11th Mar 2008 07:01
HydroDec Group plc11 March 2008 Hydrodec Group plc Hydrodec Group plc announces its audited preliminary results for the year ended 31 December 2007. Highlights: • Net operating cash outflow decreased to £0.6 million from an outflow of £2.1 million in 2006. Net assets rose to £20.8 million (2006: £11.0 million), including cash balances of £12.1 million (2006: £0.9 million) • The Group successfully raised £13.8 million via a convertible loan note issue. The funds from this issue are being utilised to finance the construction of two Hydrodec plants in the US • Agreement with the major transformer manufacturer, Schneider Electric, in Australia to allocate up to 75% of its annual new transformer oil purchase in Australia, to Hydrodec. This is an uptake of 3,000 litre per day that represents greater than 15% of Hydrodec's Australian production capacity • Approval to use SuperfineTM by the two largest electricity companies in Victoria and Queensland, the largest electricity distributor in New South Wales and a major South Australian distribution utility. These combine approvals represent demand in the order of 40% of Hydrodec's Australian production capacity • Hydrodec's acceptance into the Australian Oil Product Stewardship Programme entitling Hydrodec to receive a subsidy against the cost of refining oil. This payment of up to $0.50 per litre is in addition to normal sales revenues for each litre of SuperfineTM transformer oil produced within Australia • Major export order for distribution of SuperfineTM in Turkey from the Young plant in Australia. Approximate supply of 2,400,000 litres per annum of SuperfineTM transformer oil • Construction of Hydrodec's first plant in the US at Canton, Ohio commenced during the year. This facility is expected to become operational early in the second half of 2008. • Received planning approval for the second US plant in Laurel, Mississippi • Investigation in to new markets including Japan and Europe. Expectation that before the end of 2008 a secure plan for start up in Japan will be in place • Appointment of John Dickson as Finance Director of Hydrodec Following the year end: • In February 2008, Hydrodec announced that the first feedstock oil of 20,000 US gallons (75,000 litres) was received at the new plant in Canton Ohio from Power Asset Recovery Corp, a local Canton, Ohio transformer service and trading company • Hydrodec also announced that it had reached price agreement with, and secured a conditional commitment from one of the largest transformer oil buyers in the USA, to purchase more than 50% of the maximum production capacity of the new Canton, Ohio plant plus a firm expression of interest in increasing purchase quantities upon commissioning of the Laurel, Mississippi plant John Gunn, Chairman commented "2007 has seen many significant developments for Hydrodec. The Young plant inAustralia is now a commercial operation and it is encouraging to see the supportfrom the local utilities industry which has great confidence in SuperfineTM.The order from Turkey represents a significant milestone both as our firstexport order and also as a demonstration of the worldwide acceptance ofHydrodec's technology. The commitment of one of the US's largest transformermanufacturer to purchase 50% of the capacity of Canton's production marks asignificant start to our activities in the US and clearly endorses SuperfineTM.In the light of this, Hydrodec is now looking to expand its production capacitysubstantially over and above its current operations in Australia and the US.Hydrodec have received significant levels of interests from the Japanese andEuropean markets which we are actively pursuing. With these positive moves, it is clear that Hydrodec's sustainable technology isoffering global customers a tangible and realistic alternative to the use oftraditionally refined, new transformer oil. It offers a secure price andguaranteed supply of oil in environmentally sound continuous life cycle whichbenefits the utility, transformer manufacturer, the public and the environment." For further information please contact:Emma DavisCurve Public RelationsTelephone: 020 87421597/ [email protected] Nick WestlakeAnthony RichardsonNumis SecuritiesTelephone: 020 7260 1000 CHAIRMAN'S STATMENT I am pleased to present Hydrodec's accounts for the year ended 31 December 2007.Hydrodec's technology is an oil refining process that produces new specialityoils, using spent transformer oil as the primary feedstock. The process alsoremoves dangerous contaminants such as PCB's from oil and similar fluids. Thetechnology can be applied to many speciality oils, but initially the Company isconcentrating on the transformer oil industry. Old transformer oil that has beenrefined through the Hydrodec process becomes SuperfineTM transformer oil. 2007 has seen