Strengthening the UK platform
Hydrodec Group (LONDON:HYR) has announced that it is to acquire the business, assets and trade name of Eco-Oil from Eco-Oil International for £2.4m. The transaction strengthens Hydrodec’s platform for the production of re-refined oil in the UK and provides opportunities for improving the profitability of OSS, the group’s existing UK oil recycling operation. Our forecasts are under review post recent publication of the FY14 figures.
During 2014 Eco-Oil collected and processed 17.5m litres of used oil, converting it to recycled fuel oil which was sold to the UK power and aggregate industries, and traded a further 9m litres of bulk oil. Like OSS, Eco-Oil has a national network of oil storage and transfer depots. Unlike OSS, it is a significant provider of marine pollutant waste management in the UK, collecting and recycling residual fuel waste from ships. In 2014, margins were affected by declining oil prices. Eco-Oil generated £26.5m revenues and EBITDA losses of £0.9m, although average EBITDA for 2013 and 2014 was £0.65m. Net assets total £1.5m. We expect the profitability of both Eco-Oil and OSS to improve following the acquisition as management increases the efficiency of the business model. The purchase is being financed through the group’s existing cash reserves ($14.6m net cash end FY14).
The transaction increases the volumes of waste oil feedstock available for the proposed UK lubricant oil re-refining facility, securing supply for when the plant comes on line at end FY17. It also consolidates Hydrodec’s position as the UK’s largest service provider in used oil collection, products and associated waste services, with potential for improved profitability arising from the ensuing economies of scale.
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