Hydrodec Group plc a unique renewable oil proposition June 2013 Ian - - PowerPoint PPT Presentation

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Hydrodec Group plc

a unique renewable oil proposition June 2013

Ian Smale, Chief Executive Chris Ellis, Chief Financial Officer

hydrodec group plc

PRECAUTIONARY STATEMENT

This presentation has been issued by Hydrodec Group plc (“Hydrodec”) and is personal to the recipient. This presentation and these slides may not be reproduced or published in whole or in part for any purpose. This presentation and associated discussion includes forward-looking statements. Certain information contained in this presentation relating to Hydrodec has been compiled from public sources. All statements other than statements of historical fact included in this presentation, including without limitation those regarding the plans, objectives and expected performance of Hydrodec, are forward-looking statements. Hydrodec has based these forward-looking statements on its current expectations and projections about future events, including numerous assumptions regarding its present and future business strategies, operations, and the environment in which it will operate in the future. Forward-looking statements generally can be identified by the use of forward-looking terminology such as 'ambition', 'may', 'will', 'could', 'would', 'expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek' or 'continue', or negative forms

• r variations of similar terminology. Such forward-looking statements involve known and unknown risks, uncertainties,

assumptions and other factors related to Hydrodec. By their nature, forward-looking statements involve risks, uncertainties and assumptions and many relate to factors which are beyond the control of Hydrodec, such as future market and economic conditions, external factors affecting

• perations and the behaviour of other market participants. Actual results may differ materially from those expressed in

forward-looking statements. Given these risks, uncertainties, and assumptions, you are cautioned not to put undue reliance on any forward-looking statements. In addition, the inclusion of such forward-looking statements should under no circumstances be regarded as a representation by Hydrodec that Hydrodec will achieve any results set out in such statements or that the underlying assumptions used will in fact be the case. Other than as required by applicable law or the applicable rules of any exchange on which securities of Hydrodec may be listed, Hydrodec has no intention or obligation to update or revise any forward-looking statements included in this presentation. This presentation is for information only and does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase, any shares in Hydrodec or any other securities, nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied upon in connection with, any contract or investment decision related thereto.

hydrodec group plc

• We produce new, renewable oils as good or better quality than original oil
• Unique industry-leading proprietary clean-technology is proven and efficient
• Two commercial operations in USA and Australia generating positive cash flow
• Eight consecutive years of revenue growth, now poised for expansion
• Planned build-out in US guaranteed by feedstock from Strategic Partnership
• Technology development underway offering access to a step change in opportunity

Hydrodec today

• il re-refining; processing used transformer oil

hydrodec group plc

• Clean-technology model with two core

revenue streams: – Equity participation where advantaged – Royalty income through licencing

• Hydrodec today: transformer oil market

– Expansion through transformational US strategic partnership – Access new geographies via partnership, license or acquisition – Deleveraged balance sheet & target positive EBITDA

• Hydrodec – the future: step-out in growth and

access to material new markets through technology development – Expand proven technology platform – Proof of concept achieved – Target markets Australia, UK, US – A partnership or acquisition to secure feedstock; licence when proven

Strategy

deliver outstanding growth and profitability

hydrodec group plc

Market opportunity and value chain

unique technology in a material global market

Sales price:

• ca. $1.00

Feedstock: $0.50 Margin: 25 – 35% Existing capacity: 6.75m litres per train – 4 in US, 1 in Australia

SOURCES OF USED OIL

• OECD: 75% rule
• Direct utilities: ca. 40%
• Indirect from equipment

recovery/consolidators (e.g. G&S) ENVIRONMENT

• Global market value US$2bn
• Growing at 6-8% pa, driven by Asia
• Federal approval in US, Australia & Japan
• No subsidy outside Australia

USES

• “Virtual closed-loop”

with utilities

• OEMs: ca. 40% demand
• Blenders and marketers
• Pale 60 markets in inks,

agriculture, mining & explosives Alternatives: Incineration, fuel additives, regeneration, recycling COMPETITIVE ADVANTAGE

