This document provides information about Hydrodec Group plc, a company that produces renewable transformer and base oils using a proprietary clean technology process. It is presenting information to potential investors regarding a proposed share placing. The document outlines Hydrodec's business of re-refining used transformer oil, the market opportunity, its competitive advantages, existing operations and planned expansion. It also describes a new strategic partnership in the US that will de-risk expansion plans and generate recurring royalty revenues through licensing Hydrodec's technology.
This document provides information about Hydrodec Group plc, a company that produces renewable transformer and base oils using a proprietary clean technology process. It is presenting information to potential investors regarding a proposed share placing. The document outlines Hydrodec's business of re-refining used transformer oil, the market opportunity, its competitive advantages, existing operations and planned expansion. It also describes a new strategic partnership in the US that will de-risk expansion plans and generate recurring royalty revenues through licensing Hydrodec's technology.
This document provides information about Hydrodec Group plc, a company that produces renewable transformer and base oils using a proprietary clean technology process. It is presenting information to potential investors regarding a proposed share placing. The document outlines Hydrodec's business of re-refining used transformer oil, the market opportunity, its competitive advantages, existing operations and planned expansion. It also describes a new strategic partnership in the US that will de-risk expansion plans and generate recurring royalty revenues through licensing Hydrodec's technology.
This document provides information about Hydrodec Group plc, a company that produces renewable transformer and base oils using a proprietary clean technology process. It is presenting information to potential investors regarding a proposed share placing. The document outlines Hydrodec's business of re-refining used transformer oil, the market opportunity, its competitive advantages, existing operations and planned expansion. It also describes a new strategic partnership in the US that will de-risk expansion plans and generate recurring royalty revenues through licensing Hydrodec's technology.
Ian Smale, Chief Executive Chris Ellis, Chief Financial Officer
Hydrodec Group plc
Precautionary Statement By attending the meeting where this presentation is made, or by reading the presentation slides, you agree to be bound by the following instructions. This information in this document has been prepared by Hydrodec Group plc (Hydrodec or the Company) solely for use at presentations to held in connection with the proposed placing of ordinary shares in Hydrodec (the Placing) and is personal to the recipient. This document and its contents are confidential and may not be reproduced, distributed or published in whole or in part, or disclosed or made available by the recipients, for any purpose without the prior written consent of Hydrodec. No offering document or prospectus has been or will be submitted to be approved by FCA (or other authority) in relation to the Placing and any placee's commitment will be made solely on the basis of information contained in an announcement to be published by the Company in connection with the Placing. Each placee, by accepting a participation in the Placing, will confirm that it has neither received nor relied on any other information, representation, warranty, or statement made by or on behalf of the Company or Peel Hunt LLP or any other person (including but not limited to this document) and neither the Company nor any other person will be liable for any placee's decision to participate in the Placing based on any other information, representation, warranty or statement which the placees may have obtained or received. Nothing in this paragraph shall exclude the liability of any person for fraudulent misrepresentation. This presentation is being made and this document is being distributed in the United Kingdom only to and is directed at persons who have professional experience in matters relating to investments who fall within the definition of investment professionals in Article 19(5) of, or a person falling within Article 49(2) (High Net Worth Companies, etc.) of, the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 of the United Kingdom and persons who are otherwise permitted by law to receive it (all such persons being referred to as relevant persons). Any person who is not a relevant person should not act or rely on this presentation or this document or any of its contents. The information given in this presentation is given in confidence and the recipients of this presentation should not engage in any behaviour in relation to qualifying investments or related investments (as defined in the Financial Services and Markets Act 2000 (FSMA) and the Code of Market Conduct made pursuant to FSMA) which would or might amount to market abuse for the purposes of FSMA. Peel Hunt LLP is acting for Hydrodec in connection with the proposed Placing and for no-one else and will not be responsible to anyone other than Hydrodec for providing the protections afforded to its clients nor for providing advice in relation to the proposed Placing or any other matter referred to herein. Peel Hunt LLP has not authorised the contents of any part of this document. No representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information, or opinions contained herein. Neither the Company, nor any of the Company's advisers or representatives, including Peel Hunt LLP, shall have any responsibility or liability whatsoever (for negligence or otherwise) for any loss
