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D1 Oils Plc (NEOS)

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Wednesday 25 November, 2009

D1 Oils Plc

Strategy Update

RNS Number : 0509D
D1 Oils Plc
25 November 2009


25 November 2009

D1 Oils plc

("D1 Oils" or the "Company")

 Strategy Update

On 12 November 2009, the Company confirmed that it was in receipt of a number of preliminary and conditional approaches in relation to possible corporate transactions involving the Company including one which may or may not lead to an offer being made for the issued and to be issued share capital of the Company, and confirmed itself to be in an Offer Period for the purposes of the Takeover Code.  

Further to this announcement, the Independent Directors (as defined at the end of this release) are now able to update shareholders on:

  • the Company's Strategy as a standalone growth company;
  • the Company's Operational and Financial status;
  • indicative proposals received from Principle Energy Limited ("PEL") and the position of Principle Capital; and,
  •  the strategic options available to the Company.

Corporate Update

The Independent Directors have developed a revised business plan ("the New Business Plan") focused on maximising the value for shareholders from the significant quantities of planting Jatropha, from which biofuel is made, in India, as well as capitalising on good progress in Business Development and Science & Technology. The New Business Plan will materially reduce European overheads and refocus the Company's activities.  The Independent Directors calculate that approximately £22m has been invested to date on the go-forward business envisaged in the New Business Plan. The Independent Directors believe this investment has created good opportunities for value creation based on the New Business Plan.

On 4 February 2009, D1 Oils and its joint venture partner at the time, BP International Limited ("BP"), announced their intention to market a substantial share in their joint venture for global planting of Jatropha, D1-BP Fuel Crops Limited ("D1-BP Fuel Crops" or "the Joint Venture"), to fund a significantly larger and more ambitious business plan. On announcement, oil prices were $44.3* per barrel and the FTSE100 stood at 4,228.6**.  In July 2009, D1 acquired the existing 50% BP holding in the Joint Venture, thereby re-establishing in its sole ownership the global planting assets and interests of the Joint Venture and consolidating the cash balances held by the Joint Venture.

The restructuring of the business facilitated by the BP transaction has resulted in cost reductions in overheads and other costs estimated by the Independent Directors to be worth approximately £4.8m per annum. In addition, the Company is experiencing interest from third parties willing to pay for access to D1 Oils' Jatropha expertise and is anticipating significant revenues from this interest over the coming years. As at 31 October 2009, D1 Oils had £10.3m of free cash (unaudited). In addition, the Independent Directors anticipate inflows of a total of £3.5m from a litigation receivable and (subject to contract) from the intended sale of its former biodiesel site at Bromborough. Accordingly, under the New Business Plan, the Independent Directors do not anticipate at this stage that the Company will require new funds until late 2011, being up to a year later than previously indicated to shareholders, and that any future requirements will be to fund the working capital and infrastructure implications of significant grain / oil flows and inventories.  

The Independent Directors intend to pursue third party finance for D1 Oils' agricultural assets from, inter alia, various multi-lateral agencies and international development banks, although success of the New Business Plan and the new funding timetable is not predicated on this source of finance.

*Sourced from Datastream

**Sourced from Datatstream


Operational Strategy

The Independent Directors have identified three core routes to value:

  • Operations: Realise value from existing planting with the objective to generate approximately £40m per annum of oil / co-product sales by 2014;
  • Business Development: Extract value from new entrants and existing players in the expanding Jatropha sector with the aim to achieve revenues in excess of Science & Technology spend by early 2011; and,
  • Science & Technology: Apply the Company's know-how and intellectual property to underpin better yields and more valuable co-products (especially a proprietary process for converting Jatropha seedcake into a high protein content animal feed), with the intention to increase the revenue potential of Jatropha by $1,400 / Ha.

The go-forward strategy will be strongly focused on India, with the Independent Directors expecting oil yields from a network of approximately 62,500 Ha of planting in Central India and a 50% interest in a joint venture with The Williamson Magor Group (one of the largest tea plantation companies globally) which has developed a planting network of approximately 115,000 Ha in North-East India (refer to Principal Risks and Uncertainties at the end of this release).  

