HydroDec expecting growth despite weak feedstock market

With HydroDec investors gathering on Tuesday for the company’s annual general meeting, its CEO Chris Ellis was preparing to report expectations for significant growth in the first half, with revenues forecast to rise 12% year-on-year to $9.1m.

The AIM-traded firm had experienced an improved pricing and sales mix, with sales volumes of ‘SUPERFINE’ transformer oil and base oil expected to fall to 15.2 million litres, from 16.75 million litres in the first half of last year, reflecting a reportedly less active feedstock market.

Demand for the group’s products remained strong overall, the board claimed.

“When the 2016 full year results were announced in May my review referred to the progress made by the company towards profitability, reflecting the positive impact of the operational improvements and cost reduction measures put in place during 2016 as we focused on the core transformer oil business,” Ellis said.

“Transformer oil sales are expected to grow to 58% of all oil sales for the six months (from 42% year-on-year), leading to a significant increase in margin of approximately 11c per litre on the prior year.”

Ellis said the company was expecting to achieve positive EBITDA in the first half, swinging from a $1.1m loss at the same time last year, despite the volatility of feedstock collection and availability - particularly in the US.

“[Our] first sale of carbon credits [was] achieved in the second quarter, and the company expects to conclude a commercial agreement in respect of all credits from 2015 onwards in the near term,” Ellis reported.

“Revenues and EBITDA are capable of growing further throughout the year - performance at EBITDA level will be determined by the continuing improvement in margin which in turn is influenced by the direction of oil prices and by overall feedstock availability”

The board was continuing to monitor its working capital position for its current requirements, Ellis explained, whilst also looking to ensure that the company was “well positioned” to take advantage of improvements in the market outlook.

“When I look at the first half of 2017, it is clear that we have taken significant steps forward in successfully reshaping the company against a challenging and volatile market backdrop.

“However, from a personal perspective I am still to be satisfied with the speed of our progress and remain hugely ambitious for the company and the opportunity to deliver fully on its technological potential, with the award and sale of carbon credits only reinforcing in my mind the unique offering Hydrodec possesses.”

Ellis said it was “clear” that to meet the aspirations of the board and all shareholders through the successful delivery of the strategy established in 2016, the company needed to realise a “step change” in the products and services currently offered, in addition to ensuring that the group's capital structure enabled the business to realise such a change.

“We therefore continue to work with both Canaccord Genuity and Simmons & Co, specialists in international investment banking services for the energy industry, in exploring options which will deliver accretive value for shareholders and provide significant strategic growth whilst fully leveraging the significant progress made over the last eighteen months.

“With the full support of the board, Colin and I will continue to assess all opportunities for internal and organic business growth as well as strategic acquisition opportunities and partnerships if, and only if, they are seen by the board to add shareholder value,” Ellis said.

“In the meantime, my focus remains on continuing to build upon the positive EBITDA expected to be delivered for H1, through the continued improvement in volumes and margins in both of our existing operations.”