HYR.L Regulatory News (HYR)

31 Mar 2006 16:12

HydroDec Group plc31 March 2006 Hydrodec Group plc Hydrodec Group plc announces its unaudited preliminary results for the yearended 31 December 2005 Highlights: •Construction of a new Hydrodec plant capable of processing 20,000 litres per day of speciality oils and/or chlorinated organic wastes. The plant was delivered to the Young site, on time and budget, last week and should go on stream in April. •Acquisition of OTS and the Young site was completed in August 2005, giving the Company total control and ownership of the site. •Raised £3.5 million gross through an institutional placing in November 2005 to fund a new transformer recycling plant and refurbishment of the Young plant and its facilities. Following the year end: •Selected by Dow Chemical to test its technology in a trial for the advanced treatment of dioxin contamination in soil. •Appointment of John Cowan as Executive VP North America to continue establishment of Hydrodec in US. •Signed agreement with TransGrid, the New South Wales power transmission authority, enabling Hydrodec to treat its used low level and high level PCB contaminated transformers and associated equipment. •Significant sales of Superfine transformer oil to the Australian market. John Gunn, Chairman, commented, "2005 has been a year of tremendous progress.The Company has fundamentally progressed from early stages to a fully-fledgedoperation with facilities, staff and systems capable of supporting large marketgrowth, initially in Australia and ultimately around the world. We ended theyear with excellent production facilities, management, staff, operators,logistics, laboratories, the imminent start up of a full scale production plant,market acceptance of our products, a strong pipeline of orders and market startup underway in the US and other territories." For further information please contact: Telephone: 020 7153 1540 Fax: 020 7153 1104 E-mail: fox@mcomgroup.com CHAIRMAN'S STATEMENT I am pleased to present Hydrodec's accounts for the year ended 31 December 2005,the Company's first full year of establishment and development in the globalmarketplace. Hydrodec's technology is an oil refining process that produces newspeciality oils, using spent oil as the primary feedstock. The process alsoremoves dangerous contaminants such as PCB's from oil and similar fluids. Usedtransformer oil that has been through the Hydrodec process is sold back toindustry as Superfine oil. The technology can also treat a number of chlorinatedorganic wastes, known as persistent organic pollutants or POP's. Following the Company's admission to AIM on 21st December 2004, this year hasseen a concentration on long term development, with rapid and significantprogress being made, rather than on short-term financial performance, resultingin a loss for the year. The rewards of this strategy are already being seenthrough orders and significant commercial development. The Company has created abase for substantial growth during 2005, and will reap the benefits from this inthe future. Current trading and prospects Turnover for the year ended 31 December 2005 was £288,638 (2004: nil), with anoverall operating loss of £6,076,609 (2004: £39,956). The operating loss beforenon-recurring items was £2,924,371, of which £963,135 (non-cash) was due thewrite-off of options granted during the year and £524,400 (non-cash)amortisation of the Hydrodec licence. Of the non-recurring operating loss of£3,152,238, £2,002,777 relates to the impairment of goodwill from theacquisition of Oil Treatment Services Pty Ltd ('OTS') during the year and£1,149,461 to redundancy related costs, predominantly the non-cash cost ofoptions held by redundant staff. A more representative measure of the on-going overheads is the administrativeexpenses charge of £1,552,291, which reflects the true annualised cost ofrunning the Company on an on-going basis. Similarly, the significant effect ofthe non-cash items within the operating loss is illustrated by the net cashoutflow from operating activities of only £2,308,107 compared to the operatingloss of £6,076,609. Overall, cash increased by £147,066 during the year, leavingcash balances of £3,161,329 (2004: £3,014,263) and net assets of £12,135,186(2004: £10,896,674). Capital raising On 16 November 2005 the Company issued 14,645,402 new ordinary shares to raiseover £3.5 million gross through an institutional placing. As set out below, theproceeds from the placing are being used to fund a new transformer recyclingplant, refurbishment of the Young, New South Wales plant and facilities and theexpansion