HYR.L Regulatory News (HYR)

9 Mar 2007 07:02

HydroDec Group plc09 March 2007 Hydrodec Group plc 9 March 2007 Hydrodec Group plc announces its preliminary results for the year ended 31December 2006. Highlights: • Turnover up nearly 200% to £844,867, overall operating loss reduced by 53% to £2,864,826 • Successful commissioning of the 20,000 litre per day capacity refining plant in Australia. • Announced plans to construct two Superfine transformer oil plants in the USA, following significant interest from the American transformer oil market. • Received statutory planning consent for the first USA plant in the State of Ohio. Hydrodec has also reached conditional agreement on the acquisition of first site and received a package of incentives from the local and state governments of c. $US2 million. Following the year end: • Agreement was reached in February 2007 with a major transformer manufacturer in Australia to allocate up to 75% of its annual new transformer oil purchase in Australia, to Hydrodec. This is an expected uptake of 3,000 litres of Superfine per day, representing up to 15% of Hydrodec's production capacity in Australia. John Gunn, Chairman commented "During our negotiations with customers in 2006,both in Australia and the USA, it has become clear our approach of creating anew source of supply of transformer oil has found almost universal acceptance.By using an existing used resource and turning it into a supply of the highestquality of new transformer oil, Superfine, Hydrodec achieves the very essence ofsustainability. It creates a virtuous circle for the utility, the transformermanufacturer and their customers. In today's uncertain geo-political climate itoffers a secure price and guaranteed supply of oil, thus enabling customers toplan with confidence their future transformer oil requirements. This marketreaction bodes very well for the company's future." For further information please contact: Rodger Sargent, Finance Director, telephone: 020 7355 7660 Emma Davis, Curve PR, telephone: 07764 197003 CHAIRMAN'S STATEMENT I am pleased to present Hydrodec's accounts for the year ended 31 December 2006.Hydrodec's technology is an oil refining process that produces new specialityoils, using spent oil as the primary feedstock. The process also removesdangerous contaminants such as PCB's from oil and similar fluids. The technologycan be applied to many speciality oils, but initially the Company isconcentrating on the transformer oil industry. Old transformer oil that has beenrefined through the Hydrodec process becomes Superfine transformer oil. 2006 has seen major developments within Hydrodec. The Australian operations havegenerated enormous interest and profile within the transformer industry and as aresult of this interest, long-term agreement is now in place with a majortransformer manufacturer, and negotiations are continuing with a number ofothers. The Company has also made tremendous progress in a short period of timewithin the key US transformer oil market including, at the end of the year,receiving planning permission for the first US plant, in Canton, Ohio. Year ended 31 December 2006 results Turnover for the year increased nearly 200% to £844,867 (2005: £288,638), withthe overall operating loss more than halving to £2,864,826 (2005: £6,076,609).The operating loss includes £970,858 of non-cash items due to the write-off ofoptions granted during the year, depreciation and the goodwill write-off of theHydrodec licence, leaving a net operating cash outflow of £2,104,640 (2005:£2,308,107). Net assets fell to £10,963,311 (2005: £12,135,186), including cashbalances of £891,913 (2005: £3,161,329). On 13 October 2006, the Company issued 6,000,000 new ordinary shares, raisingover £1.68 million gross through an institutional placing to fund infrastructuredevelopment at the Young plant and on-going US development. Business developments Following the successful commissioning on 24 April of the 20,000 litre per daycapacity refining plant in Young, New South Wales, 2006 saw the continuedcommercialisation of the technology in Australia. In March 2006, TransGrid, theNew South Wales power transmission authority, issued a standing purchase orderstating Hydrodec is now qualified to treat its used PCB contaminatedtransformers. Additionally, significant purchase orders for Superfine werereceived, including the refining of 230,000 litres of low level PCB contaminatedoil for a South Australian Utility and supply of more than 200,000 litres of oilfor refining from SP AusNet of Victoria. Superfine orders also came from a NewSouth Wales utility and a service company in Southern Australia for transformerretro-fills. Agreement was reached in February 2007 (following the period covered by theseaccounts) with Schneider Australia, who have agreed in principle to allocate upto 75% of its annual new transformer oil purchase in Australia, to Superfine.This is an expected uptake of 3,000 litres of Superfine per day that representsup to 15% of Hydrodec's production capacity in Australia. Schneider Electric isa key manufacturer of distribution transformers in Australia, supplying to majorpower utilities across the country and is one of Australia's larger transformeroil purchasers. This order has a potentially significant impact on Hydrodec'scredibility within the market and will greatly help