The Independent Directors have determined targets (using actual field data wherever possible and a detailed knowledge of the Jatropha crop) for oil yields to be derived from its network of planting partners over the next three years, as follows:

Oil yield (in tonnes)




Targeted output




The Company has deployed its expertise and human capital to identify and seek to mitigate the risks associated with underlying agronomy factors and outgrower performance risk. Certain risks such as local weather conditions and associated general agricultural considerations also remain. To mitigate the remaining volume risk, the business has developed a variable cost model, based currently on grain purchase and toll expelling, allowing positive gross margins for a wide range of volume outcomes.

D1 Oils is a leader in the Jatropha industry and maintains a high level of interest in line with the growth of the biofuels industry globally. The Company has signed two deals since July 2009 (in relation to consulting services and access to its R&D programme including advantaged seeds). These deals, together with three further proposed participation agreements in the negotiation stage, give the Independent Directors confidence in the prospects for further deals. Accordingly, the Independent Directors are now targeting double-digit (£m) revenues from these activities over the next four years.

The Independent Directors are currently seeing more confirmation of the cost structures for its network-based Jatropha grain purchase model. For example, in Central India, costs are currently around $560 per tonne of crude Jatropha oil after allowance for co-product value and are seen as largely variable in nature; this net cost is anticipated to reduce in the future particularly if investment is made by the Company to acquire its own oil expelling capacity. The Company continues to make progress in the Science & Technology business with advances in yield as a result of breeding / seed delivery improvements, as evidenced in the most recent yield trials. In addition, animal feed development is on track to create a significant change to Jatropha economics where it is applied and the Company has completed a 50kg trial run successfully this year (targeting a 10 tonne production run in H1 2010).

Proposals from PEL and the position of PCFML 

The Independent Directors also announce that the Company has received outline proposals (the "Proposals") from Principle Capital Fund Managers Limited ("PCFML") which acts for Principle Capital Investments Limited ("PCIL") (formerly Principle Capital Investment Trust plc ("PCIT")) and Principle Capital, L.P., who collectively own 27.57% of the issued share capital of the Company. 

The Proposals made by PCFML include proposed fundamental changes to the strategy of D1 Oils, including:

  • an immediate cessation of all activities to develop the Company's business, and seeking, by February 2010, the sale or closure of its vegetable oil production and seed sales and consultancy activities;
  • commencing immediate and exclusive negotiations of a reverse take-over of the Company by Principle Energy Limited ("PEL"), the owner of a greenfield sugar cane ethanol project under development near Dombe, in the central part of Mozambique. Affiliates of PCFML are understood to have material ownership and other economic interests in PEL (see Assumptions below); and,
  • application of all the D1 group's available cash resources to PEL's Dombe project, as well as the proceeds of a targeted placing of US$70-80m of new D1 Oils shares. According to Principle Capital Holdings S.A.'s interim results for the six month period ended 30 June 2009, announced on 29 September 2009, PEL required approximately US$150m of equity and US$200m of debt finance to take the Dombe project to completion, which was expected by 2012.

Strategic Options

As part of a review of the Company's strategic options, the Independent Directors and their advisers have already consulted with a significant proportion of the independent shareholders of the Company about the Proposals and other strategic options to realise increased value for its operations and other assets. As a result of these discussions and an assessment of prevailing capital market conditions in the context of the Company's medium term funding requirements, the Independent Directors have concluded that the following options may be available to the Company:

  • a continuation of the strategy of increasing oil production, seed sales and consulting / services revenues; 
  •  a possible sale or merger of the Company; and,
  • a possible merger or reverse take-over of the Company, for instance, by PEL or other parties.

The Independent Directors continue to believe that the Company has good long-term growth potential as key global economies move towards new policies supporting renewable energy and its networks of Jatropha planting begin to reach yield maturity. Accordingly, the Independent Directors believe that the Company is well positioned to deliver enhanced shareholder value over the long term.  

The Independent Directors will make further announcements regarding the status of the strategic review process in due course.

For further information please contact: 

D1 Oils plc

+ 44 (0) 20 7367 5600

Ben Good, Chief Executive Officer

Barclay Forrest, Non-Executive

Piper Jaffray Ltd.