howsoever arising from any use of this document or its contents or otherwise arising in connection with this document. The information set out herein may be subject to updating, completion, revision, verification and amendment and such information may change materially. Neither the Company nor any other person is under an obligation to keep current the information contained in this document. This document has not been approved by the UK Financial Services Authority or any other regulator. This document does not constitute or form part of, and should not be construed as, an offer, invitation or inducement to purchase or subscribe for any securities nor shall it or any part of it form the basis of, or be relied upon in connection with, any contract or commitment whatsoever. This document does not constitute a recommendation regarding the securities of the Company. The information communicated in this document contains certain statements that are or may be forward looking. These statements typically contain words such as "expects" and "anticipates" and words of similar import. By their nature forward looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. An investment in the Company will involve certain risks. In particular, certain figures provided in this presentation are derived from financial models; there is a risk that errors may be made in the assumptions or methodology used in a financial model. A summary of the material risks relating to the Company and an investment in the securities of Company will be set out in the section headed "Risk Factors" in the Circular. The publication and distribution of this document, attendance at the presentation and the placing and sale of the shares may be restricted by law in certain jurisdictions and therefore persons into whose possession this document comes or who attend the presentation should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions could result in a violation of the laws of such jurisdiction. In particular, this document and the information contained herein, are not for publication or distribution, directly or indirectly, to persons in the United States (within the meaning of Regulation S under the US Securities Act of 1933, as amended (the "Securities Act")) or to entities in Canada, Australia, South Africa or Japan. Neither these slides nor any copy of them may be taken or transmitted into or distributed in the United States, Canada, Australia, South Africa, Japan or any other jurisdiction which prohibits the same except in compliance with applicable securities laws. The securities of the Company have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States, and may not be offered, sold, pledged or otherwise transferred directly or indirectly in or into the United States, or to or for the account or benefit of any US person within the meaning of Regulation S (Regulation S) under the Securities Act, except that the shares may be offered and sold: (a) in the United States to certain qualified institutional buyers as defined in, and in reliance on, Rule 144A under the Securities Act who are qualified purchasers as defined in Section 2(a)(51) of the United States Investment Company Act of 1940, as amended; and (b) outside the United States only in offshore transactions to persons that are not US persons as defined in, and in reliance on, Regulation S.
Slide 2 Hydrodec Group plc
We produce new, renewable transformer & base oils as good or better quality than original oil Unique industry-leading clean-technology is proprietary, proven and efficient Two commercial operations in USA and Australia generate positive cash flow Eight consecutive years of revenue growth, now poised for expansion & positive EBITDA Planned build-out in US underpinned by feedstock from Strategic Partnership Technology development underway offering access to a step change in opportunity Newly acquired UK business creates platform for technology-led growth The basic proposition based in proven transformer oil re-refining with real potential for technology-led growth Slide 3 Hydrodec Group plc
Transformer oil global market opportunity a unique competitive technology to treat used and contaminated T-oil COMPETITIVE ADVANTAGE ENVIRONMENT SOURCES OF USED OIL USES Global market 2012: 1.35bn litres, growing at estimated 5% cagr to 2017* Valued at US$1.6bn, growing at estimated 9% cagr to 2017* Demand driven by ASPAC* Technology approved in US, Australia & Japan for treating PCB contaminated oil Re-used as new transformer oil Virtual closed-loop with utilities OEMs: ca. 40% demand Base oil markets in inks, agriculture, mining & explosives > 99% as new oil, no waste Tests as better than new oil Single-step re-refining process Negligible emissions, carbon neutral oil OECD: 75% rule new oil displacing old oil** Direct from utilities: ca. 25% Indirect channels in highly fragmented market Alternatives: incineration, fuel additives, regeneration, recycling Sales price: Feedstock: Gross margin: Existing capacity: ca. US$1.00/litre* ca. US$0.40-0.50/l 25% + 6.75m litres per train 4 in US**, 1 in Australia
