Disposal of Hydrodec's Australian Plant

13 August 2019

Hydrodec Group plc

("Hydrodec" or the "Company")

Disposal of Hydrodec's Australian Plant

Related Party Transaction

Hydrodec Group plc (AIM: HYR), the clean-tech industrial oil re-refining group, is pleased to announce the disposal of its Australian plant and equipment, and an agreement to licence certain other rights in respect of those assets, to Greenbottle Re-refining (UK) Limited ("Greenbottle").

·; The plant and equipment has been sold to Greenbottle for a gross consideration of A$2m in cash;

·; The Company is expected to receive a net figure of A$1.7 million after estimated decommissioning and transportation costs;

·; In addition, the Group has the right to receive a royalty from Greenbottle, for an initial period of 8 years, further details are below; and

·; The anticipated net proceeds will be used to satisfy outstanding liabilities of the Australian operating entities.

Background to the disposal

As a result of its strategic review last year, the Board decided that with the sub-scale capacity of the Australian plant, the impact of the business on management bandwidth, and the limited and fragmented domestic market providing significant feedstock challenges, shareholder equity was better invested behind the US growth plans and it therefore initiated a formal process to sell the Group's Australian assets and business.

Disposal process

The strategic review was initiated in the first half of 2018, following which a sale process in respect of the Australian business was conducted by an independent third-party financial adviser, through which potential purchasers were identified, approached and invited to submit indicative offers for the plant and operations owned by Hydrodec Australia. Multiple indicative offers were received by the Company and evaluated up until the end of June 2019.

One of the potential purchasers identified was Greenbottle, a company controlled by Andrew Black, a non-executive Director and a substantial shareholder of the Company. A subcommittee of the Board (excluding Andrew Black and David Dinwoodie, both of whom are directors of the Company and of Greenbottle) chaired by Chris Ellis, the Chair of the Audit Committee, took legal and corporate governance advice as a result of the related party involvement in the disposal process; carried out a detailed review of the offers; and continued discussions and engagement with several of the interested parties. 

At the conclusion of that process the subcommittee recommended pursuing the offer proposed by Greenbottle; being the highest in absolute value terms and the most efficient in respect of Hydrodec's requirements to satisfy the terms of the sale. In reaching this decision, the independent Directors of the Company considered, inter alia, the progress of the initial discussions, the respective values proposed by the different buyers, the bidders' ability to execute the transaction on an expedited basis, and the potential to offer the Company future value in relation to the further development of its technology.

Terms of the disposal

The plant owned by the Group's Australian operations has been sold to Greenbottle for a consideration of A$2m in cash, less estimated decommissioning and transportation costs (to the Australian port) of A$0.3 million. Ongoing costs of transportation from Australia to the UK are for the account of Greenbottle. In addition, the Group has the right to receive a royalty from Greenbottle, for an initial period of 8 years, following the granting of an exclusive licence to operate Hydrodec's technology in the UK, calculated at 5% of revenues derived. The royalty fee is subject to a minimum charge in year 4 of A$30,000 rising to A$150,000 in year 8. Any further development or improvements to the technology will accrue to Hydrodec under the terms of the licence. The anticipated net proceeds of A$1.7 million will be used to satisfy outstanding liabilities of the Australian operating entities.

Related party transaction

Andrew Black, the 98% ultimate shareholder, and a director, of Greenbottle, is a non-executive Director and a substantial shareholder (as defined in the AIM Rules for Companies) of the Company. David Dinwoodie, a 2% ultimate shareholder, and a director, of Greenbottle, is the Chief Executive Officer of the Company. Accordingly, the disposal of the Australian plant constitutes a related party transaction for the purposes of the AIM Rules.

The Directors of the Company, except for Andrew Black and David Dinwoodie, consider, having consulted with the Company's Nominated Adviser, Arden Partners, that the terms of the disposal of the Australian plant are fair and reasonable insofar as shareholders are concerned.

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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.