16 Sep 2016 07:00
16 September 2016
Hydrodec Group plc
("Hydrodec", the "Company" or the "Group")
Unaudited Interim Results
Hydrodec Group plc (AIM: HYR), the clean-tech industrial oil re-refining group, today announces unaudited results for the six months ended 30 June 2016.
Financial highlights
· Revenues from continuing core re-refining business increased by 148% to US$8.1 million (H1 2015: US$3.3 million), reflecting full commissioning of new Canton plant at the end of 2015 and increased market penetration
· H1 2016 gross unit margins in continuing business higher than H1 2015 despite lower product sales prices and challenging market conditions
· Key focus on reduction of corporate costs in continuing operations, falling from US$2.1 million (H1 2015) to US$1.5 million
· Group EBITDA from continuing operations improved from US$3.4 million loss (H1 2015) to US$1.1 million loss - expectation of move to positive EBITDA in H2
· Overall loss for the period (including discontinued operations) down from US$8.4 million (H1 2015) to US$5.3 million
· Operating cash outflow (before working capital movements) reduced to US$2.0 million (H1 2015: US$5.8 million)
Operational highlights
· Substantially increased Group sales volumes of premium quality SUPERFINE transformer oil and base oil of 16.75 million litres (H1 2015: 1.7 million litres) - record monthly sales in June of 3.2m litres
· Improving plant utilisation - Canton reaching 76% in May
· Continued successful production in Australia and improving feedstock position
· SUPERFINE transformer oil in US achieved "500 hour" status, certifying its quality
Strategic highlights
· Appointment of new CEO with strategic focus on core transformer oil re-refining business and associated technology
· Disposal of loss-making UK recycling operations in March
Post period-end highlights
· Awarded 5-year contract for supply of transformer oil by Essential Energy, a major Australian utility
· Obtained American Carbon Registry approval for registering, and monetising, carbon credits
Chris Ellis, Chief Executive Officer of Hydrodec, commented: "I am pleased to be able to report significant progress in moving Hydrodec towards profitability and re-establishing its position in the transformer oil market in our key operating arenas as we have moved Canton into full operations and improved efficiency in Australia. Whilst market conditions and margins, particularly in the US, remain challenging, both operations are generating positive EBITDA and the focus now for the rest of this year is to improve margins and profitability as well as taking advantage of any opportunities the current market may yet present to grow the business within both our existing platforms and in new markets."
For further information please contact:
Hydrodec Group plc |
| 020 3300 1643 |
Chris Ellis, Chief Executive
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Canaccord Genuity (Nominated Adviser and Broker) |
| 020 7523 8000 |
Henry Fitzgerald-O'Connor Richard Andrews
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Vigo Communications (PR adviser to Hydrodec) |
| 020 7830 9700 |
Patrick d'Ancona Chris McMahon |
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Notes to Editors:
Hydrodec's technology is a proven, highly efficient, oil re-refining and chemical process initially targeted at the multi-billion US$ market for transformer oil used by the world's electricity industry. MarketsandMarkets forecasts that the global transformer oil market is expected to grow from US$1.98 billion in 2015 to US$2.79 billion by 2020 at a CAGR of 7.14% from 2015 to 2020. Spent 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, a toxic additive banned under international regulations. 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.
Chief Executive's Report
After a particularly difficult 2015 for the Company, I am pleased to be able to report significant progress in delivering the Company's key objectives during the period under review, achieved against a challenging, yet improving, market backdrop.
Strategy
At the time of my appointment as CEO and the divestment of the UK recycling operations in March 2016, the Board restated its strategy to concentrate on the Group's market leading transformer oil re-refining technology and business and to grow that business to access an increasing proportion of the US$2 billion plus global transformer oil market. Specifically, the Board stated its intention, as the Company moves forward through 2016, to look to strengthen Hydrodec's footprint in the US and in the international transformer oil market, where the Board believes Hydrodec has a competitive advantage through its proven and market‐leading technology.
In line with this strategy, my focus has been to grow the transformer oil business in order to drive profitability, with a rigorous focus on execution when deploying our market leading transformer oil re-refining technology, making effective costs savings and delivering the ramp-up of production and sales in the US.
Continuing business - re-refining
Summary
| 6 months | 6 months | % change |
| 30-Jun-16 | 30-Jun-15 |
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Volume ('000 litres) | 16,750 | 5,281* | 217% |
Revenue (US$'000) | 8,117 | 3,278 | 148% |
Operating EBITDA pre one-off costs | (86) | (1,078) |
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*includes traded oil (3.6 million litres) pending recommissioning of Canton plant
Operational review
- USA
The main drivers in 2016 have been to refocus on the core transformer oil re-refining technology by optimising the performance of the Canton facility, and to increase production levels through a combination of leveraging the experience gained since fully commissioning the plant at the end of last year along with specific targeted operating improvements, building on lessons learned during the commissioning process. These improvements have been validated by the significantly lower number of production hours lost through unscheduled stoppages and the record monthly production performance of the plant in May of 2.82 million litres of SUPERFINE transformer oil and base oil. Plant utilisation increased over the period, from an average of 64% in Q1 to 70% in Q2 with a peak of 76% in May and has averaged 68% through Q3 to date.
These developments have supported total sales volumes in Canton in the period of 15.5 million litres. An additional primary objective relates to improving the sales mix between higher margin transformer oil and lower margin base oil produced at the Canton plant. At the beginning of the year, January transformer oil sales represented 19% of US volumes sold. Since then significant improvements have been made in this area and in June transformer oil represented 71% of sales, with further advances targeted. Growth in transformer oil sales have been supported by the SUPERFINE product achieving "500 hour" oil status, certifying the oil to be high quality transformer oil and a prerequisite to accessing the larger power transformer market.
