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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Hydrodec Group Plc | LSE:HYR | London | Ordinary Share | GB00BFD2QZ40 | ORD 50P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 3.25 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMHYR
RNS Number : 2225A
HydroDec Group plc
28 May 2019
28 May 2019
Hydrodec Group plc
("Hydrodec", the "Company" or the "Group")
Audited final results for the year ended 31 December 2018
Hydrodec Group plc (AIM: HYR), the clean-tech industrial oil re-refining group, today announces audited results for the 12 months ended 31 December 2018.
Strategic highlights
-- New executive management team concluded a fundamental review of the business and commenced implementation of a two year turnaround strategy:
o Completed a placing and open offer raising gross proceeds of approximately USD 14.3 million
o Strengthened balance sheet through the combined repayment and conversion into equity of USD 11.1 million of debt
o Significantly increased ownership interest in Hydrodec of North America (HoNA) from 58% to 85%
o Injected further working capital into US operations
o Commenced sale of non-core, loss-making Australian operations
o Began broadening the base of feedstock suppliers
-- Concluded successful sale of historic carbon credits from 2009 to 2013 vintages. Management expect carbon credits to be a key differentiator of Hydrodec's offering in the future and to provide a unique selling point in trading for feedstock and generating higher value sales of SUPERFINE products. Post period end, American Carbon Registry has issued a further 100,000 credits in respect of 2016-18 production
-- Superior quality of SUPERFINE transformer oil further verified by independent laboratory tests
-- New patent for the Hydrodec technology secured in more geographies (UK, various European countries and Mexico, in addition to 2017 grant in USA) for further 20 years from date of application - post period end patent granted in Australia and Japan
Financial and operational highlights*
*unless otherwise stated, figures refer to continuing operations
-- Revenues increased by 10.5% to USD 14.9 million (2017: USD 13.4 million), driven by improved pricing and sales mix
-- Gross margins improved to 13.1% (2017: 12.8%)
-- Sales volumes of premium quality SUPERFINE transformer oil and base oil from Canton lower at 23.0 million litres (2017: 25.6 million litres), entirely driven by feedstock constraints - demand for SUPERFINE products remains robust; management remains confident that it can continue to sell all potential production volumes at prevailing prices
o H2 volumes (12.7 million litres) significantly improved on H1 (10.3 million litres) due to increased feedstock
o Further improvement in overall sales mix between higher margin transformer oil and lower margin base oil, with transformer oil sales representing 66% of Canton oil sales in 2018, up from 58% in 2017
o Average utilisation rate of 55% achieved for the year at Canton (2017: 59%), with expectation of significant improvement in 2019 as the Group benefits from increased feedstock supplies
-- Administrative expenses (excluding USD 1.1 million relating to the strategic review) increased to USD 5.8 million (2017: USD 4.8 million). Of these, corporate costs were higher in the year at USD 2.7 million (2017: USD 1.4 million) impacted by costs associated with business reorganisation. Corporate costs are expected to fall below previous levels in 2019 and management will seek to make additional savings throughout this current year
-- The overall loss for the year widened to USD 13.7 million (2017: USD 4.3 million), reflecting losses associated with the discontinued Australian business of USD 7.1 million (2017: USD 0.2 million) and the costs of the strategic review and business reorganisation
-- Group adjusted EBITDA loss of USD 1.2 million (2017: USD 7,200 profit), primarily driven by the increased corporate costs described above
-- Adjusted EBITDA of US operations (HoNA) remained stable at USD 1.5 million profit (2017: USD 1.5 million profit) as the general operating environment for oil related businesses positively impacted the Group's pricing and margins in the year, offsetting the feedstock-constrained sales volumes
-- Net financial expense of USD 1.1 million (2017: USD 1.1 million) relates to the interest payable under the lease in the US and interest paid and accruing on shareholder loans in the UK
-- Cash balance at year end of USD 2.2 million (2017: USD 0.1 million)
Post period-end highlights and current trading
-- Reorganisation and strengthening of the US business with a new management and reporting structure combined with a number of internal promotions and new hires within operations
-- Focus on generating new partnerships and securing additional feedstock in the USA:
o Agreements for more than 1.5 million litres of feedstock from two US Department of Energy contracts
o Positive discussions with US utilities have been initiated and, owing to the unique benefit of carbon offset credits, will provide opportunities for utilities to partner with HoNA to meet sustainability goals
-- Slower than planned start for feedstock collections in 2019 with volumes below budget owing to cold weather caused by the polar vortex across the US Midwest and short-term issues related to Venezuelan oil. However, feedstock from the Department of Energy contracts has begun to arrive in railcars and management expects the deficit to be caught up over coming months
-- Australian plant tolling agreement with Southern Oil Refining (SOR) ceases in July 2019 but has required fixed payments with consequential high cash burn, diverting funds from the US business and consuming a significant amount of management's time
-- After some delays, the Australian sales process is now progressing with the Board having received an offer and expecting to conclude the sale of the Australian business before the AGM on 20 June 2019. This will enable management to focus on building the relationships to drive the significant growth opportunities in the US market
-- Management remain confident that the Company will meet market expectations for 2019
Lord Moynihan, Executive Chairman of Hydrodec, commented:
"2018 was a transitional but very important year for the Company, as the Board determined that a turnaround strategy was required to position Hydrodec to maximise its ability to address the full potential of its principal US market through its world leading re-refining technology and established that this was likely to require a two year turnaround strategy.
We are just over a year into that schedule and we can report significant progress with the strategy's implementation. The review determined that a refinancing of the business was required to provide the necessary funds to pay down debt in order to provide a solid financial platform and improve supplies of feedstock, whilst also rebalancing the Company's stake in Hydrodec of North America (HoNA) to ensure full operational control of the Group's key facility.
The fundraising was completed successfully in the autumn, and having completed these key initial aspects of the turnaround strategy, 2019 will continue to see a focus on delivering a substantial feedstock uplift which will help underpin the Company's US utility-targeted strategy, supported by its generation of carbon credits. We also expect to complete the proposed sale of the Group's non-core, sub-scale Australian operations. It is in the US where we intend to realise growth through improved feedstock acquisition, and new partnerships with US government entities, US utilities and field service collection companies.
I would like to thank all shareholders for their support. Now that we are halfway through the two year turnaround strategy, we are confident we can execute upon this and deliver material upside for shareholders whose loyalty we hugely appreciate."
For further information please contact:
Hydrodec Group plc hydrodec@vigocomms.com Lord Moynihan, Executive Chairman David Dinwoodie, Chief Executive Officer Arden Partners plc (Nominated Adviser and Broker) 0207 614 5900 Corporate Finance: Ciaran Walsh, Maria Gomez De Olea Sales: Aimee Kerslake Vigo Communications (PR adviser to Hydrodec) 020 7390 0230 Patrick d'Ancona Chris McMahon
Notes to Editors:
Hydrodec Group plc is a clean-tech industrial oil re-refining group with operations in the USA.
Hydrodec's technology is a proven, highly efficient, oil re-refining and chemical process principally targeted at the multi-billion US dollar market for transformer oil used by the world's electricity industry. MarketsandMarkets forecasts that the global transformer oil market is expected to grow from USD 1.98 billion in 2015 to USD 2.79 billion by 2020 at a CAGR of 7.14%.
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 (polychlorinated biphenyls), 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 Company's proprietary technology and standing as a leader in its field.
Hydrodec's shares are listed on the AIM Market of the London Stock Exchange. For further information, please visit www.hydrodec.com.
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
CHAIRMAN'S STATEMENT
2018 was a transitional but very important year for the Company, as the Board determined that a turnaround strategy was required to position Hydrodec to maximise its ability to address the full potential of its principal US market through its world leading re-refining technology. The year was framed by changes to the executive management team and the conclusion and implementation of a fundamental strategic review of the Group's operations.
I began the year as non-executive Chairman, stepped-up to take the role of Executive Chairman and interim CEO in April (on the departure of Chris Ellis as CEO for personal reasons), and ended the year as Executive Chairman, working closely with the new CEO (from October 2018), David Dinwoodie.
