TIDMHYR
RNS Number : 1809R
HydroDec Group plc
07 March 2016
7 March 2016
Hydrodec Group plc
("Hydrodec" or the "Company")
Disposal of Hydrodec's UK operations
Appointment of Chief Executive
Hydrodec Group plc (AIM: HYR) announces the disposal of Hydrodec
(UK) Limited ("HUK") and Hydrodec Re-Refining (UK) Limited ("HRR")
(together, the "UK Operations") and agreement to transfer certain
other rights and assets relating to its UK Operations for a
consideration of GBP1.
Hydrodec further announces the appointment of Chris Ellis,
previously Acting Chief Executive, as Chief Executive with
immediate effect.
Background to the disposal
Further to the appointment of Chris Ellis as Acting Chief
Executive in December 2015, the Company has undertaken a detailed
strategic review of its UK waste oil collections business and
proposed UK lubricant oil re-refining project, following a
significant deterioration in the outlook of its UK Operations. This
deterioration has been driven predominately by the rapid decline in
global oil prices and continued challenging market conditions which
have resulted in HUK generating an increasing level of significant
losses. Despite implementing extensive restructuring and
cost-saving measures during 2015 (including an approximate 36%
reduction in headcount), the Company has remained exposed to the
impact of the global oil price situation and the UK Operations
remain unprofitable. Given the significant cash burn rate and
limited cash resources available to the Company (in the absence of
a significant further fundraising), the directors of the Company
have reviewed all available options and have concluded it was in
the best interests of the Company to dispose of the UK Operations
to a buyer able to properly finance and develop the business in the
near term.
Disposal process
The strategic review was initiated in December 2015 following
which a strategic auction of HUK was conducted by an independent
third party financial adviser, through which potential purchasers
were identified, approached and invited to submit indicative offers
for HUK. One of the potential purchasers identified was Andrew
Black, a Non-Executive Director and a substantial shareholder of
the Company. Multiple indicative offers were received and
evaluated. Following a detailed review of the offers, and an
initial engagement and period of exclusivity with another bidder
which did not indicate sufficient signs of progress, the directors
of the Company (excluding Andrew Black) decided to pursue the offer
proposed by Andrew Black. In reaching this decision, the directors
of the Company took into account, inter alia, the progress of the
initial discussions, the bidders' ability to execute the
transaction on an expedited basis and the potential to offer the
Company future value in relation to the UK base oil re-refining
project.
Terms of the disposal
With this, the Company confirms its UK Operations have been sold
to Andrew Black (the "Buyer") for a consideration of GBP1 in cash,
including the transfer to the Buyer of circa. GBP1.2 million of
existing third party indebtedness in HUK. In addition to this, the
Buyer will grant Hydrodec a contractual right to receive 10% of the
Buyer's entitlement to any future net profits of the UK lubricant
oil re-refining project on distribution or exit. The Buyer will
bear all risk and responsibility for developing the UK lubricant
oil re-refining project going forward, with Hydrodec retaining only
a passive economic interest under these profit share arrangements.
The transfer of the UK licence and basic engineering package from
CEP is subject to the consent of CEP, which the Company has agreed
to use its reasonable efforts to achieve. The estimated net assets
of the UK Operations were circa. GBP4.7 million as at 31 December
2015 (including intangible assets relating principally to goodwill
of GBP1.8 million), and following the release of inter-company
indebtedness of GBP13.3 million owed by the UK Operations to the
retained Group for its initial investment and subsequent funding
since the original acquisition of the UK collections business in
September 2013. The UK Operations generated estimated EBITDA losses
of circa. GBP3 million in 2015.
Related party transaction
Andrew Black is a Non-Executive Director and a substantial
shareholder (as defined in the AIM Rules for Companies) of the
Company. Accordingly, the disposal of the UK Operations constitutes
both a related party transaction and a substantial transaction for
the purposes of the AIM Rules.
The Directors, with the exception of Mr Black, consider, having
consulted with the Company's Nominated Adviser, Canaccord Genuity
Limited, that the terms of the disposal of the UK Operations are
fair and reasonable insofar as shareholders are concerned.
Strategy
The Board believes that the divestment of the UK collections
business, whilst retaining an economic interest in the UK lubricant
oil re-refining project, addresses the significant downside risk
currently posed to the Group by its UK Operations given current
global oil prices.
Importantly, it allows Hydrodec to concentrate on its market
leading transformer oil technology and business and to grow that
business within the US$2 billion plus global transformer oil
market. Specifically, as the Company moves forward through 2016,
the Board intends to look to strengthen Hydrodec's footprint in the
US and in the international transformer oil market, with the sales
price of transformer oil less correlated to global crude oil prices
and where it believes Hydrodec has a competitive advantage through
its proven and market-leading technology.
Appointment of Chief Executive Officer
The Board is pleased to announce the appointment of Chris Ellis
as Chief Executive with immediate effect.
Commenting on the disposal and the appointment, Colin Moynihan,
Chairman of the Company said:
"Today sees the completion of a three month intensive turnaround
programme for the Group driven by the Company's Acting Chief
Executive, Chris Ellis. The Chairman and the Board recognise the
significant contribution made by Chris and today announce his
appointment to the role of Chief Executive. Whilst there is more to
do to reduce cost and strengthen margins, our focus continues to be
on delivering operational performance and efficiencies, and driving
the Company to a profitable 2016."
Commenting, Chris Ellis, Chief Executive of the Company
said:
"I am excited at the opportunity to drive forward our core
transformer oil re-refining business and deploy a business model
focused on creating shareholder value through combining our
world-leading technology and execution-focused operational
performance. The working capital released as a consequence of the
disposal of the UK Operations positions the Company to deliver its
plan of profitable trading in 2016 and is the first step in taking
advantage of the significant opportunities presented by the rapidly
increasing c.US$2 billion global transformer oil market."
For further information please contact:
Hydrodec Group plc 020 3300 1643
Chris Ellis, Chief Executive
Officer
James Hodges, General Counsel
and Company Secretary
Canaccord Genuity (Nominated
Adviser and Broker)
Guy Marks
Henry Fitzgerald-O'Connor 020 7523 8000
Vigo Communications (PR adviser
to Hydrodec) 020 7830 9700
Patrick d'Ancona
Chris McMahon
Notes to Editors:
Hydrodec's technology is a proven, highly efficient, oil
re-refining and chemical process initially targeted at the
multi-billion US$ market for transformer oil used by the world's
electricity industry. MarketsandMarkets forecasts that the global
transformer oil market is expected to grow from US$1.98 billion in
2015 to US$2.79 billion by 2020 at a CAGR of 7.14% from 2015 to
2020. Spent oil is currently processed at two commercial plants
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. Hydrodec's plants are located at
Canton, Ohio, US and Bomen, New South Wales, Australia.
Hydrodec's shares are listed on the AIM Market of the London
Stock Exchange. For further information, please visit
www.hydrodec.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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