positive development of the Hydrodec Group. The Australianoperations have generated enormous interest and profile within the transformerindustry and as a result of this interest, long-term agreements are now in placewith Australian utility companies. In addition the Australian plant hascontracted and is supplying an estimated 2.4 million litres per annum to aTurkish trader supplying Turkey based international transformer manufacturers.In early 2008 the Australian operation is approaching month to month sales at100% of available physical capacity. The Company has also made great progressin the US with the construction of the Canton, Ohio plant and at its secondchosen location in the US in Laurel, Mississippi, planning consent has beenreceived. There are already advanced commitments from one of the US's largesttransformer oil buyers for both Ohio and for Mississippi as each plant, in turn,becomes fully operational. Year ended 31 December 2007 results Turnover for the year increased approximately 120% to £1,851,676 (2006:£844,867), with the overall operating loss reduced by 19% to £2,280,863 (2006:£2,864,826). The operating loss includes £1,153,275 (2006: £970,858) of non-cashitems due to the granting of options during the year, depreciation and theamortization of the Hydrodec technology, leaving a net operating cash outflow of£642,131 (2006: £2,104,640). Net assets rose to £21,486,209 (2006:£10,963,311), including cash balances of £12,129,184 (2006: £891,913). In November 2007, the group issued a £13.8m convertible loan note to finance theconstruction of production facilities in the United States of America. The loanis convertible at the loan note holders' option into ordinary share capital ofthe company at a fixed price of 19p per share at any time between April 2008 andNovember 2012. Any loan notes which are not converted into shares by this dateare repayable in one amount in August 2014. Interest is charged at a fixed rateof 8% per annum on the nominal value of the unconverted loan. Business developments The refining plant in Young, New South Wales has, during the year, demonstratedprocess capacity in excess of its theoretical 20,000 litres per day capacity andin first quarter 2008 forward sales from this plant are approaching 100% oftheoretical monthly physical capacity. Sales are derived from a number of longterm commitments including supplying approximately 2.4 million litres per annumto Ceyhan Petrokimya Sanayi ve Ticaret Ltd Sti in Turkey, a trader supplyingTurkish based transformer manufacturers. The first shipment has been receivedin Turkey and the feedback has been extremely favourable. SuperfineTM is continuing to receive considerable support from the Australiantransformer industry. This includes an agreement with Schneider Electric, a keymanufacturer of distribution transformers which supplies major power utilitiesacross the country. Schneider have targeted conditional allocation of up to 75%of its annual new transformer oil purchase in Australia to SuperfineTM. This isan uptake of 3,000 litres of SuperfineTM per day that represents approximately15% of Hydrodec's production capacity in Australia. In addition Australian power utilities including, the two largest electricitydistribution companies in Victoria and Queensland, the largest electricitydistributor in NSW and a major South Australian distribution utility haveapproved SuperfineTM transformer oil for use in their new transformers. Thesecombined approvals represent demand in the order of 40% of Hydrodec's Australianproduction capacity. The market feedback for SuperfineTM in the USA is very positive and the recentlyannounced purchase commitment by one of the largest transformer oil purchaser'sin the US supports our expansion plans and shows the confidence of the US powerindustry in Hydrodec's SuperfineTM product. This commitment is for the purchaseof greater than 50% of the maximum production capacity of the new Canton, Ohioplant plus a firm expression of interest in increasing purchase quantities uponcommissioning of the Laurel, Mississippi plant. Further significant salescommitments are expected in the coming weeks. The Canton, Ohio plant received its first feedstock at the end of February 2008and we expect the plant to be fully operational early in the second half of2008. Planning permission has been granted for Laurel in Mississippi withcommercial operations commencing conservatively in Q3 2009. Both plants arecurrently funded and each has a minimum production capacity in excess of 80,000litres of SuperfineTM transformer oil per day. Once operating, these plants willrepresent a ten fold increase of Hydrodec's existing SuperfineTM productioncapacity, particularly in light of early planning of the Laurel Mississippiplant that indicates a possible production capacity of 120,000 litres per