David (initially as interim CFO) and I commenced our strategic review in April 2018 and established early on that this was likely to require a two year turnaround strategy. At the time of writing, we are just over a year into that schedule and in this statement, and David's CEO Review, we can report significant progress with the implementation of the strategic review that was approved by the Board.
In October 2018, we announced the results of a thorough review of the Group's operations which considered in detail a number of options (including opportunities for internal and organic business growth, as well as strategic acquisition opportunities and partnerships). The review determined that a refinancing of the business was required to provide the necessary funds to pay down debt in order to provide a solid financial platform and improve supplies of feedstock, whilst also rebalancing the Company's stake in Hydrodec of North America (HoNA) to ensure full operational control of the Group's key facility. The fundraising was completed successfully in the autumn (raising approximately USD 14.3 million (before fees)) and, in December, Hydrodec's ownership interest in HoNA was renegotiated from 58% to 85%.
Having completed these key initial aspects of the turnaround strategy, 2019 will continue to see a focus on delivering a substantial feedstock uplift which will help underpin the Company's US utility-targeted strategy, supported by its generation of carbon credits. We also expect to complete the proposed sale of the Group's non-core, sub-scale Australian operations. The sales process has taken longer than expected but when it completes this will enable the Company to fully focus on growing the US business. It is in the US where we intend to realise growth through improved feedstock acquisition, and new partnerships with US government entities, US utilities and field service collection companies.
In addition to the executive management changes described above, we were pleased to welcome Chris Ellis back to the Board, post period end, as a non-executive Director and chair of the Board's audit committee. Given his years in an executive capacity as CFO and then CEO of the Company, Chris brings a wealth of financial and governance experience to the Board, coupled with deep existing knowledge of the business, and will strengthen our ability to support the development of Hydrodec. He replaced Caroline Brown, who stepped down after three years. I would like to again record my thanks to Caroline for her contributions to the Board and its committees during that period.
We were pleased to see such high quality institutional shareholder support for the Hydrodec "green oil story" in the October fundraise. This represents an endorsement of the Board's turnaround strategy and reinforces the substantial potential for the relaunched Hydrodec to deliver material value for investors. It was also important to the Board that our existing shareholders had the opportunity to participate on the same terms as new institutional investors through the open offer process. I would like to thank all shareholders for their support and patience. As shareholders, we have all faced difficult days supporting the Company with the share price at its current level. However, now that we are halfway through the two year turnaround strategy, we are confident we can execute upon this and deliver material upside for shareholders whose loyalty we hugely appreciate.
I would also like to record, on behalf of the Board and the Company, our ongoing thanks to Andrew Black, our largest shareholder, whose continuing support of the business, financially and otherwise, in recent years, over a challenging period in the Company's history, has been hugely appreciated. We remain confident we will be in a position to repay Andrew's good faith and support as the Company seeks to implement in full its turnaround strategy.
Last, but certainly not least, I would like to thank all members of the Hydrodec management team and staff - in particular the significantly strengthened US team in Canton - for their hard work and commitment, often in challenging circumstances. I am confident that we will begin to see the fruits of this labour in the months ahead.
Lord Moynihan
Executive Chairman
CHIEF EXECUTIVE OFFICER'S REVIEW
Having initially joined the Company and the Board as interim CFO in April 2018, I was delighted to be appointed CEO in October and I am pleased to provide my first CEO Review. As Lord Moynihan has set out in his Chairman's Statement, my first task was to work closely with him on designing and implementing a turnaround strategy for the Company.
The strategic review is now complete, with the initial actions implemented in order to create strong foundations on which to build. My focus is now on delivering improved operational results for 2019, while continuing to work closely with the Chairman to drive forward the key initiatives required to address the long-standing feedstock constraints.
Business review
USA operations
The Canton plant continued to operate well and we were able to raise sales prices as demand for our products remained strong. Feedstock remained the key constraint to business growth and resolution of this issue remains the Board's overriding strategic focus.
Sales volumes of premium quality SUPERFINE transformer oil and base oil from Canton in 2018 were lower at 23.0 million litres (2017: 25.6 million litres), driven by feedstock constraints with the change reflecting a 2.9 million litre fall in sales of lower margin base oil. Demand for SUPERFINE products remains robust with management confident that it can continue to sell all potential production volumes at prevailing prices. H2 volumes (12.7 million litres) significantly improved on H1 (10.3 million litres) as feedstock levels increased.
Average utilisation rate of 55% was achieved for the year (2017: 59%). These rates indicate the spare capacity, the operational gearing and the potential for further significant operational and financial improvement as the feedstock position improves from existing and new sources in 2019.
The plant continued to produce a transformer oil product of the highest quality during 2018, as verified by independent laboratory tests and evidenced by higher pricing being achieved in the US relative to pricing indices. This gave us the opportunity to further improve the proportion of transformer oil sales, a key element of our strategy, increasing to 66% for the year compared to 58% in 2017. This improvement in mix enabled us to deliver further margin enhancement.
In the US, the Group currently sources the majority of its feedstock via its partner, G&S, but does not currently source sufficient supplies to run the Canton plant at its target levels of utilisation. There are competing uses for used transformer oil - notably as a diesel extender, with current high demand from Mexico. The location of feedstock supplies and cost of transport are key components in the Group's ability to source feedstock at an appropriate price. The executive management team are working closely with the new local management team to increase supplies from existing sources while also looking to develop new partnerships - including initiating direct approaches to US utilities around "closed-loop" arrangements, leveraging the Group's carbon offset credits to allow utilities to meet their own sustainability goals.
There remains a relentless focus on increasing feedstock supply and the business will prioritise volumes ahead of margin over the next six months. While there will continue to be challenges in what is still a volatile market, the team is demonstrating success in building a network of feedstock suppliers with a strong pipeline, including more than 1.5 million litres of feedstock from two US Department of Energy contracts which has begun arriving in railcars.
On 21 December 2018, President Trump signed a bi-partisan Bill calling for a 12 month review of the Government's oil recycling strategy which the Company sees as a significant opportunity to promote its US strategy, aligning its aims with the sustainability agenda of customers in the US. This agenda's increasing profile is seen as hugely positive by the Board for the Group's activities in the US in 2019.
HoNA - ownership and governance
Further to its strategic review and as part of the realignment of its interests in the US, the Company reached an agreement with its long term partners, G&S, to increase Hydrodec's interest in HoNA from 58% to 85%; to restructure the governance and representation on the HoNA board; to increase plant and commercial efficiency at the Canton, Ohio facility; and to provide Hydrodec with overall operational control. At the same time Hydrodec injected USD 3.8 million of working capital into the business. The substantial increase in our ownership of Hydrodec's US activities has enabled us to increase our strategic, commercial and operational flexibility in the region.
HoNA - management and staffing
Further to the renegotiation of the ownership and governance structure of HoNA, recent appointments and management changes have been made at Canton reflecting a heightened focus on marketing and feedstock procurement, a strategically vital part of our business. I replaced Michael Pitcher as HoNA's President and Ron Kubala was promoted to the HoNA board as the third Hydrodec-nominated director (alongside Lord Moynihan as Chairman). Ron was simultaneously appointed Director of Production and Operations. Ed Superior returned to HoNA as Director of Procurement, Sales and Marketing. Further appointments and promotions have subsequently been made in the sales, marketing and operations departments, including the appointment of a Senior Finance Manager.
Australia
The Australian plant is a much smaller part of the Group's operations (representing one 'train' of production in comparison to six in Canton). Local market conditions remained challenging in the first half of 2018 with ongoing feedstock constraints and production being focused on lower margin base oil. As part of the strategic review, the Board decided that with the sub-scale capacity, the impact of the business on management bandwidth, the nature of the small, fragmented domestic market and the feedstock challenges experienced in recent years, shareholder equity was better invested behind the US growth plans. As a result the Board initiated a formal process to sell its Australian assets and business.
After some delays, management have now received an offer in respect of the disposal of the Group's Australian interests. The Board is therefore confident of being able to conclude a sales process before the AGM on 20 June and continues to classify the Australian business as discontinued.
