TIDMHYR
RNS Number : 9180U
HydroDec Group plc
12 April 2016
12 April 2016
Hydrodec Group plc
("Hydrodec" or the "Company")
Audited final results for the year ended 31 December 2015
Canton update and additional working capital facilities
Board changes
Hydrodec Group plc (AIM: HYR), the clean-tech industrial oil
re-refining group, announces its audited final results for the year
ended 31 December 2015.
Strategic summary
-- 2015 was a challenging year for the Company due to the
collapse in the world oil price and difficult market conditions
particularly in the UK, whilst, in the USA, the Company faced
delays and cost overruns in the commissioning of its rebuilt and
expanded plant at Canton. These factors were combined with senior
management changes and the need to put in place additional working
capital facilities.
-- The Company has acted decisively in response to these
challenges. Decisions were made at the end of 2015 to grow our core
transformer oil re-refining business in order to drive the Company
to profitability in 2016 through a rigorous focus on our
market-leading transformer oil re-refining technology, cost
savings, and a successful ramp-up of sales in the USA. This is
being undertaken against a current increase in the price for both
base oil and transformer oil products in the US market.
-- All six trains in Canton are now operational. Product has
achieved the key '500hr' oil status industry test, and Canton
achieved record monthly production in February 2016 followed by a
further monthly production record of 2.56 million litres in March
2016.
-- Commenced tolling under the outsourcing arrangement with
Southern Oil in Australia in April 2015; product achieving '500hr'
oil status.
-- In view of the current oil price environment and its economic
impact on the UK collection business, the Group disposed of
Hydrodec's UK operations, including borrowings of approx. GBP1.2m,
in March 2016 for GBP1, whilst retaining an economic interest in
the proposed UK lubricant oil re-refining project and, to the
extent the project is developed, an agreement to recover the
Company's incurred costs associated with the re-refinery.
Financial summary
-- Total income decreased to US$43.8 million (2014: US$54.7 million).
-- Total sales volumes increased to 62.1 million litres (2014:
48.6 million litres), with the acquisition of the business and
assets of Eco Oil Limited in April 2015.
-- Gross profit of US$1.1 million (2014: US$14.3 million);
reflects limited revenues from the Canton facility, lost production
in Australia following its relocation to Bomen, and the adverse
impact of the lower global oil price on the UK recycling
business.
-- Group Operating EBITDA(1) loss, after restructuring and
recommissioning costs, of US$12.8 million in 2015 (2014: US$1.6
million gain); reflects production delays in the US, costs
associated with the relocation of operations in Australia; the
effects of the decline in the world oil price and changing market
conditions on margins in the UK recycling business.
-- In order to reinforce the Company's working capital headroom,
the Company announces today that it has entered into an agreement
to extend its GBP2 million secured second working capital facility
with Andrew Black, a Non-Executive Director, announced on 1
December 2015, by a further GBP2.25 million to GBP4.25 million.
(1) EBITDA excluding growth expenditure of US$1.8 million (2014:
US$2.3 million), including acquisition costs of US$0.4 million
(2014: nil).
Market outlook
-- In the US, the business continues to improve both in terms of
production and rebuilding market share. The Canton plant is
expected to improve further on the record production levels
achieved in March 2016. Operational performance is a key platform
for growth in the US and these records confirm the improvement in
operability and rateability of the plant as the Company continues
to re-establish its US position. Whilst margins in the current oil
price environment remain challenging, the expectation is that these
will continue to improve throughout the year as the proportion of
transformer oil sales volumes increases and the price for base oil
is anticipated to prove increasingly robust.
-- In Australia, the arrangement with Southern Oil (SOR) has
achieved a high degree of operability and reliability following the
relocation in 2015. The challenge is now firmly to ensure a
rateable supply of feedstock to leverage the tolling arrangement
and maximise profitability. The availability of feedstock in the
first quarter has been below expectations but the pipeline of
decommissioned transformers from which the Company draws much of
its feedstock is anticipated to be strong going into second
quarter.
Commenting on the results, Chris Ellis, Chief Executive Officer
of Hydrodec said: "The challenges faced by many companies in 2015
in our industry are well known and documented. In many ways the
continuance of the rebuild of Canton into 2015 along with the
relocation of the Australian operations in the first half of the
year coupled with the constant decline in the price of oil from the
end of 2014 meant that the Company encountered a "perfect storm"
from a performance perspective and this is reflected in these
results. However, I believe that with Canton's ongoing performance
and a growing penetration of the US transformer oil market, we can
now focus on delivering a profitable 2016."
Canton update and additional working capital facilities
The Company remains in discussions with its partner in the US,
G&S Oil Recycling Group LLC (G&S), in relation to the
acquisition by G&S of a further 12.45% interest in Hydrodec of
North America (HoNA) for approx. US$1.7m, which was conditional
upon Trains 5 and 6 of the Canton plant being completed. This
payment was originally envisaged in H2 2015, but all six trains
were only successful commissioned at the end of 2015 and the
payment has not yet been made. In lieu of the receipt of such
payment, to ensure that the Company remains adequately funded, the
Company announces today that it has entered into an agreement to
extend its GBP2 million secured second working capital facility
with Andrew Black, a Non-Executive Director, which was announced on
1 December 2015 (the Second Facility). Andrew Black has agreed to
extend the Second Facility by a further GBP2.25 million to GBP4.25
million (the Increased Second Facility). The Increased Second
Facility is secured over the rights for Hydrodec Development
Corporation Pty Ltd to receive income based on the quantity of
SUPERfine(TM) oil produced by Hydrodec of North America LLC and
Hydrodec of Australia Pty Ltd respectively, which royalty, based on
average annual production, is estimated to generate approximately
US$1 million per annum. More broadly, the Company continues to work
well with G&S, its key provider of feedstock oil, and the
Company has an additional arrangement with them to develop further
plants.
