Hofseth Biocare ASA: HBC launches private placement from NOK 120 to 140 million, consolidates its factories, improves the production process and reduces its production costs

Hofseth BioCare ASA ("HBC" or the "Company"), a leading Norwegian producer of healthy and high-value nutritious products from fish offcuts, will expand its current capacity at the Midsund Process Facility in order to optimize its current production process and to meet the increase in demand for its products. Accordingly, HBC will continue renting out available capacity at one of its current production facilities at Berkåk, and rather invest approx. NOK 40 million in two plant extensions at Midsund in H2 2018.
 
The expected payback on the investment in the Midsund plant is estimated to less than three years, and the first extension is expected to be in operation during summer 2018 and the second in the third quarter of 2019. For further details on the investment, please see below under "Consolidating operations to reduce costs and to enhance product quality". To the benefit of HBC customers, which are mainly in the B2B human-grade and pet-food segment, the consolidation of activities should result in an enhanced product quality, due to inter alia, significantly reduced time from raw material processing to finished product.
 
In connection with the capacity expansion, HBC has engaged SpareBank 1 Markets AS as manager (the "Manager") to carry out a private placement of new shares (the "Offer Shares") in the Company raising gross proceeds of minimum NOK 120 million and a maximum of NOK 140 million (the "Private Placement"). 
 
About the private placement
  • The subscription price (the "Offer Price") in the Private Placement is set at NOK 2.25 per share, based on negotiations between the Company and investors who have pre-committed to subscribe for shares in the Private Placement. Certain existing shareholders have already committed to subscribe for the minimum subscription amount of NOK 120.4 million (including through conversion of debt in the amount of approximately NOK 65.8 million).
  • The following shareholders have entered into pre-commitment agreements with the Company to subscribe for shares in the Private Placement for a total of NOK 120.4 million: Alliance Seafoods Inc. (17.1), Bonafide (25.0), Hofseth Aalesund AS (10.9), Hofseth AS (24.7), Hofseth International AS (1.3), Hofseth Logistics AS (2.2), Chairman Ola Holen (0.5), CEO Roger Hofseth through Roger Hofseth AS (23.0), Hofseth North America partner Matt Mixter through Norinvest, LLC. (1.2), Seafood Farmers of Norway AS (13.7), and other investors (0.7).  
The Company had aim to raise a maximum of NOK 120 million, but based on received pre-commitments at a share price of NOK 2.25, the Private Placement has been increased to NOK 140 million. Of the net cash proceeds from the Private Placement of minimum NOK 54.6 million (excluding the conversion of debt), NOK 10 million will be used in connection with an investment in a new calcium production-line at Midsund, NOK 30 million will be used in order to invest in a new spray-dryer at Midsund, and the remaining proceeds will be used for general purposes and working capital.
 
The application period for the Private Placement is expected to start at 09:00 CET on 19 June 2018 and to close on or about 16:30 CET on 22 June 2018. The Company may however, in consultation with the Manager, at any time resolve to close or extend the application period at its sole discretion and on short notice.
 
The Private Placement will be directed towards existing shareholders as well as potential new investors in Norway and internationally, in each case subject to and in compliance with applicable exemptions from relevant prospectus and registration requirements.
 
The minimum order in the Private Placement has been set at the NOK equivalent of EUR 100.000, provided that the Company may, at its sole discretion, receive applications for and allocate investors amounts below EUR 100,000 to the extent applicable exemptions from the prospectus requirement pursuant to applicable regulations are available.
 
The completion of the Private Placement is, inter alia, subject to the Company's extraordinary general meeting ("EGM") resolving the share capital increase pertaining to the Private Placement. The Company intends to send notice of such EGM as soon as practicably possible after the closing of the Private Placement. Shareholders representing 75.6 % of the outstanding shares have, through the pre-commitment agreements, committed to vote in favor of the capital increase at the Company's EGM.
 
Allocation of the Offer Shares will be determined by the Company's Board of Directors, in its sole discretion, after the closing of the application period. Notification of the allocation is expected to be sent by the Manager on or about 25 June 2018. The settlement date, except for the investors who have entered into pre-commitment agreements, is expected to be on or about 27 June 2018, and delivery of new shares to these investors will take place on or about the same date pursuant to a share lending agreement between Hofseth International AS and the Manager. The settlement date for the investors who have entered into pre-commitment agreements will be two trading days after the EGM has resolved the Private Placement, and delivery of new shares to these investors will take place as soon as practicable after all conditions for the Private Placement have been met, including that full payment has been received and the new share capital have been registered in the Norwegian Register of Business Enterprises.
 