The Australian business has significantly impacted full year results in terms of operating cash outflows and statutory loss as the Group has continued to fund the fixed costs associated with the operation (including the tolling charge, payable until the expiry of the termination notice period in July 2019) while the sale process is concluded. Full provision has been made in the 2018 balance sheet in respect of the 2019 contractual tolling payments which are considered onerous.
Carbon credits
Having received carbon credit approval from the American Carbon Registry ("ACR") in 2016, Hydrodec's products can be sold in the US with a carbon offset creating an incremental revenue stream. This is a highly distinctive feature for the Company, confirming 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 and represents an important strategic and commercial opportunity.
HoNA generates carbon offsets through the re-refining of used transformer oil, which would otherwise ordinarily be incinerated or disposed of in an unsustainable manner. The ACR retrospectively recognised 165,000 credits for HoNA's previous production between 2009 and 2013 and, during the year, the Board was pleased to announce that all of these historic credits were sold, generating USD 165k of net income. Post period end, the ACR has issued a further 100,000 credits in respect of 2016-18 production.
We look forward to reporting either further sales of the remaining historic credits, together with establishing a higher price for credits relating to current production; or significantly trading with utilities for feedstock and sales of SUPERFINE as carbon credits open the door to utility partnerships in the US. Partnering gives utilities visibility over their waste streams in a patented process that generates carbon credits and allows them to further enhance their ESG credentials by buying SUPERFINE in a sustainable "closed loop".
Patent
In August 2018, the European Patent Office granted a European patent which strengthens Hydrodec's intellectual property position in the global market. This milestone adds to the 2017 US patent grant. The European patent captures design and process improvements to the re-refining process that enhance process economy, reliability and consistency of the core re-refining technology. The patent protects the operating and design intellectual property improvements made to the Group's original re-refining technology developed over ten years of commercial operation.
In October 2018, a patent was granted in respect of Mexico and, post period end, patents have been granted for Australia and Japan.
Financial performance*
*unless otherwise stated, figures refer to continuing operations
Revenues increased by 10.5% to USD 14.9 million (2017: USD 13.4 million), driven by improved pricing and sales mix.
Gross margins improved to 13.1% (2017: 12.8%), in part driven by further improvement in overall sales mix between higher margin transformer oil and lower margin base oil.
Administrative expenses (excluding USD 1.1 million relating to the strategic review) increased to USD 5.8 million (2017: USD 4.8 million). Of these, corporate costs were higher in the year at USD 2.7 million (2017: USD 1.4 million), impacted by costs associated with business reorganisation. Corporate costs are expected to fall below previous levels in 2019 and management will seek to make additional savings throughout this current year.
Group adjusted EBITDA loss was approximately USD 1.2 million (2017: profit of USD 7,200), principally driven by the increased corporate costs described above. Adjusted EBITDA of US operations (HoNA) remained stable at USD 1.5 million profit (2017: USD 1.5 million profit) as the general operating environment for oil related businesses positively impacted the Group's pricing and margins in the year, offsetting the feedstock-constrained sales volumes.
Internally the business continues to be managed and performance measured by reference to EBITDA (earnings before interest, tax, depreciation and amortisation) as adjusted for, inter alia, the strategic review expenses incurred in the year, it being the closest indicator of cash generated from continuing operations. As this is not a statutory accounting measure, the table in note 2.5 to the financial statements reconciles this figure to the statutory loss for the year.
The overall loss for the year widened to USD 13.7 million (2017: USD 4.3 million), reflecting the aforementioned costs of the strategic review and business reorganisation, and losses associated with the discontinued Australian business of USD 7.1 million (2017: USD 0.2 million).
Finance costs
Net financial expense was USD 1.1 million (2017: USD 1.1 million) and relates to the interest payable under the lease in the US and interest paid and accruing on the shareholder loans in the UK.
Operating cash flow and working capital
In 2018, the Group had net cash outflow from operating activities of USD 7.2 million (2017: USD 1.4 million inflow), driven by significant cash outflow from the discontinued Australian operation, the costs of the strategic review and business reorganisation and a significant decrease in trade payables following the injection of working capital into HoNA at the turn of the year.
The amount of working capital required by the Group's operations continues to be closely monitored and controlled, and forms a key part of management information. The fundraising proceeds during the year enabled an injection of working capital into HoNA, as well as the repayment of a proportion of the existing working capital facilities that had been made available by Andrew Black, the Company's largest shareholder and a non-executive Director, including further facilities made available earlier in 2018.
The two main risks to financial performance are feedstock volumes and exposure to cash outflows related to exiting the Australian business. The Board has considered the potential impact on working capital from both of these and has received a commitment of continuing financial support from Andrew Black, should it be required, to ensure that these risks are mitigated.
The cash balance at year end was USD 2.2 million (2017: USD 0.1 million).
Liquidity and financing activities
The Group's principal financing facilities are a seven year USD 10 million finance lease arrangement with First Merit in the US, which is fully drawn and repayment of which commenced on 1 October 2015 (USD 5.3 million remained outstanding at 31 December 2018), and shareholder loans from Andrew Black of USD 3.6 million as at 31 December 2018 (following the repayment and conversion into equity of certain of these loans during the year). The interest on these outstanding shareholder loans is accrued and rolled-up in order that ongoing interest payments are not a cash drain on the Group. The balance of the shareholder loan is repayable on 31 December 2019, however Andrew Black has provided the Company with an option to extend the repayment date to 30 June 2020. Any such extension of the loan would be at the sole discretion of the Company.
The Group also has in place a lease financing arrangement of USD 0.9 million in respect of the infrastructure costs incurred for the establishment of its facilities at the site in Bomen, Australia. This financing arrangement will be concluded following the expiry of the tolling agreement with Southern Oil Refining in July 2019. There are also overdraft facilities in the USA and Australia. The facility in Australia will be paid down steadily over time up to 30 March 2020.
The Group is seeking to optimise its balance sheet and is exploring refinancing of the US lease arrangement with a view to supporting growth and investing in the plant and new margin enhancing partnerships.
The Group's net debt at 31 December 2018 was significantly reduced at USD 9.3 million (2017: USD 20.5 million).
Capital expenditure in 2018 totalled USD 0.6 million (2017: USD 0.5 million), primarily incurred in the US in relation to operational improvements of the plant at Canton and also on the patent renewal. Capex improvement plans have been developed for the Canton facility to improve operational efficiencies and maximise the plant's capability. This investment is expected to begin in H2 2019.
Dividend policy
In its announcement on 8 October 2018 of the proposed placing and open offer, and in the associated circular to shareholders, the Company stated that "Subject to distributable reserves, the Company intends to introduce a dividend payment for the full year ending 31 December 2019". As the Company currently has negative distributable reserves, which would prevent a dividend being paid, the Board intends to take action over the coming months to reduce the historical negative reserves to allow for future dividend payments where the performance of the business generates sufficient cash to allow for it. This is likely to involve a court-approved reduction of capital under the Companies Act 2006 and the Board anticipates commencing this process during the second half of 2019.
Going concern
As set out in note 1 of the Group consolidated financial statements, taking into account the Group's current forecast and projections, available facilities and on-going support from Andrew Black, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue operating 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.
Brexit
The Directors have considered the potential impact of Brexit on the operations of the Group. The earnings of the Group's business are based within the US and, currently, Australia and, as such, the Directors believe any impact will be limited; potentially creating a hedge against Brexit.
Trading update and outlook
After some delays, the Australian sales process is now progressing with the Board having received an offer and we expect to conclude the sale of the Australian business before the AGM on 20 June 2019. This will enable management to focus on building the relationships to drive the significant growth opportunities in the US market.
The current year has seen a slower than planned start for feedstock collections with volumes below budget owing to cold weather caused by the polar vortex across the US Midwest and short-term issues related to Venezuelan oil. However, I am pleased to report that feedstock from the Department of Energy contracts has begun to arrive and we expect the deficit to be caught up over coming months.