Related Party Transaction and Substantial Transaction
Andrew Black is a Non-Executive Director and a substantial
shareholder (as defined in the AIM Rules for Companies (AIM Rules))
of the Company. Accordingly, the agreement by Mr Black to increase
the Second Facility to GBP4,250,000 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 Increased Second Facility are fair
and reasonable insofar as shareholders are concerned.
Commenting on the Increased Second Facility, Lord Moynihan,
Chairman of Hydrodec, said: "The Board are appreciative of the
ongoing support from our lead shareholder. With recent months of
record production at Canton coupled with an emphasis on being lean
and efficient and retaining a strong focus on cash control, the
Board are closely monitoring the execution of our strategy to
deliver a profitable company in 2016."
Board Change
The Company announces that Alan Carruthers, Non-Executive
Director and Chair of the Nomination and Remuneration Committees,
will be retiring today. Lord Moynihan, Chairman, commented: "On
behalf of the Board I would like to express our deep appreciation
to Alan for his commitment to Hydrodec and the valuable and
informed contribution he has made over the last four years. As a
long standing member of the Board, he has been integral to the
development of Hydrodec. We all wish him well for the future."
For further information please contact:
020 3300
Hydrodec Group plc 1643
Chris Ellis, Chief Executive
Officer
James Hodges, General
Counsel and Company Secretary
Canaccord Genuity (Nominated
Adviser and Broker)
Guy Marks 020 7523
Henry Fitzgerald-O'Connor 8000
Vigo Communications (PR 020 7830
adviser to Hydrodec) 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.
CHAIRMAN'S STATEMENT
(MORE TO FOLLOW) Dow Jones Newswires
April 12, 2016 05:24 ET (09:24 GMT)
2016 will be an important year for Hydrodec. As a Board, our
focus is clear. Following three months of corporate restructuring,
we are committed to drive the Company to profitability through a
rigorous focus on our market leading transformer oil re-refining
technology and operational performance.
December 2015 saw the beginning of an intensive three month
turnaround programme for the Group driven by the Company's Chief
Executive, Chris Ellis. As part of this process, the Board
undertook a detailed strategic review of the Company's UK
collections business and proposed UK lubricant oil re-refining
project, following a significant collapse in the Brent crude oil
price from US$115 per barrel at the time we acquired the business
and assets of the OSS Group in September 2013 to US$37 per barrel
on 31 December 2015. The Board reviewed all available options and
concluded that, in the challenging market conditions, despite the
implementation of extensive restructuring and cost-saving measures
during 2015, it was in the best interests of the Company to dispose
of those operations, which it did in March this year. The Board
considers that this divestment, whilst retaining a material
economic and strategic interest in the UK lubricant oil re-refining
project and, to the extent the project is developed, an agreement
to recover the costs we had invested in the project, was a
necessary step and best promotes shareholder value, addressing, as
it did, the significant downside risk to the Group from the UK
operations.
By concentrating on significantly growing our market leading
transformer oil technology and business, our objective is to grow
that business within the US$2 billion+ global transformer oil
market. The Canton plant achieved record levels of production in
March 2016 and we expect to improve significantly on this during
2016. Continued operational performance, product quality in both
base oil and transformer oil, supported by a strong marketing team,
underpin our strategy for growth in the US. Record levels of
production confirm the improvement in operability and rateability
of the plant as we continue to rebuild market share in the US,
increase the production ratio of transformer oil against base oil
and build margins. We also continue to review opportunities to
develop re-refining capability in other jurisdictions.
The appointment of Chris Ellis as Acting Chief Executive in
December 2015 and then as Chief Executive in March 2016 reflects
the whole Board's focus on execution, delivering improved
operational performance and efficiencies and driving the Company to
profitability. The appointment of Caroline Brown to the Board as
Senior Independent Director and Chair of the Audit Committee during
the year also strengthens our financial governance framework.
Caroline brings an important financial and governance experience to
the Board and reinforces the Board's ability to support the
development of the Hydrodec business going forward. I would also
like to take this opportunity to thank Alan Carruthers, who is
retiring from the Board, for his commitment to Hydrodec and the
valuable and informed contribution he has made over the last four
years. As a long standing member of the Board, he has been integral
to the development of Hydrodec. We all wish him well for the
future.
We remain confident that the rebuilt and expanded Canton plant
has a unique market proposition and is well placed in 2016 to
leverage the production of the highest quality transformer oil
produced in the US. As we continue to turn the corner our focus is
on delivering operational performance and efficiencies, continuing
to implement a rigorous cost reduction programme, and on driving
the Company to a profitable 2016.
Lord Moynihan
Non-Executive Chairman
CHIEF EXECUTIVE'S REPORT
The challenges faced by many companies in our industry in 2015
are well known and documented. In many ways the extended
commissioning of the Canton plant, the relocation of the Australian
operations in the first half of the year coupled with the decline
in the price of oil from the end of 2014, created a 'perfect storm'
for the Group. Responding to this environment the Company took
decisive measures at the end of 2015 to turnaround Hydrodec and set
it on a firm, growth strategy for profitability in 2016.
Strategic developments
(i) Disposal of UK waste oil collections business (HUK) and
proposed UK re-refinery project (HRR)
In late 2015 and January 2016, the Company undertook a detailed
strategic review of its UK waste oil collections business and
proposed UK lubricant oil re-refining project, following a
significant deterioration in its UK operations. This deterioration
was driven predominately by the rapid decline in global oil prices
and continued challenging market conditions which resulted in HUK
generating an increasing level of significant losses. Despite
implementing extensive restructuring and cost-saving measures
during 2015 (including an approximate 38% reduction in UK
headcount), Hydrodec remained exposed to the impact of the global
oil price decline. Given the significant cash consumption and
limited cash resources available to the Company (in the absence of
a significant further fundraising), the directors of the Company
reviewed all available options and concluded that it was in the
best interests of the Company to dispose of the UK operations.