Post period-end, in September, we announced that the American Carbon Registry ("ACR") had approved Hydrodec's patented technology as a carbon offset project in the voluntary carbon offset market, allowing the Company to generate, and monetise, carbon credits. Hydrodec of North America ("HoNA") is now generating offsets through the re-refining of used transformer oil, which would otherwise ordinarily be incinerated or disposed of in an unsustainable manner. The ACR has recognised 165,000 credits for HoNA's previous production between 2009 and 2014 and the Company anticipates that it will generate 50,000 to 60,000 tons of carbon offset annually going forward. Whilst the historical credits may only generate nominal sums through trading, the ongoing generation of such credits could realise up to US$5 per ton (source: Carbonomics).
- Australia
In respect of the operations in Australia, since the commissioning of the plant at the Southern Oil Refinery in May 2015 we have had to work hard to re-establish our commercial position in the market. Total sales volumes in Australia for the period were 1.3 million. In May, the Australian business enjoyed one of its highest feedstock acquisition months since 2012 and since then has consistently sourced feedstock at an optimal level to maximise its profitability going forward. The focus is now on expanding the customer base and increasing the proportion of transformer oil sales.
Post period-end, in August, we announced the award of a 5 year contract to supply SUPERFINE transformer oil to Essential Energy, a major Australian utility. The contract includes the collection and re-refining of all their PCB and non-PCB waste oils and is expected to generate over 1 million litres of new transformer oil sales over the life of the contract. The contract was awarded under a competitive tender process, with the Company successfully competing against a range of new oil suppliers.
- Market background
In the US, leading producers of naphthenic speciality products, of which Hydrodec is one, have experienced lower margins due to high value inventory and lagging market prices from the impact of the first quarter crude price fall. Whilst the Group has been successful in improving margins since the first quarter, the Board expects margins to remain challenging for the second half of the year before improving into 2017, driven by improving product prices which lag recent increases in crude prices.
In Australia, market demand and margin remain relatively stable and the key to margin and volume improvement will be based around leveraging the award of the Essential Energy contract to increase sales of transformer oil into the key utilities.
Financial review
Revenues from continuing operations increased 148% to US$8.1 million (H1 2015: US$3.3 million), reflecting the full commissioning of the Canton plant at the end of last year. The Group sold 16.8 million litres during the period, an increase of 217% on the corresponding period in 2015 which had included 3.6 million litres of traded oil whilst the US business was being recommissioned. Of the volumes sold in the period, 40% represented transformer oil and 60% was base oil, with margins steadily improving since the beginning of the year.
There has been a key focus on the reduction of overheads and corporate costs. Significant reductions have already been realised with the expectation that the benefits from more recently implemented initiatives will filter through in H2. These savings are reflected in the reduction in administrative expenses from continuing operations from US$6.1 million to US$3.9 million as highlighted below.
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| Six months ended | Six months ended |
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| 30 June 2016 | 30 June 2015 |
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| USD'000 | USD'000 | % change |
Indirect operating costs |
| (1,530) | (2,824) | (46%) |
Corporate costs |
| (1,451) | (2,087) | (30%) |
Depreciation and amortisation - overheads |
| (939) | (1,171) | (20%) |
Administrative expenses |
| (3,920) | (6,082) | (36%) |
Group EBITDA from continuing operations improved from US$3.4 million loss (H1 2015) to US$1.1 million loss. The total loss for the period (including discontinued operations) was US$5.3 million (H1 2015: US$8.4 million).
Operating cash outflow (before working capital movements) reduced to US$2.0 million (H1 2015: US$5.8 million). The improved EBITDA performance resulted in lower working capital outflows which reduced from $3.0 million to $2.4 million. Total net cash expended in the first six months of 2016 was US$0.2 million compared to a US$12.6 million outflow in the prior year comparable period. Overall, the Group held US$0.6 million in cash on its balance sheet at the end of the period and retained approximately US$1.4 million headroom under its working capital facilities provided by Andrew Black, a Director and the Company's largest shareholder.
Disposal of UK recycling operations
In late 2015 and January 2016, the Company undertook a detailed strategic review of its UK waste oil collections business and proposed UK lubricant oil re-refining project, following a significant deterioration in its UK operations. This deterioration was driven predominately by the rapid decline in global oil prices and continued challenging market conditions which resulted in the UK business generating an increasing level of significant losses. Despite implementing extensive restructuring and cost-saving measures during 2015, Hydrodec remained exposed to the impact of the global oil price decline. Given the significant cash consumption and limited cash resources available to the Company (in the absence of a significant further fundraising), the Directors reviewed all available options and concluded that it was in the best interests of the Company to dispose of the UK operations.
Following a strategic auction process conducted by an independent third party financial adviser, the Company sold its UK operations to Andrew Black, a non-executive Director and substantial shareholder (the "Buyer"), on 4 March 2016 for a consideration of £1 in cash, including the transfer to the Buyer of c. £1.2 million of existing third party indebtedness in the UK business and involving the injection by the Buyer of further working capital into that operation. In addition, the Buyer granted Hydrodec a contractual right to receive a proportion of the Buyer's entitlement to any future profits of the UK re-refining project on the following waterfall basis (a) first, the Buyer, as primary risk taker, to recover the costs of its investment in the UK re-refining project; (b) then, the next tranche to be applied 70:30 between Hydrodec and the Buyer respectively until Hydrodec has recovered its costs incurred to date in connection with the UK re-refining project; and (c) finally, the balance of any profits to be shared 90:10 between the Buyer and Hydrodec. The Buyer will bear all risk and responsibility for developing the UK lubricant oil re-refining project going forward, with Hydrodec retaining only a passive economic interest under these profit share arrangements. The UK re-refining project also offers a potential opportunity to develop transformer oil re-refining capacity in the UK. The impact on the Company of all of the above is described in note 12 to the interim financial statements.