dayfor an approximately similar capital investment to that required forestablishment of the Canton, Ohio facility. This multiplying of production capacity through expansion to the US will havesignificant financial benefits for the company and will give Hydrodec theeconomic and industry credibility to consider other major markets fortransformer oils around the world. Technological developments Industry testing of Hydrodec's SuperfineTM transformer oil has continued todeliver extraordinarily positive results. During the year independent utilitytesting of SuperfineTM's performance against the power industry key technicalparameters of oxidation stability, induction point and corrosive sulphur againshowed Hydrodec's product to be superior to most, if not all, currentlyavailable equivalent mineral transformer oils. Continuous development and engineering improvement systems within Hydrodec havealso resulted in internal development of operating systems and processes andequipment designs that capture unique and new knowledge of the company. Forexample, during 2007, Hydrodec developed for its Young Australia and Canton Ohiofacilities integrated automatic filtering and drying systems for oil. Thesepackage units have been manufactured in Australia for export to the USA for usein the Canton plant. Versions of the Hydrodec design have now attracted theinterest of others in the power industry and Hydrodec is considering acceptanceof external orders for commercial fabrication and delivery of multiplefiltering and drying units for commercial customers in the power industry. Research and development As well as securing new markets for SuperfineTM transformer oil, Hydrodec isalso developing new refining technologies. The treatment of other specialty oils for recycling e.g. hydraulic oils, isbeing evaluated at the request of major producers and users in this sector. Themarket opportunity for Hydrodec in these areas is many times the size of thetransformer oil market. Hydrodec expects that a conclusion on the viability ofthese market sectors will be resolved within twelve months. In addition to extending the technology in other oil products, applications inthe specialty petrochemical industry also remain under investigation. In 2007further evaluation of applications for the Hydrodec technology in the hazardouspetrochemical by-products area were successfully completed. Opportunitycontinues to exist in this market. Operational Capacity Hydrodec's capacity, knowledge and skills are embodied in the Company's staffand systems. Bringing the Young NSW facility to fully functioning commercialoperation and nearing completion and start up of the Canton, Ohio plant has seensteady growth in functional staff resources, the company's knowledge andintellectual property base and the basic capacity required to manage and growthe company consistent with the strategic plan. The company's strategic planningprocess treats recruitment, succession, capacity and knowledge as fundamental toour success, to risk management and to growth potential. In particular, late in 2007 we welcomed John Dickson to the Hydrodec team asFinance Director. John's commencement with the Group signals confidence in ourcontinued and accelerated growth, and, a step up in our forward planning andfinancial capabilities to match our enlarged and growing base of operations.John's commencement with the Group also coincided with successful negotiation ofthe contract to export Superfine oil from Australia to Turkey. These two keyevents catalysed the re-organisation of Hydrodec into a structure supportive ofthe company becoming a global transformer (and ideally other specialty) oilproducer. The Company has established an organisational platform for growth thatwill encourage the recruitment and integration of new resources as necessary tosupport expansion of the company's capacities consistent with market demand. During 2007 construction of the plant in Canton, Ohio was substantiallyprogressed and this newest Hydrodec facility in expected to become operationalahead of schedule and potentially under budget. Our success with bringing theCanton Plant to physical completion and our progress in recruiting and trainingstaff for this facility is also contributing to the continued expansion of thehuman and knowledge base necessary for Hydrodec to achieve its growthobjectives. The future Throughout 2007 we have seen increasing global interest in Hydrodec and we havebeen investigating new markets for SuperfineTM transformer oil. Near termmarkets now include Japan and Europe. During 2007 Corp8, a Japan based business planning and development group, weremandated to introduce the Hydrodec business to Japan with the aim of identifyingprospective partners and securing sufficient pre-sales interest to underpininvestment decisions for the Japanese