Following a strategic auction process conducted by an
independent third party financial adviser, the Company sold its UK
operations to Andrew Black, a Non-Executive Director and
substantial shareholder, (the Buyer) on 4 March 2016 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 and involving the injection by the Buyer of working capital
into HUK. In addition, the Buyer granted Hydrodec a contractual
right to receive a proportion of the Buyer's entitlement to any
future profits of the UK re-refining project on the following
waterfall basis (a) first, the Buyer, as primary risk taker, to
recover the costs of its investment in the UK re-refining project;
(b) then, the next tranche to be applied 70:30 between Hydrodec and
the Buyer respectively until Hydrodec has recovered its costs
incurred to date in connection with the UK re-refining project; and
(c) finally, the balance of any profits to be shared 90:10 between
the Buyer and Hydrodec. 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 UK
re-refining project also offers a potential opportunity to develop
transformer oil re-refining capacity in the UK. The impact on the
Company of all of the above is described in note 9.
(ii) USA
The rebuild of the Canton plant was completed during the year,
re-establishing a plant with a nameplate capacity significantly
higher at 45 million litres compared to 27 million litres prior to
the incident in December 2013. It is safer, easier to maintain, and
we consider capable of producing the highest quality transformer
oil in the US.
The recommissioning of the plant did, however, take longer than
planned and, whilst commissioning issues are not unusual, the
issues experienced with the plant's new heat exchangers, to which
over 100 days of potential lost production can be attributed, were
material and negatively impacted the performance of the business in
2015. Since then, all six trains at Canton were brought in
production by the end of December 2015. Further significant
progress on operability and reliability has meant that Canton
achieved an all-time monthly production record of 2.56 million
litres in March 2016. Operational performance is a key platform for
our strategy of growth in the US and these production records
confirm the improvement in operability and rateability of the plant
as we continue to rebuild market share in the US.
(iii) Australia
The relocation of Hydrodec's Australian operations from Young to
Southern Oil's used lubricant oil re-refinery in Bomen, New South
Wales was completed at the end of March 2015, a month later than
envisaged. First commercial oil sales were made shortly thereafter.
As a result of relocation, the plant now benefits from operating
efficiencies under a single operating structure, which also offer
better logistics and other locational advantages. Hydrodec
continues to own the transformer oil re-refining plant and the
proprietary technology, and controls all the commercial activity
related to the branded SUPERFINE(TM) oil.
Total income and operational performance
Full year total income was lower than the prior year at US$43.8
million (2014: US$54.7 million), driven principally by the later
than planned start of production in Canton and the decline in the
overall headline selling price of oil. Overall total oil sales were
62.1 million litres (2014: 48.6 million litres) of which 14.4
million related to the re-refining businesses (2014: 12.0 million
litres) and 47.7 million litres related to the UK operations (2014:
36.6 million litres). Additionally, in the first quarter, the
re-refining business benefited from the remaining business
interruption income of US$1.5 million received under the settlement
negotiated at the end of 2014.
(MORE TO FOLLOW) Dow Jones Newswires
April 12, 2016 05:24 ET (09:24 GMT)
Sales volumes in the re-refining business increased to 14.4
million litres at a gross margin of -6.9% (2014: 12.0 million
litres at a pro forma gross margin of 30%), a 20% increase in
volume over the prior year reflecting the commencement of
production at Canton during the year whilst the deterioration in
gross margin was a function of the low utilisation rate
attributable to the commissioning process. Sales volumes in the
recycling business increased to 47.7 million litres after the
acquisition of Eco-Oil at a margin of 5.3% (2014: 13.6%) and
contributed US$1.8 million gross profit (2014: US$ 4.7 million),
38% down on 2014. This was despite the implementation of strategies
to improve margins and accommodate lower global oil prices,
including the renegotiation of feedstock pricing mechanisms with
suppliers following the rapid decline in oil prices from the end of
2014.
Administrative expenses fell by 6% compared to the prior year to
$20.7 million (2014: US$22.1 million). The key driver (US$ 3.8
million) being a reduction in employee cost due to the relocation
of the Australian operation offset by an increase in costs from the
acquisition of the business of Eco-Oil in the UK. Costs as a
percentage of total income increased to 47% (2014: 40%) given the
lower levels of total income driven by the decline in the oil price
impacting sales revenue and the later than planned start up in
Canton.
The operating loss, before impairment, after charging
restructuring costs (US$ 1.3 million), increased to US$19.5 million
(2014: US$7.9 million).
In accordance with accounting standards, the Board has reviewed
the carrying value of goodwill and other intangible assets across
the Group in light of current trading, prospects and progress
towards achieving the Group's strategic plans. Following this
review, the Company charged a total of US$11.1 million (2014:
US$0.8 million) for the impairment of such assets. This impairment
charge comprised two key elements. The first related to the
disposal of the UK operations for GBP1 in March 2016 (see note 9)
giving rise to a charge of US$3.0 million for the relevant plant
and equipment (2014: US$0.8 million) and US$4.7 million in respect
of intangible assets. The second related to the net assets of the
Company's non-trading subsidiary, Virotec International plc, which
had a carrying value of goodwill of US$3.4 million which has been
impaired to nil.
Finance costs
Net financial expense was US$0.5 million (2014: US$0.2 million)
and relates to the interest payable under the lease in the US and
interest payable on the shareholder loans in the UK.
Operating cash flow and working capital
In 2015, the Group had net cash outflow from operating
activities of US$13.7 million, compared to a US$6 million net cash
inflow in 2014. The movement in working capital of US$1.7 million
net cash inflow was a result of a reduction in inventory levels
both in the US and UK, a reduction in trade receivables (including
a reduction in prepayments for oil purchased from G&S (US$1.2
million)), and a reduction in trade and other payables consisting
principally of the payment of Group insurance of US$1.5 million,
payment of the basic engineering design package of US$0.5 million
under the CEP licence, fuel duties of US$0.5 million and a
reduction in the level of payables in the UK recycling business
driven by market contraction.