Risk management process
The Group has policies, processes and systems in place to help identify, evaluate and manage risks at all levels throughout the organisation. Risks are regularly reviewed and monitored by business unit or functional management teams. The executive team review the major risks across the Group on a quarterly basis to ensure that the management of these risks has appropriate focus. The Board review these at least twice a year.
The principal risks that could potentially have a significant impact on the Group in the future are set out on pages 12 and 13 of the 2015 Annual Report. The continued successful operation of Canton is the key performance imperative for the Group. The Annual Report can be downloaded at www.hydrodec.com
Outlook
Today's results confirm significant progress in the turnaround of the Company over the first half of the year. Our key objective during the rest of the year is to strengthen margins as we grow market share and seek to leverage the recent carbon credit approval in the US, whilst continuing the program of cost reduction. Volumes and margins in Q3 to date remain consistent with Q2 and, with both operations now generating positive EBITDA, we continue to make strong progress towards positive Group EBITDA in the second half of the year.
Chris Ellis
CEO
16 September 2016
CONSOLIDATED INCOME STATEMENT
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| Six months ended30 June 2016(unaudited) | Six months ended30 June 2015(unaudited)*Restated | Year ended31 December 2015(audited)*Restated |
| Note | USD'000 | USD'000 | USD'000 |
Continuing operations |
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Revenue | 3 | 8,117 | 3,278 | 8,231 |
Other income |
| 404 | 1,519 | 1,521 |
Total income |
| 8,521 | 4,797 | 9,752 |
Cost of sales |
| (7,695) | (3,561) | (10,421) |
Gross profit/(loss) |
| 826 | 1,236 | (669) |
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Administrative expenses |
| (3,920) | (6,082) | (11,763) |
Operating loss |
| (3,094) | (4,846) | (12,432) |
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Finance costs | 4 | (522) | (169) | (20) |
Finance income | 4 | - | 485 | 5 |
Loss on ordinary activities before taxation |
| (3,616) | (4,530) | (12,447) |
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Income tax benefit/(charge) |
| 78 | 18 | (14) |
Loss for the period from continuing operations |
| (3,538) | (4,512) | (12,461) |
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Discontinued operation |
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Loss from discontinued operation, net of tax | 12.1 | (1,768) | (3,919) | (18,677) |
Loss for the period |
| (5,306) | (8,431) | (31,138) |
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Loss for the period attributable to: |
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Non-controlling interests |
| (282) | (184) | (1,004) |
Owners of the parent |
| (5,024) | (8,247) | (30,134) |
Total loss for the period |
| (5,306) | (8,431) | (31,138) |
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Loss per share - basic/diluted | 5 | (0.71) cents | (1.13) cents | (4.17) cents |
Loss per share (continuing operations) - basic / diluted | 5 | (0.47) cents | (0.60) cents | (1.67) cents |
*Restated
Historical balances presented to show continuing operations and discontinued operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
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| Six months ended30 June 2016(unaudited) | Six months ended30 June 2015(unaudited)*Restated | Year ended31 December 2015(audited)*Restated |
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| USD'000 | USD'000 | USD'000 |
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Total loss for the period |
| (5,306) | (8,431) | (31,138) |
Other comprehensive income |
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Items that may be reclassified to profit and loss: |
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Exchange differences on translation of foreign operations |
| (589) | (399) | (1,361) |
Items that will never be reclassified to profit and loss: |
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Revaluation of property, plant and equipment |
| - | - | (496) |
Total comprehensive loss for the period |
| (5,895) | (8,830) | (32,995) |
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Other comprehensive income for the period attributable to: |
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Non-controlling interests |
| (282) | (184) | (1,004) |
Owners of the parent |
| (5,613) | (8,646) | (31,991) |
Total comprehensive loss for the period |
| (5,895) | (8,830) | (32,995) |
*Restated
Historical balances in six months ended 30 June 2015 presented to reclassify US$325,000 capital contributions from non-controlling interests out of comprehensive income into transactions with owners in the Statement of Changes in Equity as well as the associated exchange differences.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
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| 30 June 2016(unaudited) | 30 June 2015(unaudited)*Restated | 31 December 2015(audited)*Restated |
| Note | USD'000 | USD'000 | USD'000 |
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Non-current assets |
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Property, plant and equipment | 6 | 39,707 | 49,914 | 45,645 |
Intangible assets | 7 | 7,962 | 18,853 | 9,616 |
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| 47,669 | 68,767 | 55,261 |