We are already seeing the green shoots of growth in feedstock supply and I am confident that volumes will improve and exceed our original expectations. In focusing on building feedstock volumes, the Board accepts that this may impact margins, however it remains confident that the Company will meet market expectations for the year. As such, 2019 should prove to be an exciting year for the business as we build on the work undertaken following the strategic review.
David Dinwoodie
CEO
Consolidated Income Statement
For the year ended 31 December 2018
Hot Features
Premium
2018 2017
Note USD'000 USD'000
Continuing operations
Revenue 2.2 14,851 13,442
Other income 2.4 165 111
---------- ----------
Total income 15,016 13,553
Cost of sales (12,906) (11,716)
---------- ----------
Gross profit 2,110 1,837
Administrative expenses
- other (5,830) (4,836)
Administrative expenses
- strategic review expenses 2.3 (1,133) -
---------------------------------- ------ ---------- ----------
(6,963) (4,836)
Operating loss (4,853) (2,999)
Impairment related to
disposal of Australian (647) -
land and buildings
Finance income 2 -
Finance costs 3 (1,150) (1,146)
---------- ----------
Loss on ordinary activities
before taxation 2.3 (6,648) (4,145)
Taxation 68 129
---------- ----------
Loss for the year from
continuing operations (6,580) (4,016)
Discontinued operations
Loss from discontinued
operations, net of tax 4 (7,101) (239)
---------- ----------
Loss for the year (13,681) (4,255)
---------- ----------
Loss for the year attributable
to:
Owners of the parent
company (13,389) (3,936)
Non-controlling interest 12 (292) (319)
---------- ----------
(13,681) (4,255)
---------- ----------
Loss per Ordinary Share
From continuing operations
Basic and diluted, cents 5 (59) (54)
From continuing and discontinued
operations
Basic and diluted, cents 5 (122) (57)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
2018 2017
USD'000 USD'000
Total loss for the year (13,681) (4,255)
Other comprehensive income
Items that may be subsequently
reclassified to profit
and loss:
Foreign currency translation
differences on foreign
operations 177 (85)
Foreign currency translation
differences on discontinued
operations 402 157
----------- ----------
579 72
----------- ----------
Total comprehensive income
for the year (13,102) (4,183)
----------- ----------
Total comprehensive income
for the year attributable
to:
Owners of the parent
company (12,810) (3,864)
Non-controlling interest (292) (319)
----------- ----------
(13,102) (4,183)
----------- ----------
Consolidated Statement of Financial Position
As at 31 December 2018
2018 2017
Note USD'000 USD'000
Non-current assets
Property, plant and equipment 30,063 36,627
Intangible assets 5,684 6,677
---------- -----------
35,747 43,304
---------- -----------
Current assets
Trade and other receivables 6 1,869 2,054
Inventories 541 585
Cash and cash equivalents 2,150 126
Non-current assets held
for sale 7 1,059 -
---------- -----------
5,619 2,765
Current liabilities
Bank overdraft (664) (340)
Trade and other payables 8 (2,418) (5,288)
Other interest-bearing
loans and borrowings 9 (7,067) (14,140)
Provisions 10 (1,851) -
---------- -----------
(12,000) (19,768)
---------- -----------
Net current liabilities (6,381) (17,003)
Non-current liabilities
Employee obligations (35) (39)
Other interest-bearing
loans and borrowings 9 (3,766) (6,177)
Provisions 10 (55) (777)
Deferred taxation (937) (1,062)
---------- -----------
(4,793) (8,055)
---------- -----------
Net assets 24,573 18,246
---------- -----------
Equity
Called up share capital 11 19,615 6,200
Share premium account 136,594 130,539
Merger reserve 48,940 48,940
Capital redemption reserve 420 420
Profit and loss account (184,509) (175,405)
---------- -----------
Equity attributable
to owners of the parent
company 21,060 10,694
---------- -----------
Non-controlling interest 3,513 7,552
---------- -----------
Total equity 24,573 18,246
---------- -----------
Consolidated Statement of Cash Flow
For the year ended 31 December 2018
2018 2017
USD'000 USD'000
Cash flows from operating activities
Loss before taxation from continuing
operations (6,648) (4,145)
Loss before taxation from discontinued
operations (7,101) (239)
(13,749) (4,384)
Finance income (2) -
Finance costs 1,279 1,286
Adjustments for:
Amortisation, depreciation and
impairment 6,767 3,093
Loss on disposal of property,
plant and equipment 3 5
Share-based payments - (17)
Foreign exchange movement 390 133
--------- --------
Operating cash (outflow)/inflow
before working capital movements (5,312) 116
Increase in inventories (258) (89)
Decrease/(increase) in trade and
other receivables 185 (85)
(Decrease)/increase in trade and
other payables (2,914) 1,470
Increase in provisions 1,069 -
--------- --------
Net cash (outflow)/inflow from
operating activities (7,230) 1,412
--------- --------
Cash flows from investing activities
Purchase of property, plant and
equipment (269) (335)
Purchase of intangible assets (11) (120)
Interest received 2 -
Proceeds from disposal of property,
plant and equipment - 7
--------- --------
Net cash outflow from investing
activities (278) (448)
--------- --------
Cash flows from financing activities
Proceeds from issue of shares 14,348 -
Costs of issue of shares (653) -
Proceeds from loans 3,360 1,601
Interest paid (2,460) (483)
Repayment of interest-bearing
loans and borrowings (5,419) (1,698)
--------- --------
Net cash inflow/(outflow) from
financing 9,176 (580)
--------- --------
Net increase in cash and cash
equivalents 1,668 384
Cash and cash equivalents at beginning
of year (214) (574)
Effect of movements in exchange
rates on cash held 32 (24)
--------- --------
Closing cash and cash equivalents 1,486 (214)
========= ========
Reported in the Consolidated Statement
of Financial Position as:
Cash and cash equivalents 2,150 126
Bank overdraft (664) (340)
--------- --------
Net cash balance 1,486 (214)
========= ========
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Share Profit Total
capital Share Merger Capital Employee Foreign Share And Total attributable
premium reserve redemption Benefit exchange option loss profit to owners Non-controlling
reserve Trust reserve reserve account and of the interest
loss parent Total
account equity
USD USD USD USD USD USD USD USD USD USD USD USD
'000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000
At 1 January
2017 6,200 130,539 48,940 420 (1,150) (10,491) 665 (160,547) (171,523) 14,576 7,871 22,447
Transactions
with owners
in their
capacity
as owners:
Share-based
payments - - - - - - (17) - (17) (17) - (17)
Effect
of foreign
exchange
rates - - - - - - (1) - (1) (1) - (1)
-------- ---------- --------- ------------ ---------- ----------- --------- ------------ ------------ ------------- ----------------- ----------
Total
transactions
with owners
in their
capacity
as owners - - - - - - (18) - (18) (18) - (18)
-------- ---------- --------- ------------ ---------- ----------- --------- ------------ ------------ ------------- ----------------- ----------
Loss for
the year - - - - - - - (3,936) (3,936) (3,936) (319) (4,255)
Other
comprehensive
income:
Currency
translation
differences - - - - - 72 - - 72 72 - 72
-------- ---------- --------- ------------ ---------- ----------- --------- ------------ ------------ ------------- ----------------- ----------
Total other
comprehensive
income
for the
year - - - - - 72 - - 72 72 - 72
-------- ---------- --------- ------------ ---------- ----------- --------- ------------ ------------ ------------- ----------------- ----------
Total
comprehensive
income
for the
year - - - - - 72 - (3,936) (3,864) (3,864) (319) (4,183)
-------- ---------- --------- ------------ ---------- ----------- --------- ------------ ------------ ------------- ----------------- ----------
At 31 December
2017 6,200 130,539 48,940 420 (1,150) (10,419) 647 (164,483) (175,405) 10,694 7,552 18,246
-------- ---------- --------- ------------ ---------- ----------- --------- ------------ ------------ ------------- ----------------- ----------
Total
Total attributable
Capital Employee Foreign Share Profit profit to owners Non-controlling
Share Merger redemption benefit exchange option and and of the interest
Share premium reserve reserve trust reserve reserve loss loss parent Total
capital account account equity
USD USD USD USD USD USD USD USD USD USD USD USD
'000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000 '000
At 1 January
2018 6,200 130,539 48,940 420 (1,150) (10,419) 647 (164,483) (175,405) 10,694 7,552 18,246
Transactions
with owners
in their
capacity
as owners:
Issue of
equity