The amount of working capital required by the Group's operations
continues to be closely monitored and controlled, and forms a key
part of the management information. Credit management remains
robust with no bad debts written off during the year.
Liquidity and Financing Activities
The Group's principal financing facility is a seven year US$10
million finance lease arrangement with First Merit fully drawn and
repayment under which commenced on 1 October 2015, as well as
shareholder loans from Andrew Black, a substantial shareholder and
Non-Executive Director, of US$6.2 million as at 31 December 2015
(of which US$4 million was utilised as at 31 December 2015),
repayable on 31 December 2017. The Company also has a lease
financing arrangement of US$1.4 million with its partner in
Australia, Southern Oil, in respect of the infrastructure costs
incurred for the establishment of its facilities at the site in
Bomen. Additional working capital has been provided by overdraft
facilities in the USA and Australia. Borrowings associated with the
UK business were divested as part of the sale arrangements for the
UK operations on 4 March 2016.
Capital expenditure in 2015 totalled US$14.9 million (2014:
US$19.0 million), primarily incurred in the US in relation to both
the rebuild and expansion of the plant at Canton. Rebuild capital
expenditure in Canton has been funded through a combination of
operating cashflow, the insurance proceeds received during 2014,
and the finance lease arrangement referred to above, whilst the two
expansion trains have been funded equally by Hydrodec and its
partner G&S.
Outside of the US, the Group started to incur capital costs in
relation to the establishment of the UK re-refinery, primarily in
relation to site preparation and the acquisition of the basic
engineering design package from CEP, such costs being funded out of
Group cash reserves prior to the disposal of the UK operations. A
mechanism to potentially recoup these costs was agreed as part of
the disposal of the UK operations and is detailed in note 9.
Financial reporting
The financial information has been prepared under IFRS and in
accordance with the Group's accounting policies. There have been no
changes to the Group's accounting policies during the year ended 31
December 2015.
Going concern
As set out in note 1, taking into account the Group's current
forecasts and projections and recent progress in re-establishing
market share in the US, and considering the uncertainties described
in note 1, the directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in
operational existence for at least the next 12 months. Accordingly,
the directors continue to adopt the going concern basis in
preparing the annual report and financial statements.
At 31 March 2016, after divesting the UK operations, the Group's
overdraft and committed loan facilities (excluding finance lease
liabilities) provided headroom over the Group's actual borrowing
requirement. However, as referred to in the Outlook section below,
the next six months are likely to see the Group's working capital
needs increase before sustained monthly cash generation reduces the
working capital requirements. Therefore on 11 April 2016, the Group
signed a further GBP2.25 million facility agreement to allow for
the working capital needs to be met while also providing further
headroom against downside risk. Further details of the new loan
facility are set out in note 9.
Progress on delivering our strategy and Outlook
As was recognised by the market generally, 2015 was an extremely
difficult year in the oil and gas sector and this was no different
for Hydrodec. Following the review commenced at the end of 2015,
the successful disposal of the UK operations in early March was the
first step in my strategy to implement a fundamental turnaround for
the Company to refocus on our core transformer technology
business.
The next stage of this plan is to deliver operational
performance and efficiencies, continuing to implement a rigorous
cost reduction programme and to drive to a profitable 2016. In both
the US and Australia, we will continue aggressively to build market
share, ensure product quality and maximise margins following
significant service interruption with the plant re-build in Canton
and relocation of our operations in Australia. Market dynamics
remain difficult and regaining momentum will be challenging in the
first half of the year. However, progress to date in the US is
strong: the business delivering a monthly production record in
March producing 2.56 million litres having already posted a
production record in February of 2.45 million litres. The quality
of the product the business produces is also of the highest
standard and our objective is now to strengthen margins as we grow
market share whilst ensuring rigorous cost control.
The recent price rises posted by producers of base oil and
transformer oil in the US are encouraging indications of a move
towards price stabilisation, and I expect that over time the
progress we have made in the first few months of this year will
enable us to grow the business as envisaged prior to the incident
in Canton, and expand further in the US and into other geographical
markets as we seek to enlarge our global footprint in a profitable
and capital efficient manner.
Chris Ellis
Chief Executive Officer
Consolidated Income Statement
For the year ended 31 December 2015
2015 2014
Note USD'000 USD'000
Revenue 2 42,314 46,185
Other income 2.5 1,523 8,552
Total income 43,837 54,737
Cost of sales (42,694) (40,445)
Gross profit 1,143 14,292
Administrative expenses (20,672) (22,147)
Operating loss before
impairment (19,529) (7,855)
------------- -------------
Impairment of property,
plant and equipment
and intangibles 2.3 (11,073) (809)
Operating loss after
impairment (30,602) (8,664)
Finance costs 3 (527) (236)
Finance income 5 45
Loss on ordinary
activities before
taxation (31,124) (8,855)
Income tax (charge)/benefit (14) 403
(MORE TO FOLLOW) Dow Jones Newswires
April 12, 2016 05:24 ET (09:24 GMT)
Loss for the year (31,138) (8,452)
------------- -------------
Loss for the year
attributable to:
Non-controlling
interests (1,004) 986
Owners of the parent (30,134) (9,438)
Total loss for the
year (31,138) (8,452)
------------- -------------
Loss per share - 4 (4.17) cents (1.14) cents
basic/diluted
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2015
2015 2014
USD'000 USD'000