future negotiations withother clients. Technological developments On-going product and process research and development carried out through Julyand August 2006 in response to customer inquiry identified a means of enhancingthe technical quality of Superfine oil. This enhanced quality has been deliveredby adjustment of operating conditions and minor modification of equipment in theprocess train within the existing plant. We are confident that the resultingSuperfine product will meet all the demands of customers in the future. Operational Capacity Hydrodec's capacity, knowledge and skills are embodied by the Company's staffand systems. Commissioning of the 20,000 litre per day capacity plant in Aprilwas paralleled by the establishment of the human and systems resources requiredfor continuous production of Superfine. During 2006, Hydrodec graduated fromstart-up to fully established transformer oil refiner, distributor and marketer.The Australian operations for Superfine production are now fully established andstructured to be able to support and sustain expansion to the US and beyond. Intellectual Property ('IP') The IP underlying Hydrodec's market advantage was enhanced during the year. Inthe key of areas of process operating systems, auxiliary plant and operatingfacilities, Hydrodec added to the knowledge base of the company. Improvements tothe IP base reinforce the market leading technology advantage underlyingHydrodec's strategy in the specialty oils marketplace. US expansion The key to Hydrodec's future expansion is the US, the world's biggesttransformer oil market. On-going research and market analysis throughout 2006culminated in Hydrodec receiving statutory planning consent for theestablishment of its first US plant in Canton, Ohio on 07 December 2006. Cantonwas chosen due to its location in one of the major industrial regions in theUSA, close to both the suppliers of feedstock oil, a skilled workforce andpotential Superfine customers. The State of Ohio and the City of Canton have also provided a package ofincentives to Hydrodec. These include, from the State, a Business Developmentgrant of up to US$100,000, a Workforce Development grant of up to US$65,000, agrant for off site infrastructure of up to US$400,000 and US$539,300 of StateJob Creation Tax Credits. Incentives provided by the City of Canton include aJob Creation Program incentive valued at c.US$210,938, Net Profits Tax incentivevalued at c.US$229,640, and an US$437,756 Enterprise Zone Tax Abatement over tenyears. The Company has secured an option to acquire a production site located in anindustrial park within Canton City limits. The site has direct access tointerstate rail and road transport corridors. Concept planning for the facilityis near complete and detailed design is underway. Order placement for long leadequipment and commencement of construction site works is scheduled for Q2 2007.Commissioning of the new facility is expected during the first half of 2008.Finalisation of the production facility location and commissioning dates hasalso enabled the acceleration of market development and product pre-salesactivities. The site will have a production capacity of up to 80,000 litres ofSuperfine per day, a quadrupling of Hydrodec's existing Superfine productioncapacity. The future The US market is key to the success of Hydrodec and the feedback from thetransformer oil industry to the environmental, sustainability and greenhousebenefits that Hydrodec's technology provides has been tremendously encouraging.By using an existing used resource and then turning it into a supply of thehighest quality new transformer oil, the Company achieves the very essence ofsustainability. The multiplying of our production capacity that the US gives will havesignificant financial benefits for the company and should give us the economicand industry credibility to consider other major markets for transformer oilsaround the world. A key feature we have seen during negotiations with customers in 2006, both USand Australian, has been their interest in Hydrodec's ability to maintain supplyof Superfine independent of world crude oil price and availability fluctuations.In today's uncertain geo-political climate, a secure price and guaranteed supplyof oil is a key tenet of future planning for companies within the industry. ThatHydrodec can provide this from a sustainable green source, creating a virtuouscircle for the transformer manufacturer, the utility and their customers, bodesvery well for the Company's future. John Gunn Non-executive Chairman CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2006 2006 2005 Note Total Total £ £ Revenue 844,867 288,638 Cost of sales (411,818) (173,183) Gross profit 433,049 115,455 Administrative expenses (3,297,875) (6,192,064) Operating loss (2,864,826) (6,076,609) Interest receivable 60,932 90,099Interest payable (8,990) - Loss on ordinary activities before taxation (2,812,884) (5,986,510) Tax on loss on ordinary activities - - Loss for the period (2,812,884) (5,986,510) Loss per share - basic and diluted 2 (1.56p) (3.72p) All transactions arise from continuing operations. CONSOLIDATED BALANCE SHEET For the year ended 31 December 2006 2006 2005 £ £ Non-current assetsProperty, plant and equipment 3,620,343 2,109,480Intangible assets 6,817,203 7,341,603 10,437,546 9,451,083 Current assetsTrade and