Hydrodec Group plc a unique renewable oil proposition June 2013 Ian Smale , Chief Executive Chris Ellis , Chief Financial Officer 1
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 or 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 operations 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
Hydrodec today oil re-refining; processing used transformer oil • 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 group plc
Strategy deliver outstanding growth and profitability • 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 hydrodec group plc
Market opportunity and value chain unique technology in a material global market 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 SOURCES OF USED OIL • “Virtual closed-loop” • OECD: 75% rule Sales price: ca. $1.00 with utilities • Direct utilities: ca. 40% Feedstock: $0.50 • OEMs: ca. 40% demand • Indirect from equipment Margin: 25 – 35% • Blenders and marketers recovery/consolidators Existing capacity: 6.75m • Pale 60 markets in inks, (e.g. G&S) litres per train agriculture, mining & – 4 in US, 1 in Australia 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
Hydrodec – the future accessing the $30 bn per annum lubricant market Lubricant oil market size • 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 Motor oil Industrial oil Transformer oil hydrodec group plc
Roadmap to value a prospective framework for outstanding growth and returns Financial Carbon certification Resolve balance sheet US strategic partnership Transformer oil New market license (Japan) (G&S Technologies) New market entry European licence Lubricant oil (partnership/acquisition) Value chain Protectable IP, patent process (partnership or acquisition) Value chain New technology design (partnership or acquisition) Partial Full H2 2013 H2 2014 H2 2015 H1 2013 H1 2014 H1 2015 2016 Target positive EBITDA Commission 2 nd plant Commission Canton +4 trains US expansion (+2 trains) Commission licenced plant Potential extension, in USA Commission European plant (new market) +4 trains Staggered commission Full commission Pilot plant construction Phase 2 technology Phase 2 technology License Phase 2 technology 7 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
Performance overview improving trends 2012 • Eighth consecutive year of revenue growth – up 17% to US$26.1m • Gross margins steady at 21% • SUPER FINE 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 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 1 Before growth costs 2 , intangible asset amortisation and share based Gross profit 5,367 4,981 payment costs Gross profit margin % 21% 22% 2 "Growth costs" includes expenditure Underlying operating EBITDA 1 (3,034) (2,203) on market expansion and new product development of US $2.2m Operating cashflow pre growth costs 2 (2,549) (2,633) (2011: US$0.8m) 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 hydrodec group plc
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