TIDMHYR
RNS Number : 6876A
HydroDec Group plc
01 October 2020
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used, outdated or failed electrical transformers and other utility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:
Hydrodec Group plc hydrodec@vigocomms.com
Chris Ellis, Chief Executive Officer
and Interim Executive Chairman
Arden Partners plc (Nominated Adviser
and Broker) 0207 614 5900
Corporate Finance: Ciaran Walsh
Corporate Broking: Simon Johnson
Vigo Communications (PR adviser to
Hydrodec) 020 7390 0240
Patrick d'Ancona
Chris McMahon
Charlie Neish
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.
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END
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