+ 44 (0) 20 3142 8700

Michael Covington

Rupert Winckler (Qualified Executive)

Brunswick Group

+ 44 (0) 20 7404 5959

Kevin Byram

Camilla Gore


On 4 August 2009, a circular published by Principle Capital Investment Trust PLC (renamed PCIL) contained a valuation letter by Ernst & Young which stated that PCIT owned 3,333,333 ordinary shares in PEL and that Principle Capital Partners Limited had warrants over a total of 1,929,992 ordinary shares. As at 30 June 2009, PEL's issued share capital comprised 17,369,931 ordinary shares. Principle Energy Management Services Limited was also stated as being likely to be entitled to a performance fee of 1,850,322 shares.


Brian Myerson is the Executive Chairman of PEL and is not considered independent for the purposes of taking responsibility for the contents of this announcement.  The remaining directors of the Company, namely Moira Black, Barclay Forrest, Ben Good, Martin Jarvis and Henk Joos, are referred to in this announcement as the "Independent Directors".

The Independent Directors accept responsibility for all of the information contained in this announcement.  To the best of their knowledge and belief (having taken all reasonable care to ensure that such is the case), the information contained in this announcement is accurate and does not omit anything likely to affect the import of such information.
  To the best of their knowledge and belief (having taken all reasonable care to ensure that such is the case), the information contained in this announcement for which the Independent Directors take responsibility is accurate and does not omit anything likely to affect the import of such information.

Piper Jaffray Ltd., which is authorised and regulated by the Financial Services Authority, is acting exclusively for D1 Oils and for no-one else in connection with the matters referred to in this announcement and will not be responsible to anyone other than D1 Oils for providing the protections afforded to customers of Piper Jaffray Ltd. nor for giving advice in relation to the matters referred to in this announcement.

Dealing Disclosure Requirements

Under the provisions of Rule 8.3 of the City Code on Takeovers and Mergers (the "Code"), if any person is, or becomes, "interested" (directly or indirectly) in 1% or more of any class of "relevant securities" of D1 Oils, all "dealings" in any " relevant securities" of D1 Oils (including by means of an option in respect of, or a derivative referenced to, any such "relevant securities") must be publicly disclosed by no later than 3.30 pm (London time) on the London business day following the date of the relevant transaction.  This requirement will continue until the date on which the offer becomes, or is declared, unconditional as to acceptances, lapses or is otherwise withdrawn or on which the "offer period" otherwise ends. If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire an "interest" in "relevant securities" of D1 Oils, they will be deemed to be a single person for the purpose of Rule 8.3.  

Under the provisions of Rule 8.1 of the Code, all "dealings" in "relevant securities" of D1 Oils by D1 Oils or by any of its "associates", must be disclosed by no later than 12.00 noon (London time) on the London business day following the date of the relevant transaction.  

A disclosure table, giving details of the companies in whose "relevant securities" "dealings" should be disclosed, and the number of such securities in issue, can be found on the Takeover Panel's website at  

"Interests in securities" arise, in summary, when a person has long economic exposure, whether conditional or absolute, to changes in the price of securities.  In particular, a person will be treated as having an "interest" by virtue of the ownership or control of securities, or by virtue of any option in respect of, or derivative referenced to, securities.  

Terms in quotation marks are defined in the Code, which can also be found on the Panel's website.  If you are in any doubt as to whether or not you are required to disclose a "dealing" under Rule 8, you should consult the Panel.

Principal Risks and Uncertainties

The principal risks and uncertainties facing the D1 Oils plc group of companies ("we" or the "Group") are assessed as commercial risk, biological and planting risk, technology risk, competitive risk, contractual risk, political and legislative risk, and financiaand currency risk.

Commercial risk

The Group will continue to have a cash requirement until it becomes cash generating.  The Group is restructuring its activities to concentrate on planting operations that are likely to be revenue generating and to market its technology and services to third parties.  The Group anticipates that this activity will position the business more attractively for investors when economic conditions improve.  However, there is a risk that future funding, forecast to be required in late 2011, will not materialise.

Biological risk

There are inherent biological risks associated with any agricultural activity, including pests, disease, drought and other stress factors.  These risks are greater in new crops, such as Jatropha curcas, for which agronomy and husbandry practices are still being developed.