shares 13,415 6,707 - - - - - - - 20,122 - 20,122
Expenses
of issue
of equity
shares - (652) - - - - - - - (652) - (652)
Equity
movement
from NCI
to parent - - - - - - - 3,706 3,706 3,706 (3,747) (41)
Transfer
to profit
and loss
account
in respect
of
forfeited/lapsed
options - - - - - - (553) 553 - - - -
--------- ---------- --------- ------------ ---------- ---------- --------- ------------ ------------ -------------- ----------------- -----------
Total
transactions
with owners
in their
capacity
as owners 13,415 6,055 - - - - (553) 4,259 3,706 23,176 (3,747) 19,429
--------- ---------- --------- ------------ ---------- ---------- --------- ------------ ------------ -------------- ----------------- -----------
Loss for
the year - - - - - - - (13,389) (13,389) (13,389) (292) (13,681)
Other
comprehensive
income:
Currency
translation
differences - - - - - 177 - - 177 177 - 177
Currency
translation
differences
on discontinued
operations - - - - - 402 - - 402 402 - 402
--------- ---------- --------- ------------ ---------- ---------- --------- ------------ ------------ -------------- ----------------- -----------
Total other
comprehensive
income
for the
year - - - - - 579 - - 579 579 - 579
--------- ---------- --------- ------------ ---------- ---------- --------- ------------ ------------ -------------- ----------------- -----------
Total
comprehensive
income
for the
year - - - - - 579 - (13,389) (12,810) (12,810) (292) (13,102)
--------- ---------- --------- ------------ ---------- ---------- --------- ------------ ------------ -------------- ----------------- -----------
At 31 December
2018 19,615 136,594 48,940 420 (1,150) (9,840) 94 (173,613) (184,509) 21,060 3,513 24,573
--------- ---------- --------- ------------ ---------- ---------- --------- ------------ ------------ -------------- ----------------- -----------
Notes to the Financial Statements
For the year ended 31 December 2018
1. Corporate information and accounting policies
Hydrodec Group plc (the 'Company') is a public company incorporated, domiciled and registered in England in the UK. The registered number is 05188355 and the registered address is 76 Brook Street, London W1K 5EE.
The Group's principal activity is the re-refining of used transformer oil into, and the sale of, new SUPERFINE oil.
Basis of preparation
The Group's consolidated financial statements have been prepared in accordance with the principal accounting policies adopted by the Group, with International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board ('IASB') and as adopted by the European Union ('EU'), and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements were approved by the Board on 24 May 2019. 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 2018, but is derived from the 2018 Annual Report. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 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 2017 which can be found on the Group's website.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive Officer's Review. The principal risks that could potentially have a significant impact on the Group in the future are set out in the 2018 Annual Report.
The Group has sustained operating losses of USD 4.9 million, operating cash outflow of USD 7.2 million, has net current liabilities of USD 6.4 million, a credit facility of USD 1.5 million of which USD 1.0 million has been drawn down, an overdraft of USD 0.7 million and cash and cash equivalents of USD 2.1 million. Management's base case projections, prepared to 2021, have been prepared on the basis of securing sustainable supplies of feedstock, gross margin of approximately USD 1.30 per gallon and utilisation of 58% rising to 86% at the Canton processing facility. Base case projections do not include the sale proceeds of the Australian operations and assets, however expected cash requirements have been included in management's forecasts.
At 30 April 2019, the Group's indebtedness, excluding finance lease liabilities, was funded by a combination of a credit line of USD 1.0 million in the USA and an overdraft in Australia of USD 0.6 million, and shareholder loans, including accrued interest, of USD 3.8 million. The key risks considered by the Directors in making their assessment to the adequacy of headroom include a reduction in feedstock volumes resulting in reduced production and therefore sales, and costs of exiting the Australian operations.
The committed shareholder loan facilities have a repayment date of 31 December 2019, however the Company has been granted an option to extend the repayment period to 30 June 2020 on the same terms. The Board will keep the position under review and may elect to extend the repayment period or source alternative funding or re-financing. The Company has made a commitment to refinance its equipment lease and credit line with its USA bank and is currently exploring a number of options to release funds to support its growth opportunities.
Achieving sufficient feedstock is key to the continued sustainability of the business. Whilst feedstock remains a risk, management have entered into negotiations with new potential suppliers and partners and are encouraged by progress in discussions to date.
For the continuing operations, management's sensitivity analysis has assumed downside volumes of 20% which would mean the plant operating significantly below the 2018 achieved levels. With regard to its Australian operations, the cash requirements to settle liabilities as they fall due have been incorporated into the going concern cash flow. The Board has prepared separate projections which include estimated net proceeds of the expected sale of the Australian disposal group, however these have been excluded from the reasonable downside calculations for prudency purposes. This sensitivity analysis, which the Board considers to be a severe but reasonably possible downside scenario, shows there would be a cash requirement of USD 3.0 million by March 2020. Andrew Black, the Company's largest shareholder and a non-executive Director, has provided comfort to the Board that he will provide funding of up to USD 3.0 million to continue to support the business and provide funds to cover this additional downside risk in the period covered by the projections should it be required.
As with any company placing reliance on a shareholder for support, the Directors acknowledge that there can be no certainty that this support will continue although, at the date of approval of these financial statements, they have no reason to believe that it will not do so. 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. In preparing these financial statements, the Directors have given consideration to the above matters and, on that basis, they believe that it remains appropriate to prepare the financial statements on a going concern basis. The financial statements do not include any adjustment that would result from the basis of preparation being inappropriate.
2. Revenue and operating loss
2.1 Segment analysis
The Group has one main operating segment, Re-refining, which is classified as the treatment of used transformer oil and the sale of SUPERFINE oil. Subsequent to the cessation of operations in Australia during the year (the 'discontinued operations'), the Group's operating segment arises from one geographic location, being USA.
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.
Year ended 31 December
2018 USA Australia Unallocated Total
Income Statement
Continuing operations USD'000 USD'000 USD'000 USD'000
--------- ------------ -------------- ----------
Revenue from contracts
with customers 14,851 - - 14,851
Other income - 165 - 165
--------- ------------ -------------- ----------
Adjusted EBITDA 1,514 60 (2,749) (1,175)
Depreciation and
impairment (1,925) - (648) (2,573)
Amortisation - (274) (363) (637)
Loss for the year
on continuing operations (595) (390) (5,595) (6,580)
--------- ------------ -------------- ----------
At 31 December 2018 USA Australia Unallocated Total
Balance Sheet
USD'000 USD'000 USD'000 USD'000
--------- ------------ -------------- ----------
Total assets 32,496 1,707 7,163 41,366
Total liabilities (7,582) (3,930) (5,281) (16,793)
--------- ------------ -------------- ----------
Net assets 24,914 (2,223) 1,882 24,573
--------- ------------ -------------- ----------
Revenue from a single customer accounted for 67% (2017: 39%) of
the Group's total revenues for the year ended 31 December 2018.
The total amount of revenue from this customer amounted to USD
9.9 million (2017: USD 7.0 million). These revenues were reported
in the USA segment above.