Rules of thumb: *ICIS pricing **planned expansion to 10 trains in US Slide 4 * Source: Markets and Markets: Transformer oil market, Global Industry Trends & Forecast to 2017 ** Source: Hydrodec estimates
Hydrodec Group plc
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 in capacity from 27 million litres pa. to 65 million litres pa; capex ca. US$15m Attractive IRR for Canton expansion in excess of 25% Establishes new recurring royalty for technology licence US partnership growing the core business establishes a strategic business and revenue blueprint for growth HYDRODEC OF NA HYDRODEC NA 50.1%* Assets/Technology G&S TECHNOLOGIES 49.9%* Feedstock/Customers Strategic partnership, largest transformer oil re-refiner in US Slide 5 *Ultimate ownership following expansion currently 75% (Hydrodec):25% (G&S) Hydrodec Group plc
Industrial and lubricant oils material global market Hydrodecs unique extended re-refining technology offers potential for efficiency and quality benefits not available in existing recycling activity COMPETITIVE ADVANTAGE ENVIRONMENT SOURCES OF USED OIL USES Global market in excess of US$30bn UK low grade recycling market vs Europe, creates ideal technology opportunity UK lubricant base oil demand estimated at 700m litres pa (predominantly imported) UK used oil protocol regulates production & use of processed fuel oil (PFO) 170m litres pa of PFO produced in UK* Demand: industrial c. 80m litres; UK power c. 350m litres; > 100m bunker fuel (shipping) Europe is short feedstock for oil recycling - creates additional demand UK lags European & US recycling technology platform supported by regulation Hydrodec lubricant re-refining technology potential to leapfrog existing Europe & US recycling technology Potential for carbon credits from Hydrodec methodology Total waste lubricant oil in UK c. 350m litres pa Collection based activity drives access to used oil Active secondary market in bulk used oil in UK UK example Feedstock*: Sales price: Gross margin: Rules of thumb: HYDRODEC POTENTIAL Sales price**: 75-90p/litre Margin: 20-30p/litre * Source: Oil Recycling Association estimate Slide 6 18-20p/litre 32-35p/litre 5-7p/litre *inc. collection cost **Group II+/III base oil (ICIS) Hydrodec Group plc
Acquired principal business & assets of OSS Group for 4.65m in Sep 2013 UKs largest collector, consolidator and processor of used lubricant oil and seller of processed fuel oil (PFO) - sold c. 60m litres of oil in 2012 National network serviced by > 90 vehicles collects used oil and other garage workshop waste; > 30,000 customers Used oil converted into PFO - sold principally to UK power and industrial sectors Senior management team led by Iain Lees joined Hydrodec together with 180 employees OSS generated revenues of 28.5m and normalised EBITDA* of c. 1m in 2012 Expect EBITDA accretive to Hydrodec Group this year (after transaction costs) and accretive to earnings overall in 2014 *adjusted to exclude exceptional and one-off items UK acquisition a new market and business a platform to build on a leading market position Slide 7 Hydrodec Group plc
Delivering strategy targeting outstanding growth and profitability Clean-technology model with two core revenue streams: Equity participation where advantaged Royalty income through licencing Delivering growth and profitability through transformer oil Expansion through transformational US strategic partnership Access new geographies via partnership, license or acquisition Deleverage balance sheet & target positive EBITDA Creating material future optionality through technology Expand proven technology platform; proof of concept achieved Extend proven business model; partnership or acquisition to secure feedstock; invest and licence when proven Re-defining a sector through technology and consolidation Ground breaking recovery and quality from technology can transform sector profitability and competitiveness Fragmented market offers material options for consolidation
Slide 8 Hydrodec Group plc
Aiming to deliver outstanding growth and profitability Creates leading re-refiner of waste and PCB contaminated oil in North America Secures feedstock for material growth through value-chain integration Alliance of best in class technology and service provision creates compelling, sustainable one-stop offer for customers De-risks expansion to 65m litres p.a. (increase of 140%), from 4 processing trains to 10 by 2015 Establishes a recurring royalty for the technology at 5% of revenues and business model for growth
Access to Europe and key UK market through a leading position in used oil collection and processing Access to value-chain and capability creates a platform for SUPERFINE TM re- refining and sales Accelerates development and commercialisation of Hydrodecs new lubricant technology Secures feedstock for lubricant re-refining in UK Creates options for consolidation into Europe
