25 Sep 2009 07:00
25 September 2009
HYDRODEC GROUP PLC ("Hydrodec" or the "Company")
Unaudited Interim Results
Hydrodec Group plc (AIM: HYR) today announces unaudited interim results for the six months ended 30 June 2009.
The unaudited interim results represent the first results where Hydrodec has adopted the US dollar as its presentational currency. The Group's comparative results have been adjusted accordingly.
Highlights
Hydrodec Chairman, Neil Gaskell, commented: "The Group has had a difficult first half of 2009. The combination of the oil price collapse announced in February and initial operational problems at Canton have resulted in a disappointing operating loss. During the latter half of the period prices started to improve and Canton's operational problems were progressively resolved. During the third quarter good progress has been in made in Canton and overall performance has steadily improved so that we are now generating a positive net cash flow in addition to funding some modest but essential capital expenditure. We are currently operating at or very close to breakeven at the operating profit level, as a result of increasing volumes in both Young and Canton and steadily improving margins in the US, but still at a net loss after non-operating costs.
I am delighted with the progress of our alliance in Japan with Kobelco Eco-Solutions. This is the result of much effort over many months to produce a firm foundation for the Company to pursue its long term expansion into Japan and the neighbouring countries.
Finally, on behalf of myself and the rest of the Board, our thanks go to John Gunn who, as Chairman until July this year, has piloted the Group through the sometimes stormy waters we have faced both earlier this year and before that."
For further information please contact:
Hydrodec Group plc 020 8528 1015
Neil Gaskell, Chairman
Mark McNamara, Chief Executive
Mike Preen, Company Secretary
Numis Securities Limited 020 7260 1000
Nominated Adviser: Simon Blank
Corporate Broker: David Poutney / Alex Ham
Curve PR 07764 197003
Emma Davis
CHIEF EXECUTIVE'S REPORT
The first half of 2009 has been a difficult operating period resulting in the Group reporting a disappointing operating loss due in part to the steep decline in oil prices at the end of 2008 and the beginning of the year, a longer than anticipated ramp up of the Canton plant and slower sales in the Australian market.
Since the impact of the rapid decline in oil prices was identified and announced to the market in February, there has been some recovery in the pricing though it remains below the levels experienced in 2008. In response to this the Company has agreed pricing mechanisms on the purchase of feedstock and sales of SUPERfine that give the Group greater protection against future price fluctuations.
Management has also identified and resolved the operating issues experienced at the Canton plant and it is now operating consistently at approximately 60,000 litres a day. Production for the third quarter of 2009 is expected to be greater than the entire first half of 2009 and all current year production is fully committed to sales. The response to the Company's SUPERfine brand in the US continues to be positive. The Australian operation has developed its market more slowly in the period than had been hoped but the plant has operated well and changes made during the third quarter are beginning to produce improvements so that the potential of the plant can be fully exploited.
The result for the half year has been reported in US dollars, compared with previous reporting in Sterling. The Board has taken the view that the presentational currency for the Group should be US dollars reflecting not only the importance of the US operations to the Group but also that the US dollar is the currency most widely used around the world in oil pricing. The comparative information has been restated to reflect US dollar values.
Results for six months ended 30 June 2009
Turnover for the period increased by 10% over the first half of 2008 to USD$4.5 million (2008: USD$4.1 million), with an overall loss of USD$5.0 million (2008: USD$3.7 million). The operating loss includes USD$1.1 million of depreciation and amortisation (2008: USD$1.0 million). Net assets decreased by 8% to USD $50.4 million (30 June 2008: USD $54.3 million).
Commercial developments
USA
Profitability at the start of the year was significantly affected by the collapse in oil prices which resulted in sales under one contract being temporarily at a loss and others at reduced margins. Since then not only have margins recovered but a much more robust mix of sales contracts has been achieved with greater protection from future oil price movements.
The Canton plant sold 2.7 million litres (2008: Nil litres) of SUPERfine during the half year. This was less than expected due to start-up operational issues at the plant. During the half year production was impacted by the failure of some production critical equipment which has now been replaced. The cost of the equipment and the loss caused by the interruption to the operations was insured. The insurance claim has been agreed and Hydrodec has to date received USD $0.5 million and expects to receive a further USD$0.75 million. The claim has been reflected within the first half results.
The plant is now consistently producing approximately 60,000 litres of SUPERfine a day. All SUPERfine produced is being sold at improving prices and during the third quarter of 2009 the plant is expected to produce an operating profit.