Total loss for the
year (31,138) (8,452)
Other comprehensive
income
Items that may be
reclassified to
profit and loss:
Exchange differences
on translation of
foreign operations (1,361) (2,670)
Capital contribution
from NCI - 1,234
Items that will
never be reclassified
to profit and loss:
Revaluation of property,
plant and equipment (496) 548
Total comprehensive
loss for the year (32,995) (9,340)
--------- ---------
Other comprehensive
income for the year
attributable to:
Non-controlling
interests (1,004) 986
Owners of the parent (31,991) (10,326)
Total comprehensive
loss for the year (32,995) (9,340)
--------- ---------
Consolidated Statement of Financial Position
As at 31 December 2015
2015 2014
Restated
Note USD'000 USD'000
Non-current assets
Property, plant
and equipment 45,645 36,790
Intangible assets 9,616 20,387
55,261 57,177
---------- ---------
Current assets
Trade and other
receivables 5 6,799 8,310
Inventories 1,282 1,721
Cash and cash equivalents 2,064 15,559
10,145 25,590
Current liabilities
Bank overdraft (2,367) (613)
Trade and other
payables 6 (10,489) (13,327)
Provisions - (319)
Other interest-bearing
loans and borrowings 7 (6,195) (3,309)
(19,051) (17,568)
---------- ---------
Net current (liabilities)/assets (8,906) 8,022
Non-current liabilities
Employee obligations (46) (143)
Provisions (1,776) (507)
Other interest-bearing
loans and borrowings 7 (13,091) (367)
Deferred taxation (1,827) (1,453)
Other non-current
liabilities - (1,000)
(16,740) (3,470)
---------- ---------
Net assets 29,615 61,729
---------- ---------
Equity attributable
to equity holders
of the parent
Called up share
capital 8 6,200 6,620
Share premium account 130,539 130,539
Merger reserve 48,940 48,940
Treasury reserve - (44,186)
Employee benefit
trust (1,150) (1,239)
Foreign exchange
reserve (9,174) (2,915)
Share option reserve 883 7,556
Revaluation reserve - 548
Capital redemption 420 -
reserve
Profit and loss
account (152,662) (90,234)
23,996 55,629
---------- ---------
Non-controlling
interests 5,619 6,100
Total equity 29,615 61,729
---------- ---------
Consolidated Statement of Cash Flow
For the year ended 31 December 2015
2015 2014
USD'000 USD'000
Cash flows from operating
activities
Loss before tax (31,124) (8,855)
Net finance costs 522 191
Amortisation, depreciation
and impairment 13,439 7,445
Gain on disposal of fixed
assets (760) (1,473)
Impairment of goodwill 3,433 -
Share based payment expense 31 324
Asset revaluation 496 -
Other non-cash movements (2,389) -
Foreign exchange movement 884 (47)
Operating cash flows before
working capital movements (15,468) (2,415)
--------- ---------------------------
Decrease/(increase) in
inventories 835 (149)
Decrease in trade and other
receivables 4,041 6,986
(Decrease)/increase in
trade and other payables (3,268) 2,143
Increase/(decrease) in
provisions 270 (480)
Taxes paid (133) (40)
Net cash (outflow)/inflow
from operating activities (13,723) 6,045
--------- ---------------------------
Cash flows from investing
activities
Acquisition of ECO Assets (3,575) -
Purchase of property, plant
and equipment (14,937) (19,023)
Purchase of other intangible
assets - (1,000)
Proceeds from disposal
of property, plant and
equipment 2,536 1,851
Proceeds from sale of investment - 1,695
Interest received 5 45
Net cash outflow from investing
activities (15,971) (16,432)
--------- ---------------------------
Cash flows from financing
activities
Issue of new shares - 17
Proceeds from loans 15,404 3,000
Capital contribution from
NCI 850 2,468
Interest paid (527) (236)
Repayment of lease liabilities (573) (1,667)
Net cash inflow from financing 15,154 3,582
--------- ---------------------------
Decrease in cash and cash
equivalents (14,540) (6,805)
--------- ---------------------------
Movement in net cash
Cash and cash equivalents 14,946 21,902
Effect of movements in
exchange rates on cash
held (709) (151)
Opening cash and cash equivalents 14,237 21,751
Decrease in cash and cash
equivalents (14,540) (6,805)
Closing cash and cash equivalents (303) 14,946
========= ===========================
Reported in the Consolidated
Statement of Financial
Position as:
Cash and cash equivalents 2,064 15,559
Bank overdraft (2,367) (613)
--------- ---------------------------
Net cash balance (303) 14,946
========= ===========================
Consolidated Statement of Changes in Equity
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For the year ended 31 December 2015
Employee Foreign Capital Share Profit Total Non
attributable
Share Share Revaluation Merger Treasury benefit exchange redemption option and to controlling Total
loss owners equity
capital premium reserve reserve reserve trust reserve reserve reserve account of interest
the
parent
At 1 January
2014 6,619 130,524 - 48,940 (44,186) (1,312) 2,850 - 7,330 (85,454) 65,311 3,872 69,183
Exchange
differences - - - - - 73 (81) - - - (8) 8 -
Share-based
payment - - - - - - - - 635 - 635 - 635
Issue of
shares 1 15 - - - - - - - - 16 - 16
Capital
contribution
from NCI - - - - - - - - - - - 1,234 1,234
Transactions
with owners 1 15 - - - 73 (81) - 635 - 643 1,242 1,885
--------- -------- ------------ --------- --------- --------- ---------- ----------- --------- ---------- ------------- ------------ ---------
Exchange
differences - - - - - - (5,684) - (409) 3,423 (2,670) - (2,670)
PPE
revaluation - - 548 - - - - - - - 548 - 548
Capital
contribution
from NCI - - - - - - - - - 1,234 1,234 - 1,234
Loss for
the period - - - - - - - - - (9,438) (9,438) 986 (8,452)
Total
comprehensive
income - - 548 - - - (5,684) - (409) (4,781) (10,326) 986 (9,340)
--------- -------- ------------ --------- --------- --------- ---------- ----------- --------- ---------- ------------- ------------ ---------
At 31 December
2014 6,620 130,539 548 48,940 (44,186) (1,239) (2,915) - 7,556 (90,234) 55,629 6,100 61,729
--------- -------- ------------ --------- --------- --------- ---------- ----------- --------- ---------- ------------- ------------ ---------
Change
in exchange
rates - - - - - 58 (56) - - - 2 (2) -
Issue of
shares - - - - - 31 - - - - 31 - 31
Cancelled
Shares (420) - - - 44,186 - - 420 - (44,186) - - -
Capital
contribution
from NCI - - - - - - - - - 325 325 525 850
Transactions
with owners (420) - - - 44,186 89 (56) 420 - (43,861) 358 523 881
--------- -------- ------------ --------- --------- --------- ---------- ----------- --------- ---------- ------------- ------------ ---------
Change
in exchange
