TIDMDOO
RNS Number : 7021W
D1 Oils Plc
24 November 2010
D1 Oils plc ("D1" or the "Company")
Proposed disposal of Jatropha plant science and technology
subsidiaries
and Notice of General Meeting
The Board of D1 Oils plc today announces that it has entered
into a conditional agreement to dispose of substantially all of its
Jatropha plant science and technology activities, but excluding the
animal feed programme, via the sale of the entire issued share
capital of its two subsidiary companies, D1 Oils Plant Science
Limited ("D1OPS") and Quinvita Limited ("Quinvita") (the
"Disposal").
It is proposed that D1OPS and Quinvita be sold to companies
owned by Henk Joos, Vincent Volckaert and Greta De Both (the
"Purchasers"). As Henk Joos is a Director of D1 and Vincent
Volckaert is a director of a subsidiary of D1, the Disposal is
deemed to be a transaction with a related party for the purposes of
rule 13 of the AIM Rules. Accordingly Henk Joos, although a
Director, has taken no part in the deliberations of the Directors
relating to the Disposal. Henk Joos will also resign as a Director
on completion of the Disposal.
In view of the size of D1OPS and Quinvita relative to the
Company, the transaction will amount to a disposal resulting in a
fundamental change of business under rule 15 of the AIM Rules. It
is a requirement of AIM rule 15 that any such disposal is
conditional on the consent of shareholders at a general meeting.
The Disposal is therefore conditional on the passing of an ordinary
resolution of the Company. As Henk Joos is a Director of the
Company, shareholder approval is also required pursuant to section
190 of the Companies Act 2006 as the Disposal will amount to a
substantial property transaction with a director.
OPERATIONAL UPDATE
In the interim results to 30 June 2010, it was stated that D1
had continued to make progress in line with its operational plan.
This progress has been maintained and the Board remains confident
that the target of 2000 tonnes of crude Jatropha oil ("CJO") will
be produced during the winter harvest season in India (November
2010 - February 2011).
D1 is currently experiencing demand for greater quantities of
CJO than it is able to supply, and is achieving, on average, an ex
works selling price of approximately $1,100 per tonne, compared to
an average price of approximately $1,000 per tonne last winter. To
further develop demand for CJO, D1 is negotiating trials and deals
with various potential users.
In addition to increased selling prices, D1 also anticipates
reducing the cost of supply. On the basis of long term tolling
deals for existing expelling capacity, the Directors anticipate
that the variable cost of producing CJO (net of biomass sales
credits) will fall to approximately $700 per tonne this winter
(approximately $850 per tonne last winter) and will fall to $350
per tonne by 2013, if the Directors determine to make the capital
expenditure in seedcake processing referred to below.
The group now has a patent (which was granted by the UK
Intellectual Property Office on 3 November 2020) covering a process
for the co-extraction of oil and a protein-rich seedcake, with the
anti-nutritional factor removed, which could be used as animal
feed. The seedcake produced has a higher protein content than soya
bean meal and the Directors believe that it should achieve at least
price parity with soya bean meal, which typically is priced at
around $300 per tonne. The Directors intend in due course to
determine whether, and if so how, to finance the capital
expenditure of up to GBP15 million required to deploy this
technology within the Group, based on anticipated production levels
in 2012/13.
FINANCIAL UPDATE
In the 12 months to 31 October 2010, the Company has utilised
approximately GBP5.2 million of cash, which left it with a net
balance of approximately GBP5.0 million as at 31 October 2010. Of
this cash burn approximately GBP1.0 million related to the costs
associated with the protracted offer period, shareholder activism
including the costs of board changes, and other corporate issues. A
further sum of approximately GBP2.1 million was absorbed by losses
incurred by the S&T (excluding animal feed) and business
development activities over the same period. The sale of the
Group's refining site at Bromborough in 2010 has realised GBP1.8
million to date. The balance of approximately GBP3.9 million was
absorbed by net expenditure by the continuing business within the
Group.
The Board forecasts that annualised overhead cash burn,
following completion of the Disposal and various cost reduction
exercises implemented by the Board, will amount to approximately
GBP3.0 million in early 2011, with further smaller savings
opportunities thereafter also identified. Central costs (mainly in
Europe) are expected to account for around half of this figure,
with approximately GBP0.5 million per annum expected to be spent on
the animal feed programme.
The Board has recently discussed the financing, following
completion of the Disposal, of the Company's business opportunities
in 2011 and 2012 with its key institutional shareholders. In light
of these discussions, the Board is optimistic, on the basis that
the harvest which has already commenced in India is in-line with
the Board's expectations, that the Company will be able to finance
future value creation into the 2012 harvest season.