market. Corp8 have made much progress. Thecompany has validated market data that confirms the clear competitiveness of theHydrodec model in the Japanese market and has further secured interest from keymarket players, industry groups and relevant government ministries. Visits tothe Australian plant by key Japanese parties commence in March 2008 and Hydrodecexpects that well before end of 2008 a secure plan for start up in Japan will bein place. The company further expects that the Japanese market will comfortablysupport a Hydrodec production capacity in excess of 160,000 litres per day, thatis, double the capacity planned for start up in Canton, Ohio in the near future. Our contract with Ceyhan Petrokimya Sanayi ve Ticaret Ltd Sti in Turkey hasopened up a potential new market for us in Europe. Turkey is a centre ofconcentration for the manufacture of transformers in Europe and consequently isa primary consumer of transformer oil. A number of well-known global companiesoperate transformer manufacturing facilities in Turkey and Hydrodec isinvestigating scope for growth in Europe through Turkey. The Company expectsclarification of the opportunity to access the EU market for transformer oilthrough Turkey before end 2008.Hydrodec's refining technology continues to be,with respect to recovery efficiencies, the industry leading process for refiningused mineral oils. This provides Hydrodec with unmatched economic andsustainability advantages. The outlook for the company is bright and improvingand we believe that Hydrodec is now well placed for a period of rapid expansion. Many thanks go, on your behalf, to the staff and management for their firstclass performance in 2007, which has enabled this excellent progress. We expectfurther significant growth to come in 2008 and the years thereafter. John GunnNon-executive Chairman HYDRODEC GROUP PLC CONSOLIDATED summarised INCOME STATEMENT (Unaudited) For the year ended 31 DECEMBER 2007 2007 2006 Note £ £ Revenue 1,851,676 844,867 Cost of sales (470,792) (411,818) Gross profit 1,380,884 433,049 Administrative expenses (3,526,006) (3,297,875) Operating loss (2,145,122) (2,864,826) Interest receivable 150,707 60,932Interest payable (286,448) (8,990) Loss on ordinary activities before taxation (2,280,863) (2,812,884) Tax on loss on ordinary activities - - Loss for the period (2,280,863) (2,812,884) Loss per share - basic and diluted 2 (1.20p) (1.56p) All transactions arise from continuing operations. HYDRODEC GROUP PLC CONSOLIDATED summarised INCOME STATEMENT (Unaudited) For the year ended 31 DECEMBER 2007 2007 2006 £ £Non-current assetsProperty, plant and equipment 6,751,538 3,620,343Intangible assets 6,292,803 6,817,203 13,044,341 10,437,546 Current assetsTrade and other receivables 747,954 184,612Inventories 155,990 75,361Cash and cash equivalents 12,129,184 945,938 13,033,128 1,205,911Current liabilitiesTrade and other payables (1,194,268) (418,840) Net current assets 11,838,860 787,071 Non-current liabilities (4,050,977) (261,306) 20,832,224 10,963,311 Capital and reservesCalled up share capital 969,227 923,227Share premium account 19,029,306 16,891,306Equity reserve 9,573,900 -Share options reserve 2,477,389 2,140,052Profit and loss account (11,087,121) (8,806,258)Foreign exchange reserve 153,614 (185,016)Employee benefit trust (284,091) - Total equity 20,832,224 10,963,311 HYDRODEC GROUP PLC CONSOLIDATED summarised CASH FLOW STATEMENT (Unaudited) For the year ended 31 DECEMBER 2007 2007 2006 £ £ Cashflows from operating activitiesOperating loss (2,145,122) (2,812,884)Depreciation 291,538 220,295Loss on disposal of property, plant and equipment - 44,845Amortisation of other intangible assets 524,400 524,400Finance costs (51,448) (51,942)Share based payment expense 337,337 226,163Foreign exchange movement 338,630 (73,843)Increase in inventories (80,269) (20,927)(Increase)/decrease in amounts receivable (501,947) 19,100Increase/(decrease) in amounts payable 645,110 (179,847) Net cash outflow from operating activities (642,131) (2,104,640) Cashflows from investing activitiesPurchase of property plant and equipment (3,172,733) (1,683,314)Finance lease interest paid - (8,990)Bank interest and other income received 89,312 60,932 Net cash outflow from investing activities 3,083,421 (1,631,372) Cashflows from financing activitiesIssue of new shares 2,300,000 1,680,000Costs of share issue (116,000) (84,000)Purchase of share capital (281,250) -Issue of convertible loan stock 13,800,000 -Costs of convertible loan stock issue (578,350) -Repayment of lease liabilities (161,577) (129,404) Net cash inflow from financing 14,962,823 1,466,596 Increase/(decrease) in cash and cash equivalents 11,237,271 (2,269,416) Movement in net cashCash 945,938 3,161,329Bank overdraft (54,025) - Opening cash and cash equivalents 891,913 3,161,329 Increase/(decrease) in