TIDMHYR
RNS Number : 9190Q
HydroDec Group plc
21 October 2013
21 October 2013
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN
PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES,
JAPAN, CANADA, AUSTRALIA OR THE REPUBLIC OF SOUTH AFRICA OR ANY
OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A BREACH OF THE
RELEVANT SECURITIES LAWS OF SUCH JURISDICTION.
Hydrodec Group plc
("Hydrodec", the "Company" or the "Group")
Proposed Placing and Open Offer of New Ordinary Shares
Repayment of Debt
and
Notice of General Meeting
The Board of Hydrodec Group plc, the cleantech industrial oil
re-refining group (AIM: HYR), is pleased to announce that,
following the successful completion of two major transactions in
the US and the UK in the past six months, it has conditionally
raised GBP20 million through the placing of new ordinary shares of
0.5p each ("Ordinary Shares") with institutional and other
investors (the "Placing") and is seeking to raise up to a further
GBP4 million through an open offer available to existing
Shareholders (the "Open Offer"), in both cases at an issue price of
11.25p per Ordinary Share (the "Issue Price").
Summary:
-- Placing to raise GBP20m to broaden the institutional
shareholder base, strengthen the balance sheet and provide
expansion capital
-- Open Offer to raise up to GBP4m, allowing existing
Shareholders to apply for 1 new Ordinary Share for every 12
existing Ordinary Shares held, with an opportunity to apply for
further new Ordinary Shares under an excess application
facility
-- Repayment of GBP25.3m of debt (of which GBP12.5m will be
repaid through the issue of Ordinary Shares at the Issue Price)
leaving the parent Company debt free
-- Additional proceeds for expansion capital for deployment on
specific on-going growth and development initiatives
-- Advanced discussions in UK and Australia with potential strategic partners
-- Strong current trading with positive Group EBITDA run-rate for September
The Placing, the Open Offer and the debt repayment are
conditional upon the passing of a resolution to be put to a general
meeting of Shareholders (the "Resolution") and on admission of the
new Ordinary Shares to trading on AIM ("Admission").
Commenting on the proposals, Ian Smale, Chief Executive of
Hydrodec, said:
"This fundraising is a significant milestone for Hydrodec for a
number of reasons. Firstly, it enables the Company to resolve
issues relating to its balance sheet and positions it far more
strongly - and sustainably - in terms of its financing.
Secondly, the support of Shareholders new and existing is a very
real endorsement of the work undertaken this year in taking the
business forward with two key transactions in the US and UK.
Thirdly, it provides expansion capital that will enable us to take
additional near term opportunities to develop Hydrodec and expand
our international footprint further. Finally, it has introduced
several high quality new institutional Shareholders to our
register, whom we welcome.
We are very pleased with our strong current trading and excited
about the potential of the business and we look forward to updating
investors on progress soon."
Hydrodec Group plc 020 7907 9220
Ian Smale, Chief Executive
Chris Ellis, Chief Financial Officer
Peel Hunt LLP
(Nominated adviser and broker) 020 7418 8900
Richard Kauffer
Daniel Harris
Vigo Communications (PR adviser
to Hydrodec) 020 7016 9570
Patrick d'Ancona
Chris McMahon
Hydrodec Group plc
("Hydrodec", the "Company" or the "Group")
Proposed Placing and Open Offer of New Ordinary Shares
Repayment of Debt
and
Notice of General Meeting
The Board of Hydrodec Group plc, the cleantech industrial oil
re-refining group (AIM: HYR), is pleased to announce that,
following the successful completion of two major transactions in
the US and the UK in the past six months, it has conditionally
raised GBP20 million through the placing of new ordinary shares of
0.5p each ("Ordinary Shares") with institutional and other
investors (the "Placing") and is seeking to raise up to a further
GBP4 million through an open offer available to existing
Shareholders (the "Open Offer"), in both cases at an issue price of
11.25p per Ordinary Share (the "Issue Price"), representing a
discount of 9.1 per cent. to the closing mid-market price of
12.375p per share on 18 October 2013, the last trading day prior to
this announcement.
The fundraising will strengthen the Company's balance sheet and
financial position in two specific ways. Part of the net proceeds
of the Placing (approximately GBP13.2 million) will be used to
repay the Company's unsecured loan stock (the "ULS") and the
accrued interest thereon, and the balance of approximately GBP6.3
million, together with the proceeds of the Open Offer, will
primarily be utilised as expansion capital in a number of further
developments for the Company, described below.