Year ended 31 December Australia
2017 (including
Income Statement discontinued
USA operations) Unallocated Total
USD'000 USD'000 USD'000 USD'000
---------- --------------- -------------- ----------
Revenue from contracts
with customers 13,442 4,408 - 17,850
Other income 67 3 41 111
---------- --------------- -------------- ----------
Adjusted EBITDA 1,519 196 (1,412) 303
Depreciation and
loss on disposal
of property, plant
and equipment, (1,994) (474) (3) (2,471)
Amortisation - (281) (346) (627)
Loss for the year (1,023) (727) (2,505) (4,255)
---------- --------------- -------------- ----------
At 31 December 2017
Balance Sheet Australia
(including
discontinued
USA operations) Unallocated Total
USD'000 USD'000 USD'000 USD'000
---------- --------------- -------------- ----------
Total assets 32,969 6,777 6,323 46,069
Total liabilities (11,313) (3,733) (12,777) (27,823)
---------- --------------- -------------- ----------
Net assets 21,656 3,044 (6,454) 18,246
2.2 Revenue
Due to the transition method chosen in applying IFRS 15, comparative information has not been restated to reflect the new requirements.
The Group generates revenue from the sale of SUPERFINE transformer oil and base oil produced from the treatment of used transformer oil.
IFRS 15 requires an entity to provide disclosures about costs to obtain or fulfil a contract with a customer.
The Group has determined that its contracts with customers do not contain a significant financing component and therefore the related disclosures are not illustrated.
In the following table, revenue from contracts with customers is disaggregated based on revenue streams. Subsequent to the cessation of operations in Australia during the year (the 'discontinued operations'), the Group's revenue arises from one geographic location, being USA.
Continuing Continuing
2018 2017
USD'000 USD'000
Transformer Oil 9,991 7,897
Base Oil 4,749 5,306
Miscellaneous 111 239
----------- -----------
14,851 13,442
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers:
31 December 1 January
2018 2018
USD'000 USD'000
Receivables, which are included in 'trade
and other receivables' 1,223 1,297
2.3 Loss on ordinary activities
The loss before taxation is stated after charging/(crediting) the following amounts:
Continuing Continuing
2018 2017
USD'000 USD'000
Cost of sales
- inventory expenses 5,862 4,821
- other direct costs 3,413 3,475
- employee benefit expense 1,774 1,501
- depreciation 1,857 1,919
Strategic review expenses
- non-incremental fundraise
expenses 100 -
- consultant fees 455 -
- legal fees 479 -
- other expenses 99 -
Share-based payments - (17)
Payroll costs (excluding
share-based payments) 4,353 3,180
Redundancy payments 40 -
Depreciation 69 78
Impairment related to
disposal of Australian
assets 647 -
Amortisation 637 627
Operating lease rentals
- land and buildings 34 46
Exchange (gain)/loss (18) 329
Fees payable to the Company's
auditor for the audit
of the annual accounts 48 52
Fees payable to the Company's
auditor and its associates
for other services:
- audit of the Company's
subsidiaries 32 16
2.4 Other income
Continuing Continuing
2018 2017
USD'000 USD'000
Settlement proceeds - 47
Carbon credit sale 165 3
Other income - 61
----------- -----------
165 111
----------- -----------
Settlement proceeds
During the year ended 31 December 2017, the Company received a further settlement from API Heat Transfer, the company responsible for manufacturing faulty heat exchangers which leaked and caused a safety hazard at Canton in 2013. No further proceeds are anticipated in respect of this matter.
Carbon credit sale
In September 2016, the Group received carbon credit approval from the American Carbon Registry ('ACR') enabling the Group's product to be sold with a carbon credit offset, creating a future incremental revenue stream.
Other income
Other income relates primarily to the recharge of employee services provided by the Group to third party entities. No such services were provided by the Group during the year ended 31 December 2018.
2.5 Adjusted earnings before interest, tax, depreciation and amortisation (adjusted EBITDA)
Management has presented the performance measure adjusted EBITDA because it monitors this performance measure at a consolidated level and it believes that this measure is relevant to an understanding of the Group's financial performance. Adjusted EBITDA is calculated by adjusting loss from continuing operations to exclude the impact of taxation, net finance costs, depreciation, amortisation, impairment losses related to intangible assets and property, plant and equipment and any other costs which fall outside of the usual operating activities of the Group.
Adjusted EBITDA is not a defined performance measure in IFRS. The Group's definition of adjusted EBITDA may not be comparable with similarly titled performance measures and disclosures by other entities.
Reconciliation of Group adjusted EBITDA to loss from continuing operations
2018 2017
USD'000 USD'000
Loss from continuing
operations (6,580) (4,016)
Taxation (68) (129)
-------- --------
Loss before tax (6,648) (4,145)
-------- --------
Adjustments for:
Finance income (2) -
Finance costs 1,150 1,146
Impairment related to
disposal of Australian
land and buildings 647 -
Depreciation and loss
on disposal 1,926 2,024
Amortisation 637 627
Share-based payments - (17)
Strategic review expenses 1,133 -
Project expenses - 43
Foreign exchange differences (18) 329
-------- --------
Adjusted EBITDA (1,175) 7
-------- --------
Reconciliation of adjusted EBITDA to operating loss in respect of USA operations
2018 2017
USD'000 USD'000
Loss for the year (595) (1,023)
-------- --------
Adjustments for:
Finance income (2) -
Finance costs 301 350
Depreciation and loss
on disposal 1,925 1,994
Foreign exchange differences (115) 198
-------- --------
Adjusted EBITDA 1,514 1,519
-------- --------
3. Finance costs
Continuing Continuing
2018 2017
USD'000 USD'000
Bank overdrafts and
leases 302 350
Shareholder loan 848 796
----------- -----------
1,150 1,146
Finance costs in respect of the shareholder loan have been added to the principal loan amount. See note 9.
4. Discontinued operations
In September 2018, the Board completed a strategic review of the Group's operations and agreed a Group strategic plan for all operations within the Group. As part of this plan the Group's Australian operations ceased to operate whilst the Board pursued an active programme to locate a buyer. See note 7.
The Australian operations have been treated as discontinued operations for the year ended 31 December 2018. A single amount is shown on the face of the consolidated income statement, comprising the post-tax result of discontinued operations. The income statement for the prior period has been restated to conform to this presentation.
The results of the discontinued operations, which have been included in the consolidated income statement for the year ended 31 December 2018, were as follows:
2018 2017
USD'000 USD'000
Revenue 1,237 4,408
Expenses (5,074) (4,507)
-------- --------
Operating loss before impairment (3,837) (99)
Impairment of abandoned property, plant (1,249) -
and equipment
Impairment of inventory (157) -
Impairment of non-current assets held for (1,728) -
sale
-------- --------
Operating loss after impairment (6,971) (99)
Finance costs (130) (140)
-------- --------
Loss before taxation (7,101) (239)
Taxation - -
-------- --------
Loss from discontinued operations, net
of tax (7,101) (239)
-------- --------
Loss per Ordinary Share
Basic and diluted, cents (63) (3)
-------- --------
During the year, the discontinued operations contributed USD 2.1 million outflow (2017: USD 0.4 million inflow) to the Group's net cash outflow from operating activities, USD nil (2017: USD nil) to outflow from investing activities and USD 0.1 million outflow (2017: USD 0.1 million outflow) to net cash inflow from financing activities.
5. Loss per Ordinary Share
Basic loss per Ordinary Share is calculated by dividing the net loss for the year attributable to ordinary shareholders by the weighted average number of Ordinary Shares in issue during the year. The calculation of the basic and diluted loss per Ordinary Share is based on the following data:
Continuing Continuing
and discontinued and discontinued
Continuing operations Continuing operations
operations operations
2018 2018 2017 2017
USD'000 USD'000 USD'000 USD'000
Losses
Losses for the purpose
of basic loss per
Ordinary Share (6,580) (13,681) (4,016) (4,255)
Number Number Number Number
'000 '000 '000 '000
Number of shares
Weighted average
number of shares
for the purpose of
basic loss per share 11,247 11,247 7,467 7,467
Loss per Ordinary
Share
Basic and diluted,
cents per share (59) (122) (54) (57)
Due to the losses incurred in the years reported, there is no dilutive effect from the existing share options.
The information shown above has been restated to reflect the share consolidation which took place on 26 October 2018. See note 11.
6. Trade and other receivables
2018 2017
USD'000 USD'000
-------- --------
Trade receivables 1,223 1,297
Accrued income - 37
Prepayments 276 405
Other receivables 132 280
VAT recoverable 238 35
1,869 2,054
-------- --------
Trade receivables principally comprise amounts receivable in respect of revenue arising from contracts with customers and are short term.
