Progress against challenging backdrop
Hydrodec (L:HYR) has made progress on executing its strategy despite challenging markets and equipment performance issues that have delayed the ramp-up of full production at its Ohio facility. Following updated guidance regarding US FY15 output, we reinstate our estimates and valuation, which sees fair value at 11.3p with current levels of risk.
Improving transformer oil platform
The Ohio facility remained under construction during H115, so revenues were primarily derived from the UK recycling business. Volumes recycled rose 31% y-o-y as a result of the acquisition of Eco-Oil in early April. Group revenues declined by 22% to $19.8m through a combination of low UK selling prices, less oil trading in the US as the team concentrated on commissioning the plant, and disruption while the Australian operations were transferred to a third-party site. EBITDA adjusted for exceptional and growth costs moved from $1.6m profit to $3.2m loss. Management responded to the continued weakness in oil prices by restructuring the UK recycling operation, making c $2.5m of annualised cost-savings and selling its Knowsley transfer station site, realising £0.7m cash. Management expects the Ohio rerefining operation to reach full production during November.
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