Current assets |
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Trade and other receivables | 8 | 2,605 | 8,475 | 6,799 |
Inventories |
| 515 | 3,668 | 1,282 |
Cash and cash equivalents |
| 628 | 2,382 | 2,064 |
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| 3,748 | 14,525 | 10,145 |
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Current liabilities |
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Bank overdraft |
| (1,100) | - | (2,367) |
Trade and other payables | 9 | (4,885) | (11,752) | (10,489) |
Provisions |
| (80) | (663) | - |
Other interest-bearing loans and borrowings | 10 | (2,871) | (2,798) | (6,195) |
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| (8,936) | (15,213) | (19,051) |
Net current liabilities |
| (5,188) | (688) | (8,906) |
Non-current liabilities |
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Employee obligations |
| (50) | (90) | (46) |
Provisions |
| (820) | (1,084) | (1,776) |
Other interest-bearing loans and borrowings | 10 | (16,053) | (10,352) | (13,091) |
Deferred taxation |
| (1,572) | (2,004) | (1,827) |
Other non-current liabilities |
| - | (1,000) | - |
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| (18,495) | (14,530) | (16,740) |
Net assets |
| 23,986 | 53,549 | 29,615 |
Equity attributable to equity holders of the parent |
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Called up share capital | 11 | 6,200 | 6,200 | 6,200 |
Share premium account |
| 130,539 | 130,539 | 130,539 |
Merger reserve |
| 48,940 | 48,940 | 48,940 |
Employee benefit trust |
| (1,150) | (1,219) | (1,150) |
Foreign exchange reserve |
| (9,763) | (3,395) | (9,174) |
Share option reserve |
| 899 | 7,652 | 883 |
Revaluation reserve |
| - | 513 | - |
Capital redemption reserve |
| 420 | 420 | 420 |
Profit and loss account |
| (157,686) | (142,342) | (152,662) |
|
| 18,399 | 47,308 | 23,996 |
Non-controlling interests |
| 5,587 | 6,241 | 5,619 |
Total equity |
| 23,986 | 53,549 | 29,615 |
*Restated
Exchange differences on equity balances on the presentation of sterling denominated reserves balances in US dollars. Also reclassification of intangible assets (CEP license) offset by trade and other payables as at 30 June 2015 to be consistent with changes made as at 31 December 2015.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Share capital | Share premium | Revaluation reserve | Merger reserve | Treasury reserve | Employee benefit trust | Foreign exchange reserve | Capital redemption reserve | Share option reserve | Profit and loss account | Total attributable to owners of the parent | Non-controlling interest | Totalequity |
At 1 January 2015 | 6,620 | 130,539 | 548 | 48,940 | (44,186) | (1,239) | (2,915) | - | 7,556 | (90,234) | 55,629 | 6,100 | 61,729 |
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Change in exchange rates *Restated | - | - | - | - | - | 20 | (20) | - | - | - | - | - | - |
Cancelled shares | (420) | - | - | - | 44,186 | - | - | 420 | - | (44,186) | - | - | - |
Capital contribution from non-controlling interest | - | - | - | - | - | - | - | - | - | 325 | 325 | 325 | 650 |
Transactions with owners | (420) | - | - | - | 44,186 | 20 | (20) | 420 | - | (43,861) | 325 | 325 | 650 |
Change in exchange rates | - | - | (35) | - | - | - | (460) | - | 96 | - | (399) | - | (399) |
Loss for the period | - | - | - | - | - | - | - | - | - | (8,247) | (8,247) | (184) | (8,431) |
Total comprehensive income | - | - | (35) | - | - | - | (460) | - | 96 | (8,247) | (8,646) | (184) | (8,830) |
At 30 June 2015 | 6,200 | 130,539 | 513 | 48,940 | - | (1,219) | (3,395) | 420 | 7,652 | (142,342) | 47,308 | 6,241 | 53,549 |
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Change in exchange rates* | - | - | - | - | - | 38 | (36) | - | - | - | 2 | (2) | - |
Issue of shares | - | - | - | - | - | 31 | - | - | - | - | 31 | - | 31 |
Capital contribution from non-controlling interest | - | - | - | - | - | - | - | - | - | - | - | 200 | 200 |
Transactions with owners | - | - | - | - | - | 69 | (36) | - | - | - | 33 | 198 | 231 |
Change in exchange rates *Restated | - | - | (17) | - | - | - | (5,743) | - | (455) | 5,253 | (962) | - | (962) |
PPE revaluation | - | - | (496) | - | - | - | - | - | - | - | (496) | - | (496) |
Share options lapsed | - | - | - | - | - | - | - | - | (6,314) | 6,314 | - | - | - |
Loss for the period | - | - | - | - | - | - | - | - | - | (21,887) | (21,887) | (820) | (22,707) |
Total comprehensive income | - | - | (513) | - | - | - | (5,743) | - | (6,769) | (10,320) | (23,345) | (820) | (24,165) |
At 31 December 2015 | 6,200 | 130,539 | - | 48,940 | - | (1,150) | (9,174) | 420 | 883 | (152,662) | 23,996 | 5,619 | 29,615 |
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Share-based payment | - | - | - | - | - | - | - | - | 16 | - | 16 | - | 16 |
Capital contribution from non-controlling interest | - | - | - | - | - | - | - | - | - | - | - | 250 | 250 |
Transactions with owners | - | - | - | - | - | - | - | - | 16 | - | 16 | 250 | 266 |
Change in exchange rates | - | - | - | - | - | - | (589) | - | - | - | (589) | - | (589) |
Loss for the period | - | - | - | - | - | - | - | - | - | (5,024) | (5,024) | (282) | (5,306) |
Total Comprehensive Income | - | - | - | - | - | - | (589) | - | - | (5,024) | (5,613) | (282) | (5,895) |
At 30 June 2016 | 6,200 | 130,539 | - | 48,940 | - | (1,150) | (9,763) | 420 | 899 | (157,686) | 18,399 | 5,587 | 23,986 |
*Restated
Exchange differences on transactions with owners arise on the presentation of sterling denominated reserves balances in US dollars.