Our SUPERfine product continues to be supported by major transformer manufacturers such as Howard Industries as well as major utilities such as Exelon. I would like to thank them for their assistance and support during this period and I hope our partnership will remain strong into the future. We have also recently started selling into Canada and other export markets.
Plans for the second US plant remain on hold, with the Board continuing to assess the options as the business model in the US matures and the ability to access debt funding improves.
Japan
The Company has now reached the position with Kobelco Eco-Solutions, a subsidiary of the Kobe Steel Group, to move forward on building a plant in Japan by 2012 as the first step to entering Japan and neighbouring countries. Kobelco Eco-Solutions and Hydrodec have jointly completed a demonstration of the technology for the Japanese Ministry of the Environment in order to seek regulatory consent to operate the technology in Japan.
Australia
The Australian operation was impacted by trials for Japan and the movement of key personnel to the US to assist with technical issues at Canton, with production slowing to 1.4 million litres for the period (2008: 2.0 million litres). However the plant has operated well and organisational changes made during the third quarter are beginning to produce improvements with an expectation of increasing production and sales in the second half of the year. The pilot plant attached to the Young facility was granted an Environmental Protection Agency (EPA) licence to destroy PCB contaminated material with a concentration of up to 5,000 parts per million (ppm). This licence was granted with no requirement to monitor air emissions. We believe this is the first high level PCB destruction process to be granted a licence based upon nil emissions.
Technology
The patent originally held by CSIRO in respect of the Hydrodec technology (which to date has been licensed globally to Hydrodec) has now been assigned to Hydrodec's Australian operating subsidiary, and that patent shall be re-registered in Hydrodec's name in all relevant jurisdictions.
Placing
Hydrodec performed placings of new shares in February (19,230,114) as well as in June (22,857,153) in order to raise a total of £5.1 million to fund, primarily, the ongoing working capital requirements of the Group.
Disposals
During the period Hydrodec disposed of its condition monitoring business for AUD$0.8 million and the Molectra shares, which were acquired as part of the Virotec acquisition, for £0.3 million. These disposals produced cash without affecting the core business of the Group and neither had a material effect on the Group's results or financial position for the period.
Following the difficulties experienced in the first half of the year, the Board believes that it is no longer possible for the Group to make a full year profit. However, we believe that the Group will be at or about breakeven at an operating profit level for the second half of 2009.
Mark McNamara
Chief Executive
25 September 2009
UNAUDITED CONSOLIDATED CONDENSED INCOME STATEMENT
| 6 months to 30 June 2009 | 6 months to 30 June 2008 | |
| USD$'000 | USD$'000 | |
| Continuing operations | ||
| Revenue | 4,520 | 4,064 |
| Cost of sales | (2,228) | (989) |
| ------------------------- | ---------------------- | |
| Gross profit | 2,292 | 3,075 |
| Administrative costs | (6,134) | (5,637) |
| ------------------------- | ---------------------- | |
| Operating loss | (3,842) | (2,562) |
| Interest income | 1 | 422 |
| Interest costs | (1,154) | (1,567) |
| ------------------------- | ---------------------- | |
| Loss before tax | (4,995) | (3,707) |
| Income tax expense | - | - |
| ------------------------- | ---------------------- | |
| Loss for the period | (4,995) | (3,707) |
| ============== | =============== | |
| Basic loss per share | (2.16) | (2.00) |
| ============== | =============== |
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME
| Loss for the period | (4,995) | (3,707) |
| Exchange differences on translation of foreign operations | 7,740 | 903 |
| --------------------- | ------------------ | |
| Total comprehensive income for the period | 2,745 | (2,804) |
| ============ | ============ | |
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL POSITION
| 6 months to 30 June 2009 | 6 months to 30 June 2008 | |
| USD$'000 | USD $'000 | |
| Non-current assets | ||
| Property, plant and equipment | 25,090 | 19,506 |