At the same time, the principal amount outstanding in relation
to the Company's other debt instruments (a GBP7.5 million revolving
credit facility (the "Facility") entered into in respect of the
recent acquisition of the principal business and assets of the OSS
Group Limited ("OSS") and GBP5 million of secured loan notes (the
"Loan Notes")) will be repaid in full through the issue of
additional new Ordinary Shares at the Issue Price (together, the
"Debt Conversion").
The Placing, the Open Offer and the Debt Conversion are
conditional upon the passing of a resolution to be put to a general
meeting of Shareholders (the "Resolution") and on admission of the
new Ordinary Shares to trading on AIM ("Admission").
Background to and reasons for the Proposals
In April 2013 the Company entered into a strategic partnership
with G&S Technologies Group ("G&S") in order to grow its
core transformer oil business and create the largest transformer
oil re-refiner in the US. The commitment of feedstock from G&S
to the new entity, Hydrodec of North America ("HoNA"), has already
enabled greater utilisation of existing available capacity in the
US. It also provides HoNA with increased security of feedstock
supply to support the planned expansion of US plant capacity from
27 million litres per annum to 65 million litres per annum.
Importantly, the proceeds of sale of the interest in HoNA to
G&S are expected to be sufficient to meet the Company's share
of the capital costs of this expansion. The transaction also
establishes a new recurring royalty for the technology which the
Company has licenced to HoNA.
The strategic partnership with G&S was followed in September
2013 by the acquisition of the principal assets and business of
OSS. OSS is the UK's largest collector, consolidator and processor
of used lubricant oil and the largest seller of processed fuel oil.
Prior to the acquisition, OSS had suffered from a downturn in
margins. The Board believes that if the OSS business is properly
managed and financed it should be able to return to the levels of
its 2010 and 2011 performance (which were significantly ahead of
its results in 2012 and in 2013 to date). In addition, the
application of Hydrodec's technology to the re-refining of used
lubricants, the development of which is underway, provides the
potential for materially greater margins and returns. Once the
Hydrodec technology is deployed, the Company expects that its
re-refining process will offer the potential for efficiency and
quality benefits not available in existing lubricant recycling
activity generally. The global market for lubricant oil is
estimated to be in excess of US$30 billion per annum, materially
larger than that for transformer oil (estimated at US$1.6 billion
per annum).
The OSS transaction, and the existing low-grade recycling
technology in the UK, make the domestic market a potential base for
the further development and deployment of the Hydrodec technology
into used lubricant oils. As such, the Company is in advanced
discussions with a material UK business to partner in the
development of the re-refining business in the UK with the
potential for the contribution of land, infrastructure and
capability. If progressed this could lead to the development of a
UK transformer oil business by 2015 and a lubricant oil business by
2016. Similar strategic discussions are underway in Australia. If
discussions are concluded, both of these potential transactions
will be subject to board approvals by all relevant parties and
announcements will be made at the appropriate time.
The G&S and OSS transactions have demonstrated the ability
of the Company's management to continue to execute the Company's
stated strategy and provide a platform and blueprint for future
growth. In light of this, and the positive forward momentum
provided by the Company's current trading, the Board has resolved
to implement the proposals described in this announcement.
The Board has regularly stated in recent months that a priority
for 2013 is to address the Company's balance sheet and in
particular the repayment of the ULS which are due to be repaid by
no later than 31 October 2014. Following Admission, the Company's
balance sheet will be significantly strengthened as a result of the
repayment of the ULS, the Loan Notes and the Facility (which
together comprise GBP25.3 million in principal amounts) and the
Company's cash reserves increased. This will improve the Company's
standing and credibility with all stakeholders (including
customers, suppliers and potential partners), eliminate the related
debt financing costs and remove uncertainty over the Company's
financial position in relation to the prospects for the repayment
of the ULS in October 2014, as well as providing financing
flexibility at the business, operating and asset level. The
additional funds for expansion capital should enable the Company to
further develop specific identified growth opportunities and to
pursue new partnership or consolidation options in the UK and
Europe.
The Board expects that the introduction of a number of new,
supportive, long-term institutional Shareholders through the
Placing will prove beneficial to the Company and Shareholders as a
whole. However, the Board is mindful of the potential dilution to
existing Shareholders' holdings and have therefore resolved to make
the Open Offer to the maximum extent permitted by regulation
without incurring the additional cost and time of a full prospectus
which would otherwise be required.