Slide 9 execution of strategy delivered through a common transaction blueprint Hydrodec of North America Q2 2013 Q3 2013 Hydrodec Group plc
European licence New market license (Japan) New technology design Partial Full Value chain (partnership or acquisition) Commission licenced plant (new market/Europe) License Phase 2 technology Potential extension, in USA +4 trains Commission licenced plant (new market/Japan) Carbon certification Commission 2nd plant +4 trains US Commission European plant Staggered/full commission Phase 2 technology New market entry (partnership/acquisition) Developing a clear roadmap to value H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 2016 Transformer oil Lubricant oil Financial US strategic partnership (G&S Technologies) Resolve balance sheet Commission Canton expansion (+2 trains) Pilot plant construction Target positive EBITDA Value chain (OSS acquisition) has the potential for compelling double digit growth and returns Delivered Enabled Protectable IP, patent process Slide 10 Q213 Q313 Hydrodec Group plc
Growth projects a pipeline of further potential Partnership opportunity in UK; providing infrastructure and capability to develop transformer oil business by 2015, lubricant oil business by 2016
Scaling Australia for efficiency, with potential for lubricant oil partnership
Continue to seek partnership or consolidation options in Europe
Slide 11 Hydrodec Group plc
2010 2011 2012 H1 2013
Volume (litres m) 20.2 20.3 22.5 12.5
Revenue (US$m) 17.8 22.4 26.1 13.9 Gross margin 21.3% 22.2% 20.6% 25.2% Operating EBITDA* (US$m) (3.3) (2.2) (3.0) (0.2) Net debt (US$m) (19.2) (16.8) (22.6) (23.6) * Before growth costs and share based payment costs Hydrodec Group eight years of revenue growth, poised for acceleration and positive operating EBITDA
Strong trading in Q3 continuing momentum of H1 Operations in Australia and US both generating positive cash flow 2012 operating EBITDA reflects investment in strengthening business & management team Investment in growth and technology development; new lubricant technology proof of concept in Dec 2012 Strategic partnership in US announced in April 2013 creates a blueprint for growth Slide 12 Hydrodec Group plc
OSS Group transaction EBITDA expected to be accretive by year end, earnings accretive 2014 FY12 financial performance impacted by margin squeeze Reduced demand domestically led to increased export sales at reduced margins to maintain cash flow Focus on increased domestic demand offers potential for margin recovery Strong growth potential in fuel sales and new product development & cross-selling across the customer base Creates a platform for further consolidation in the UK and into Europe 2010 2011 2012*
Volume** (litres m) 56.0 48.5 59.7
Revenue ( m) 24.9 25.1 28.5 Gross margin 31.8% 33.0% 22.0% EBITDA ( m) 3.6 4.2 1.0 *per management accounts **PFO, RFO and Black Gas Oil Slide 13 Hydrodec Group plc
Objectives of the fund-raise Slide 14 Reposition Hydrodec for the next stage of development Enhance credibility with all stakeholders (customers, suppliers, shareholders) Provide flexibility to finance assets appropriately at business, operating or asset level Sort out the balance sheet and capital structure Raise additional capital for specific identified growth opportunities Introduce a small number of new institutions onto the register Hydrodec Group plc
Placing and open offer Placing 20m Open offer Up to 4.25m 7.5m revolving credit facility and 5m secured loan notes redeemed through issue of new shares at placing price Slide 15 deleveraging balance sheet and expansion capital Use of Placing Proceeds Repayment of ULS 13m Expansion capital Lubricant technology development 2m Reposition technology to UK 0.5m Growth projects 1m Expanded UK business, with T-oil re-refining 3.5m US expansion self-funded through strategic partnership 0m
20m Hydrodec Group plc
Expected Timetable w/c 7 th October Road-show 14 th October Placing letters sent out 15 th October Placing letters returned 17 th October Placing and Open Offer announced and shareholder circular posted 5 th November Announcement of Open Offer take-up General Meeting 6 th November New shares admitted Placing monies in
Slide 16 Hydrodec Group plc
Conclusion strategy being delivered - repositioning for profitability and growth Management with proven track record in oil industry; now delivering at Hydrodec Established renewable transformer oil business with proven technology; EBITDA positive at operating plant level Strategic partnership in US; catalyst for growth, blueprint for future Transformational new market entry in UK through acquisition of OSS, creates scale and cash generation; platform for new technology & European consolidation Strong drive to deliver positive EBITDA run-rate later this year (aided by accretive OSS acquisition) Global market potential in transformer oil and major opportunities with next stage technology - robust potential for new protectable IP based on proven technology platform Proven economic and business model; attractive returns in transformer oil re-refining, replicable in used lubricant oil market (>15x larger) with significant upside option value Continue to target value chain integration (feedstock) and capability - follow-on pipeline of opportunities currently under consideration