of Hydrodec's global sales and marketing infrastructure. Business developments During 2005, revenue has been derived through the operation of a small Hydrodecpilot plant, capable of treating 3,000 litres of oil per day. The plant has beenused to demonstrate to the market the ability of Hydrodec's technology to treatPCB contaminated transformer oils and to re-refine other oils for Australianpower utilities. This plant operates at the Environmental Protection Authoritylicensed site in Young, previously owned by OTS, the Company's joint venturepartner. On 31st August 2005, the acquisition of OTS and the Young site wascompleted, the consideration being predominantly Hydrodec equity, giving theCompany total control and ownership of the site. As well as the Young site, the OTS business includes two certified transformeroil analysis laboratories, a mobile oil regeneration plant, mobile transformerretro-fill plant, customer management software and systems, a web basedtransformer and oil monitoring and reporting system and product distributionmechanisms. The combined business consolidates Hydrodec's position as a premium qualitytransformer oil supplier and establishes the Company as a sustainable serviceprovider. Crucially, the acquisition also gave Hydrodec control of an ideallocation to further develop and expand its operations, with the intention ofcreating a world-class centre of excellence for transformer oil re-refining andregeneration, and PCB treatments. Young gives the company a platform on which toconsolidate its technology in Australia and provides a base for the testing,replication and roll out of the technology worldwide. New plant In February 2005, the Company announced the commencement of the construction ofa new Hydrodec plant capable of processing 20,000 litres per day of specialityoils and/or chlorinated organic wastes. The plant was delivered to the Youngsite, on time and budget, last week. The plant in now undergoing connection tosite infrastructure put in place during the past six months and undergoingpre-commissioning checks for start up during the first week of April. When fully operational, the plant will produce a near seven-fold increase inHydrodec's current processing capacity. The Company is forecasting utilisationof at least half of its capacity by the end of the third quarter in 2006 andfull capacity take up during 2007. In December 2005, the Company announced plans to construct a new facility at theYoung site that will enable it to treat PCB and non-PCB contaminated hardware,such as transformers, from the power industry. This plant is expected to beoperational by the end of the second quarter in 2006. The new facility willprovide the power industry with a cost competitive, zero-emission, zero-wastemeans of dealing with both PCB and non-PCB contaminated used equipment. It willalso ensure the maximum return of used transformer oils to Hydrodec forre-refining. This represents an exciting new revenue stream for Hydrodec. Aninitial contract of c.£100,000 is already in place. Following on from this, in March 2006, the Company announced that TransGrid, theNew South Wales power transmission authority has issued a standing purchaseorder stating that Hydrodec is now qualified to treat its used low level andhigh level PCB contaminated transformers and associated equipment. The standingpurchase order applies until February 2008 and is conditional on Hydrodeccompleting the construction of the dedicated transformer recycling facility. Itis expected that a high profile standing purchase order such as this willincrease the credibility of the new facility with other operators within thesector. Superfine Oil The Company has successfully established its new brand of Superfine transformeroil within the Australian market during 2005. It is already recognised by manyoperators within the industry as a viable alternative to conventional suppliesof transformer oil. Superfine oil has been proven to exceed all internationalspecifications for new transformer oil. Superfine is produced by the Hydrodecprocess of re-refining spent or contaminated oil back to its original condition.A key advantage of Superfine is that it allows the customer to achieve amultiple life cycle for the oil, making it a valuable asset rather than aconsumable. In March 2006, the Company announced significant recent purchase orders for usedoil refining and Superfine transformer oil sales, which will go towards fillingthe new plant capacity; • Treatment and refining of 230,000 litres of low level PCB contaminated transformer for a South Australian Utility with agreement