| Goodwill | 3,459 | 4,141 |
| Investment - Molectra | - | 4,440 |
| Other intangible assets | 24,819 | 25,822 |
| Prepaid royalty | 4,118 | 5,391 |
| ------------------ | ------------------ | |
| 57,486 | 59,300 | |
| ------------------ | ------------------ | |
| Current assets | ||
| Inventories | 587 | 211 |
| Trade and other receivables | 2,967 | 3,005 |
| Other current assets | 105 | - |
| Cash and cash equivalents | 4,978 | 17,922 |
| ------------------ | ------------------ | |
| 8,637 | 21,138 | |
| ------------------ | ------------------ | |
| Total assets | 66,123 | 80,438 |
| ------------------ | ------------------ | |
| Current liabilities | ||
| Trade and other payables | 4,869 | 13,162 |
| Short-term provisions | 53 | 233 |
| ------------------ | ------------------ | |
| Total current liabilities | 4,922 | 13,395 |
| ------------------ | ------------------ | |
| Non-current liabilities | ||
| Long-term borrowings | 7,380 | 8,598 |
| Deferred tax liabilities | 3,460 | 4,141 |
| ------------------ | ------------------ | |
| Total non-current liabilities | 10,840 | 12,739 |
| ------------------ | ------------------ | |
| Total liabilities | 15,762 | 26,134 |
| ------------------ | ------------------ | |
| Net assets | 50,361 | 54,304 |
| ============ | ============ | |
| Equity attributable to equity holders of the parent | ||
| Share capital | 2,533 | 2,656 |
| Share premium account | 52,853 | 47,591 |
| Equity reserve | 16,240 | 19,013 |
| Merger reserve | 49,463 | 59,189 |
| Treasury reserve | (44,655) | (53,085) |
| Employee benefit trust | (1,345) | (1,609) |
| Option reserve | 5,474 | 5,363 |
| Profit and loss account | (38,093) | (25,805) |
| Translation reserve | 7,891 | 991 |
| ------------------ | ------------------ | |
| Total equity | 50,361 | 54,304 |
| ============ | ============ |
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY
| Share capital | Share premium | Equity reserve | Merger reserve | Foreign exchange reserve | Profit and loss account | Share option reserve | Treasury reserve | Employee benefit trust | Total | |
| $'000 | $000 | $000 | $000 | $000 | $000 | $000 | $000 | $000 | $000 | |
| At 1 January 2008 | 1,922 | 37,759 | 18,998 | - | 306 | (22,000) | 4,915 | - | (564) | 41,336 |
| Exchange differences | - | 351 | 15 | - | 685 | (98) | (401) | 351 | - | 903 |
| Loss for the period | - | - | - | - | - | (3,707) | - | - | - | (3,707) |
| Acquisition | 622 | - | - | 59,189 | (53,436) | 6,375 | ||||
| Share-based payment | - | - | - | - | - | - | 849 | - | - | 849 |
| Issue of shares | 100 | 9,866 | - | - | - | - | - | - | - | 9,966 |
| Issue of convertible loan | 12 | - | - | - | - | - | - | - | - | 12 |
| Issue costs | - | (385) | - | - | - | - | - | - | - | (385) |
| Purchase of shares | - | - | - | - | - | - | - | - | (1,045) | (1,045) |
| At 30 June 2008 | 2,656 | 47,591 | 19,013 | 59,189 | 991 | (25,805) | 5,363 | (53,085) | (1,609) | 54,304 |
| At 1 January 2009 | 2,014 | 38,506 | 13,648 | 43,064 | 4,992 | (28,203) | 4,210 | (38,878) | (1,170) | 38,183 |
| Exchange differences | 299 | 6,336 | 2,028 | 6,399 | 2,899 | (4,895) | 626 | (5,777) | (175) | 7,740 |
| Loss for the period | - | - | - | - | (4,995) | - | - | - | (4,995) | |
| Share-based payment | - | - | - | - | - | - | 638 | - | - | 638 |
| Issue of shares | 210 | 8,054 | - | - | - | - | - | - | - | 8,264 |
| Issue costs | - | (408) | - | - | - | - | - | - | - | (408) |
| Conversion of loan stock | 10 | 365 | 564 | - | - | - | - | - | - | 939 |
| At 30 June 2009 | 2,533 | 52,853 | 16,240 | 49,463 | 7,891 | (38,093) | 5,474 | (44,655) | (1,345) | 50,361 |
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
| Note | 6 months ended 30 June 2009 | 6 months ended 30 June 2008 | |
| USD$'000 | USD$'000 | ||
| Cashflows from operating activities | |||
| Loss before tax | (4,995) | (3,707) | |
| Depreciation | 584 | 488 | |
| Amortisation of other intangible assets | 536 | 522 | |
| Finance costs | 1,153 | 1,145 | |
| Profit on disposal of assets | (533) | - | |
| Share based payment expense | 638 | 425 | |
| Foreign exchange movement | (490) | 684 | |
| Increase in inventories | (452) | 53 | |
| (Increase)/decrease in amounts receivable | (113) | 1,467 | |
| Increase/(decrease) in amounts payable | 1,419 | (2,290) | |
| Net cash outflow from operating activities | (2,253) | (1,212) | |
| Cashflows from investing activities | |||
| Purchase of property plant and equipment | (1,557) | (6,325) | |
| Purchase of investment | - | (8,195) | |
