20th May 2009 07:00
20 May 2009
Hydrodec Group plc
Trading Update
The Board of Hydrodec Group plc ("Hydrodec" or the "Company") is pleased to announce the following update on progress.
Summary
The Company is pleased with progress made despite the current recessionary environment and remains confident of reporting a profit from its operations in the current financial year. Forward sales of SUPERfine transformer oil are encouraging and the Canton plant is moving towards 100% near term operational capacity.
Market conditions are improving and the growing demand for SUPERfine transformer oil has led the Board to consider plans for the Company's second US plant or a potential expansion of the Canton plant. These plans are expected to firm up in the second half of 2009 following an evaluation of potential logistical and financing arrangements.
The Company's plans for Japan also remain on track.
General Market
The global price of crude oil and the transformer oil market both appear to have stabilised and started to recover after the lows of January and February this year. West Texas Intermediate (WTI) Crude is a key index used in establishing US transformer oil pricing. WTI has increased by approximately 50% since the early 2009 lows, and transformer oil prices are moving upward in response to the recovery in this index.
US Sales Commitments
Between February and May this year, Hydrodec has progressively increased forward sales for the Canton plant. Minimum firm committed sales, excluding small regional sales, currently exceed 60% of current available production capacity. These same customers have expressed interest in consuming up to 85% of the plant's current available capacity. In addition to existing committed sales, final negotiations are underway for further written commitments, which would take minimum committed sales to greater than 100% of current available capacity.
US Feedstock Supply
Committed feedstock supply now exceeds 90% of current available plant capacity. We have identified additional probable feedstock sources that when combined with our committed supply will bring us in excess of 120% of our current Canton plant capacity. Feedstock prices have also stabilised and average feedstock cost to Hydrodec has reduced by approximately 40% since February.
US Plant Performance
In line with the Company's expectations, production capacity is currently running at around 50% and the plant is expected to be operating at greater than 80% capacity by the end of June.
Ongoing industry testing and evaluation of SUPERfine transformer oil has consistently proved the product to be high quality relative to traditionally refined competing transformer oils. Industry acceptance of the technical quality of SUPERfine is growing progressively. Escalating demand is also underpinned by growing acceptance in the US power industry of the Greenhouse Gas savings and resource conservation benefits offered by Hydrodec.
Australia
The Australian plant has recently and successfully completed its first full catalyst change since commissioning. The change was completed smoothly as planned and with minimal interruption to normal operations. This plant continues to run consistently and reliably. The Australian facility also continues to provide systems, process and product development support for all activities across the Company.
Japan
Demonstration trials for the benefit of the Japanese Environment Ministry will be completed under witness by Japanese representatives over the coming two weeks in the Young, NSW plant. Subject to the performance of the trial, government approval of Hydrodec's technology for commercial application in Japan is on track for Q4 2009. Negotiations with the Japanese partner are also progressing positively and at a rapid pace.
Financing
The Board is actively pursuing various financing options with commercial banks & other institutions to secure additional working capital. Various management initiatives recently undertaken, together with the improvement in pricing and the cash made available by the recently announced sale of the Conditioning Monitoring Business have eased the working capital strain experienced at the beginning of the year.
In addition, due to the increasing demand for SUPERfine, the Company is evaluating potential financing in connection with the construction of the second US plant or a potential expansion of the Canton plant.
Preliminary results
The Company is expecting to release the preliminary results for the year ended 31 December 2008 in June 2009.
Hydrodec Group plc +61 2 6382 5387
Mark McNamara, CEO
John Dickson, Finance Director
Numis Securities Limited 020 7260 1000
Nominated Adviser: Simon Blank
Corporate Broker: David Poutney / Alex Ham
Curve PR 020 8742 1597
Emma Davis 07764 197003
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