23 Mar 2010 07:00
23 March 2010
Hydrodec Group plc
("Hydrodec", the "Company", or the "Group")
Placement of Ordinary Shares
Notice of General Meeting
Further to the announcement of 19 March, Hydrodec Group plc announces that it proposes to raise approximately £2.0 million (before expenses) through a placing ("Placing") of 20,259,859 Ordinary Shares at 10p each ("Placing Price"). As described below, the Placing will be divided into two tranches, the Firm Placing and the Conditional Placing.
Background to and reasons for the Placing
The Board announced on 4 March and 19 March that the Group's working capital position had been affected by lower than anticipated sales and margins from December to February and sharply reduced trade credit terms from certain US feedstock suppliers. In addition two major customers have recently reduced their late March orders by a total of about 800,000 litres. This should not materially affect cash-flow over the first half of the year but sales in the first quarter of 2010 are expected to be about 25 per cent. below the level for the fourth quarter of 2009, reflecting the continuing weak market.
While the Board expects that the prospect of improvement in trade credit terms in the US and increased sales and margins in both the US and Australia should contribute to an improved working capital position going forward, the Company requires additional funding for the short-term to assist in its ongoing operations and growth development. The Board's outlook assumes the continuation of the current gradual recovery in the world economy and specifically in the US, together with a relatively strong crude oil price, which the Board believes should lead to a gradual improvement in demand and sales prices for transformer oil.
The Board believes that Hydrodec is preparing to enter a long term growth phase with a strengthened management team after making significant operational progress over the past year. The Board anticipates that, based on the growth requirements of the Japanese strategic alliance, continued expansion in the US and longer term plans for developing other markets and alternative applications for its core technology, a strengthening of the capital base over and above the Placing will be necessary. To these ends Hydrodec is investigating opportunities for the introduction of a substantial strategic investment into the Company. Initial contact has been received from potentially interested parties but there are no firm indications of intent at present.
As described further below, the Placing is split into two tranches, the Firm Placing and the Conditional Placing. The net proceeds of the Firm Placing are expected to be approximately £1.6 million. The net proceeds of the Conditional Placing are expected to be approximately £0.325 million, assuming the resolutions put to shareholders at the General Meeting referred to below are passed. These sums will be used, in conjunction with the Group's existing resources, to provide approximately £0.4 million to pay certain creditors. The balance, together with further remedial measures to be implemented by the Board, should provide working capital to meet the requirements of the Group until the end of June, including the next payment of interest due on the Company's 2012 Convertible Unsecured Loan Notes ("CULS") payable on 30 June 2010. These further remedial measures include the limitation of early capital expenditure and continued tight management of all discretionary operating expenditure. The ability of the Group to meet its working capital requirements after the end of June without further fundraising will also, in part, be dependent upon the success of such remedial measures and on a continuation of the current gradual economic recovery.
One additional measure the Board has considered relates to mitigating the ongoing finance cost of the CULS. The CULS, which bear a coupon of eight per cent. per annum, currently require the Company to make interest payments of approximately £0.5m twice a year. The Board is considering a proposal whereby all of the CULS holders would be offered an additional one-off limited-period opportunity in the near future to convert their CULS at the Placing price of 10p per Ordinary Share (their current conversion price, subject to any adjustment referred to under "Effect of the Placing on the CULS", is 17.65p per Ordinary Share). While the precise mechanism for effecting this proposal is still to be settled, the Company is taking the opportunity to present a special resolution at the General Meeting, which would authorise the Directors to allot sufficient Ordinary Shares in respect of such a one-off conversion and to dis-apply pre-emption rights in respect thereof. Further details will be provided to Shareholders and CULS holders in due course.
The Placing
The Company has entered into a placing agreement ("Placing Agreement") with Numis Securities Limited ("Numis"). Pursuant to the Placing Agreement, Numis has agreed to use its reasonable endeavours to procure placees for the new Ordinary Shares at the Placing Price.