Use of proceeds
The net proceeds of the Placing (approximately GBP19.5 million)
and the Open Offer (up to GBP4 million) will be used for two
primary purposes: the repayment of the ULS and the provision of
additional expansion capital.
The ULS were originally issued in 2007 and raised GBP13.8
million of funding for, inter alia, the construction of the plant
in Canton, Ohio. They were originally convertible into Ordinary
Shares but since November 2012 the conversion rights have lapsed
and the outstanding GBP12.79 million in nominal value is repayable
by the Company by no later than 31 October 2014. The ULS have been
viewed by certain potential investors as a significant barrier to
investment in the Company for some time and the Board has made it
clear that it has been considering a number of options for their
repayment or refinancing. The Board is pleased that following
Admission it will be in a position to repay the ULS in full
approximately 12 months ahead of their final repayment date.
Assuming the ULS are repaid on 14 November 2013, the accrued
interest payable in addition to the nominal value is approximately
GBP385,000.
The balance of the net proceeds of the Placing (approximately
GBP6.3 million), and any proceeds from the Open Offer, will be
utilised by the Company as expansion capital in a number of
specific initiatives:
(a) expanding the UK operations, with an initial focus on
establishing a transformer oil business in the UK;
(b) continuing the development and extension of the existing
technology for use with used lubricant oil in order to access a
market estimated to be more than 15 times larger globally than that
of transformer oil;
(c) repositioning the technology and its development from
Australia to the UK to better align with near term prospects in the
UK and Europe; and
(d) additional growth projects in respect of licencing,
partnership and acquisition opportunities in both the transformer
oil and lubricant oil sectors.
Following the completion of the Debt Conversion and the
repayment of the ULS, the parent Company will be debt free.
Operational update
The Company's existing transformer oil business in the US and
Australia has performed strongly in 2013. The half yearly results
for the six months to 30 June 2013 demonstrated record half-year
revenues and sales volumes, and improved margins over those for
2012. This resulted in a significantly improved underlying
operating EBITDA (before growth costs and share based payments) of
a US$0.2 million loss, compared to a US$1.1 million loss for the
same period in 2012.
The Board is pleased to confirm that these performance trends
have continued into the third quarter, even before the impact of
the OSS acquisition, with revenues, volumes and utilisation
improving still further. In addition the Board is encouraged by
September's performance from the OSS business which exceeded
management's base case assumptions. Importantly, management's
target of achieving a positive EBITDA run-rate (after growth costs
and share based payments and before the positive impact of the OSS
business) before the end of the year has been met for the month of
September. This is a significant milestone in the Company's
history.
The Placing and the Debt Conversion
The Company has entered into a placing agreement with Peel Hunt
LLP ("Peel Hunt") on customary terms and conditions pursuant to
which Peel Hunt has conditionally agreed to use its reasonable
endeavours to procure placees for new Ordinary Shares at the Issue
Price (the "Placing Shares"). The Company has received firm
commitments from placees for approximately 178 million Placing
Shares in the Placing representing GBP20 million (before expenses),
conditional, inter alia, on the passing of the Resolution and
Admission.
Application will be made for the Placing Shares to be admitted
to trading on AIM. It is expected that Admission of the Placing
Shares will become effective and that dealings will commence in the
Placing Shares at 8.00 a.m. on 8 November 2013.
The Company has entered into conditional repayment letters with
the holders of the Loan Notes and the provider of the Facility.
Under the terms of the Debt Conversion, each of those persons will
receive new Ordinary Shares, issued at the Issue Price, in
repayment of the principal amounts outstanding under those debt
facilities. The interest accrued on the Loan Notes and the Facility
up to and including the day prior to Admission will be paid in
cash.
Directors' participation in the Placing and the Debt
Conversion
Lord Moynihan, Alan Carruthers and Chris Ellis, all directors of
the Company, are participating in the Placing for an aggregate of 4
million Placing Shares (with an aggregate value of GBP450,000 at
the Issue Price). Andrew Black, a director and a substantial
shareholder of the Company, is a holder of GBP2.6 million in
nominal value of the Loan Notes and the provider of the Facility,
aggregating to GBP10.1 million in total. Lord Moynihan is a holder
of GBP300,000 in nominal value of the Loan Notes. As such, Andrew
Black and Lord Moynihan are acquiring additional Ordinary Shares
with an aggregate value of GBP10.1 million and GBP300,000 through
the Debt Conversion respectively. These arrangements constitute a
related party transaction under the AIM Rules.