CONSOLIDATED STATEMENT OF CASH FLOW
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| Six months ended | Six months ended | Year ended |
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| 30 June 2016 | 30 June 2015 | 31 December 2015 |
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| (unaudited) | (unaudited) | (audited) |
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| USD'000 | USD'000 | USD'000 |
Cash flows from operating activities |
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Loss before tax |
| (5,384) | (8,449) | (31,124) |
Net finance costs |
| 522 | 197 | 522 |
Amortisation, depreciation and impairment |
| 2,007 | 3,189 | 16,872 |
Gain on sale of property, plant and equipment |
| - | (521) | (760) |
Share based payment expense |
| 16 | 17 | 31 |
Asset revaluation |
| - | - | 496 |
Loss on sale of discontinued operation, net of tax |
| 209 | - | - |
Other non-cash movements |
| - | - | (2,389) |
Foreign exchange movement |
| 626 | (227) | 884 |
Operating cash flows before working capital movements |
| (2,004) | (5,794) | (15,468) |
Decrease/(increase) in inventories |
| 455 | (1,551) | 835 |
(Increase)/decrease in receivables |
| (1,970) | 2,365 | 4,041 |
Decrease in trade and other payables |
| (859) | (3,480) | (3,268) |
Increase/(decrease) in provisions |
| 12 | (334) | 270 |
Taxes paid |
| (5) | (14) | (133) |
Net cash outflow from operating activities |
| (4,371) | (8,808) | (13,723) |
Cash flows from investing activities |
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Acquisition of Eco-Oil |
| - | (3,575) | (3,575) |
Acquisition of property, plant and equipment |
| - | (10,912) | (14,937) |
Proceeds from sale of property, plant and equipment |
| - | 648 | 2,536 |
Disposal of discontinued operation, net of cash disposed of |
| 1,716 | - | - |
Interest received |
| - | 4 | 5 |
Net cash inflow /(outflow) from investing activities |
| 1,716 | (13,835) | (15,971) |
Cash flows from financing activities |
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Proceeds from loans and borrowings |
| 3,546 | 9,630 | 15,404 |
Capital contribution from NCI |
| 250 | 650 | 850 |
Interest paid |
| (522) | (201) | (527) |
Repayment of lease liabilities |
| (817) | - | (573) |
Net cash inflow from financing activities |
| 2,457 | 10,079 | 15,154 |
Decrease in cash and cash equivalents |
| (198) | (12,564) | (14,540) |
Movement in net cash |
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Cash and cash equivalents |
| (303) | 14,946 | 14,946 |
Effect of movements in exchange rates on cash held |
| 29 | - | (709) |
Opening cash and cash equivalents |
| (274) | 14,946 | 14,237 |
Decrease in cash and cash equivalents |
| (198) | (12,564) | (14,540) |
Closing cash and cash equivalents |
| (472) | 2,382 | (303) |
Reported in the Consolidated Statement of Financial Position as: |
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| |
Cash and cash equivalents |
| 628 | 2,382 | 2,064 |
Bank overdraft |
| (1,100) | - | (2,367) |
Net cash balance |
| (472) | 2,382 | (303) |
NOTES TO THE UNAUDITED INTERIM REPORT
1. BASIS OF PREPARATION
Hydrodec Group plc is the Group's ultimate parent company. It is incorporated and domiciled in England and Wales. The address of Hydrodec Group plc's registered office is 6 Hay's Lane, London, United Kingdom. Hydrodec Group plc's shares are listed on the Alternative Investment Market of the London Stock Exchange.
The Group presents its financial statements in US dollars, as the Group's business is influenced by pricing in international commodity markets which are primarily dollar based.
These consolidated condensed interim financial statements have been approved by the Board of Directors on 15 September 2016.
The interim consolidated financial statements for the six months ended 30 June 2016, which are unaudited, do not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. Accordingly, this condensed report is to be read in conjunction with the Annual Report for the year ended 31 December 2015, which has been prepared in accordance with IFRS as adopted by the European Union, and any public announcements made by the Group during the interim reporting period.
The statutory accounts for the year ended 31 December 2015 have been reported on by the Group's auditors, received an unqualified audit report and have been filed with the registrar of companies at Companies House. The unaudited condensed interim financial statements for the six months ended 30 June 2016 have been drawn up using accounting policies and presentation expected to be adopted in the Group's full financial statements for the year ending 31 December 2016, which are not expected to be significantly different to those set out in note 1 to the Group's audited financial statements for the year ended 31 December 2015.
The financial statements have been prepared on the going concern basis, which assumes that the Group will have sufficient funds to continue in operational existence for the foreseeable future.
2. ACCOUNTING POLICIES
Restatement of prior period balances
In preparing the six months ended 30 June 2016 financial statements, certain balances in respect of prior period (six months ended 30 June 2015) have been restated.
· The retranslation of certain reserve accounts has been reversed so as to present the reserve accounts at their historical position as at 1 January 2014. It has not been possible to restate back to the original opening position but any impact is within reserves and deemed immaterial.
· In the Statement of Comprehensive Income, exchange differences on translation of foreign operations and capital contribution from non-controlling interests have been restated to show the reclassification of capital contribution of US$325,000 from non-controlling interests from other comprehensive income to transactions with owners. This has subsequently changed the figure for exchange differences from US$(417,000) to US$(399,000).
· In the Statement of Financial Position, the carrying amount of the intangibles relating to the CEP license has been restated to reflect the US$953,000 write-off in the six months ended 30 June 2015 with the offset reflected in trade and other payables. This restatement has no impact to profit and loss.
· In finalising the fair value of assets acquired with the purchase of Eco-Oil for the financial statements for the year ended 31 December 2015, the Directors had reviewed the estimates of fair value made initially and recorded on a provisional basis in the Group's interim accounts for the six months ended 30 June 2015. Consequently, the reassessed figures for intangible assets were determined to have no material value assigned at the date of acquisition. This was further supported by the subsequent sales.
Certain other balances in respect of prior periods (six months ended 30 June 2015 and year ended 31 December 2015) have been restated without any overall impact on net assets.
· Presentation of Income Statement to show reclassification between continuing operations and discontinued operations.
3. REVENUE AND OPERATING LOSS
Following the disposal of Hydrodec (UK) Limited ("HUK") and Hydrodec Re-Refining (UK) Limited ("HRR") (together the "Recycling" business) on 4 March 2016, the Group operates one main operating segment, Re-refining.