• > 99% as new oil, no waste
• tests as better than new oil
• single-step re-refining process
• negligible emissions, ‘carbon neutral oil’

hydrodec group plc

• Extend proven technology process & platform into

general used oils

• Proof of concept already established

– Group II base oil output – targeting high quality Group II+/III base oil

• Global market in excess of US$30bn pa

– growing at 2-4%pa – base oil markets fundamentally short in Europe/Australia, also Asia

• Higher gross margins – 35-40%

– lower feedstock costs (less alternative use) – premium pricing for high quality product

• Potential for sequential deployment from 2015

Hydrodec – the future

accessing the $30 bn per annum lubricant market

Lubricant oil market size

Transformer oil Industrial oil Motor oil

hydrodec group plc

Roadmap to value

a prospective framework for outstanding growth and returns

7

H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 2016

Transformer oil Lubricant oil Financial US strategic partnership (G&S Technologies) Protectable IP, patent process Carbon certification Resolve balance sheet New market entry (partnership/acquisition) New market license (Japan) New technology design Partial Full European licence Value chain (partnership or acquisition) Commission licenced plant (new market) Commission Canton expansion (+2 trains) Commission 2nd plant +4 trains US Pilot plant construction License Phase 2 technology Potential extension, in USA +4 trains Full commission Phase 2 technology Commission European plant Staggered commission Phase 2 technology Target positive EBITDA Value chain (partnership or acquisition)

hydrodec group plc

Accelerating the opportunity

consolidating a fragmented market, securing feedstock

• Investment in growth - dedicated resource
• Fragmented market represents an ideal market

for consolidation

• Healthy pipeline of opportunities currently under

consideration

• Two deals currently in meaningful discussions
• One transaction closed year to date (US strategic

partnership)

• Partner/acquisition target - feedstock supply (20m

litre in transformer oil, 50m+ in used oil), value chain or service chain integration

• Likely deal size $10-25m, with potential to

address balance sheet

hydrodec group plc

2012

• Eighth consecutive year of revenue growth – up 17% to US$26.1m
• Gross margins steady at 21%
• SUPERFINE sales volumes up 11% - 22.5m litres
• Feedstock volumes up 18%
• Higher utilisation of productive capacity at 70%

2013 YTD (Jan - May)

• Sales volumes up on same period last year
• Revenues up despite lower average sales price – discount to ICIS benchmark index

narrowed further

• Gross margins broadly in line – significantly up on 2012 as a whole
• Utilisation steady at c. 70% - expect increase in H2

Performance overview

improving trends

hydrodec group plc

2012 summary of results

key focus on operating EBITDA; targeting positive in 2013

USD'000 2012 2011 Revenue 26,112 22,414 Gross profit 5,367 4,981 Gross profit margin % 21% 22% Underlying operating EBITDA1 (3,034) (2,203) Operating cashflow pre growth costs2 (2,549) (2,633) Loss after tax (14,196) (11,479)

• Revenue growth 17% year on year
• Margins flat despite index compression
• Reflects increased investment in capability
• Both plants delivered positive operating cashflow for the first time

1 Before growth costs2, intangible asset amortisation and share based payment costs 2 "Growth costs" includes expenditure

• n market expansion and new

product development of US $2.2m (2011: US$0.8m)

hydrodec group plc

• New management and Board established in 2012 with a proven track record in oil industry
• Established renewable business with proven IP-protected technology; EBITDA positive at
• perating plant level
• Transformational transaction in US; catalyst for growth, blueprint for future
• Strong drive to deliver positive EBITDA later this year and address balance sheet
• Global market potential in transformer oil; new market growth options in Europe, Japan & Australia

through (low risk) licensing and (higher risk, higher return) partnering or acquisition

• Major opportunities with next stage technology - robust potential and IP based on proven technology

platform, target Australia and UK/Europe

• Proven economic and business model; attractive returns in transformer oil re-refining, replicable in

used lubricant oil market 30x larger with huge option value

Investment case

a clear route to profitability

hydrodec group plc

Appendices

hydrodec group plc

Lee Taylor Head of Corporate Development

• Corporate partner at Linklaters for 15

years including as Global Head of the Energy and Utilities sector

• Structured several ground-breaking BP

transactions, including the Amoco merger, the Burmah Castrol takeover and the BP/TNK joint venture