The Directors, with the exception of Lord Moynihan and Mr Black,
consider, having consulted with the Company's Nominated Adviser,
Peel Hunt LLP, that the terms of the Debt Conversion are fair and
reasonable insofar as Shareholders are concerned.
The Directors, with the exception of Lord Moynihan, Mr
Carruthers and Mr Ellis, consider, having consulted with the
Company's Nominated Adviser, Peel Hunt LLP, that the participation
of Lord Moynihan, Mr Carruthers and Mr Ellis in the Placing is fair
and reasonable insofar as Shareholders are concerned.
Director Participation Debt Conversion Holdings Percentage
in Placing of Ordinary of the enlarged
Shares immediately issued voting
following capital*
Admission
----------------- --------------- ----------------- -------------------- -----------------
Lord Moynihan GBP300,000 GBP300,000 8,788,659 1.2%
----------------- --------------- ----------------- -------------------- -----------------
Andrew
Black - GBP10,100,000 176,144,798 23.5%
----------------- --------------- ----------------- -------------------- -----------------
Alan Carruthers GBP100,000 - 1,278,888 0.2%
----------------- --------------- ----------------- -------------------- -----------------
Chris Ellis GBP50,000 - 892,293 0.1%
----------------- --------------- ----------------- -------------------- -----------------
*assuming the Open Offer is fully subscribed
The Open Offer
The Open Offer is for up to approximately 35 million new
Ordinary Shares ("Open Offer Shares") at the Issue Price to raise
up to approximately GBP4 million.
Qualifying Shareholders are being given the opportunity to apply
for Open Offer Shares at a price of 11.25 pence per Open Offer
Share on the basis of:
1 Open Offer Share for every 12 existing Ordinary Shares
registered in the name of each qualifying Shareholder on 17
October 2013 and so in proportion for any other number of Ordinary
Shares then held.
Qualifying Shareholders may apply for more or less Open Offer
Shares than they are entitled to under the Open Offer and
applications in excess of the Open Offer entitlements will be dealt
with under an excess application facility. If applications under
the excess application facility are received for more than the
total number of Open Offer Shares available following take-up of
Open Offer entitlements, such applications will be scaled back pro
rata to the number of excess Ordinary Shares applied for by
qualifying Shareholders under the excess application facility.
The Board has asked qualifying Shareholders who are
participating in the Placing to undertake not take up their rights
in the Open Offer to allow other qualifying Shareholders to apply
for additional new Ordinary Shares under the excess application
facility. In addition, Andrew Black has undertaken not to take up
his Open Offer entitlement. In total, this means approximately 17.5
million new Ordinary Shares will be available under the excess
application facility.
Those Directors who are not participating in the Placing or Debt
Conversion intend to apply for Ordinary Shares pursuant to the Open
Offer, including potentially applying for additional Ordinary
Shares in the excess application facility.
Application will be made for the Open Offer Shares to be
admitted to trading on AIM. It is expected that Admission of the
Open Offer Shares will become effective and that dealings will
commence in the Open Offer Shares at 8.00 a.m. on 8 November
2013.
For existing Shareholders who do not participate in the Open
Offer, this will result in a dilution of approximately 43.4 per
cent in their proportionate share of the enlarged issued voting
share capital following the issue of the Placing Shares, the Open
Offer Shares and the shares issued pursuant to the Debt Conversion
(assuming the Open Offer is fully subscribed). For existing
Shareholders who take up their Open Offer entitlements in full
and/or apply for and are issued additional new Ordinary Shares in
the excess application facility, this will result in a lower
dilution dependent on the exact number of Ordinary Shares
acquired.
Circular
The Company will shortly be posting to Shareholders a Circular
attaching a notice convening the General Meeting, which will also
be available on the Company's website at www.hydrodec.com.
Qualifying Shareholders will also receive an Open Offer application
form.