3.1. SEGMENT ANALYSIS
| Re-refining | Recycling(discontinued)* | All other segments | Total |
Six months ended 30 June 2016 | USD'000 | USD'000 | USD'000 | USD'000 |
Revenue | 8,117 | 4,724 | - | 12,841 |
Other income | 404 | - | - | 404 |
Operating EBITDA | (86) | (1,559) | (1,594) | (3,239) |
Depreciation | (1,132) | (213) | (4) | (1,349) |
Amortisation | (871) | - | - | (871) |
Share-based payment costs | - | - | (16) | (16) |
Foreign exchange gain | 421 | 4 | 188 | 613 |
Operating loss before impairment (including discontinued operations) | (1,668) | (1,768) | (1,426) | (4,862) |
| Re-refining | Recycling(discontinued)* | All other segments | Total |
Six months ended 30 June 2015 | USD'000 | USD'000 | USD'000 | USD'000 |
Revenue | 3,278 | 16,547 | - | 19,825 |
Other income | 1,519 | - | - | 1,519 |
Operating EBITDA | (363) | (1,227) | (1,623) | (3,213) |
Growth costs | (715) | (422) | (90) | (1,227) |
Re-commissioning costs | (494) | - | - | (494) |
Restructuring costs | - | (105) | - | (105) |
Depreciation | (447) | (806) | (4) | (1,257) |
Amortisation | (1,039) | (893) | - | (1,932) |
Share-based payment costs | - | - | (17) | (17) |
Foreign exchange gain / (loss) | (25) | 48 | (30) | (7) |
Operating loss before impairment (including discontinued operations) | (3,083) | (3,405) | (1,764) | (8,252) |
| Re-refining | Recycling(discontinued)* | All other segments | Total |
Year ended 31 December 2015 | USD'000 | USD'000 | USD'000 | USD'000 |
Revenue | 8,231 | 34,083 | - | 42,314 |
Other income | 1,521 | 2 | - | 1,523 |
Operating EBITDA | (3,254) | (2,855) | (5,114) | (11,223) |
Growth costs | (1,246) | (422) | (92) | (1,760) |
Re-commissioning costs | (302) | - | - | (302) |
Restructuring costs | (231) | (1,028) | - | (1,259) |
Depreciation | (1,310) | (1,414) | (11) | (2,735) |
Amortisation | (1,683) | (1,381) | - | (3,064) |
Share-based payment costs | - | - | (31) | (31) |
Foreign exchange gain | 784 | 3 | 58 | 845 |
Operating loss before impairment (including discontinued operations) | (7,242) | (7,097) | (5,190) | (19,529) |
|
|
|
|
|
* See Note 12.1 |
|
|
|
|
3.2. GEOGRAPHIC ANALYSIS
| Six months ended | Six months ended | Year ended | |||
| 30 June 2016 | 30 June 2015 | 31 December 2015 | |||
| Revenue and other income | Non-current assets | Revenue and other income | Non-current assets | Revenue and other income | Non-current assets |
| USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | USD'000 |
|
|
|
|
|
|
|
USA | 6,807 | 33,839 | 2,706 | 33,235 | 5,559 | 34,616 |
Australia | 1,714 | 11,239 | 2,091 | 11,994 | 4,193 | 11,855 |
Unallocated | - | 2,591 | - | 7,738 | - | 3,274 |
Recycling (discontinued)* | 4,724 | - | 16,547 | 15,800 | 34,085 | 5,516 |
| 13,245 | 47,669 | 21,344 | 68,767 | 43,837 | 55,261 |
|
|
|
|
|
|
|
* See Note 12.1 |
|
|
|
|
|
|
4. FINANCE COSTS
|
|
| Six months ended | Year ended |
|
| Six months ended 30 June 2016 | 30 June 2015 *Restated | 31 December 2015 *Restated |
|
| USD'000 | USD'000 | USD'000 |
|
|
|
|
|
Interest income on: |
|
|
|
|
Loan and receivables |
| - | 485 | 5 |
Finance income |
| - | 485 | 5 |
Financial liabilities measured at amortised cost - interest expense |
| (522) | (169) | (20) |
Finance costs |
| (522) | (169) | (20) |
Net finance costs recognised in profit or loss |
| (522) | 316 | (15) |
5. LOSS PER SHARE
|
| Six months ended | Six months ended | Year ended |
|
| 30 June 2016 | 30 June 2015 | 31 December 2015 |
|
| Number of Shares | Number of Shares | Number of Shares |
Issued ordinary shares at beginning of year |
| 746,682,805 | 803,356,138 | 803,356,138 |
Add back EBT shares cancelled |
| - | - | 2,583,333 |
Add back treasury shares (cancelled in 2015) |
| - | (59,256,666) | (59,256,666) |
Weighted average shares in issue |
| 746,682,805 | 744,099,472 | 746,682,805 |
|
|
|
|
|
Loss per share - basic/diluted |
| (0.71) cents | (1.13) cents | (4.17) cents |
Loss per share (continuing operations) - basic / diluted |
| (0.47) cents | (0.60) cents | (1.67) cents |
Loss per share (discontinued operations) - basic / diluted |
| (0.24) cents | (0.53) cents | (2.50) cents |
6. PROPERTY, PLANT AND EQUIPMENT
| Land and buildings | Plant and equipment | Assets in course of construction | Total |
| USD'000 | USD'000 | USD'000 | USD'000 |
Cost |
|
|
|
|
At 31 December 2014 | 4,838 | 21,450 | 18,098 | 44,386 |
Change in exchange rates | (68) | (297) | - | (365) |
Additions | 14 | 96 | 10,675 | 10,785 |
Acquisitions | 894 | 3,091 | - | 3,985 |
Disposals | (6) | (536) | - | (542) |