No interest is generally charged on trade receivables.
Other receivables include the sum of USD 88,253 (2017: USD 55,000) which is cash held in a restricted use bank account in connection with EPA environmental expenditure.
At 31 December 2017, trade receivables included amounts which were past their due date and against which the Group had recognised an allowance for impairment because there was some doubt as to whether the amounts were recoverable.
Allowance for expected credit losses
The Group has not recognised a loss in profit or loss in respect of expected credit losses for the year ended 31 December 2018, on the basis that these are immaterial.
The ageing of the trade receivables for expected credit losses are as follows:
2018 2017
USD'000 USD'000
Less than one month 958 954
Past due but not impaired 265 343
-------- --------
1,223 1,297
Past due impaired - 62
1,223 1,359
-------- --------
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 Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
7. Non-current assets held for sale
In September 2018, the Board completed a strategic review of the Group's operations and agreed a Group strategic plan for all operations within the Group. As part of this plan it was announced that the Board was committed to a plan to sell the Group's Australian operations or groups of assets and an active programme to locate a buyer and complete a sale would be undertaken. At 31 December 2018, non-current assets, consisting of plant and equipment, the sale of which is highly probable to take place within twelve months, have been classified as a disposal group held for sale and presented separately in the balance sheet.
On classification as assets held for sale, the fair value of the assets was based on fair value less costs of disposal, estimated using the market approach and based on knowledge of potential acquirers of the assets. The fair value measurement was categorised as a Level 3 fair value based on the inputs in the valuation technique used.
In accordance with the requirements of IFRS 5, an impairment charge of USD 1.3 million has been recognised on classification of the assets as held for sale, which has been presented within the results of discontinued operations. See note 4. Based on the sale process since the year end, and indicative offers received, the Board consider that they have taken a prudent approach to the measurement of fair value at 31 December 2018.
At 31 December 2018, the disposal group was stated at fair value less costs to sell and comprised the following assets:
USD'000
Carrying value
Plant and equipment 2,634
Inventory 55
2,689
Impairment (1,728)
Exchange differences 98
Carrying value under IFRS 5 1,059
8. Trade and other payables
2018 2017
USD'000 USD'000
-------- --------
Trade payables 970 3,986
Other payables 28 11
VAT payable - 11
Other taxation and social security 122 33
Accruals 1,298 1,247
2,418 5,288
-------- --------
Trade payables and accruals principally comprise amounts outstanding for trade purchases and on-going costs. No interest is generally charged on trade payables.
The Group has financial risk management policies to ensure that all payables are paid within the credit time frame.
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
9. Other interest-bearing loans and borrowings
2018 2017
USD'000 USD'000
-------- --------
Current liabilities
Finance lease liabilities 2,465 1,800
Unsecured bank facility 961 1,319
Shareholder loan 3,641 11,021
7,067 14,140
-------- --------
Non-current liabilities
Finance lease liabilities 3,766 6,177
-------- --------
Finance lease liabilities
The Group has two arrangements which have been classified as finance leases. The first is denominated in USD and was for a principal sum of USD 10.0 million, bearing interest at the rate of 3.96% and is repayable on a fixed repayment basis over 7 years. The second arrangement is denominated in Australian dollars, currently bearing interest at the rate of 5.28% (2017: 5.03%), and is repayable on a fixed repayment basis over 7 years.
Minimum Minimum
lease lease
payments Interest Principal payments Interest Principal
2018 2018 2018 2017 2017 2017
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
Less than
one year 2,061 226 1,835 2,105 305 1,800
Between one
and five
years 4,616 220 4,396 6,604 427 6,177
---------- ----------- ------------ ---------- ----------- ------------
6,677 446 6,231 8,709 732 7,977
The Group's minimum lease payments have been disclosed on the basis of the original lease term. However, the obligations under the Australian denominated lease have been classified as current liabilities as it is management's best estimate that, in light of the termination of the tolling agreement with SOR, the outstanding liability will be settled within the next twelve months.
The Group's obligations under finance leases are secured by the lessor's rights over certain assets. The amount outstanding in respect of the lease in which there is a general title to certain tangible assets held in the USA is USD 5.3 million (2017: USD 6.8 million). The amount outstanding in respect of the Australian denominated lease is USD 0.9 million (2017: USD 1.2 million), and the assets over which the lease is secured have been impaired in full at 31 December 2018.
Unsecured bank facility
The unsecured bank facility at 31 December 2018 represents a working capital facility in the USA. The facility incurs interest at 1 month Libor rate plus 1.25 %. The average for the year ended 31 December was 4.009%.
Subsequent to the 31 December 2018, repayment of the bank facility has been extended to 30 June 2020.
Shareholder loan
The shareholder loan represents an amount due to Andrew Black, a non-executive Director and significant shareholder in the Company.
2018 2017
USD'000 USD'000
-------- --------
Facility 3,582 9,688
Interest and fees 59 1,333
Amount outstanding 3,641 11,021
-------- --------
The shareholder loan is secured over assets of the Group.
The loan consisted of four working capital facilities:
-- an initial facility of USD 2.9 million (GBP2.15 million) which originally bore interest at 7% per annum and was increased to 10% on 27 December 2017;
-- a second facility of USD 5.7 million (GBP4.25 million) which originally bore interest at 8% per annum and was increased to 10% on 27 December 2017;
-- a third facility of USD 1.1 million (GBP0.8 million) which bore interest at 10% per annum and which was subject to an arrangement fee of 2.5%; and
-- a fourth facility agreed on 4 April 2018 of USD 0.6 million (GBP0.5 million) which is non-interest bearing and was not subject to any arrangement or other fees. This facility was extended to USD 1.9 million (GBP1.5 million) on 30 May 2018, and further extended to USD 3.8 million (GBP3 million) on 7 September 2018. This facility was not fully drawn during the year.
On 27 December 2017, the repayment date for the first three facilities was extended from 31 December 2017 to 31 December 2018 in return for an extension fee of 1% of the total amount of each facility, being USD 0.09 million (GBP0.07 million). The fourth facility was due for repayment on 31 December 2018. The Company subsequently agreed an option to extend the repayment date on all shareholder loans to 31 December 2019.
On 8 October 2018, the Company and Andrew Black signed a Debt Conversion Deed ('DCD'), under which the Company agreed that certain amounts owed by the Company to Andrew Black in respect of the facilities should be repaid, partly in cash and partly by conversion to Ordinary Shares in the Company. Under the terms of this deed, the following transactions took place:
-- a cash repayment of USD 3.8 million (GBP3 million) on 30 October 2018; and
-- repayment by means of the conversion of USD 5.8 million (GBP4.5 million) into 6 million Ordinary Shares in the Company at the price of 75 pence per Ordinary Share.
It was further agreed that the Company would make a further repayment of USD 1.5 million (GBP1.1 million), from the net proceeds of the Open Offer which took place in October 2018. See note 11.
Accumulated interest and fees were added to the principle loan amount prior to any subsequent repayments or conversion.
Subsequent to these transactions the Company was released and discharged from its obligations in respect of the first, third and fourth facility.
The Company is required to make further repayments following the receipt of any proceeds in respect of the disposal of any assets (including shares in any subsidiary undertaking) of the Company and its group undertakings. No such repayment has been made at 31 December 2018.
The outstanding amount due in respect of the second facility bore interest at 10% per annum until 29 November 2018, when it was reduced to 8% per annum thereon.
The repayment date on the Company's outstanding loan was extended by agreement, from 31 December 2018 to 31 December 2019.
The Company has subsequently been granted an option to extend the repayment period of these facilities to 30 June 2020 on their prevailing terms. The Board will keep the position under review and may elect to extend the repayment period and/or source alternative funding or re-financing. Looking to the position beyond 30 June 2020, given Andrew Black's past and continuing support, together with the steady forecast improvement in operational performance, the Board expects that it would be able to negotiate a further extension to the redemption date beyond 30 June 2020 if necessary while continuing to explore options for refinancing. See note 13.
