Plant Health Care plc, (LON:PHC) a leading provider of novel patent-protected biological products to global agricultural markets, today announces its intention to raise a minimum of $4.0 million by way of (i) a placing of new Ordinary Shares at a fixed price of 8 pence per new Ordinary Share to institutional and other investors and (ii) a subscription of new Ordinary Shares at the Issue Price to institutional and other investors.
Highlights:
· The Company intends to conduct a conditional Placing and Subscription to raise a minimum of $4.0 million via the issue of the Placing Shares at the Issue Price and Subscription of the Subscription Shares at the Issue Price.
· The Placing is to be conducted by way of an accelerated bookbuild process which will commence immediately following this Announcement and will be subject to the terms and conditions set out in Appendix I to this Announcement.
· The Company has conditionally raised approximately $3.1 million (before expenses) through the Subscription of 29,887,132 Subscription Shares.
· The Issue Price represents a discount of approximately 43.9 per cent. to the closing mid-market price on 21 February 2020, being the latest practicable date before this Announcement.
· Admission of the Placing Shares and Subscription Shares to trading on AIM is expected to occur no later than 8.00 a.m. on 18 March 2020 or such later time and/or date as Arden and the Company agree (being in any event no later than 8.00 a.m. on 3 April 2020).
· Plant Health Care will be seeking the approval of Shareholders at a general meeting of the Company for general authority to allot the Fundraising Shares and equity securities for cash on a non-pre-emptive basis under the Companies Act 2006. A circular containing further details of the Fundraising and notice of General Meeting to be held at 11.00 a.m. on 16 March 2020 to, inter alia, approve the resolutions required to implement the Fundraising, is expected to be published and despatched to Shareholders on 25 February 2020. Following its publication, the Circular will be available on the Company’s website.
The number of Placing Shares and Subscription Shares to be issued will be determined based on the Bloomberg exchange rate between US dollar and pound sterling at 7.00 a.m. (UK time) on 21 February 2020, being the last practicable date prior to this Announcement. Any reference to gross or net proceeds in this Announcement assumes an exchange rate of 1:1.2897.
Notes:
- Each of the above times and/or dates is subject to change at the absolute discretion of the Company and Arden. If any of the above times and/or dates should change, the revised times and/or dates will be announced through a Regulatory Information Service.
- All of the above times refer to London time unless otherwise stated.
Introduction and Background relating to the Placing and Subscription
In November 2019, the Company raised $3 million through the issue of 34,564,500 new Ordinary Shares to Ospraie Ag Science LLC, the agriculture venture capital arm of Ospraie Management, LLC, a New York based investment management firm which specializes in investing in commodities, agriculture and other basic industries on a global basis.
The proceeds of this fundraise were to strengthen the Company’s balance sheet and enable it to accelerate sales growth and commercialization of the first products from the Company’s ground-breaking PREtec (Plant Response Elicitor) technology, as well as providing additional working capital.
Progress towards the first launches of products from PREtec (Plant Response Elicitor Technology) continues to be very promising, targeting markets worth more than $5 billion. Moreover, the Board is confident that the basis has been laid for delivering strong revenue growth in 2020 and beyond, in line with market forecasts. However, following the lower than expected revenue in 2019 and subsequent review of the Company budgets and continuing investment in PREtec, the Board believes that raising additional finance is necessary and is in the best long-term interests of shareholders. This is both to provide additional resources to underpin forecast revenue growth for commercial products and to ensure the successful launch of the first PREtec products.
Given the seasonality in the Company’s cash flows, the Board considers that raising additional funds of a minimum of $4 million is appropriate.
Current trading
All results provided are preliminary and subject to completion of the 2019 audit.
Further to the Company’s trading update on 19 December 2019, the Company confirms that it now expects revenue to be $6.4 million (2018: $8.1 million), 21% down on the prior year, 18% in constant currency with gross margin decreasing to 57% (2018: 65%). The decreased gross margin percentage is primarily due to the increased proportion of third-party sales in Mexico and increased tariffs imposed on China by the US. Sales of Harpin αβ by the Company were down 34% compared to the prior year. The delay in receiving an import licence in Brazil (down 64%) and exceptionally difficult market conditions in the US (down 18%) held back sales, despite strong market demand for Harpin αβ. Since the end of the year, the Brazil import licence has been obtained. These factors obscured excellent customer benefits in newly launched Harpin αβ products, supported by new relationships with very strong national distributors in the US and Brazil. These have established a very promising base for revenue growth in 2020 and beyond.
The Company’s cash and cash equivalents at 31 December 2019 was $2.4 million. The Company successfully raised circa £2.4 million (circa $3.0 million) through the issuance of Shares in November 2019.
Sales in North America were $1.7 million (2018: $2.1 million) and South America $0.4 million (2018: $1.2 million). In Europe/Africa sales were $1.0 million (2018: $1.7 million), supported by 17% sales growth in Spain. Sales in Mexico were $3.3 million (2018: $3.1 million).
The Company has maintained strict control of cash operating expenses, which finished the year at $7.4 million ($10.4 million in 2018); the main contributors were reduced New Technology spend at $2.1 million (2018: $3.5 million), reduced sales and marketing personnel costs of $0.5 million and elimination of a bad debt provision (2018: $0.8 million). Inventory ($3.0 million), accounts receivable ($3.6 million) and payables ($0.8 million) were comparable to the prior year ($3.0 million, $3.8 million and $1.5 million respectively). The Company ended 2019 with $2.4 million in cash and cash equivalents. The Company’s cash burn reduced to $4.8 million (2018: $6.3 million).