At 30 June 2015 | 5,672 | 23,804 | 28,773 | 58,249 |
Change in exchange rates | (83) | (338) | - | (421) |
Reclassification | - | 18,098 | (18,098) | - |
Additions | 585 | 14,242 | (10,675) | 4,152 |
Acquisitions | (152) | 13 | - | (139) |
Revaluation | - | (496) | - | (496) |
Disposals | (4) | (3,251) | - | (3,255) |
At 31 December 2015 | 6,018 | 52,072 | - | 58,090 |
Change in exchange rates | - | 143 | - | 143 |
Disposals | - | (10,568) | - | (10,568) |
At 30 June 2016 | 6,018 | 41,647 | - | 47,665 |
|
|
|
|
|
Accumulated depreciation |
|
|
|
|
At 31 December 2014 | 503 | 7,093 | - | 7,596 |
Change in exchange rates | (7) | (98) | - | (105) |
Depreciation charge for the period | 54 | 1,205 | - | 1,259 |
Disposals | (3) | (412) | - | (415) |
At 30 June 2015 | 547 | 7,788 | - | 8,335 |
Change in exchange rates | 12 | 173 | - | 185 |
Depreciation charge for the period | 535 | 941 | - | 1,476 |
Impairment | 742 | 3,318 | - | 4,060 |
Disposals | (7) | (1,604) | - | (1,611) |
At 31 December 2015 | 1,829 | 10,616 | - | 12,445 |
Change in exchange rates | - | 407 | - | 407 |
Depreciation charge for the period | 37 | 1,099 | - | 1,136 |
Disposals | - | (6,030) | - | (6,030) |
At 30 June 2016 | 1,866 | 6,092 | - | 7,958 |
|
|
|
|
|
Carrying amount |
|
|
|
|
At 30 June 2016 | 4,152 | 35,555 | - | 39,707 |
At 30 June 2015 | 5,125 | 16,016 | 28,773 | 49,914 |
At December 2015 | 4,189 | 41,456 | - | 45,645 |
7. INTANGIBLES
| Re-Refining |
| Recycling | Total | |||||
| Royalty | Hydrodec Technology | Goodwill | CEP License |
| Contracts | Brand Name | Goodwill |
|
| USD'000 | USD'000 | USD'000 | USD'000 |
| USD'000 | USD'000 | USD'000 | USD'000 |
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
|
At 31 December 2014 | 4,593 | 24,414 | 6,349 | 1,948 |
| 2,223 | 2,079 | - | 41,606 |
Exchange translation | (292) | 252 | 65 | (38) |
| 23 | 22 | - | 32 |
Acquisition | - | - | - | - |
| - | - | 1,536 | 1,536 |
Write-off | - | - | - | (953) |
| - | - | - | (953) |
At 30 June 2015 | 4,301 | 24,666 | 6,414 | 957 |
| 2,246 | 2,101 | 1,536 | 42,221 |
Exchange translation | (211) | (1,410) | (366) | (54) |
| (129) | (121) | (127) | (2,418) |
Acquisition | - | - | - | - |
| - | - | - | - |
Write-off | - | - | (2,904) | - |
| - | - | - | (2,904) |
Disposals | - | (389) | - | - |
| - | - | - | (389) |
At 31 December 2015 | 4,090 | 22,867 | 3,144 | 903 |
| 2,117 | 1,980 | 1,409 | 36,510 |
Exchange translation | 69 | (2,222) | (364) | (88) |
| (206) | (192) | (147) | (3,150) |
Disposals | - | - | - | - |
| - | - | (1,262) | (1,262) |
At 30 June 2016 | 4,159 | 20,645 | 2,780 | 815 |
| 1,911 | 1,788 | - | 32,098 |
|
|
|
|
|
|
|
|
|
|
Accumulated amortisation and impairment |
|
|
|
|
|
|
|
| |
At 31 December 2014 | 3,265 | 13,270 | 3,118 | - |
| 750 | 816 | - | 21,219 |
Exchange translation | (1) | 163 | 31 | - |
| 18 | 8 | - | 219 |
Provided in the period | 255 | 784 | - | - |
| 455 | 436 | - | 1,930 |
At 30 June 2015 | 3,519 | 14,217 | 3,149 | - |
| 1,223 | 1,260 | - | 23,368 |
Exchange translation | (198) | (841) | (534) | - |
| (77) | (67) | - | (1,717) |
Provided in the period | (145) | 789 | - | - |
| 305 | 185 | - | 1,134 |
Write-off | - | - | (2,904) | - |
| - | - | - | (2,904) |
Impairment | - | - | 3,433 | 903 |
| 666 | 602 | 1,409 | 7,013 |
At 31 December 2015 | 3,176 | 14,165 | 3,144 | 903 |
| 2,117 | 1,980 | 1,409 | 26,894 |
Exchange translation | 55 | (1,425) | (364) | (88) |
| (206) | (192) | (147) | (2,367) |
Provided in the period | 134 | 737 | - | - |
| - | - | - | 871 |
Disposals | - | - | - | - |
| - | - | (1,262) | (1,262) |
At 30 June 2016 | 3,365 | 13,477 | 2,780 | 815 |
| 1,911 | 1,788 | - | 24,136 |
|
|
|
|
|
|
|
|
|
|
Carrying amount |
|
|
|
|
|
|
|
|
|
At 30 June 2016 | 794 | 7,168 | - | - |
| - | - | - | 7,962 |
At 30 June 2015 | 782 | 10,449 | 3,265 | 957 |
| 1,023 | 841 | 1,536 | 18,853 |
At 31 December 2015 | 914 | 8,702 | - | - |
| - | - | - | 9,616 |
*Restated
CEP license write-off of US$953,000 restated in six months ended 30 June 2015 to reflect adjustment made in the year ended 31 December 2015 carrying amount as well as exchange translation. Corresponding adjustment was to trade and other payables. See note 9.
Restatement of acquisition of Contracts and Brand Name in six months ended 30 June 2015 to nil to show change in treatment of acquisition of Eco-Oil from gain on bargain purchase to goodwill on acquisition. The goodwill on acquisition is subsequently written off when the Recycling business is disposed of in the six months ended 30 June 2016.