BACKGROUND TO THE DISPOSAL
On 25 November 2009, the Company released a Strategy Update
setting out the core routes to value for the business to maximise
shareholder value and the need for funding by late 2011 to achieve
these goals. The three core routes to value were:
Operations To realise value from existing planting
with the objective of generating
approximately GBP40 million per annum
of oil/co-product sales by 2014
S&T activities To boost existing yields through better
agronomy practices and improved seed
and to develop and commercialise the
proprietary process of turning Jatropha
seedcake into animal feed, with the
intention of increasing the revenue
potential of Jatropha by $1,400 / ha
Business To achieve sufficient revenues from
Development Agronomy Consultancy to cover the cost
of
the S&T activities, with the aim to
achieve revenues in excess of Science
&
Technology spend by early 2011
Of these, the Operations and Business Development goals were
short-term in nature, while the S&T activities goals were
medium to long-term in nature.
While the business has continued to hit its milestones in
relation to Operations and S&T, revenue from Agronomy
Consultancy has been disappointing, and is not anticipated by the
Directors to be sufficient to cover expenditure on S&T
activities for the foreseeable future.
This shortfall in Agronomy Consultancy revenues means that,
while the Group is anticipated to remain in funds until late 2011,
its future cash requirement will be higher than anticipated in
November 2009, unless offsetting cost savings can be achieved. The
Board has therefore concluded that, alongside other cost saving
measures, the business should change the way its ongoing research
and development costs are managed and funded. The Board does
believe that there is still value in the further exploitation of
the S&T programme provided it can be separately funded. Current
Jatropha research and development costs are estimated at
approximately GBP1.5 million per annum.
As a consequence, the Board is proposing to dispose of the
sections of the S&T operation that are aimed at improving
agronomy practices, breeding and cultivar development and the
related business development division, i.e. the S&T activities.
In the 12 months ended 31 October 2010, the S&T activities
incurred losses of approximately GBP2.1 million on turnover of
approximately GBP0.3 million. At the end of that period, the
S&T activities had net assets (excluding cash) at book value of
approximately GBP0.1 million.
D1 has therefore entered into, subject to shareholder approval,
the Disposal Agreement and a number of related agreements to
maintain a working relationship with D1OPS and Quinvita, such that
D1 can continue to benefit from agronomy knowledge and improved
seed technologies through a stream of royalty payments.
The Board believes that the alternative of an orderly winding up
of these activities would cost at least GBP1.1 million and would
create challenges for the Company to access comparable know-how. In
addition, had the Board resolved to proceed with an orderly winding
up of the S&T activities, the Company would have been precluded
from benefitting from any future royalty streams and from repayment
of the redeemable preference shares, referred to below.
The terms of the transaction and the Independent Directors'
rationale for their recommendation to Shareholders to vote in
favour of the Disposal are set out below.
PRINCIPAL TERMS OF THE DISPOSAL
Under the terms of the Disposal Agreement, which is conditional
upon passing of an ordinary resolution by shareholders, the Company
will dispose of its shares in D1OPS to Quinvita (a newly
incorporated holding company for the D1OPS Group), which shall
subsequently be sold to the Purchasers. As such, on completion of
the Disposal, Quinvita will assume the agronomy and breeding
activities of the Group in Belgium, the Netherlands, Cape Verde,
Thailand, Malawi and selected activities in India. D1 will give
customary non-compete undertakings in relation to the S&T
activities.
In consideration for the purchase of D1OPS, Quinvita has agreed
to issue GBP800,000 in nominal value of redeemable preference
shares to the Company. The redeemable preference shares are
redeemable by 1 November 2015. A cumulative annual compounded
dividend of 5 per cent is payable by no later than 1 November 2015
based on the outstanding par value of the redeemable preference
shares.
The redeemable preference shares will also become redeemable, in
the event there is a change of control in either the voting rights
or shareholding of Quinvita. On a change of control, in addition to
redemption of the redeemable preference shares, Quinvita will also
pay D1 two times the aggregate par value of the redeemable
preference shares.
In the event of an equity fundraising which results in a third
party holding more than 50 per cent of the shares in Quinvita, but
(inter alia) total funds raised are less than GBP15 million,
Quinvita will redeem a part or all of the redeemable preference
shares; at least 50 per cent of the outstanding redeemable
preference shares (including the accrued dividends) in the case of
a GBP5 million fundraising, 75 per cent of the same where GBP10
million is raised, 100 per cent in the case of a GBP15 million
fundraising and pro rata for any amount in between.
In exchange for the issue of the redeemable preference shares,
the Company will provide Quinvita with GBP800,000 of working
capital payable in cash. This will include the cash balances of
D1OPS, amounting to GBP653,685. This working capital contribution
is subject to adjustment for certain costs and liabilities that are
or may become payable between the parties to the Disposal
Agreement.