to re-purchase the refined product as new transformer oil; • Agreement to supply more than 200,000 litres of oil for refining from SP AusNet of Victoria; • Sale of 20,000 litres of Superfine oil for use in transformermaintenance to a New South Wales Utility and 37,000 litres to a service companyin Southern Australia for transformer retro-fills. Whilst some of the orders are relatively small in terms of financial impact, therapid and increasing take up of Hydrodec's technology and the market acceptanceof Superfine oil is extremely encouraging for the future. Growing marketacknowledgement of the sustainability benefits, strategic security of supply andeconomic competitiveness of Hydrodec's technology and products are assistingthis growth in the customer base of the Company. Dow Chemical In February 2006, the Company announced it had been selected by Dow Chemical totest the Hydrodec technology in a trial for the advanced treatment of dioxincontamination in soil. Dow Chemical Michigan and PIRGM (Public Interest ResearchGroup in Michigan, USA) evaluated and selected Hydrodec's technology after aworldwide call for expressions of interest. Hydrodec's treatment provides asustainable zero emission solution that is able to destroy the dioxins. Thetrial is expected to complete in June 2006. It is expected that there will thenfollow a lengthy period of assessment of the results until any further steps areundertaken. Whilst it will not lead to revenue generation in the short term, it is a furtherhigh profile validation of the potential of Hydrodec's technology. The selectionof Hydrodec for this trial demonstrates the Company is at the forefront ofdelivering Stockholm Convention compliant solutions for the treatment ofpersistent organic pollutants (POP's). This is another application of thetechnology and potentially opens up many new commercial markets for the Companyaround the world. Expansion into the USA A reflection of the growing importance and potential of the North Americanmarkets to Hydrodec was the appointment in February 2006 of John Cowan asExecutive Vice President North American Operations. John has more than 25 yearsexperience in the environmental technology and treatment industries in the USand Australia. This appointment is an important step in the establishment of theHydrodec business in the US market. John will focus on continuing negotiationswith US transformer services and transformer oil management companies for theestablishment of a Hydrodec oil refining technology in North America. TheCompany is targeting commencement of oil refining operations in North America in2007. He is also overseeing the Dow Chemical trial of the Hydrodec Technologyfor the destruction of dioxins. Future developments Socially responsible corporate behaviour towards the environment and sustainablebusiness practices are now key elements of strategy for companies andgovernments. The ongoing escalation in global crude and base oil prices is amajor additional incentive for the rapid uptake of our technology. The potentialapplications of Hydrodec's technology are far reaching and over the next 12months we will continue to demonstrate our ability to commercially re-refineother oils, particularly hydraulic oils, and show that Hydrodec provides asustainable remediation solution to environmental problems around the world. 2005 has been a year of tremendous progress. The Company has fundamentallyprogressed from early stages to a fully-fledged operation with facilities, staffand systems capable of supporting large market growth, initially in Australiaand ultimately around the world. We ended the year with excellent productionfacilities, management, staff, operators, logistics, laboratories, the imminentstart up of a full scale production plant, market acceptance of our products, astrong pipeline of orders and market start up underway in the US and otherterritories. The Board is excited about the future of the Company and believe 2006 will startto demonstrate the rewards for the investments we have made to date, and lead tosignificant revenue generation in 2007 and beyond. We also thank all staff andshareholders for their ongoing support and we look forward to a rewardingfuture. John Gunn Non-executive Chairman 31st March 2006 Consolidated Income Statement For the year ended 31 December 2005 Year ended 31 December 2005 Note Before Non-recurring Period non-recurring items ended 31 items December 2004 Total £ £ £ £ (note 1) Revenue 288,638 - 288,638 - Cost of sales (173,183) - (173,183) - Gross profit 115,455 - 115,455 - Administrativeexpenses (1,552,291) - (1,552,291)Redundancypayments - (198,707) (198,707)Share basedpayments (963,135) (950,754) (1,913,889)Impairment ofgoodwill - (2,002,777) (2,002,777)Amortisationof intangibleasset (524,400) - (524,400) (39,956) Operating loss (2,924,371) (3,152,238) (6,076,609) (39,956) Interestreceivable 90,099 33,092 Loss onordinaryactivitiesbeforetaxation (5,986,510) (6,864) Tax on loss on - -ordinary activities Loss for theperiod (5,986,510) (6,864) Loss per share- basic anddiluted 2 (3.72p) (0.01p) All transactions arise from continuing operations. Consolidated balance sheet As at 31 December 2005 Note 2005 2004 £ £Non-current assetsProperty, plant and equipment 2,109,480 293,322Intangible assets 3 7,341,603 7,866,003 9,451,083 8,159,325 Current assetsTrade and other receivables 203,712 18,882Inventories 54,434 -Cash and cash equivalents 3,260,612 3,014,263 3,518,758 3,033,145Current liabilitiesTrade and other payables (680,158) (295,796) Net current assets 2,838,600 2,737,349 Non-current liabilitiesFinance lease liabilities (154,497) - 12,135,186 10,896,674 Capital and reservesCalled up share capital 893,227 782,500Share premium account 15,325,306 10,117,483Share options reserve 1,913,889 -Profit and loss account (5,993,374) (6,864)Foreign exchange reserve (3,862) 3,555 Shareholders' funds 12,135,186 10,896,674 Consolidated cash flow statement For the year ended 31 December 2005 Year ended Period ended 31 December 2005 31 December 2004 £ £ Operating loss (6,076,609) (39,956) Increase intrade and otherreceivables (25,687) (10,199) (Decrease)/increase in trade andother payables (676,632) 252,467 Increase ininventories (54,434) - Deprecation 84,189 - Share basedpayment expense 1,913,889 - Impairment ofgoodwill 2,002,777 - Amortisation ofother intangibleassets 524,400 - Net cash(outflow)/inflowfrom operatingactivities (2,308,107) 202,312 Cashflows from investingactivities Purchase ofinvestment(includingcosts) (567,828) (721,124) Purchase ofproperty plantand equipment (951,307) - Overdraftacquired (122,747) - Repayment ofloan onacquisition - (500,000) Bank interestreceived 90,099 33,092 Net cash outflowfrom investingactivities (1,551,783) (1,188,032) Cashflows from financingactivities Issue of newshares 4,181,502 4,309,998 Costs of shareissue (146,346) (310,015) Repayment ofleaseliabilities (28,200) - Net cash inflowfrom financing 4,006,956 3,999,983 Increase in cashand cashequivalents 147,066 3,014,263 Opening cash andcash equivalents 3,014,263 - Closing cash andcash equivalents 3,161,329 3,014,263 Notes to the accounts 1 Non-recurring ITEMS Year ended 31 December 2005 £The non-recurring items are made up of the following costs: - Redundancy payments - cash 198,707 - share based payment 950,754 - Impairment of goodwill on acquisition of Oil Treatment Services Pty Ltd 2,002,777 3,152,238 2 LOSS PER SHARE The calculated of the basic loss per share is based on the loss attributable toordinary shareholders of £5,986,510 (2004: £6,864) divided by the weightedaverage number of shares in issue during the year. The weighted average number of shares used in the calculations are set outbelow: 2005 2004 Number of Number of shares shares 160,812,447 79,468,173 In 2005 and 2004, the share options were anti-dilutive and consequently nodiluted earnings per share figure was included. 3 Intangible fixed assets Hydrodec Technology Goodwill Total £ £ £ At incorporation - - -Additions 7,866,003 - 7,866,003At 31 December 2004 7,866,003 - 7,866,003Additions - 2,002,777 2,002,777At 31 December 2005 7,866,003 2,002,777 9,898,780 Accumulated depreciationAt incorporation - - -Depreciation charge for the year - - -At 31 December 2004 - - -Depreciation charge for the year 524,400 - 524,400Impairment provision - 2,002,777 2,002,777At 31 December 2005 524,400 2,002,777 2,527,177 Carrying amountAt 31 December 2005 7,341,603 - 7,341,603 At 31 December 2004 7,866,003 - 7,866,003 The Hydrodec Technology is being amortised over its anticipated useful life of15 years. The intangible asset carried forward relates to intellectual propertyacquired by the group in 2004. The intellectual property consists of know howand trade secrets relating to the Technology, some of which is covered in apatent. It is management's view that the useful life of the intellectualproperty will extend far beyond the life of the patent (approximately 10 years)and for the purposes of calculating the period over which the costs will beamortised it has been estimated that the minimum useful life of the Technologyis 15 years. At 31 December 2005, the unamortised life of the asset was 14years. Goodwill relates to the acquisition of Oil