rates - - (52) - - - (6,203) - (359) 5,253 (1,361) - (1,361)
Share options
lapsed - - - - - - - - (6,314) 6,314 - - -
PPE
revaluation - - (496) - - - - - - - (496) - (496)
Loss for
the period - - - - - - - - - (30,134) (30,134) (1,004) (31,138)
Total
Comprehensive
Income - - (548) - - - (6,203) - (6,673) (18,567) (31,991) (1,004) (32,995)
--------- -------- ------------ --------- --------- --------- ---------- ----------- --------- ---------- ------------- ------------ ---------
At 31 December
2015 6,200 130,539 - 48,940 - (1,150) (9,174) 420 883 (152,662) 23,996 5,619 29,615
--------- -------- ------------ --------- --------- --------- ---------- ----------- --------- ---------- ------------- ------------ ---------
Notes to the Financial Statements
For the year ended 31 December 2015
1 Accounting policies
Basis of preparation
These financial statements have been prepared in accordance with
the principal accounting policies adopted by the Group,
International Financial Reporting Standards (IFRS) and
International Financial Reporting Interpretations (IFRIC) as
adopted by the EU and those parts of the Companies Act 2006
applicable to companies reporting under it and were approved by the
Board on 11 April 2016. They are presented in US Dollars, which is
the presentational currency of the Group. The preparation of
financial statements in accordance with IFRS requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Although these estimates are based on management's best
knowledge of current events and actions, actual results may
ultimately differ from those estimates.
These results are audited, however, the financial information
set out in this announcement does not constitute the Group's
statutory accounts, as defined in Section 435 of the Companies Act
2006, for the year ended 31 December 2015, but is derived from the
2015 Annual Report. Statutory accounts for 2014 have been delivered
to the Registrar of Companies and those for 2015 will be delivered
in due course. The auditors have reported on those accounts; their
reports were unqualified.
The accounting policies used in completing this financial
information have been consistently applied in all periods shown.
These accounting policies are detailed in the Group's financial
statements for the year ended 31 December 2014 which can be found
on the Group's website.
Going Concern
As described in the Chief Executive's Report, the Group has
reported a loss for the year, after impairment, of US$31.1 million
resulting principally from delays and cost overruns in
commissioning the Canton plant and from its UK operations (disposed
of on 4 March 2016) which were adversely affected by the
significant decline in the oil price during the year. The disposal
of the UK operations on 4 March 2016 resulted in, amongst other
matters, an improved net current liability position for the Group,
compared with that at 31 December 2015, and this has been used as
the basis for the Group's working capital projections. The current
economic environment for the Group remains challenging.
Accordingly, and in the context of the risks highlighted above, the
pace and execution at which the Canton plant builds back market
share in the US transformer oil market remains a key underlying
risk for the Group. Whilst the directors have instituted measures
to deliver improved operational performance and efficiencies and to
implement a rigorous cost reduction programme, the US transformer
oil market and the Group's speed of re-entry thereto will continue
to be affected by market conditions giving rise to uncertainties
over future trading results and cash flows. However, current
pricing for transformer oil shows signs of steady improvement from
the lows of 2015 and the Canton plant has now established a
reliable operating record over the last three months with all six
of its trains running. The new Australian operations are stable and
plans are underway to increase the level of feedstock to the
Australian business. The base case projections, for assessing going
concern, through to June 2017 for the combined US and Australian
operations,
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which reflect a degree of downside risk on revenues, show a
steadily improving position and achieving a monthly cash breakeven
position in Q3 of 2016 for the Group.
At 31 March 2016, the Group's indebtedness (excluding finance
lease liabilities) was US$7.3 million and the base case projections
indicate this increasing over the next six months before steadily
improving through to the end of the projection period in June 2017
as a result of the measures taken.
At 31 March 2016, the Group's indebtedness (excluding finance
lease liabilities) was funded by a combination of overdraft
facilities in the USA and Australia, amounting to US$2.6 million,
and a committed loan facility of GBP4.135 million ($5.8 million at
a rate of $1.4/GBP1). In order to fund additional working capital
requirements over the next six months and provide headroom to cater
for additional downside risk in the period covered by the
projections, a further committed facility was entered into on 11
April 2016 for GBP2.25 million ($3.15 million at a rate of $1.4/$).
The key risks considered by the Directors in making their
assessment as to the adequacy of headroom include a reduction in
volume of production and a decline in projected revenue.
After making enquiries, taking into account the Group's current
projections, financial position, its loan and overdraft facilities
and recent progress in re-establishing market share in the US with
record production in February and March 2016, and considering the
uncertainties described above, the directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for at least the next 12
months from the date of approval of these financial statements.
Accordingly, the directors continue to adopt the going concern
basis in preparing the annual report and financial statements.
2 Revenue and operating loss
2.1. Segment analysis
The Group operates two operating segments:
-- Re-refining: principally the treatment of used transformer
oil and the sale of SUPERFINE(TM) oil
-- Recycling: principally the collection and treatment of waste
lubricant oil and the sale of recycled oil products
The financial information detailed below is frequently reviewed
by the Board (the Chief Operating Decision Maker) and decisions
made on the basis of adjusted segment operating results.