8. TRADE AND OTHER RECEIVABLES
|
| Six months ended | Six months ended | Year ended |
|
| 30 June 2016 | 30 June 2015 | 31 December 2015 |
|
| USD'000 | USD'000 | USD'000 |
Trade receivables |
| 2,125 | 6,632 | 5,103 |
Prepayments and accrued income |
| 40 | 1,546 | 1,260 |
Other receivables |
| 440 | 292 | 436 |
Other taxation and social security |
| - | 5 | - |
|
| 2,605 | 8,475 | 6,799 |
9. TRADE AND OTHER PAYABLES
|
| Six months ended30 June 2016 | Six months ended30 June 2015*Restated | Year ended31 December 2015 |
|
| USD'000 | USD'000 | USD'000 |
Current |
|
|
|
|
Trade payables |
| 3,304 | 7,776 | 7,420 |
Non-trade payables and accrued expenses |
| 1,581 | 3,976 | 3,069 |
|
| 4,885 | 11,752 | 10,489 |
*Restated
CEP license write-off of US$953,000 restated in six months ended 30 June 2015 to reflect adjustment made in the year ended 31 December 2015 carrying amount as well as exchange translation. Corresponding adjustment was to trade and other payables. See note 7.
Change in classification between trade and other payables and other interest-bearing liabilities. See note 10.
10. OTHER INTEREST-BEARING LIABILITIES
|
|
| Six months ended |
|
|
| Six months ended 30 June 2016 | 30 June 2015 *Restated | Year ended 31 December 2015 |
|
| USD'000 | USD'000 | USD'000 |
Current liabilities |
|
|
|
|
Current portion of finance lease liabilities |
| 1,552 | 168 | 2,074 |
Unsecured bank facility |
| 1,319 | 2,630 | 4,121 |
|
| 2,871 | 2,798 | 6,195 |
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Finance lease liabilities |
| 8,728 | 10,348 | 9,125 |
Loan from shareholder |
| 7,325 | - | 3,966 |
Other loan |
| - | 4 | - |
|
| 16,053 | 10,352 | 13,091 |
*Restated
Change in classification between trade and other payables and other interest-bearing liabilities. See note 9.
11. SHARE CAPITAL
Issued and fully paid - ordinary shares of 0.5 pence each |
|
|
|
|
|
|
|
|
|
|
| Six months ended | Six months ended | Year ended |
|
| 30 June 2016 | 30 June 2015 | 31 December 2015 |
|
| Number of shares | Number of shares | Number of shares |
At the beginning of the period |
| 746,682,805 | 803,356,138 | 803,356,138 |
Cancelled |
| - | (56,673,333) | (56,673,333) |
At the end of the period |
| 746,682,805 | 746,682,805 | 746,682,805 |
|
|
|
|
|
|
| Six months ended | Six months ended | Year ended |
|
| 30 June 2016 | 30 June 2015 | 31 December 2015 |
|
| USD'000 | USD'000 | USD'000 |
At the beginning of the period |
| 6,200 | 6,620 | 6,620 |
Issued in settlement of loan |
| - | (420) | (420) |
At the end of the period |
| 6,200 | 6,200 | 6,200 |
12. DISCONTINUED OPERATIONS
12.1. RESULTS OF DISCONTINUED OPERATIONS
|
| Six months ended | Six months ended | Year ended |
|
| 30 June 2016 | 30 June 2015 | 31 December 2015 |
|
| USD'000 | USD'000 | USD'000 |
Revenue |
| 4,724 | 16,547 | 34,085 |
Expenses |
| (6,283) | (20,466) | (52,762) |
Results from operating activities |
| (1,559) | (3,919) | (18,677) |
Income tax |
| - | - | - |
Results from operating activities, net of tax |
| (1,559) | (3,919) | (18,677) |
Loss on sale of discontinued operation |
| (209) | - | - |
Loss for the period |
| (1,768) | (3,919) | (18,677) |
Basic/diluted earnings (loss) per share (USD cents) |
| (0.24) | (0.53) | (2.50) |
12.2. CASH FLOWS FROM / (USED IN) DISCONTINUED OPERATION
|
| Six months ended | Six months ended | Year ended |
|
| 30 June 2016 | 30 June 2015 | 31 December 2015 |
|
| USD'000 | USD'000 | USD'000 |
Net cash used in operating activities |
| (798) | (985) | (4,461) |
Net cash from/(used in) investing activities |
| 1,716 | (5,247) | (2,128) |
Net cash flow for the period |
| 918 | (6,232) | (6,589) |
12.3. EFFECT OF DISPOSAL ON THE FINANCIAL POSITION OF THE GROUP
|
| Six months ended |
|
| 30 June 2016 |
|
| USD'000 |
Property, plant and equipment |
| (4,538) |
Inventories |
| (313) |
Trade and other receivables |
| (6,164) |
Bank overdraft |
| 2,015 |
Trade and other payables |
| 4,732 |
Provisions |
| 894 |
Other interest-bearing loans and borrowings |
| 3,464 |
Net liabilities |
| 90 |
Costs of disposal, satisfied in cash |
| (299) |
Bank overdraft disposed of |
| 2,015 |
Net cash inflow |
| 1,716 |
On 4 March 2016, the Group disposed of Hydrodec (UK) Limited ("HUK") and Hydrodec Re-Refining (UK) Limited ("HRR") (together, the "UK Operations") and agreed to transfer certain other rights and assets relating to its UK Operations for a consideration of £1.
Terms of the disposal
The Company sold the UK Operations to Andrew Black (the "Buyer") for a consideration of £1 in cash, including the transfer to the Buyer of circa £1.2 million of existing third party indebtedness in HUK. In addition to this, the Buyer granted Hydrodec a contractual right to receive 10% of the Buyer's entitlement to any future net profits of the UK lubricant oil re-refining project on distribution or exit. The Buyer will bear all risk and responsibility for developing the UK lubricant oil re-refining project going forward, with Hydrodec retaining only a passive economic interest under these profit share arrangements.
Related party transaction
Andrew Black is a Non-Executive Director and a substantial shareholder (as defined in the AIM Rules for Companies) of the Company. Accordingly, the disposal of the UK Operations constitutes both a related party transaction and a substantial transaction for the purposes of the AIM Rules.