Hydrodec shares fall as feedstock struggles continue

The AIM-traded company said group EBITDA was approximately $0.45m, which was the first positive full-year EBITDA in the group's history, and a significant improvement of $1.75m on the prior year.

Revenues improved by 6% to approximately $17.8m, which the board said was driven by an improved pricing and sales mix.

Gross unit margins increased “substantially” to 14.5%.

Hydrodec said sales volumes of premium quality ‘SUPERFINE’ transformer oil and base oil in 2017 was lower at 29.3 million litres, compared to 33.3 million litres, which the board said reflected feedstock constraints and higher feedstock inventory at start of the prior year due to the Canton plant recommissioning.

It said demand for SUPERFINE products remained robust.

A further improvement in its sales mix was seen between its higher margin transformer oil and lower margin base oil, with transformer oil sales representing 52% of total oil sales in 2017, up from 40% in 2016.

Hydrodec was targeting at least 60% of total sales in 2018.

Canton plant utilisation was at 61% on average for the year, with the board saying feedstock remained its key constraint to higher throughput.

Strategic initiatives were continuing to progress in securing sustainable, increased supplies going forward, with the group seeking to achieve utilisation rates at the Canton facility of at least 70% in 2018.

A further reduction in corporate costs was also reported, with benefits from initiatives implemented at the end of 2016 continuing to filter through into 2017.

The company’s first sale of carbon credits in respect of credits generated by production in 2013 was achieved, with a “strong” potential pipeline for further sales in the first half of 2018 including vintage credits.

In its US business, Hydrodec said it was awarded a two-year agreement to supply up to 7.6 million litres annually of its SUPERFINE transformer oil to a major transformer original equipment manufacturer.

Confirmation of a new patent for a further 20 years in the key US market was also received, which the board said reinforced the “uniqueness” and market-leading nature of Hydrodec technology.

Reauthorisation of the PCB treatment permit was issued by the US Environmental Protection Authority for a further five years, with enhanced operating capabilities including unlimited PCB treatment - previously limited to 2,000 parts per million - and the ability to store PCB containers onsite.

“I am pleased for the group to report its first positive EBITDA in its history, a significant milestone and an important step as we continue to build solid commercial foundations from which the business can seek to develop further,” said chief executive Chris Ellis.

“There will continue to be challenges particularly in respect of feedstock procurement in what is still a volatile market, but I am confident in the group's ability to deliver an improved positive EBITDA in the coming years and I look forward to reporting further progress.”

As at 1049 GMT, shares in Hydrodec were down 10.44% at 2.53p.