Hydrodec Share Discussion Threads

[capricious] 25/1/2015 11:05

You're all very welcome - I'll touch on the financing when I do my next post, which will be about the UK

[finraj] 24/1/2015 21:25

Thanks capricious. Any talk/views on the financing for the new refinery? Previously they'd mentioned partnering with another player, but I'm not sure if thats they new strategy. If they could get hands on some of the trillion euros being printed by the ECB, could go a long way..

[corrientes] 24/1/2015 20:01

Thank you capricious.

[luminoso] 24/1/2015 18:16

Thanks , capricious. Really appreciate you taking the time to post the summary/your thoughts from the presentation.

[capricious] 23/1/2015 15:58

As promised I'll attempt to summarise the event.

For those of you thinking about going to the next, it's well worth the time.

The meeting was attended by the following. Lord Moynihan Chairman, Ian Smale CEO, Chris Ellis CFO, James Hodges General Counsel and Company Secretary. All were very open and welcoming, they also take seriously and appreciate the discussions that we have here, and try to adjust their news flow to help with our understanding. Goes further than many companies I know.


Before we get to details, all who spoke were very genuine, they believe in what they are doing, and whatever questions arose, there was not a hint or indeed a need, to hide from a fact or build a picture that wasn't there. Ian is well known in the industry and the wealth of his knowledge and his experience comes across when he speaks. A company this size is lucky to have a board that is more suited to a multi-nation organisation, they are slowly turning Hydrodec into something that matches that description.


Insurance
We got an insight into the arduous nature of the task between themselves and the insurers. Chris was vital in this matter, they didn't speak out against the insurer, but it was clear the insurers were not a good (or a very good one if you look at it another way) example of their industry. They fought them every step of the way and in the end came up with a very good result for the kind of incident and the industry. Once that was done Chris then secured the new debt financing, so hats off to a great job.


Australia
The reactor, built on a rail structure has been moved to the new SOR facility.

Young currently has 20 employees in a large'ish complex. Sadly for them the new arrangement only needs 4/5 service personnel. This will bring with it significant savings and should mean the under-scale operation produces useful cash generation.

The development that was done at Young will now be moved to the Uk, presumably in the OSS laboratories.

The SOR plant uses a CEP based derivative, on the lower end of the quality scale. Once Hydrodec perfect the new process, I can only assume they may want to be one of the first customers/partner to benefit from the 'Bolt-On'.

Industrial Oils/Lubes are not planned, at least not in SOR's own backyard.


Canton USA

Q1 - reactors in place.
Q2 - for continued testing and importantly, major OEM testing.
Q3-4 - ramp up production.

I believe Ian said the US market is around 300million/l of used oil per year and currently they hold 15%. With Canton the reboot, they are confident that 25% is easily achievable.

The new reactors produce the very highest standard 500 hour oil, if I'm not mistaken, only available from one other source. The 6 trains (3 reactors) remove the bottlenecks from the old reactors and with it, a step change in efficiency as well as producing the highest quality oil. Although once all reactors are in place, and operational capacity will be 50% greater than before, even they don't know the ultimate limits of the new units.

For example, they were able to increase the output from the old reactors overtime, with the new ones, the headline figure of 50%, may actually mean greater 50% when you compare the two technologies.

There are plans for 10 trains (two extra reactors) but no target date, and the timing of such is triggered by Hydrodec, if and when the opportunity arises. With the new efficiency from the 6 proposed trains, they could potentially need less to achieve the same output as the 10. That's not to say they wont have ten or indeed more, it just highlight the difference between old and new.

Another exciting point is that they now have a reliable manufacturer of the reactors, it's constructed in a modular way and is probably (my words) the best in the industry. I can see this being packaged up perfectly for licensing or joint ventures all over the world. Of course the system has to prove itself, but confident this is time rather than any other hurdle.

We got to learn other interesting facts. That the company came under significant attack by a very large competitor, Ergon. Superfine Oil had enough of a premium in industry recognition and price to successfully defend it's market share.

G&S have invested in their delivery chain and the plan is to bring further improvements with greater use of the train freight. This not only brings cost savings, but the company will be able to respond to customer demands more dynamically.

... more to follow

[yump] 23/1/2015 11:02

Yes thanks in general for posting - its good to have clarification from someone who knows more about the industry/market.

I wouldn't waste time on anyone who applies some sort of blanket assessment.

After all, we rely on them to sell based on a general assessment, which leaves opportunities to buy stocks where the business is not actually affected that much by market changes.