cash and cash equivalents 11,237,271 (2,269,416) Closing cash and cash equivalents 12,129,184 891,913 The accompanying accounting policies and notes form an integral part of thesefinancial statements. HYDRODEC GROUP PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) For the year ended 31 DECEMBER 2007 Share Share Equity Foreign Profit and Share Employee Total capital premium reserve exchange loss account option benefit reserve reserve trust £ £ £ £ £ £ £ £ At 1 January 2006 893,227 15,325,306 - (3,862) (5,993,374) 1,913,889 - 12,135,186 Exchange differences on translation offoreign operations - - - (181,154) - - - (181,154) Net income recognised directly in equity - - - (181,154) - - - (181,154) Loss for the period - - - - (2,812,884) - - (2,812,884) Total recognised income for the year - - - - (2,812,884) - - (2,812,884) Recognition of share-based payment - - - - - 226,163 - 226,163 Issue of shares 30,000 1,650,000 - - - - - 1,680,000 Issue costs - (84,000) - - - - - (84,000) At 31 December 2006 923,227 16,891,306 - (185,016) (8,806,258) 2,140,052 - 10,963,311 Exchange differences on translation offoreign operations - - - 338,630 - - - 338,630 Net income recognised directly in equity - - - 338,630 - - - 338,630 Loss for the period - - - - (2,280,863) - - (2,280,863) Recognition of share-based payment - - - - - 337,337 - 337,337 Issue of shares 46,000 2,254,000 - - - - - 2,300,000 Issue of convertible - - 9,952,696 - - - - 9,952,696loan Issue costs - (116,000) (418,796) - - - - (534,796) Purchase of shares - - - - - - (284,091) (284,091) At 31 December 2007 969,227 19,029,306 9,573,900 153,614 (11,087,121) 2,477,389 (284,091) 20,832,224 HYDRODEC GROUP PLC NOTE TO COMPANY BALANCE SHEET AT 31 DECEMBER 2007 1 ACCOUNTING POLICIES BASIS OF PREPARATION The preliminary result statement has been prepared on the basis of the sameaccounting policies as those set out in the financial statements for the yearended 31 December 2006. These summarised consolidated financial statements havebeen prepared in accordance with International Financial Reporting Standards(IFRS) as adopted by the EU under the historical cost convention. They arepresented in sterling, which is the functional currency of the group because thesignificant events of the current and prior period occurred in sterling. The preparation of financial statements in accordance with IFRS requires the useof estimates and assumptions that affect the reported amounts of assets andliabilities, and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Although these estimates are based on management'sbest knowledge of current events and actions, actual results may ultimatelydiffer from those estimates. 2 LOSS PER SHARE The calculation of the basic loss per share is based on the loss attributable toordinary shareholders divided by the weighted average number of shares in issueduring the year. The weighted average number of shares used in the calculations are set outbelow: 2007 2006 Number of Number of shares shares 189,725,620 179,944,032 In 2006 and 2007, the share options were anti-dilutive and consequently nodiluted earnings per share figure is included. 3 Annual report Copies of the annual report and accounts will be sent to shareholders in thenear future and will be obtainable from the Company's head office at the 6thFloor, 80 Cannon Street, London. EC4N 6HL. 4 Status of this report The preliminary results for the year ended 31 December 2007 are unaudited. Thefinancial information included in this statement does not constitute the Group'sstatutory accounts within the meaning of Section 240 of the Companies Act 1985.Statutory accounts for the year ended 31 December 2007 will be finalised on thebasis of the financial information presented by the directors in the preliminaryannouncement and will be delivered to the Registrar of Companies in due course. The information given as the comparative figures for the year ended 31 December2006 does not constitue the Group's statutory accounts for this financial year.Statutory accounts for the year ended 31 December 2006, prepared in accordancewith International Financial Reporting Standards as adopted by the EuropeanUnion, have been reported on by the Group's auditors and delivered to theRegistrar of Companies. The report of the auditors was unqualified and did notcontain a statement under Section 237 (2) and (3) of the Companies Act 1985. -------------------------- The accompanying accounting policies and notes form an integral part of thesefinancial statements. The accompanying accounting policies and notes form an integral part of thesefinancial statements. The accompanying accounting policies and notes form an integral part ofthese financial statements. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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