The Company will also in due course transfer its S&T
activities in India (the "Indian Business") to a newly incorporated
subsidiary of Quinvita. In consideration for the transfer of this
business, the Company will be paid an amount equal to the market
value of the Indian Business on the date on which the transfer is
completed and becomes effective in accordance with applicable
Indian law. However, the economic transfer of the Indian Business
shall become effective from 1 November 2010.
In addition, D1 will receive royalties on all Jatropha revenues
generated by Quinvita at rates of:
-- 15 per cent for years 0 to 5 of the Agreement;
-- 10 per cent for years 6 to 8 of the Agreement; and
-- 5 per cent for years for years 9 to 10 of the Agreement.
D1 will retain all plantation operations, animal feed activities
and central functions in the UK, India, Zambia and Indonesia. It
will also retain and continue to exit in various locations where it
has shut down operations in the past. Additionally, D1 will retain
ownership of all intellectual property which has been developed
across the Group up until the date of the Disposal, where this
intellectual property is used by D1's retained businesses.
In addition, D1 will retain the animal feed programme including
all associated tangible assets and intellectual property. Quinvita
will be exclusively licensed to sub-license the use of the animal
feed technology globally, subject to D1 retaining the right to use
the technology for its own business purposes (including for
purposes of D1 building and operating its own animal feed
extraction plants). Quinvita's licence will last for a period of 15
years after the first extraction plant becomes operational, or
until 31 December 2027 (whichever is earlier). The sub-licences
that Quinvita grants to third parties will themselves be valid for
up to 20 years. Quinvita will pay D1 a royalty on all sub-licensing
revenue received by Quinvita at the rate of 20 per cent for the
first 5 years of each sub-licence and 15 per cent thereafter.
D1 will join Quinvita's membership platforms for a minimum of
three years (subject to certain conditions) to maintain access to
agronomy knowledge developments and new seed varieties developed in
the future by Quinvita. D1 will also be able to purchase seeds from
Quinvita at preferential rates.
In order to secure funding for continued research, D1OPS (in
conjunction with Agriom BV, D1OPS' partner in the proposed project)
successfully submitted a proposal to the Dutch government for a
grant of up to GBP200 000 in relation to a project in Cape Verde
for the selection and production of superior Jatropha curcas seed.
The Group supported this application by providing an indemnity and
certain security in favour of Agriom BV (the "Agriverde
Guarantee"). In return for keeping the Agriverde Guarantee in place
following the Disposal, Quinvita has agreed to provide its platform
services at no cost for a period of 18 months following completion
of the Disposal or (if earlier) until the Agriverde Guarantee
ceases to be a contingent liability of D1. However, in the event
the Agriverde Guarantee is enforced and the Group suffers or incurs
any loss or liability, Quinvita shall issue to the Company an
additional number of Redeemable Preference Shares at par as is
equivalent in value to the loss or liability so incurred.
RELATED PARTY TRANSACTION
Henk Joos and his wholly owned company Agristeps BVBA, are
"related parties" of the Company as defined in the AIM Rules by
virtue of him being a Director. Similarly, Vincent Volckaert and
his connected company Vivoria BVBA are "related parties" for these
purposes as he is a director of a subsidiary of the Company.
Barclay Forrest and Martin Jarvis, being the Independent
Directors who are not related parties for the purposes of the
Disposal, consider, having consulted with WH Ireland, that the
Disposal is fair and reasonable insofar as the shareholders of the
Company are concerned.
Henk Joos has not taken part in the Board's consideration of the
Disposal, and has irrevocably undertaken to abstain from voting on
the Resolution in respect of his own shareholding in the
Company.
CIRCULAR TO SHAREHOLDERS
A circular to shareholders relating to the matters described
herein is being posted today.
Martin Jarvis, Chief Executive Officer of D1 Oils plc said:
"This disposal completes the strategic review of the business. We
feel that it is in the best interests of our shareholders and it
allows us continued access to the latest plant science and
technology research"
Dr. Henk Joos, the appointed Chief Executive Officer of
QUINVITA, said: "We look forward to supporting the new wave of
investment in Jatropha that we are starting to observe, with
professional advice and QUINVITA products".
For further information please contact:
+44 (0) 20 7936
D1 Oils Plc 9104
Martin Jarvis
Chief Executive Offier
+ 44 (0) 20 7404
Brunswick Group 5959
Kevin Byram
Saadia McGlinchey
WH Ireland + 44 (0) 20 7220 0470
Chris Fielding
QUINVITA +32 9 241 56 12
Vincent Volckaert
This information is provided by RNS
The company news service from the London Stock Exchange
END
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