There were a few comments about KLBT who provide price management services for petrol retailers, that implied they would suffer as a result of the oil price dropping, whereas you would expect them to benefit from volatility and uncertainty, with the final retailers being the ones with the problems.

[stevedd] 22/1/2015 21:24

Look forward to hearing your reaction capricious. Thanks in advance for posting for those of us that couldn't make it.

[bdroop] 22/1/2015 20:59

hxxps://www.linkedin.com/jobs2/view/25850486

Hiring. Or exploring the hire of...

[capricious] 22/1/2015 19:23

Went brilliantly luminoso, will post more when I can, not long been back

[luminoso] 22/1/2015 18:12

Anyone go to the presentation today ? Hopefully it went well.

[capricious] 21/1/2015 13:28

But importantly the demand, for premium T-oil (Naphthenics) 'over time' is set to grow, but supply will be constrained. Suppliers have either drop/dropping out, or have switched from the more expensive products, e.g T-oil. With the US set to grow strongly, once back online, Hydrodec will be able to exploit the market.

I wouldn't say the whole industry is in a global slow down, that's one of the problems, too much supply. The collapse in price is more to do with a glut and demand having not matched said supply (rather demand just dropping). The sharp fall has already had an impact in the US, by the second half of 2015, prices should have stabilised.

To reiterate, it's not a low price but the sharp movements that cause problems, Hydrodec can make a profit at low or high, especially if they target premium oils.

[kendonagasaki] 21/1/2015 13:11

Looks like jam tomorrow has been promised over and over again here?The whole industry is in a global slowdown and it will affect HYD. Caution.

[capricious] 21/1/2015 11:58

If you look at the slides, OSS hasn't performed that badly, margins with RFO (look to) have turned negative, this equates to 3.5%. PFO on the other-hand, has held up pretty well.

With the 0.5 million in operational savings, this should feed into a better bottom line for 2015.

[capricious] 21/1/2015 11:54

Very true yump.

I don't know many companies that have had consecutive growth for 10 years. This doesn't tell you a complete story, but if it were not for the fire, the momentum would've translated into solid cash generation, even with oil as it is.


I've posted my praise about the board and the guys on the ground, but with Ian's appointment the company is being positioned as a future world class player in rerefining. There is a way to go yet, and some probably are not in it for the long haul, but a mark of a good company is their flexibility/resilience in meeting changing fortunes. The fire being one prime example, the change with ESSAR, the shoring up of the balance sheet etc etc.

[yump] 21/1/2015 11:10

Or take the view that the several year low represents a buying opportunity, for a business that has been increasing EBITDA reliably over that time and building revenue to a significant size.

Its the usual bizarre contradiction that folk were previously prepared to buy much higher with big losses.

[kendonagasaki] 21/1/2015 10:14

Time to lay low and out of HYD until we receive a much clearer picture.

[capricious] 21/1/2015 10:04

Thanks finraj,

Yes that is not part of the plan.


The current plan is more ambitious and in my opinion a better long prospect. Of course having an established partner was good, but the risk to Hydrodec was that ESSAR, going through such internal politics, may have been unreliable.

They could seek another partner, if they can get to an advanced state on the project, and the oil market loses some of it's volatility, the offer may attract third partners. If they can get their technology as a bolt on to CEP, that opens up another potential revenue stream to exploit.

[finraj] 20/1/2015 22:09

hxxp://www.hydrodec.com/download/pdf/presentations/Hydrodec-Strategy-Presentation-20-January-2015.pdf

[finraj] 19/1/2015 22:42

excellent update! I guess the Essar collaboration is dead..

[yump] 19/1/2015 13:35

I must be looking at something different than IC:

"Gross margin expected to be higher than 2013 despite lower product sales prices and challenging market conditions in both the UK and Australia, and after accounting for business interruption income."

[edmondj] 19/1/2015 13:34

Indeed "penny share noise".

[luminoso] 19/1/2015 12:36

A classic case of selling the news. I imagine mostly traders taking their 20% ish.

[edmondj] 19/1/2015 12:29

Down 11% after publishing the tip - the proverbial "IC kiss of death"!

Hopefully better insights on Thursday.

[paleje] 19/1/2015 11:50

I think it would be fair to take it that way too, Yump.

IC reiterated a Buy for them this morning, not much detail in it, might be more later in week:-

Hydrodec (HYR) increased revenues by 35 per cent in 2014 to $54m and group earnings are expected to show an improvement over 2013 although margins were hit by tougher trading conditions. Buy.