Slide 17 Hydrodec Group plc
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Appendices Slide 19 Hydrodec Group plc
Hydrodec Group plc - management team 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 Chris Ellis Chief Financial Officer 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 Ian Smale Chief Executive 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 David Robertson Chief Operating Officer 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 of CEO in 2005 Became Head of Technology and International Projects in January 2012 Mark McNamara Head of Technology & International Projects 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 Lee Taylor Head of Corporate Development more than 125 years of collective experience Slide 20 Hydrodec Group plc
Non-executive directors Andrew is the co-founder of Betfair, the worlds 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. Andrew Black Non-executive Director Lord Moynihan was previously Executive Chairman and Chief Executive of Consort Resources Limited and Executive Chairman of 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. Lord Moynihan Chairman 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 operations 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 of Cazenove in January 2011. Alan Carruthers 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 of Majedie Asset Management Limited where she played a key role in setting up the UK pension fund management business in 2002. Gillian Leates Non-executive Director Slide 21 Hydrodec Group plc
World-leading clean technology 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 Proof of concept achieved in lubricant oil application simple chemistry and smart process engineering Slide 22 Hydrodec Group plc
hjmgvbm bnmnmb nmn Transformer oil treatment and processing Applying Hydrodecs unique, proven transformer technology is efficient, eliminates PCBs and produces high quality oil with no waste PCB Oxidation Products Oil Purity PRODUCT RECOVERY WASTE Traditional Incineration N/A Oil is lost N/A Oil is lost N/A Oil is lost
0% Technology A Base catalysed Chemical Process N/A Oil is lost
N/A Oil is lost
Fuel 0% YES Technology B Metal (Na) Catalysed Chemical Process N/A Oil is lost
N/A Oil is lost
Fuel 0% YES
One Step Catalytic Hydrogenation New Transformer Oil 99%+ NO No PCB Oxidation Products Oil Purity PRODUCT RECOVERY WASTE Technology C N/A Filtration Regeneration Filtration Regeneration Recycled Transformer Oil <90% YES
One Step Catalytic Hydrogenation New Transformer Oil 99%+ NO Slide 23 Hydrodec Group plc
Industrial oil treatment and processing applying Hydrodecs proven technology offers potential for material efficiency improvements over existing best in class technology Metals Phosphate detergents Product separation Oil oxidation Oil purity Traditional Chemical pre treat Chemical pre treat and solvent with losses Distillation - Solvent washing with losses Company A Chemical pre treat Solvent with losses Distillation - Solvent washing with losses Company B Chemical pre treat Chemical with thin film Distillation Hydrogenation Company C Chemical pre treat Sacrificial catalyst Distillation Hydrogenation Company D Chemical pre treat Sacrificial Catalyst Distillation Hydrogenation POTENTIAL Chemical pre treat One Step Catalytic Hydrogenation NOTE: All systems contain fractionation processes Slide 24 Hydrodec Group plc
Comparison of Hydrodec technology application a differentiated quality and recovery opportunity LEGEND FULLY RECOVERED TO BASE OIL PARTIALLY RECOVERED TO BASE OIL FULLY RECOVERED TO FUEL PARTIALLY RECOVERED TO FUEL WASTED Slide 25 CURRENT BEST AVAILABLE TECHNOLOGY HYDRODEC PROPOSED Company A Company B Company C Company D Company E TYPICAL CONSTITUENTS (Gp II/III) (Gp I/II) (Gp I/II) (Gp I/II) (Gp I/II) (Gp I/II) To Asphalt To Asphalt To Asphalt To Asphalt To Asphalt To Asphalt To Asphalt To Asphalt To Asphalt To Asphalt Water, Coolants Light Hydrocarbon, fuels Detergents, Dispersants OxidisedBase Oils UnoxidisedBase Oils Pyrolysis products , heavy base oils Asphaltenes Solids, Inorganic Additives DRUM OF WASTE OIL Hydrodec Group plc
Specialises in collection and recycling of hazardous workshop waste and provision of associated waste management services Collects c. 60 million litres of waste oil per year c. 40 million litres of PFO produced annually also RFO and Black Gas oil Operates national service managed through network of waste transfer stations, depots and processing plants > 95% of hazardous waste handled is recycled or recovered OSS Group waste solutions - refined fuel division workshop waste parts washers industrial services turnover: 23.5m total turnover (2012): 28.5m
Slide 26 Hydrodec Group plc
Locational Maps Processing Plant/Depot OSS Transfer Station Call centre Hydrodec, Canton Plant G&S Technologies Plant Slide 27 Ian Smale Chief Executive [email protected]
Hydrodec Group plc Please visit the Interview & Webcasts section of our website to view our Corporate Overview video and interviews with the management team.