Treatment Services Pty Limited. Dueto the restructuring of the business that has occurred since its acquisition andthe expansion of the activities to be conducted from the site, it is consideredimpractical to estimate the future cash flows expected to arise from theacquired business and therefore the directors believe that it would be best torecognise an impairment loss to the extent of the goodwill acquired. Thissituation will be closely monitored, and adjustments may be considered in futureperiods if such adjustments are appropriate. The directors acquired OTS for its future potential to provide a platform forcreating a centre of excellence based in Young, Australia and not for itshistoric activities. 4 ACQUISITION OF SUBSIDIARY UNDERTAKING On 31 August 2005, the Group acquired 1 ordinary share of AUD1 in Oil TreatmentServices Pty Limited (renamed Hydrodec Australia Pty Ltd), being 100% of itsissued share capital for a consideration of £1,350,000, in shares andAUD1,000,000 in cash. Acquisition expenses amounted to £145,710. The shares wereissued at market value on 31 August 2005. Goodwill arising on the acquisitionhas been capitalised. The acquisition has been accounted for by the purchasemethod of accounting. The assets and liabilities of Oil Treatment Services Pty Limited acquired wereas follows: Carrying value before Fair value Provisional fair combination adjustment value £ £ £Propertyplant 619,040 - 619,040and equipmentLoansreceivable 3,801 - 3,801Tradereceivables 134,898 - 134,898Other assets 20,444 - 20,444Bank (122,747) - (122,747)overdraftTrade (806,990) - (806,990)payables (151,554) - (151,554)Goodwill 2,002,777 1,851,223 Satisfied by:Issue of 1,283,394sharesCash 422,119Cost ofacquisition 145,710 1,851,223 Due to the restructuring of the business that has occurred since its acquisitionand the expansion of the activities to be conducted from the site, it isconsidered impractical to reliably allocate the value goodwill to otherintangible assets. The directors reviewed whether any separately identifiable assets existed at thetime of acquisition and were unable to identify any such assets. Accordingly theonly intangible asset recognised was goodwill. Oil Treatment Services Pty Ltd contributed £288,638 revenue and £212,818 to theGroup's loss before tax for the period between the acquisition date and thebalance sheet date. Restatement of acquisition made in prior accounting period under IFRS On 21 December 2004, the group acquired one ordinary share of AUD1 in HydrodecDevelopment Corporation Pty Limited, being 100% of its issued share capital fora consideration of £7,621,124, satisfied in cash and shares includingacquisition expenses of £221,124. The purchase has been accounted for by thepurchase method of accounting. The assets and liabilities of Hydrodec Development Corporation Pty Limitedacquired were as follows: Carrying value before Fair value Provisional combination adjustments fair value £ £ £ Property,plant andequipment 293,322 - 293,322Intangiblefixed assets - 7,866,003 7,866,003Tradereceivables 8,683 - 8,683Trade payables (600,962) 54,078 (546,884) (298,957) 54,078 7,621,124 Satisfied by:Cash 500,000Issue of 6,900,000sharesCost ofacquisition 221,124 7,621,124 The adjustment to intangible fixed assets represents the directors valuation ofthe Hydrodec Technology.. The adjustment to creditors represented the write back part of a loan which isnot repayable. There was no activity between the date of acquisition and 31December 2004. 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 4th Floor,French Railways House, 178-180 Piccadilly, London W1J 9EN Status of this report The financial information set out in the announcement, which was approved by theBoard of Directors on 31 March 2006, is unaudited and does not constitute theCompany's statutory accounts for the periods ended 31 December 2004 or 2005. Thefinancial information for the period ended 31 December 2004 is derived from thestatutory accounts for that year, which have been delivered to the Registrar ofCompanies, as subsequently restated under IFRS. The auditors reported on thoseaccounts: their report was unqualified and did not include a statement underSection 237(2) or 237(3) of the Companies Act 1985. The statutory accounts forthe year ended 31 December 2005 will be finalised on the basis of the financialinformation presented by the directors in this preliminary announcement and willbe delivered to the Registrar of Companies following the Company's annualgeneral meeting. ENDS This information is provided by RNS The company news service from the London Stock Exchange