Notes to Editors:
Hydrodec's technology is a proven, highly efficient, oil
re-refining and chemical process initially targeted at the
multi-billion US$ market for transformer oil used by the world's
electricity industry. Spent oil is currently processed at two
commercial plants with distinct competitive advantage delivered
through very high recoveries (near 100%), producing 'as new' high
quality oils at competitive cost and without environmentally
harmful emissions. The process also completely eliminates PCBs, a
toxic additive banned under international regulations. Hydrodec's
plants are located at Canton, Ohio, US and Young, New South Wales,
Australia. Hydrodec recently acquired the business and assets of
OSS Group, the UK's largest collector, consolidator and processor
of used lubricant oil and seller of processed fuel oil, with a
national network of oil storage and transfer stations, currently
serviced by a fleet of more than 90 trucks which collect used oil
and other garage workshop waste from over 30,000 customers. Used
oil is converted into processed fuel oil at OSS's plant at
Stourport and principally sold on to the UK quarry and power
industry.
Hydrodec's shares are listed on the AIM Market of the London
Stock Exchange. For further information, please visit
www.hydrodec.com
Important notice
This announcement does not constitute or form part of any offer
or invitation to sell or issue, or any solicitation of any offer to
purchase or subscribe for, any new Ordinary Shares, nor shall it
(or any part of it), or the fact of its distribution, form the
basis of, or be relied on in connection with or act as any
inducement to enter into, any contract or commitment whatsoever
with respect to the proposed Placing, Open Offer, Debt Conversion
or otherwise. This announcement is not a prospectus and investors
should not subscribe for or purchase any new Ordinary Shares
referred to in this announcement. Any offer to acquire new Ordinary
Shares referred to in this announcement will be made, and any
investor should make his investment, solely on the basis of
information in the Circular expected to be published and made
generally available in the United Kingdom today.
The distribution of this announcement and/or the transfer of the
new Ordinary Shares in or into jurisdictions other than the United
Kingdom may be restricted by law and therefore persons into whose
possession this announcement comes should inform themselves about
and observe such restrictions. Any failure to comply with such
restrictions may constitute a violation of the securities laws of
any such jurisdiction. In particular, this announcement should not
be distributed, forwarded to, or transmitted in or into the United
States, Canada, Japan, Australia or the Republic of South
Africa.
The new Ordinary Shares referred to in this announcement will
not be offered in or into any jurisdiction unless such an offer can
be made without contravention of any unfulfilled registration or
other legal or regulatory requirements. The new Ordinary Shares
have not been and will not be registered under the Securities Act
or with any securities regulatory authority of any state or other
jurisdiction in the United States and may not be offered or sold in
the United States absent registration or an exemption from
registration. The new Ordinary Shares have not been approved or
disapproved by the US Securities and Exchange Commission, any state
securities commission or other regulatory authority, nor have the
foregoing authorities passed upon or endorsed the merits of the
Placing and Open Offer or the accuracy or adequacy of the
information contained in this announcement or any other document.
Any representation to the contrary is unlawful and is a criminal
offence in the United States.
Peel Hunt LLP, which is authorised and regulated in the United
Kingdom by the Financial Services Authority, is acting exclusively
for the Company and no one else in connection with the Placing and
Open Offer and will not regard any other person (whether or not a
recipient of the Circular) as its client in relation to the
Placing, Open Offer or Debt Conversion and will not be responsible
to anyone other than the Company for providing the protections
afforded to its clients or for providing advice in connection with
the Placing, Open Offer or Debt Conversion or any other matter
referred to herein.
Cautionary note regarding forward looking statements
This announcement includes certain "forward-looking statements"
with respect to the business, strategy and plans of the Company and
its current goals and expectations relating to its future financial
condition and performance. Statements that are not historical
facts, including statements about the Company's or the Directors'
and/or management's beliefs and expectations are forward looking
statements. Words such as "believes", "anticipates", "estimates",
"expects", "intends", "aims", "potential", "will", "would",
"could", "considered", "likely", "estimate" and variations of these
words and similar future or conditional expressions are intended to
identify forward-looking statements but are not the exclusive means
of identifying such statements. By their nature, forward looking
statements involve risk and uncertainty because they relate to
events and depend upon circumstances that will occur in the future.
A number of important factors could cause actual results or
outcomes to differ materially from those expressed in any
forward-looking statements. These factors include, but are not
limited to, those discussed in the Circular. Neither the Company
nor any member of its group undertake any obligation publicly to
update or revise any of the forward-looking statements, whether as
a result of new information, future events or otherwise, save in
respect of any requirement under applicable laws, the AIM Rules and
other applicable regulations.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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