HYR.L Regulatory News (HYR)

19 May 2020

Hydrodec Group plc

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

Trading Update

Hydrodec Group plc (AIM: HYR), the cleantech industrial oil re-refining group, today provides the following trading update.

Trading Conditions

The market conditions under which the Company is operating are, without doubt, unprecedented and provide additional challenges to those already outlined in the update provided on 14 February. However, the decline in the headline price of oil provides additional opportunities to the business in terms of the potential availability of feedstock and its price, given the lack of viable competing alternative uses, and the dearth of available storage in the United States. This must be viewed along with the ongoing capital constraints that the business is working under as announced previously and referenced below. At the same time, the Company has successfully treated third party partially processed paraffinic feedstock to produce Group 2+ base oil. This should provide the Company with the opportunity of supplying blended products in the future or offering processing capabilities to third parties for such products.

 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. Progress continues to be made with several parties, however a successful conclusion has, to date, been impacted by current global events. In the meantime, as previously disclosed, Hydrodec remains reliant on the on-going support of its major shareholder Andrew Black who has provided cash of approximately US$2.4 million from 30 June 2019 up to 30 April 2020. A further announcement in respect of the loan terms, together with the extension of the existing loans, will follow once finalised. Key terms have been agreed and the Company is awaiting formal documentation from Mr. Black's family office. Such terms will constitute a related party transaction pursuant to AIM Rule 13.

FY19 Results

The Board remains committed to publishing its annual audited accounts at the earliest opportunity, whilst ensuring that the work required is concluded diligently and comprehensively. Given the disruption to the year-end process caused by the impact of COVID-19 and hampered by travel restrictions, we now expect to publish our annual audited accounts before the end of September 2020. Accordingly, we have obtained an extension from Companies House and will seek an extension from AIM to the current reporting deadline of 30 June 2020, in accordance with recently announced temporary measures.

Outlook

Cost cutting measures, including a reduction in headcount and employee pay have been implemented and efforts to obtain relief from government schemes are ongoing. However, operating performance to date will reflect the challenges the Company faces in terms of its working capital. In keeping with other companies, it is extremely difficult to provide any guidance in respect of performance for 2020 and the next update on expectations will be provided once the worst of the COVID-19 pandemic is over and activities start to return to a state of normality. Given that the Company's business activity is centred on what the US authorities have deemed to be essential business, the Board believes that its customers and suppliers will be amongst the first to benefit from the removal of the current restrictions. Following the Group's strategic review, the Board continues to pursue other growth initiatives that, if successful, will ultimately seek to accelerate the Group's return to positive EBITDA.

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

"Whilst we continue to pursue our strategy targeting US utilities, we are facing the unique challenges the coronavirus has brought to operating environments. In addition, working capital constraints, by necessity, have a material impact on our ability to source feedstock, which in turn drives volume, margin and overall financial performance. All necessary steps to mitigate the impact of the COVID-19 pandemic have been taken and as soon as the current restrictions are lifted, the plan is to continue to build on the encouraging signs of early successes with our sustainability strategy highlighted in the update provided earlier in the year."

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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.