• Joined Hydrodec as Head of Corporate

Development in January 2012

Management team

more than 125 years of collective experience

Ian Smale Chief Executive

• 30-year career with BP plc
• Leadership

positions including Group Head of Strategy & Policy, Global Head of Mergers and Acquisitions, and President and Chief Executive of BP Exploration North Africa

• Joined Hydrodec as CEO in January 2012

Chris Ellis Chief Financial Officer

• 20

years’ board level finance and management experience running large, complex international businesses as well as small and medium-sized ventures, including a significant period with GE Capital

• Qualified chartered accountant
• Joined Hydrodec as CFO in July 2012

David Robertson Chief Operating Officer

• 30 years at BP plc, with executive level

roles in BP Chemicals and Technology

• Previously COO at a US-based technology

start-up business in the energy/waste sectors.

• Joined Hydrodec as COO in January 2012

Mark McNamara Head of Technology and International Projects

• 10

years with Clough Engineering responsible for the environmental technology and engineering division

• Joined Hydrodec in 2004 originally as

Chief Operating Officer, assumed the role

• f CEO in 2005
• Became

Head

• f

Technology and International Projects in January 2012

hydrodec group plc

Non-executive directors

Lord Moynihan Chairman Lord Moynihan was previously Executive Chairman and Chief Executive of Consort Resources Limited and Executive Chairman

• f Clipper Windpower Europe
• Limited. Colin was a Member of

Parliament in the UK for 10 years, serving as Minister for Energy from 1990 to 1992. Colin was Chairman of the British Olympic Association from 2005 – 2012. Andrew Black Non-executive Director Andrew is the co-founder of Betfair, the world’s leading online betting exchange and FTSE 250 constituent, having devised its unique betting exchange model. He was a director of the Betfair Group from 1999 to 2010. Alan Carruthers Non-executive Director Alan has 27 years’ experience in the financial markets and from 2003 to 2010 he was Global Head of Equities at Cazenove. During this time he was appointed a main board director and was a member of both the executive and

• perations

committees. He helped spearhead the joint venture with J.P.Morgan in 2005 and spent a year as Head of EMEA Cash Equities at J.P.Morgan Cazenove, following the buyout

• f Cazenove in January 2011.

Gillian Leates Non-executive Director Gill brings with her a wealth of public market experience, having spent eight years at Schroder Investment Management as an analyst and fund manager and later serving as Investment Director on the main board of Majedie Investments PLC. She also served as a non-executive director

• f

Majedie Asset Management Limited where she played a key role in setting up the UK pension fund management business in 2002.

hydrodec group plc

World-leading clean technology

“simple chemistry and smart process engineering”

• Developed to treat “PCBs” (polychlorinated

biphenyls)

• IP protected; secured by operational know-

how

• Hydrogenation cleans and restores the

hydrocarbon molecule

• “New” renewable oil with semi-synthetic

properties

• Approved by regulatory authorities in US,

Australia and Japan USA Australia 4 trains* 1 train 27m litre p.a. capacity* 6.5m litre p.a. capacity

*strategic partnership to expand to 10 trains (65m litres pa)

hydrodec group plc

Hydrodec NA G&S Technologies Hydrodec of NA

Assets/Technology Feedstock/Customers 50.1% 49.9% Strategic partnership, largest transformer oil re-refiner in US

US partnership

blueprint for growth

• Commits feedstock to the partnership, de-risks expansion
• Trades Hydrodec NA for 50.1% of business 240% of the size
• Cash proceeds to be re-invested in expansion
• Growth from 27 million litres pa. to 65 million litres pa; capex ca. US$15m
• Establishes new recurring royalty for technology licence

hydrodec group plc

Equity

• Market cap £45m
• 422m ordinary shares

Aviva 20% Andrew Black 20% Thesis Asset Management 5% Royal London 5%

• Executive LTIP scheme
• Warrants (related to secured loan stock)
• Employee option scheme

Debt

• Unsecured loan stock

£12.8m 8% pa coupon Repayable October 2014

• Secured loan stock

£5m 5% pa coupon Repayable December 2015

Capital structure

an opportunity to de-lever…?