Re-refining Recycling Unallocated Total
Year ended 31 USD'000 USD'000 USD'000 USD'000
December 2015
Revenue 8,231 34,083 - 42,314
Other income 1,521 2 - 1,523
------------ ---------- ------------ ---------
Operating EBITDA (3,254) (2,855) (5,114) (11,223)
Growth Costs (1,246) (422) (92) (1,760)
Re-commissioning
Costs (302) - - (302)
Restructuring
Costs (231) (1,028) - (1,259)
Depreciation (1,310) (1,414) (11) (2,735)
Amortisation (1,683) (1,381) - (3,064)
Share-based
payment costs - - (31) (31)
Foreign exchange
profit 784 3 58 845
Operating loss
before impairment (7,242) (7,097) (5,190) (19,529)
------------ ---------- ------------ ---------
Re-refining Recycling Unallocated Total
Year ended 31 USD'000 USD'000 USD'000 USD'000
December 2014
Revenue 11,505 34,680 - 46,185
Other income 8,552 - - 8,552
------------ ---------- ------------ --------
Operating EBITDA 4,944 764 (4,098) 1,610
Growth Costs (1,772) - (506) (2,278)
Depreciation (1,769) (2,092) 738 (3,123)
Amortisation (2,246) (1,268) - (3,513)
Share-based
payment costs - - (324) (324)
Foreign exchange
loss (67) (88) (72) (227)
Operating loss
before impairment (910) (2,684) (4,262) (7,855)
------------ ---------- ------------ --------
Re-refining Recycling Unallocated Total
Year ended 31 USD'000 USD'000 USD'000 USD'000
December 2015
Total assets 49,987 10,445 4,974 65,406
Total liabilities (18,023) (10,445) (7,323) (35,791)
Year ended 31
December 2014
Total assets 47,330 16,537 18,901 82,767
Total liabilities (11,435) (7,912) (1,690) (21,038)
2.2. Geographic analysis
The Group's revenues and other income from external customers
and its non-current assets are divided into the following
geographical areas:
2015 2014
------------------------- -------------------------
Revenue Non-current Revenue Non-current
and other assets and other assets
income income
USD'000 USD'000 USD'000 USD'000
UK 34,085 5,516 34,680 11,580
USA 5,559 34,616 13,910 23,733
Australia 4,193 11,855 6,147 13,078
Unallocated - 3,274 - 8,786
43,837 55,261 54,737 57,177
----------- ------------ ----------- ------------
Revenue and other income have been identified on the basis of
the customers' geographical location. Non-current assets are based
on their physical location.
2.3. Loss on ordinary activities
The loss on ordinary activities before taxation is stated after
(charging)/ crediting the following amounts:
2015 2014
USD'000 USD'000
Grant income 941 1,641
Profit on disposal of property,
plant and equipment - 1,473
Cost of sales
- inventory expensed (11,100) (11,058)
- other direct costs (22,085) (20,313)
- employee benefit expense (6,973) (6,493)
- depreciation (2,536) (2,581)
Amortisation (3,064) (3,513)
Share based payments (31) (324)
Depreciation (199) (542)
Impairment of tangible and
intangible assets (11,073) (809)
Operating lease rentals - land
and buildings (852) (804)
Exchange (gain)/loss 845 (227)
Fees payable to the Company's
auditor for the audit of the
annual accounts (67) (70)
Fees payable to the Company's auditor
and its associates for other services:
- the audit of the Company's
subsidiaries (113) (101)
- tax & other services - (144)
Profit on disposal of assets in 2015 relate to the surplus
generated from a sale and leaseback arrangement with TIP
Europe.
Fees paid to the Group auditors and its associates for non-audit
services to the Group are not disclosed in the individual accounts
of Hydrodec Group plc because the Group's consolidated financial
statements are required to disclose such fees on a consolidated
basis.
2015 2014
USD'000 USD'000
Capital expenditure
- property, plant and equipment (14,937) (19,023)
2.4. Growth costs
The business continues to invest in long term strategic growth
initiatives focused on geographic expansion and research and
development. These costs are analysed as follows:
2015 2014
USD'000 USD'000
-------- --------
Market expansion development
costs 892 1,270
New product development 446 1,008
Transaction fees and onetime
costs 422 -
Growth costs 1,760 2,278
-------- --------
2015 2014
USD'000 USD'000
-------- --------
Employee benefit expense 819 1,342
Other costs 941 936
Growth costs 1,760 2,278
-------- --------
2.5. Other income - Insurance Proceeds
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On 11 November 2014 the Group and its insurers settled the
Group's insurance claim arising from the incident at Canton in
December 2013. The total gross value of the claim was agreed at USD
20,000,000, which after deduction of property damage and business
interruption insurance excesses of USD 1,250,000 in aggregate,
resulted in cash payments of USD 18,750,000 to the Group.
2015
USD'000
--------
Gross proceeds after deductibles 18,750
Proceeds recognised in 2013 7,596
Proceeds recognised in 2014 9,658
Proceeds recognised in 2015 1,496
--------
18,750
2015 2014
USD'000 USD'000
-------- --------
Proceeds recognised 1,496 9,658
Less asset disposal costs - (409)
Less insurance claim related
costs - (697)
Net Income recognised 1,496 8,552
-------- --------
Net Income recognised from
Insurance Proceeds 1,496 8,552
Other income 27 -
Total other income 1,523 8,552
-------- --------
3 Finance costs
2015 2014
USD'000 USD'000
-------- --------
Bank overdrafts and leases 527 236
527 236
-------- --------
4 Loss per share
The calculation of the basic loss per share of 4.17 cents per
share (2014: 1.14 cents loss per share) is based on the loss
attributable to ordinary shareholders of USD 31,138,000 (2014: USD
8,452,000 loss) divided by the weighted average number of shares in
issue during the year.
The weighted average number of shares used in the calculations
are set out below:
2015 2014
Number of Number of
Shares Shares
------------- -------------
Issued ordinary shares at
beginning of year 803,356,138 803,231,138
Shares issued in the year
(14/03/2014) - 125,000
Weighted average share issue - 100,342
Add back shares transferred
out of EBT 2,583,333 -
Add back treasury shares
(cancelled in 2015) (59,256,666) (59,256,666)
Weighted average shares
in issue 746,682,805 744,074,814
In 2014 and 2015, the share options and warrants exercise values
are greater than the market price and diluted earnings per share is
the same as basic. The calculation of the weighted average number
of shares excludes shares which were held by a member of the Group
in 2014 (which were treated as if they were treasury shares) and
which were subsequently cancelled in 2015 following the liquidation
of the relevant entity, and also shares held in 2014 by the
Hydrodec Group Employee Benefit Trust.