Technology risk

D1 Oils has chosen Jatropha curcas as its principal feedstock for the production of biodiesel.  The cultivation of Jatropha poses the normal risks associated with the cultivation of crops. In addition, Jatropha is a new crop for which planting and cropping practices are in development.  D1 Oils has developed a process that expels crude vegetable oil from Jatropha seeds and purifies the meal left after oil extraction to produce high protein animal feed.  Although D1 Oils has proved the technical feasibility of the process, there is no guarantee that it will be successful when undertaken on a larger commercial scale nor that its product will pass the necessary animal feed trials.  D1 Oils has applied for a patent for the process but that patent may be subject to challenge from similar, competing processes.

Competitive risk

Plant science - Jatropha curcas is becoming more widely recognised globally as a potential feedstock for biodiesel production. As demand for biodiesel growsmore entrants into the business of Jatropha plant science can be expected. While we seek to build collaborative relationships with potential partners across the industry, it is likely that some new entrants will become competitors. However, given the combination of plant science and planting expertise, we believe that we are well-positioned to maintain our lead in the related technology and services for Jatropha and to leverage our interests in global planting.

Planting - the global development of the biodiesel industry is leading to an increase in Jatropha planting operations worldwide.  Jatropha planting in which D1 Oils has an interest comprises the following:

  • managed plantations: those farms where land and labour is controlled by D1 Oils, either through its subsidiaries or joint venture partners;
  • contract farming: the farmer plants his own trees on his own land. D1 Oils and its partners assist with the provision of seedlings and the arrangement of bank finance for planting, and offer a buyback of harvested grains with an offtake agreement, subject to a floor price and the achievement of agreed quality standards, and provide support and advice during cultivation, and monitor the condition of the crops;

  • seed and oil supply agreements: arm's length supply contracts with third parties whereby D1 Oils, either directly or through joint venture partners, has offtake arrangements in place over future output from Jatropha plantations which the third party is developing. D1 Oils has limited involvement in this planting and relies on third parties to measure and manage the crop effectively.

The rights to most planting are shared with third parties, such as joint venture partners, with whom D1 Oils have worked to achieve rights to planting of Jatropha.  As such, offtake from these areas of planting may well be shared with third parties.

In addition to the biological risks noted above, planting operations, and in particular contract farming and oil and seed supply arrangements over which D1 Oils have less control, are subject to a range of commercial and contractual risks. Planting undertaken by third parties can be difficult to measure and monitor in terms of performance.  Furthermore, the rights to planting or offtake may prove difficult to enforce in various countries and prices payable will vary with local market conditions and the accessibility of the crop.

Process technologies - as a result of a thorough review of biodiesel refining operations the Board decided to withdraw from this activity. All refining equipment has now been successfully decommissioned and prepared for disposal. The care and maintenance of the equipment and related sites until disposal may result in unforeseen costs and the equipment and sites may realise a lower value than previously expected.  

Contractual risk

There are inherent uncertainties and risks associated with entering into contracts with suppliers, customers, financial institutions, landowners and employees.  It is possible that such contracts may become unenforceable and financial commitments may become onerous if circumstances change.

Political and legislative risk

The Group operates on a global basis and must comply with a range of local legislative requirements and regulations that include: legal, regulatory and taxation requirements; trade standards; trade and transportation restrictions; and tariffs.  Furthermore, the Group depends on the position and continued support of various third parties, including national governments. Any of these factors may be subject to changes which could adversely affect the Group's ability to do business, or the performance of its business. In common with other crops, imports of Jatropha seed and seedlings are subject to biological material import regulations. In addition, as a new crop, a number of jurisdictions require additional regulatory measures prior to cultivating Jatropha on a larger scale. We continuously test to ensure that our product is in compliance. A significant number of the world's key economies either have or are in the process of implementing mandatory biodiesel blends to encourage the use of greener road transport fuel. However, these mandates continue to be opposed by environmental pressure groups concerned about the sustainability of biofuels.  Although Jatropha offers one of the most promising sustainable sources for biodiesel, the mandates that encourage the adoption of biodiesel in national markets may be subject to policy change.

Financial and currency risk

The Group's results from its operations overseas could be adversely affected by currency fluctuations and dividend and exchange controls. The Group looks to limit undue counterparty exposure, ensure sufficient working capital exists and monitor the management of risk at a country level.  This is achieved by negotiating contracts in our regions of operation using local currencies and regulations. Working capital facilities are negotiated locally.

This information is provided by RNS
The company news service from the London Stock Exchange