Broaden institutional investment – key target for 2013 Options for repayment or replacement under consideration

hydrodec group plc

12 Months 12 Months Dec-12 Dec-11 USD$m USD$m Revenue 26.1 22.4 Gross profit 5.4 5.0 Operating costs Employee benefit expense

• 7.1
• 5.2

Other administrative expense

• 7.2
• 7.7

Foreign exchange(loss)/gain

• 0.0

0.1 Depreciation

• 0.2
• 0.2

Total operating costs

• 14.5
• 13.0

Operating Loss

• 9.2
• 8.0

Analysed as: Underlying operating loss

• 4.5
• 3.6

Growth costs

• 2.2
• 0.8

Amortisation of intangible assets

• 2.1
• 2.2

Share based payment costs

• 0.5
• 0.3

Treatment of Young contaminated material 0.1

• 1.2

Operating loss for the period

• 9.2
• 8.0

Loss after interest and tax

• 14.2
• 11.5

Underlying operating EBITDA*

• 3.0
• 2.2

*Before growth costs, share based payment costs and treatment of Young contaminated material

Income statement

2012 2011 Number Number Operations 66 59 Corporate office 11 9 77 68

Staff costs

2012 2011 USD'000 USD'000 Wages and salaries 7,524 5,781

Average number of employees Growth costs

2012 2011 USD’000 USD’000 Market expansion development costs 1,750 819 New product development 456

• 2,206

819 Employee benefit expense 1,153 547 Other costs 1,053 272 2,206 819

hydrodec group plc

Balance sheet

Dec-12 Dec-11 USD$m USD$m Fixed assets 23.0 23.3 Intangibles * 21.6 22.8 Non-current assets 44.7 46.1 Cash 1.6 7.0 Other current assets 3.5 3.1 Current liabilities

• 5.2
• 4.1

Net current assets

• 0.0

5.9 Provisons

• 0.4
• 0.6

Long term borrowings

• 16.8
• 13.5

Deferred tax

• 1.7
• 1.9

Net assets 25.5 35.9

* Prepaid royalty, goodwill and Hydrodec technology

• Redeemed £2m debt financing
• £5m new debt financing announced on 19 December 2012 (£2m received as at 31 December

2013 - further £3m in 2013)

• On 1 November 2012, £12.79m of convertible unsecured loan stock reverted to an unsecured

debt obligation with an 8% pa coupon. The Company has the right to repay the outstanding amount in full at par at any time prior to or on 31 October 2014

hydrodec group plc

Cashflow

12 Months 12 Months 31 Dec 2012 31 Dec 2011 USD$m USD$m Cash outflow generated from operations

• 4.8
• 3.5

Underlying cash outflow from operations

• 2.5
• 2.6

Growth cost

• 2.2
• 0.8

Capital expenditure

• 1.1
• 0.2

Net cash outflow/inflow from financing 0.2 9.1 Decrease/Increase in cash

• 5.7

5.5 Movement in net cash Cash 7.0 1.7 Bank overdraft

• 0.2
• 0.5

Opening cash & equivalents 6.8 1.3 Decrease/Increase in cash

• 5.7

5.5 Closing cash & equivalents 1.1 6.8

• US$2.5m positive cash

contribution at plant level

• Significant investment in growth

initiatives

• Additional £3m from Dec-12 debt

financing received in 2013

• Improving operational integrity

hydrodec group plc

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hydrodec group plc

Hydrodec Group plc

Ian Smale Chief Executive ian.smale@hydrodec.com Chris Ellis Chief Financial Officer chris.ellis@hydrodec.com London Office 50 Curzon Street London W1J 7UW Main: +44 (0)20 7907 9220 www.hydrodec.com

Please visit the Webcasts & Interviews section of our website to view our Corporate Overview video and interviews with the management team