| Sale of property, plant and equipment | 487 | - | |
| Sale of Investment | 432 | - | |
| Interest paid | (15) | (330) | |
| Bank interest and other income received | 5 | 399 | |
| Net cash outflow from investing activities | (648) | (14,450) | |
| Cashflows from financing activities | |||
| Issue of new shares | 8,264 | 9,966 | |
| Costs of share issue | (408) | (385) | |
| Repayment of lease liabilities | (80) | (174) | |
| Net cash inflow from financing | 7,776 | 9,407 | |
| Increase/(decrease) in cash and cash equivalents | 4,875 | (6,255) | |
| Movement in net cash | |||
| Opening cash and cash equivalents | 103 | 24,177 | |
| Increase/(decrease) in cash and cash equivalents | 4,875 | (6,255) | |
| Closing cash and cash equivalents | 4,978 | 17,922 | |
NOTES TO THE UNAUDITED INTERIM REPORT
1 Basis of Preparation
Hydrodec Group plc is the Group's ultimate parent company. It is incorporated and domiciled in Great Britain. Hydrodec Group plc's shares are listed on the Alternative Investment Market of the London Stock Exchange.
Hydrodec's consolidated interim financial statements are presented in United States Dollar (USD$), which is also the functional currency of the group.
These consolidated condensed interim financial statements have been approved for issue by the Board of Directors on 24 September 2009.
The interim consolidated financial statements for the six months ended 30 June 2009 have been prepared under applicable International Financial Reporting Standards adopted by the European Union ("IFRS") which include International Accounting Standards and interpretations issued by the International Accounting Standards Board and its committees, which are expected to be endorsed by the European Union. This interim financial information has been prepared on the historical cost basis. The accounting policies applied are consistent with those adopted and disclosed in the annual financial statements for the period ended 31 December 2008.
The financial statements have been prepared on the going concern basis, which assumes that the group will have sufficient funds to continue in operational existence for the foreseeable future. The group has constructed the Canton, Ohio, plant and is in the process of bringing the plant to full production capacity. Currently, the group is economically dependent upon the ability of this plant to produce sufficient SUPERfine oil at satisfactory margins to sustain adequate cash flow to meet the group's requirements. The Directors are satisfied that at current margins and if production continues at its current levels, the Group's operating cash flow requirements will be met. However, margins are affected by, amongst other things, the world price for oil, about which there is material uncertainty, and which is beyond the control of the Directors. The Directors believe that it is appropriate to prepare the financial statements on a going concern basis as they believe that the operating parameters outlined above will be met or exceeded. The financial information is unaudited and has not been reviewed by the auditor.
2 publication of non-statutory accounts
The financial information set out in this interim report does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006.
3 TAXATION
There is no tax charge for the period.
4 EARNINGS PER SHARE
| 6 months ended 30 June 2009 | 6 months ended 30 June 2008 | ||
| USD$'000 | USD$'000 | ||
| Loss for the financial period | (4,995) | (3,707) | |
| Number of shares | Number of shares | ||
| Weighted average number of shares in issue* | 230,755,436 | 185,611,148 | |
| * The weighted average shares on issue have been reduced by the weighted average number of Treasury and EBT shares held. | |||
| Basic loss per share | (2.16) cents | (2.00) cents | |
5 RECONCILIATION OF MOVeMENT IN SHAREHOLDERS' FUNDS
| As at 30 June 2009 No. | |
| Authorised | |
| Ordinary shares of 0.5 pence each | 800,000,000 |
| Issued and fully paid - ordinary shares of 0.5 pence each | |
| At 31 December 2008 | 277,824,101 |
| Issued on conversion of convertible loan notes | 1,973,684 |
| Issued for cash | 42,087,267 |
| At 30 June 2009 | 321,885,042 |
The company issued the following 0.5 pence ordinary shares during the period:
| Date of issue | Number of shares | Issue price | Total consideration |
| £ | |||
| 20 February 2009 | 19,230,114 | 10 pence | 1,923,011 |
| 12 June 2009 | 1,973,684 | 19 pence | 375,000 |
| 25 June 2009 | 22,857,153 | 14 pence | 3,200,000 |
| 5,498,011 | |||