HYR.L Regulatory News (HYR)

29 January 2018

Hydrodec Group plc

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

Pre-close Trading Update

Hydrodec Group plc (AIM: HYR), the cleantech industrial oil re-refining group, is pleased to provide a trading update for the financial year ended 31 December 2017.

Unaudited Highlights for year ended 31 December 20171

· Group EBITDA approximately US$0.45 million, the first positive full-year EBITDA in the Group's history, a significant improvement of US$1.75 million on the prior year (2016: EBITDA loss of US$1.3m)

· Revenues increase by 6% to approximately US$17.8 million (2016: US$16.8 million from continuing core re-refining business), driven by improved pricing and sales mix

· Gross unit margins increase substantially to 14.5% (2016: 5.2%)

· 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

· Further improvement in sales mix between higher margin transformer oil and lower margin base oil, with transformer oil sales representing 52% of total oil sales in 2017, up from 40% in 2016 - targeting at least 60% of total sales in 2018

· Canton plant utilisation at 61% on average for the year - feedstock remains key constraint to higher throughput and strategic initiatives continue to progress in securing sustainable, increased supplies going forward, with the Group seeking to achieve utilisation rates at the Canton facility of at least 70% in 2018

· Further reduction in corporate costs with benefits from initiatives implemented at the end of 2016 continuing to filter through into 2017

· First sale of carbon credits in respect of credits generated by production in 2013, with a strong potential pipeline for further sales in H1 2018 including vintage credits

· In the US business, the award of 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")

· Confirmation of new patent for a further 20 years in the key US market reinforcing uniqueness and market-leading nature of Hydrodec technology

· 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

1Comparisons to 2016 audited accounts

Outlook

This update confirms further significant progress in the turnaround of the Company over the past twelve months has been achieved. The general operating environment for oil related businesses has improved recently, positively impacting the Group's pricing and margins. 2018 has begun strongly in terms of sales orders in the US and Australia but the feedstock position in both geographies remains a constraint, in part driven by usual late Q4/early Q1 seasonality but also specifically in the US driven by robust demand for used transformer oil for fuels blending particularly in Mexico. Higher margin transformer oil sales currently represent approximately 60% of total Group oil sales, with scope for further improvement through the year. 

The focus remains on expanding the number and value of significant feedstock contracts that in turn should drive higher utilisation of the operations and further improve the Group's EBITDA and cash-flow generation going forward. The recently awarded enhanced PCB licence renewal in the US should give us the opportunity to service customers more widely than before.

In 2018, the Group remains focused on building upon its positive 2017 performance by strengthening margins and further increasing Group EBITDA by continuing to grow market share and leverage product quality in key customer relationships. As well as focusing on expanding the number and value of significant feedstock contracts to increase throughput in our existing operations, the Group will continue to pursue other strategic growth initiatives that will ultimately seek to accelerate the Group's overall profitability.

Chris Ellis, Chief Executive Officer of Hydrodec, commented: "I am pleased for the Group to report its first positive EBITDA in its history, a significant milestone and an important step as we continue to build solid commercial foundations from which the business can seek to develop further. There will continue to be challenges particularly in respect of feedstock procurement in what is still a volatile market, but I am confident in the Group's ability to deliver an improved positive EBITDA in the coming years and I look forward to reporting further progress."

For further information, please contact:

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.