19 Nov 2009 14:17
19 November 2009
Hydrodec Group plc
Trading Update
Hydrodec Group plc (AIM: HYR) announces the following update on trading and prospects.
The Group continues to demonstrate strong recovery from the difficult first half of 2009 which was seriously impacted by a combination of the global financial crisis, the oil price collapse and initial operational challenges at the Canton plant.
Group production and sales volumes in the third quarter of 2009 (5.2m litres and 3.7m litres respectively) exceeded those of the entire first half of the year. The ramp-up of production is continuing into the fourth quarter with record production at both Young and Canton recorded in October. Canton production is comfortably matching current sales demand while critical equipment continues to be closely monitored. The Board remain confident that production and sales levels will continue to increase into next year.
Transformer oil prices remained soft well into the fourth quarter largely due to over-supply arising from depressed US industrial production which has also limited the growth in sales volumes in late September and early Q4. However, recently announced price increases of around 10% by the major refiners indicate the market is improving. In addition, feedstock costs, over which the Group have greater control, are being progressively reduced through a wider portfolio of feedstock suppliers. Negotiations for 2010 sales pre-commitments, together with continued success in reducing average feedstock costs, reinforce the Group's belief in improving margin dynamics.
This is a key period of the year for negotiating pre-commitments from OEMs in the US for their 2010 transformer oil purchases. The Group is in advanced stages of negotiation for an off-take arrangement with one of its largest existing customers for more than 11 million litres of 2010 Canton SUPERfine production and expects to secure additional commitments for another 7.5 million litres before the year end. The balance of Canton production will be reserved for utility customers and serving new and existing export markets during the year. During 2010, the Group will accelerate the development of feedstock supply and SUPERfine demand, in preparation for the second US plant.
Demand for oil from the Australian plant has improved significantly in the past two months, with October recording record sales of 0.5m litres, but at reduced pricing and with feedstock supplies remaining tight. A concerted effort by the Group to broaden its Australian feedstock supplies and customer base and improve pricing is now expected to continue producing improved results towards the end of this year and into 2010.
The Japan opportunity continues to progress well. Approval to operate the technology in Japan as a PCB treatment system is expected early in the first quarter of 2010 and several site opportunities are under evaluation by our Japanese partners.
Current trading is generally consistent with that projected in September, although the US operations are currently carrying a slightly increased level of stock that needs to be placed in the coming 6 weeks.
The plants are operating well and are generating a positive net cash flow. Ongoing depressed general market conditions in the past months have resulted in sales prices and volumes being lower than expected and as a result the Group's overall cash position remains tight. The price increases announced in recent weeks are however indicating the first quantifiable signs of market stabilisation and improvement, and for the first time in nearly 12 months, a return to growth. The Group is currently investigating potential financing options to ensure there is sufficient capital to deliver the growth opportunities it has identified for 2010 and beyond. Growth activities include building sufficient stocks to service the increased demand on Canton production output in Q1, ramping up pre-sales and pre-construction development activities to underpin the viability of the second North America plant, and with our Japanese partners, commencing initial roll-out of the Japan and wider Asian opportunity.
For further information please contact:
Hydrodec Group plc 020 7786 9810Neil Gaskell, ChairmanMark McNamara, Chief ExecutiveMike Preen, Company Secretary
Numis Securities Limited 020 7260 1000Nominated Adviser: Simon BlankCorporate Broker: David Poutney / Alex Ham
Curve PR 07764 197003Emma Davis