The Company has made impressive progress towards the launch of the first products from the PREtec peptide platforms, targeting markets worth more than $5 billion. The first US patents for PREtec peptides have been granted, with wide claims. The Company plans to update the market over the coming weeks, on progress towards the first PREtec product launches. With sufficient cash resources, the Company aims to increase spend on PREtec product development, in order to maximise the impact of these impending product launches.
Use of proceeds
The net proceeds receivable by the Company pursuant to the Fundraising are expected to be a minimum of $3.8 million. The Company intends to use the proceeds, together with its existing cash resources and future cash flows from its commercial business, to:
- accelerate the final development of the first products from the PREtec (Plant Response Elicitor Technology) platform including achieving product registrations in the United States and Brazil on the earliest possible time-scale;
- prepare PHC279 (and potentially PHC949 and PHC414) for a successful launch in the United States, Brazil and other target markets;
- under-pin the delivery of the growth of Harpin αβ in 2020 and beyond, through additional sales and marketing resources; and
- improve the Company’s ability to support sales growth by increasing the funds available for working capital, especially to accommodate payment terms in Brazil.
The Placing
The Company is seeking to raise a minimum of $0.9 million (before expenses) from the Placing of the Placing Shares at the Issue Price.
The Placing is conditional, inter alia, upon:
a) the passing of the Fundraising Resolutions at the General Meeting;
b) the Placing Agreement becoming or being declared unconditional in all respects and not having been terminated in accordance with its terms prior to Admission; and
c) Admission becoming effective by no later than 8.00 a.m. on 18 March 2020 or such later time and/or date (being no later than 8.00 a.m. on 3 April 2020) as Arden and the Company may agree.
If any of the conditions of the Placing are not satisfied the Placing Shares will not be issued and all monies received will be returned to the Placees at their own risk and without interest as soon as possible thereafter.
Subscription
Under the Subscription, the Company has conditionally raised approximately $3.1 million (before expenses) by way of the subscription at the Issue Price of 29,887,132 Subscription Shares. The Subscription is conditional, inter alia, upon the passing of the Fundraising Resolutions at the General Meeting and admission of the Subscription Shares to trading on AIM occurring no later than 8.00 a.m. on 18 March 2020 (or such later time and/or date as Arden may agree, but in any event by no later than 8.00 a.m. on 3 April 2020).
Director participation
As part of the Fundraising, William Lewis, Jeffrey Hovey and Jeffrey Tweedy have conditionally subscribed for 271,379 Subscription Shares. Chris Richards and Richard Webb intend to conditionally subscribe for 750,000 Placing Shares.
Related Party Transaction
The Subscription participation from Ospraie AG Science LLC is considered a related-party transaction for the purposes of Rule 13 of the AIM Rules for Companies. The directors consider, having consulted with Arden, the Company’s nominated advisers, that the Subscription participation is fair and reasonable in so far as Plant Health Care’s shareholders are concerned.
Placing Agreement
Pursuant to the terms of the Placing Agreement, Arden, as agent for the Company, has conditionally agreed to use reasonable endeavours to procure subscribers for the Placing Shares. Arden intends to conditionally place the Placing Shares with investors at the Issue Price. The Placing Agreement is conditional upon, inter alia:
· the Resolutions being duly passed at the General Meeting;
· Admission of the Placing Shares and the Subscription Shares (save for the Subscription Shares proposed to be subscribed for by Thomas Isler); and
· Admission becoming effective on or before 8.00 a.m. on 18 March 2020 (or such later time and/or date as Arden may agree, but in any event by no later than 8.00 a.m. on 3 April 2020).
The Placing Agreement contains customary warranties from the Company in favour of Arden in relation to, inter alia, the accuracy of the information in this Announcement and other matters relating to the Group and its business. In addition, the Company has agreed to indemnify Arden in relation to certain liabilities that it may incur in respect of the Fundraising.
Arden has the right to terminate the Placing Agreement in certain circumstances prior to Admission, including if any of the warranties given to Arden in the Placing Agreement were not true or accurate or were misleading when given or deemed given or would no longer be true and accurate, or would be misleading if repeated or deemed repeated, the failure of the Company to comply with certain of its obligations under the Placing Agreement, the occurrence of an event which materially (in the good faith opinion of Arden) affects the financial position and/or prospects of the Group as a whole or any change in national or international financial, monetary, economic, political, environmental, or stock market conditions which, in the good faith opinion of Arden will or is likely to be materially prejudicial to the Group or to the Placing or Admission or to the subscription for Placing Shares by Placees.
The Placing Agreement also provides for the Company to pay all costs, charges and expenses of, or incidental to, the Fundraising and Admission including all legal and other professional fees and expenses.
General Meeting
The Plant Health Care plc General Meeting will be held at 11.00 a.m. on 16 March 2020 at the offices of DWF Law LLP at 20 Fenchurch Street, London, EC3M 3AG, at which the Resolutions will be proposed for the purposes of implementing the Fundraising as follows:
· Resolution 1 – an ordinary resolution to grant the Directors authority to allot shares in the Company and to grant right to subscribe for, or convert any security into shares in the Company.
· Resolution 2 – a special resolution to disapply statutory pre-emption rights applicable to the Company.