10. Provisions
2018 2017
USD'000 USD'000
Remediation of contaminated stock 842 777
Remediation of contaminated land 55 -
Onerous contract 1,009 -
1,906 777
-------- --------
The movement in the provision is represented by:
Remediation Remediation
of contaminated of contaminated Onerous
stock land contract Total
USD'000 USD'000 USD'000 USD'000
At 31 December 2017 777 - - 777
Increase in provision 138 55 1,069 1,262
Change in exchange rates (73) - (60) (133)
At 31 December 2018 842 55 1,009 1,906
------------------ ------------------ ----------- --------
Current 842 - 1,009 1,851
Non-current - 55 - 55
842 55 1,009 1,906
------------------ ------------------ ----------- --------
The remediation of contaminated stock provision of USD 0.8 million relates to stocks of materials at the Young facility dating from the plant's original function, ownership and business strategy. The provision has been made based on third party estimates. The Directors have reviewed the timing and cost of the Young remediation provision and have determined that these costs will be incurred within 12 months from the balance sheet date.
The remediation of contaminated land provision of USD 0.055 million relates to the costs of remediation of land occupied by the Group's USA operations at Canton. The provision is based on correspondence with the USA Environmental Protection Agency, and the Directors consider the costs will be incurred more than 12 months from the balance sheet date.
The Group has recognised its obligations in respect of its Australian tolling contract as an onerous contract. The provision is based on the Group's contractual liability for tolling in 2019 as the Directors consider that the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The costs will be incurred within 12 months from the balance sheet date.
11. Share capital
2018 2017
USD'000 USD'000
-------- --------
Allotted, issued and fully paid
Ordinary Shares of 50 pence each
(2017: Ordinary Shares of 0.5 pence
each) 19,615 6,200
-------- --------
2018 2017
Number of Number of
shares shares
----------- ------------
Ordinary Shares of 50 pence each
(2017: Ordinary Shares of 0.5 pence
each) 28,373,839 746,682,805
----------- ------------
On 26 October 2018, the Company consolidated every 100 existing Ordinary Shares of 0.5 pence into one new Ordinary Share of 50 pence each. The new Ordinary Shares have the same voting, dividend and all other rights as the existing Ordinary Shares.
Issued ordinary share capital
On 26 October 2018, the Company issued 14,907,011 Ordinary Shares of 50 pence each at a price of 75 pence per Ordinary Share, raising gross proceeds of USD 14.3 million (GBP11.2 million).
On 26 October 2018, the Company issued 6 million Ordinary Shares of 50 pence each at a price of 75 pence per Ordinary Share in settlement of USD 5.8 million (GBP4.5 million) outstanding loans due to Andrew Black, a non-executive Director and significant shareholder in the Company. See note 9.
Ordinary Shares
Number of
shares
At 31 December 2016 and 31 December
2017 746,682,805
------------------
Share consolidation 7,466,828
Allotment of shares 20,907,011
At 31 December 2018 28,373,839
------------------
12. Investments
The Company had investments in the following subsidiary undertakings as at 31 December 2018 which principally affected the losses and net assets of the Group, and which are included in the consolidated group information.
Country Proportion Principal activity
of incorporation of ownership
and principal interest
operations
Hydrodec Holdco Limited UK 100% Holding company
Hydrodec Development Corporation UK 100% Technology
(UK) Limited* company
Hydrodec Inc USA 100% Holding company
Hydrodec of North America LLC** USA 85% Oil treatment
services
Hydrodec Development Corporation Australia 100% Technology and holding
Pty Limited company
Hydrodec Australia Pty Limited*** Australia 100% Oil treatment
services
Hydrodec Japan Co Limited Japan 100% Holding company
Hydrotek Eco Japan Co Limited**** Japan 100% Patent holding company
* Held through Hydrodec Holdco Limited
** Held through Hydrodec Inc
*** Held through Hydrodec Development Corporation
Pty Limited
**** Held through Hydrodec Japan
Co Limited
The registered office address for all companies incorporated in the United Kingdom is 76 Brook Street, London, W1K 5EE.
The registered office address for Hydrodec Inc and Hydrodec of North America LLC is 850 New Burton Road, Suite 201, Dover, Kent, Delaware 19904, USA.
The registered office address for Hydrodec Development Corporation Pty Limited and Hydrodec Australia Pty Limited is 'Tower A' Level 20, 821 Pacific Highway, Chatswood NSW, 2067, Australia.
The registered office address for Hydrodec Japan Co Limited and Hydrotek Eco Japan Co Limited is 4(th) Floor, Kyodo Tsushin Kaikan, 2-2-5 Toranomon, Minato-Ku Tokyo, 105-0001, Japan.
Subsidiary with non-controlling interests
On 16 April 2013, the Group sold a 25% interest in Hydrodec of North America LLC ('HoNA') to G&S Oil Recycling Group LLC ('G&S'). Under the terms of the strategic partnership with G&S, a royalty stream of 5% of net revenue is payable to a member of the Group.
The terms of the agreement with G&S included the potential for the sale of a further 24.9% interest in HoNA to G&S in two equal tranches of 12.45%, and accordingly, on 14 October 2016, a further sale of 12.45% interest in HoNA was made to G&S.
On 28 December 2018, the Group announced that further to its strategic review, and as part of the realignment of its interests in the USA, an agreement had been reached with G&S to increase Hydrodec's interest in HoNA to 85%, which would provide the Group with overall operational control. Under the terms of the agreement the Group injected USD 3.8 million of working capital into HoNA.
The details of the transaction in respect of the G&S interest in HoNA were as follows:
USD'000
Value of 37.45% interest 7,261
Value of 15% interest 3,514
--------
Change in interest in net assets of HoNA in
respect of non-controlling interest (3,747)
--------
Change in interest in net assets of HoNA 3,747
Transaction costs (41)
--------
Change in interest in net assets of HoNA in
respect of parent 3,706
--------
Proportion of
ownership interest Total comprehensive
and voting rights income allocated Accumulated NCI
held by NCI to NCI
2018 2017 2018 2017 2018 2017
% % USD'000 USD'000 USD'000 USD'000
Hydrodec of
North America
LLC 15 37.45 (292) (319) (1,034) (742)
No dividends were paid to the NCI during the years reported.
Summarised financial information for Hydrodec of North America LLC, before intragroup eliminations, is set out below:
2018 2017
USD'000 USD'000
Non-current assets 29,652 31,289
Current assets 2,844 1,680
-------- ---------
Total assets 32,496 32,969
-------- ---------
Non-current liabilities (5,358) (7,068)
Current liabilities (3,720) (5,992)
-------- ---------
Total liabilities (9,078) (13,060)
-------- ---------
Net assets 23,418 19,909
-------- ---------
Equity attributable to owners of the
parent 19,905 12,357
Equity attributable to NCI 3,513 7,552
-------- ---------
Total equity 23,418 19,909
2018 2017
USD'000 USD'000
Revenue 14,851 13,442
Other income - 67
-------- ---------
Loss for the year attributable to owners
of the parent company (414) (979)
Loss for the year attributable to NCI (292) (319)
-------- ---------
Total loss for the year (706) (1,298)
-------- ---------
Total comprehensive income for the year
attributable to owners of the parent (414) (979)
Total comprehensive income for the year
attributable to NCI (292) (319)
Total comprehensive income (706) (1,298)
2018 2017
USD'000 USD'000
Net cash from operating activities (673) 2,145
Net cash used in investing activities (231) (346)
Net cash from financing activities 1,666 (1,785)
-------- ---------
Net cash flow 762 14
-------- ---------
13. Post balance sheet events
The remaining loan facilities from Andrew Black, a non-executive Director and the Company's largest shareholder, currently have a repayment date of 31 December 2019. Post period end, the Company has been granted the option to extend the repayment period of these facilities to 30 June 2020 on their prevailing terms.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR UBOKRKNAVUAR
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May 28, 2019 02:01 ET (06:01 GMT)
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