HYR.L Regulatory News (HYR)

1 October 2020

Hydrodec Group plc

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

Trading update

Change of accounting reference date

Annual results update

Temporary suspension of trading in shares

Hydrodec Group plc (AIM: HYR), the cleantech industrial oil re-refining group, today provides a trading update, and announces a change in its accounting reference date and a temporary suspension of trading in the Company's shares.

· Progress made on refinancing package

· Heads of Terms signed with a US industrial recycling company in connection with a joint venture

· Trading conditions remain challenging - cost-cutting implemented

Financing update

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

Following discussions with a number of parties in recent months, outline terms have now been agreed and progress continues to be made with one party with the expectation of a refinancing being completed in the near future. In the meantime, as previously disclosed, Hydrodec remains reliant on the on-going support of its major shareholder Andrew Black who has lent approximately US$3 million in cash since 30 June 2019 (the date of the Company's latest published financial statements).

Proposed joint venture

The Board is pleased to announce that the Group has signed heads of terms with a US industrial recycling company with significant experience in handling, decommissioning and recycling solutions for used, outdated or failed electrical transformers and other utility equipment. The parties intend to create a joint venture (JV) in the US pursuant to which the JV will utilise part of the Group's existing site in Canton, Ohio to establish a facility for the purpose of dismantling and recycling pole and pad-mount electrical transformers. The JV's aim will be to combine the partner's proven access to the utilities with Hydrodec of North America's (HoNA) unique ability to produce re-usable transformer oil and generate carbon credits. By so combining, the parties wish to create a market leading re-refining business in the US.

The Group's contributions to the JV will include the land, PCB licenses/permits, utilisation of carbon credits, and capital towards the construction budget. The Group's share of the capital expenditure budget is estimated at approximately US$400k (net of the contribution of land) and is subject to successful conclusion of the proposed refinancing arrangements referred to above.

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

The heads of terms are not legally binding and there can be no guarantee that the JV and transactions contemplated therein will be consummated. Further details will be provided in due course.

Trading conditions

Given the continued uncertainty provided by COVID-19, the market conditions under which the Company continues to operate remain challenging with the ongoing working capital constraints referenced in previous updates and referred to below providing additional challenges. Cost cutting measures, including a permanent reduction in headcount and employee pay have been implemented. During this period, the Company has successfully serviced its major customers and, despite the challenges faced, HoNA has contributed a marginally positive EBITDA to overall Group performance since Q2 2020. Following the capitalisation of Group debt funding provided to HoNA, the Group has increased its stake in HoNA from 85% to 95% as at 30 September 2020.

Change in accounting reference date

The Company announced on 26 June 2020 that the London Stock Exchange and the Registrar of Companies had approved an extension, in line with market practice, to the publication and filing, respectively, of the Company's audited annual accounts for the financial year ended 31 December 2019 by three months (to 30 September 2020) due to the impact of, and restrictions imposed by, the COVID-19 pandemic.

The Directors regret that, due to the ongoing impact of the pandemic and, in particular, travel restrictions between the UK and US, the Company has been unable to conclude its audit in respect of the 12 month period to 31 December 2019. As a result, the Company has now changed its accounting reference date from 31 December to 30 June, thereby extending the relevant accounting period to 18 months (to 30 June 2020).

The Board remains committed to publishing these audited accounts at the earliest opportunity, whilst ensuring that the work required is concluded diligently, comprehensively and a US site visit (or alternative auditing arrangements) can take place in Canton, Ohio. Accordingly, the Directors anticipate that the financial results for the 18 month period ending 30 June 2020 will be published by the end of December 2020.

Given the Company has not published annual audited financial results since those in respect of the 12 month period to 31 December 2018, under Rules 19 and 40 of the AIM Rules for Companies, dealings in the Company's ordinary shares will be temporarily suspended with effect from 7.30 a.m. on 1 October 2020 until such time as the audited accounts for the 18 month period ending 30 June 2020 have been duly published.

Notwithstanding the temporary suspension of trading in the Company's ordinary shares, the Company will continue to make announcements as and when there are developments that require disclosure under the AIM Rules.

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

"COVID-19 has brought unique challenges to our operating environments and, in addition, working capital constraints, by necessity, have had a material impact on our ability to source feedstock, which in turn drives volume, margin and overall financial performance.

However, we continue to pursue our strategy targeting US utilities highlighted in the update provided earlier in the year, and the progress made to refinance the Company together with the JV agreement signed with a transformer recycling company will, if and when consummated, position the Company strongly to build on the encouraging signs of its sustainability strategy.

Whilst the temporary suspension of trading in the Company's shares is clearly disappointing, especially given the challenges presented by the global pandemic, the Company is seeking to implement alternative auditing arrangements that will enable it to publish the financial results for the 18 month period ending 30 June 2020 by the end of December 2020 while continuing to safeguard its personnel and operations in Canton and thereby allow the lifting of the suspension."

For further information, please contact:

The information communicated in this announcement is inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

Notes to Editors:

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

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

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

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