The Placing will be split into two tranches, a firm placing ("Firm Placing) and a conditional placing ("Conditional Placing"), both at a placing price of 10 pence per Ordinary Share. The Firm Placing consists of the placing of 17,000,000 Ordinary Shares and the Conditional Placing consists of the placing of 3,259,859 Ordinary Shares. The Conditional Placing is subject to shareholder approval at a General Meeting to grant the Directors authority to issue such new Ordinary Shares, and which is expected to be held at 10.00 a.m. on 13 April 2010 at the offices of the Company at 4th Floor, 120 Moorgate, London EC2M 6SS.
The obligations of Numis under the Placing Agreement in respect of the Firm Placing are conditional upon, inter alia, admission of the new Ordinary Shares issued under the Firm Placing to trading on AIM ("First Admission") becoming effective on or before 8.00 a.m. on 29 March 2010 (or such later time and date, not being later than 8.30 a.m. on 9 April 2010). The obligations of Numis under the Placing Agreement in respect of the Conditional Placing are conditional upon, inter alia, First Admission becoming effective, the relevant resolutions being duly passed at the General Meeting and admission of the new Ordinary Shares issued under the Conditional Placing to trading on AIM ("Second Admission") becoming effective on or before 8.30 a.m. on 30 April 2010. The Placing Agreement contains provisions entitling Numis to terminate the Placing Agreement at any time prior to the Second Admission in certain circumstances. If this right is exercised before the First Admission the Placing will not proceed or, if the Placing Agreement is terminated (in respect of the Conditional Placing only) after First Admission but before Second Admission, the placing of the new Ordinary Shares to be issued under the Conditional Placing will not proceed.
Application will be made to the London Stock Exchange for the new Ordinary Shares to be admitted to trading on AIM. It is expected that the new Ordinary Shares under the Firm Placing will be issued and admitted to trading on AIM on or about 8.00 a.m. on 29 March 2010 and the new Ordinary Shares under the Conditional Placing will be issued and admitted to trading on AIM on or about 8.00 a.m. on 14 April 2010 (depending on the precise date of the convening of the General Meeting).
John Gunn, a non-executive director of the Company, will be participating in the Placing. Mr Gunn will subscribe for 200,000 Ordinary Shares at the Placing Price, representing a total subscription of £20,000. Following the completion of the Placing (assuming both elements of the Placing take place), Mr Gunn's beneficial holding of ordinary shares will be 4,837,500 (representing 1.6 per cent. of the Company's issued voting shares). Mr Gunn also has an interest in options over 3,000,000 Ordinary Shares and in £110,000 of CULS.
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 www.hydrodec.com.
Effect of the Placing on the CULS
The instrument constituting the CULS provides for certain adjustments to be made to the rights under the CULS following the occurrence of certain specified events. More particularly, following any issue of Ordinary Shares (other than an issue which is ten per cent. or less below the average closing trading price of an Ordinary Share over the five trading days immediately preceding the announcement of the issue of such securities), the Company's auditors are required to certify to the Company in writing the adjustments to the number and value of the Ordinary Shares into which any outstanding CULS would convert which they consider necessary so that, after such adjustment and conversion, each holder of CULS shall be placed in the same position in relation to capital (as nearly practicable) as would have been the case had no such issue of Ordinary Shares occurred.
Accordingly, as the Placing Price is more than ten per cent. below the average closing trading price of an Ordinary Share over the five trading days immediately prior to the announcement of the Placing, the Company will refer the matter to its auditors in order for them to determine if any adjustment should be made and, if so, what that adjustment should be. It should be noted that such an adjustment would be permanent and is not related to the Board's intention to propose a one-off conversion opportunity at 10p per Ordinary Share referred to above. A further announcement will be made in due course.
For further information please contact:
| Hydrodec Group plc | 020 7786 9810 |
| Neil Gaskell, Chairman Mark McNamara, Chief Executive Mike Preen, Company Secretary |
|
| Numis Securities Limited | 020 7260 1000 |
| Nominated Adviser: Simon Blank Corporate Broker: David Poutney, Alex Ham |
|
| Corfin Communications | 020 7977 0020 |
| Neil Thapar, Harry Chathli, Alexis Gore | |