5 Trade and other receivables
2015 2014
USD'000 USD'000
-------- --------
Trade receivables 5,103 4,270
Prepayments and accrued
income 1,260 3,790
Other receivables 436 198
Other taxation and social
security - 52
6,799 8,310
-------- --------
All trade receivable amounts are short term. The carrying value
is considered a fair approximation of their fair value. All of the
Group's trade and other receivables have been reviewed for
indicators of impairment.
At 31 December 2015, some of the unimpaired trade receivables
are past their due date but all are considered recoverable. The
analysis of financial assets is as follows:
2015 2014
USD'000 USD'000
Less than one month 3,540 3,375
Past due but not impaired 1,563 895
5,103 4,270
-------- --------
Credit sales are only made after credit approval procedures are
completed, and the carrying value represents the Group's maximum
exposure to credit risk.
The carrying amounts of the Group's trade and other receivables
are denominated in the following currencies:
2015 2014
USD'000 USD'000
Sterling 5,552 4,964
Australian dollars 453 1,151
United States dollars 794 2,195
6,799 8,310
-------- --------
6 Trade and other payables
2015 2014
USD'000 USD'000
-------- --------
Current
Trade payables 7,420 6,624
Non-trade payables and accrued
expenses 3,069 5,207
Deferred income - 1,496
10,489 13,327
-------- --------
The carrying value of trade and other payables are considered to
be a reasonable approximation of fair value.
7 Other interest-bearing loans and borrowings
2015 2014
USD'000 USD'000
-------- --------
Current liabilities
Current portion of finance
lease liabilities 2,074 309
Unsecured bank facility 4,121 -
Finance lease facility - 3,000
6,195 3,309
-------- --------
Non-current liabilities
Finance lease liabilities 9,125 367
Loan from shareholder 3,966 -
13,091 367
-------- --------
In 2014, the finance lease facility of USD 3,000,000 related to
the initial draw down of the total USD 10,000,000 finance lease
facility in the US which converted to a seven year finance lease
arrangement once the Canton plant was commissioned. The remaining
USD 7,000,000 finance lease facility was recognised in 2015. The
finance leases are secured over the assets to which they
relate.
Unsecured bank facility of USD 4,121,000 includes USD 2,802,000
relating to factoring in the UK and USD 1,319,000 for the working
capital facility in the US.
Other loans include USD 3,962,000 owed to Andrew Black, a
Non-Executive Director and a substantial shareholder.
8 Share capital
Issued and fully paid - 2015 2014
ordinary shares of 0.5 pence
each
Number of Number of
shares shares
------------- ------------
At the beginning of the
year 803,356,138 803,231,138
Issued for cash - 125,000
Cancelled (56,673,333) -
746,682,805 803,356,138
------------- ------------
Restated
2015 2014
USD'000 USD'000
------------- ------------
At the beginning of the
year 6,620 6,619
Issued for cash - 1
Issued in settlement of (420) -
loan
At the end of the year 6,200 6,620
------------- ------------
Hydrodec Group plc held 54,500,000 of its own ordinary shares
(which were previously held by VIN (Australia) Pty Ltd pursuant to
the acquisition of Virotec International plc in 2008) and which
were transferred to Hydrodec Group plc as part of a dividend in
specie to Hydrodec Group plc on the liquidation of VIN (Australia)
Pty Ltd in 2014. These shares, together with a further 2,173,333
shares issued as part of the acquisition of Virotec International
plc, were cancelled in 2015 upon the liquidation of VIN (Australia)
Pty Ltd and Virotec International plc.
Warrants
In 2011, the Group issued 10,750,000 warrants in connection with
the issue of GBP2,000,000 of fixed rate loan notes - 2014. The
warrants have an exercise price of 8p per share with an exercise
window from 14 June 2013 to 14 June 2016.
Between 24 December 2012 and 27 June 2013, the Group issued an
additional 25,000,000 warrants in connection with the issue of
GBP5,000,000 of fixed rate loan notes - 2015. The warrants have an
exercise price of 16p per share with an exercise window from 19
June 2013 to 19 December 2017.
No value has been ascribed to the warrants in these accounts due
to the value being negligible and thus immaterial.
9 Post balance sheet events
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On 4 March 2016, following a strategic auction process conducted
by an independent third party financial adviser, Hydrodec Holdco
Limited, a wholly-owned subsidiary of the Company, disposed of
Hydrodec (UK) Limited and Hydrodec Re-Refining (UK) Limited
(together, the "UK Operations"), and the Company agreed to transfer
certain other rights and assets relating to its UK Operations, to
Andrew Black, a Non-Executive Director and a substantial
shareholder of the Company (the "Buyer"). The disposal of the UK
Operations constituted both a related party transaction and a
substantial transaction for the purposes of the AIM Rules. The
consideration for the sale of the UK Operations was GBP1 in cash,
and included the transfer to the Buyer of circa. GBP1.2 million of
existing third party indebtedness in HUK. In addition to this, the
Buyer has agreed to 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.
On 11 April 2016, the Company entered into an agreement to
extend its GBP2 million secured second working capital facility
with Andrew Black, a Non-Executive Director, dated 30 November 2015
by a further GBP2.25 million to GBP4.25 million. This extension to
the facility is also secured over the rights for Hydrodec
Development Corporation Pty Ltd to receive income based on the
quantity of SUPERFINE(TM) oil produced by Hydrodec of North America
LLC and Hydrodec of Australia Pty Ltd respectively, which royalty
is based on average annual production.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UUUKRNRASARR
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