other receivables 184,612 203,712Inventories 75,361 54,434Cash and cash equivalents 945,938 3,260,612 1,205,911 3,518,758Current liabilitiesTrade and other payables (418,840) (680,158) Net current assets 787,071 2,838,600 Non-current liabilities Finance lease liabilities (261,306) (154,497) 10,963,311 12,135,186 Capital and reservesCalled up share capital 923,227 893,227Share premium account 16,891,306 15,325,306Share options reserve 2,140,052 1,913,889Profit and loss account (8,806,258) (5,993,374)Foreign exchange reserve (185,016) (3,862) Total equity 10,963,311 12,135,186 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2006 2006 2005 £ £ Cashflows from operating activitiesLoss after tax (2,812,884) (5,986,510)Decrease/(increase) in amounts receivable 19,100 (25,687)Decrease in amounts payable (179,847) (669,215)Increase in inventories (20,927) (54,434)Deprecation 220,295 84,189Loss on disposal of property, plant and equipment 44,845 -Amortisation of other intangible assets 524,400 524,400Finance costs (51,942) (90,099)Foreign exchange movement (73,843) (7,417)Share based payment expense 226,163 1,913,889Impairment of goodwill - 2,002,777Net cash outflow from operating activities (2,104,640) (2,308,107) Cashflows from investing activitiesPurchase of investment (including costs) - (1,851,222)Purchase of property plant and equipment (1,632,422) (951,307)Overdraft acquired - (122,747)Bank interest and other income received 60,932 90,099Interest paid - finance leases (8,990) -Net cash outflow from investing activities (1,580,480) (2,835,177) Cashflows from financing activitiesIssue of new shares 1,680,000 5,464,896Costs of share issue (84,000) (146,346)Repayment of lease liabilities (180,296) (28,200)Net cash inflow from financing 1,415,704 5,290,350 (Decrease)/increase in cash and cash equivalents (2,269,416) 147,066 Opening cash and cash equivalents 3,161,329 3,014,263Closing cash and cash equivalents 891,913 3,161,329 CONSOLIdATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2006 Share Share Foreign Profit and Share option Total capital premium exchange loss account reserve reserve £ £ £ £ £ £ At 1 January 2005 782,500 10,117,483 3,555 (6,864) - 10,896,674 Recognition of - - - - 1,913,889 1,913,889share-based paymentExchange differences on - - (7,417) - - (7,417)translation of foreignoperationsNet income recognised - - (7,417) - - (7,417)directly in equityLoss for the period - - - (5,986,510) - (5,986,510)Total recognised income - - - (5,986,510) - (5,968,510)for the year Issue of shares 110,727 5,354,169 - - - 5,464,896Issue costs - (146,346) - - - (146,346) At 31 December 2005 893,227 15,325,306 (3,862) (5,993,374) 1,913,889 12,135,186 Recognition of - - - - 226,163 226,163share-based paymentExchange differences on - - (181,154) - - (181,154)translation of foreignoperations Net income recognised - - (181,154) - - (181,154)directly on equity Loss for the period - - - (2,812,884) - (2,812,884) - - - (2,812,884) (2,812,884)Issue of shares 30,000 1,650,000 - - - 1,680,000Issue costs - (84,000) - - - (84,000) At 31 December 2006 923,227 16,891,306 (185,016) (8,877,258) 2,140,052 10,963,311 The accompanying accounting policies and notes form an integral part of thesefinancial statements. NOTES TO COmpany BALANCE SHEET AT 31 DECEMBER 2006 1 ACCOUNTING POLICIES BASIS OF PREPARATION These consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards (IFRS) as adopted by the EU underthe historical cost convention. They are presented in sterling, which is thefunctional currency of the group because the significant events of the currentand prior period occurred in sterling. The preparation of financial statements in accordance with IFRS requires the useof estimates and assumptions that affect the reported amounts of assets andliabilities, and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Although these estimates are based on management'sbest knowledge of current events and actions, actual results may ultimatelydiffer from those estimates. 2 LOSS PER SHARE The calculation of the basic loss per share is based on the loss attributable toordinary shareholders divided by the weighted average number of shares in issueduring the year. The weighted average number of shares used in the calculations is set out below: 2006 2005 Number of Number of shares shares 179,944,032 160,812,447 In 2005 and 2006, the share options were anti-dilutive and consequently nodiluted earnings per share figure is included. 3 Annual report Copies of the annual report and accounts will be sent to shareholders in thenear future and will be obtainable from the Company's head office at 84Grosvenor Street, London. W1K 3JZ. 4 Status of this report The financial information set out in the announcement, which was approved by theBoard of Directors on 8 March 2007, is audited but does not constitute theCompany's statutory accounts for the year ended 31 December 2006. The accountingpolicies applied in preparing the financial information are consistent withthose adopted and disclosed in the Group's statutory accounts for the year ended31 December 2005. The financial information for the years ended 31 December 2005is derived from the statutory accounts for that year, which have been deliveredto the Registrar of Companies. This information is provided by RNS The company news service from the London Stock Exchange