D1 Oils plc ("D1" or the "Company")
Proposed placing and changes to the Company's share option plan
The Board of D1 announces today that it intends to raise up to £1.29 million by way of a share placing by WH Ireland Limited. The Board has concluded its review of D1's operations, announced on 28 June 2011, and has refined the Group's business plan accordingly. It is carrying out the placing to provide the Group with sufficient working capital to enable it to prepare for and finance its targeted production volumes of crude Jatropha oil ("CJO") in India in the forthcoming 2011/2012 Jatropha harvest season.
The Board also announces today proposed changes to the Company's share option plan (including an increase in the number of shares over which options can be granted).
Background to the placing
The Board is pleased to report that the Group continues to experience continuing upward price pressure for CJO, with prices currently exceeding US$1,000 per tonne, ex works. The significant majority of the Jatropha grain collected by the Group is from regions in India adjacent to the Bay of Bengal, where D1's profile has enabled it to secure supplies of grain and CJO from third party suppliers, in addition to its relationship farmers.
Accordingly, the Board has determined to focus the Group's operations in India, where there is strong demand for bio-fuel, and to commit an increasing proportion of its working capital to that country. This will enable the Group to consolidate grain storage and processing. In addition, the Group will look to obtain commodity trade finance for the 2012/2013 harvest season, which will be facilitated by centralised storage and processing.
To enable it to focus its resources on India, the Group will look to minimise the Group's expenditure in the UK, Zambia, Malawi and Indonesia. The Board also intends to suspend, until further notice, the Group's animal feed development programme, together with the related cattle trials.
The Board expects that these actions will enable it to further reduce the Group's overheads from a run rate of approximately £3.0 million per annum currently to approximately £2.2 million for the year ending 31 December 2012. The Board estimates that these savings will involve a one off exceptional cost of approximately £410,000.
India has in recent months experienced good rainfall. As a result the Directors anticipate improved yields from its maturing Jatropha crops this harvest season. The Board is now targeting production of 2,000 tonnes of CJO, at a cost of approximately $690 per tonne, over the next Indian harvest season to May 2012. It is targeting to sell this production at an average price of $1,000 per tonne, ex works. The Board anticipates, based on the assumptions underlying its business plan, that the Group's operations in India will achieve breakeven in 2013, although the Group itself is not expected to break even before 2014.
Finally, the Board anticipates that the Group will shortly contract to supply 275 tonnes of CJO at an equivalent price of US$1,200 per tonne, ex works, to a major Indian corporation for product trials. The Directors believe that this contract, upon fulfilment, would represent the largest fulfilled CJO supply contract to date. On the basis that the trials are successfully concluded, they would anticipate further supply contracts of greater size in due course with the same purchaser.
The Group's net cash balance at 30 September 2011 amounted to approximately £1.75 million.
Use of proceeds
In line with the position stated in November 2010, that D1 required re-financing in 2011, the Board is proposing the placing to finance the Group's operations until the end of the second quarter of 2012. By then, the Group will have processed and sold CJO from the forthcoming harvest season, and the Directors will have reduced the Group's overhead base as described above and anticipate that they will have ascertained whether commodity trade finance is likely to be available to the Group.
The Directors expect that the continuing implementation of the Group's business plan will then require additional capital in mid 2012. The Directors believe that the Group will by then have made sufficient progress to attract new capital; however it is possible that further capital may not be available to the Group.
The Directors intend that the net proceeds of the placing will be used for working capital purposes, primarily to enable D1 to finance its targeted volume of CJO production in the forthcoming Jatropha harvest season in India.
In the event that the placing is not approved by shareholders, D1 would not have sufficient working capital to implement the business plan in the forthcoming 2011/2012 harvest season and the Directors would need to consider whether or not it is appropriate for the Group to continue to trade.
The Company proposes to raise up to £1.29 million through the issue of up to 51,640,000 new ordinary shares at 2.5 pence per share. The maximum number of placing shares would represent approximately 28.96 per cent. of the Company's issued share capital immediately following Admission.
WH Ireland has entered into a placing agreement with the Company whereby it has agreed to use its reasonable endeavours, as agent for the Company, to procure placees for the placing shares. The placing is not being underwritten.
The placing agreement is conditional upon shareholder approval, Principle Capital Investments Limited ("Principle Capital") and one further investor subscribing in aggregate not fewer than 51,640,000 placing shares at the placing price, and admission of the placing shares becoming effective on or before 8.00 a.m. on 2 November 2011 (or such later time or date as the Company and WH Ireland may agree, being not later than 30 November 2011). Admission is subject to shareholder approval and to the placing agreement becoming unconditional in all respects (save only for admission) and not being terminated in accordance with its terms.
The placing shares will, when issued, rank pari passu in all respects with the existing shares including the right to receive dividends and other distributions declared following the placing.
Related party transactions
Principle Capital, which is interested in 27.54 per cent. of D1's existing issued share capital, has agreed to subscribe for 10,440,000 placing shares at the placing price. On the basis that the placing is fully subscribed, upon admission Principle Capital will be interested in 25.42 per cent. of the enlarged issued share capital of the Company.
Under the AIM Rules, Principle Capital is treated as a related party of the Company. The Directors consider, having consulted with WH Ireland, the Company's nominated adviser, that the terms of the subscription by Principle Capital are fair and reasonable insofar as Shareholders are concerned.
The Company has granted options which remain exercisable over 10,042,026 shares, representing approximately 7.93 per cent. of the Company's existing issued share capital. Of these shares currently under option, 4,192,026 have exercise prices of at least 21 pence per share. Accordingly, unexercised options with a price of less than 21 pence per share represent only 4.62 per cent. of the Company's issued share capital.
Given the need to incentivise senior management (including the new Directors) and the overriding requirement to conserve cash for the operation of the business, the Board (after consultation with certain major shareholders) considers that it would be appropriate to increase the pool of options available for grant by the Remuneration Committee by 10 per cent. of the issued share capital of the Company as enlarged by the placing. Any options to be granted pursuant to such authority will be issued under the Company's current share option scheme but the exercise price will be not less than the market price of the shares prevailing at the time of grant, will be subject to performance criteria relating to an increase in the Company's share price over and above the placing price and will vest (subject to the Board's discretion to allow options to vest if an employee leaves the Group's employment) over a period of at least three years.
The Board considers that share options should reward employees for their contribution to the success of the Group. The Board also considers that this principle should be applied when considering whether to exercise its discretion to allow employees to exercise share options after they have left the employment of the Group. This discretion allows these individuals to have the opportunity to share in any future success of the Group which does not manifest itself until after they have left the Group's employment. However, the Board considers that after a reasonable period of time there is no sustainable rationale for share options to continue to be exercisable by former employees of the Group. Accordingly, the Board is seeking authority from shareholders to amend the Share Option Plan so that the discretion to allow the exercise by former employees of the Group who hold share options will be limited to a finite period which shall end three years from the date on which they ceased to be an employee of the Group.
Both of these changes require shareholder approval.
Circular to shareholders
A circular convening the general meeting to approve the placing and changes to the Company's share option plan is being sent to shareholders and a copy will be placed on the Company's website shortly.
Steven Rudofsky, Chairman of D1, commented:
"As I mentioned in our interim results two weeks ago, the new Board of D1 is enthusiastic and optimistic about the outlook for the Company.
"The support from our shareholders for this placing will provide D1 with working capital for the forthcoming Indian harvest season and enable us to demonstrate the potential of our business."
For further information please contact:-
D1 Oils plc +44 (0) 20 7936 9104
WH Ireland + 44 (0) 20 7220 1650