HYR.L Regulatory News (HYR)

 2 December 2010

Hydrodec Group plc

("Hydrodec" or the "Group")

Trading Update

The Board of Hydrodec Group plc, the cleantech industrial oil re-refining group (AIM:HYR), is pleased to provide the following trading update for the second half to date of 2010.

H2 2010 Highlights

·; Strong market demand, sales volumes improving and plants operating well

·; Feedstock suppliers in US almost doubled during the year and availability starting to improve

·; Operating cash surplus for H1 2011 expected

·; Solid progress in Japan with appointment of Managing Director

Demand for the Group's SUPERfine transformer oil brand remained strong and continued to exceed production as it gains growing acceptance from power utility customers and original equipment manufacturers. Both plants continue to operate well and sales volumes in the second half of the year have already exceeded the first half of this year (9.4m litres) with a month of sales still to come. Third quarter volumes were 5.53m litres, slightly below expectations largely due to the push-back of some US feedstock supplies from the final two weeks of September into October.

Average unit margins were maintained in the third quarter. Transformer oil market prices are trending higher as evidenced by the latest pricing reports from ICIS (a leading information provider for the chemical and oil industry), indicating that transformer oil prices may be following commodity prices outside the US.

Despite strong sales and production performance, feedstock supplies, while improving, remain a constraint. The Group's key operational focus is the active pursuit of strategies to escalate feedstock volumes. Diversification continued with supplier numbers in the US almost doubling during the year from 12 to 22, and there remains scope to improve feedstock availability further.

The recent fund-raising has significantly strengthened the Group's balance sheet, giving access to bank credit facilities with proposals from a number of US banks currently under consideration. Looking to 2011, the Group expects to achieve an operating cash surplus for the first half and to be net cash generative thereafter.

The Group has been informed by the US Environmental Protection Agency ("EPA") that, due to their volume of work, public notice of the EPA's proposed grant of a licence to treat PCB contaminated feedstock is now likely to be issued early next year. The Group remains completely confident of securing the licence and is implementing certain additional works at the Canton, Ohio plant and identifying sources of contaminated material such that it may benefit from the associated margin improvement and "one-stop shop" offering to the market at the earliest opportunity. This licence will further enhance the Group's "green" credentials.

Solid progress continues to be made in Japan as the joint venture with Kobelco-Eco Solutions prepares to move from the initial structuring phase to the start-up of operations. The environmental testing program on the first identified site is on track and results are expected at the end of the first quarter of 2011. Engineering plans for the first plant are also well advanced and pre-sales work is about to commence. We have also recruited a Managing Director for Hydrodec in Japan who will be responsible for managing the Group's East Asia business with initial focus on progressing the joint venture.

Neil Gaskell, Chairman, commented: "The successful fund raising in September has allowed Hydrodec to move on to the front foot again and there are early signs of a strengthening performance as a result, with sales volumes continuing to grow and an operating cash surplus for the first half of 2011 expected. Feedstock volumes, although increasing, are still the key operational focus area. Strong development of the business in Japan is the prime development target for 2011 and the recruitment of a Managing Director underpins our confidence that this will be achieved successfully."

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