolution of its funding position, to sign the operating agreement in respect of the JV. The JV with the proposed new partner (a US industrial recycling company) will utilise part of the Group's existing site in Canton, Ohio and establish a facility for the purpose of dismantling and recycling pole and pad-mount electrical transformers. The JV will combine the partner's proven access to the utilities with Hydrodec of North America's (HoNA) proven ability to produce re-usable transformer oil and generate carbon credits. By so combining, the parties expect to create a market-leading re-refining business in the US.

The JV will transfer all used transformer oil extracted at the facility to HoNA at no cost, and the Group's JV partner will sell all the used oil it secures outside of the JV's activities to HoNA at cost. It is expected that the volumes of oil will be material in the context of HoNA's existing capacity (c. 25% of its nameplate capacity of 12 million US gallons). In return, the JV partner will be entitled to receive 10% of the annual net profits of HoNA. The partner will also be appointed as HoNA's strategic collection partner in respect of the sourcing of used oil and the associated carbon credit programme, leveraging its established relationships with US utilities.

Litigation of discontinued business

Following the closure of its Australian business in 2018, Hydrodec terminated its tolling contract with Southern Oil Refining ("SOR") and subsequently sold its plant located at SOR's facility in Bomen to Greenbottle Re-refining (UK) Limited, a company controlled by Andrew Black, a non-executive Director and a substantial shareholder of the Company. Upon termination of that contract, SOR sought to recover monies it claimed were due under its terms, primarily in respect of the capital works carried out to host the Hydrodec plant of approximately US$1.25 million. Whilst this claim has always been robustly challenged by Hydrodec, which itself had counter-claimed against SOR, judgement in the Australian courts has now been made in favour of SOR against Hydrodec's dormant Australian subsidiary and Hydrodec Group plc. The Board is reviewing the options available to it in respect of this judgement including its rights of appeal.

Financial statements update

The Directors regret that, due to the ongoing impact of the pandemic and the Company's financial constraints, the Group has been unable to conclude its audit in respect of the 18-month period to 30 June 2020. 

The Board remains committed to publishing these audited accounts at the earliest opportunity. However, the Board has been advised by its auditors that in the Company's current circumstances there is no guarantee that they would be in a position to conclude the audit of the financial results for the 18-month period ending 30 June 2020 by the end of March 2021 (being 9 months from the end of the financial period). The Company's shares remain suspended from trading on AIM pending the publication of these financial statements and resolution of the current financial difficulties and, in the event that the deadline of 31 March 2021 is not met, then under the AIM Rules the Company's shares will be cancelled from trading on AIM. Should this occur the Board will communicate further with shareholders as to the implications and the way forward as an unlisted company, and would seek to offer some form of matched bargain facility that matches buyers and sellers, as is common for companies in similar circumstances.

Chris Ellis, Chief Executive Officer, and Interim Executive Chairman, commented: 

"Hydrodec continues to make progress, despite the unique challenges presented to our operating environment by COVID-19. Working capital constraints, by necessity, have had a material impact on our ability to source feedstock, which in turn drives volume, margin and overall financial performance. 

We continue to pursue our strategy of targeting US utilities highlighted in previous updates, and the progress made to refinance the Company together with the JV agreement with a transformer recycling company will, if and when consummated, position the Company strongly to build on the encouraging signs for its sustainability strategy."

For further information, please contact:

Notes to Editors:

Hydrodec's technology is a proven, highly efficient, oil re-refining and chemical process principally targeted at the multi-billion US$ market for transformer oil used by the world's electricity industry. The global transformer oil market is projected to reach USD 3.0 billion by 2025 from an estimated market size of USD 2.2 billion in 2020, at a CAGR of 6.9% during the forecast period (source: Markets and Markets). Used transformer oil is processed with distinct competitive advantage delivered through very high recoveries (near 100%), producing 'as new' high quality oils at competitive cost and without environmentally harmful emissions. The process also completely eliminates PCBs, a toxic additive banned under international regulations.

In 2016 Hydrodec received carbon credit approval from the American Carbon Registry ("ACR"), enabling its product to be sold with a carbon offset and creating an incremental revenue stream. The Group is now generating carbon offsets through the re-refining of used transformer oil, which would otherwise ordinarily be incinerated or disposed of in an unsustainable manner. This is a highly distinctive feature for the Group, confirming (as far as the Board is aware) Hydrodec as the only oil re-refining business in the world to receive carbon credits for its output. This is a significant endorsement of the Group's proprietary technology and standing as a leader in its field.

Hydrodec's operating plant is located at Canton, Ohio, US.

Hydrodec's shares are listed on the AIM Market of the London Stock Exchange. For further information, please visit www.hydrodec.com.