The Company will announce the result of the Private Placement through a stock exchange notice expected to be published on or about Monday 25 June 2018.
 
The Offer Shares will be issued on a separate ISIN from the date the capital increase has been registered in the Norwegian Register of Business Enterprises and until a listing prospectus (the "Prospectus") pertaining to the Private Placement has been approved by the Norwegian Financial Supervisory Authority and duly published in accordance with applicable law. The Offer Shares are expected to be converted to the Company's ordinary ISIN number and be tradable on Oslo Axess by ultimo August 2018.
 
The Company and the Manager reserve the right, at any time and for any reason, to cancel and/or modify the terms of the Private Placement.
 
Repair issue
The Board will propose to conduct a subsequent offering of up to NOK 20 million at the same subscription price as in the Private Placement (the "Repair Issue"). The Repair Issue will be directed to existing shareholders in the Company as of the end of trading on 18 June 2018, as registered in the VPS as of the end of 20 June 2018. Existing shareholders who do not participate in the Private Placement and who are not resident in a jurisdiction where such offering would be unlawful or, for jurisdictions other than Norway, would require any prospectus, filing, registration or similar action will be allocated non-tradable subscription rights. The existing shares in the Company will trade exclusive of the right to participate in the Repair Issue from and including 19 June 2018. Launch of the Repair Issue is, inter alia, subject to the completion of the Private Placement, shareholders at the EGM voting in favor of a resolution to increase the Company's share capital required to carry out the Private Placement and the Repair Issue, and approval of the Prospectus.

Operational update
As announced on 9 May 2018, the Company processed 2,662 metric tons (2,187MT) of salmon and trout raw material in Q1 2018, resulting in 1,092MT of finished goods. HBC had sales revenues of
NOK 14.8 million (6.4 million) in the first quarter of 2018. Operational profit (EBITDA) for the first quarter 2018 was negative NOK 14.9 million.
 
However, the Company expects to increase its intake of salmon raw material during 2018, which is expected to result in higher gross margins and positive EBITDA during the third quarter. The Company has new customers within the human nutrition industry currently placing long term orders for shipments from summer and onwards. The new contracts, combined with existing shipment program are expected to have positive effects on the Company's results in 2018.
 
Consolidating operations to reduce costs and to enhance product quality
As announced on 9 May 2018, HBC is seeing stronger demand for its high-value nutritious products and at the same time opportunities to upgrade existing machinery and improve the efficiency in production and logistics, by simplifying and eliminating unnecessary steps.
 
Accordingly, HBC plans to invest NOK 40 million in two plant extensions to its current facilities at Midsund. First, the Company will improve the efficiency of the production process of high-value calcium for human consumption. Second, the Company will purchase and implement a new spray-dryer for the high-valued human nutrition protein products. Currently, the raw material for human-grade protein is spray-dried produced at HBC's factory at Berkåk, which is sub-optimal when it comes to logistics and transportation. HBC will rent out 100% of the capacity at Berkåk once the upgrade at Midsund is completed. With the saved transportation costs, the Company expects the payback on investment to be less than three years. In addition, the consolidation of activities should result in an enhanced product quality, due to significantly reduced time from raw material processing to finished product.
 
HBC expects the new calcium production line to be operational during Q3 2018 while the new spray-dryer at Midsund, is expected to be installed early Q3 2019 and operational in late 2019. Hence, the Company expects all current production to have moved from Berkåk to Midsund within 1 January 2020.
 
The transaction includes debt conversion of NOK 65.8 million in trade receivables from purchase of raw material. After the transaction the Company will have a total of NOK 56.0 million in interest bearing debt, mainly loans from owners (20.2 million), leasing (9.0 million), factoring (11.2 million) and bank loans (15.6 million). Current assets will be approx. NOK 112 million, a total balance sheet of approx. NOK 209 million and an equity ratio of approx. 55 %.
 
Comments from the CEO Roger Hofseth: "We offer a range of high-quality products today but our organization is constantly aiming to make better products for our clients, and with the large increase in raw material intake expected for 2018, it is the right time to consolidate our operations, close to where our raw material is taken in and processed. With this transaction, HBC is strengthening its position, enabling the Company to sign new contracts and promise on our customer's delivery programs."
 
The Company invites investors to a presentation Wednesday 20 June 2018 at 11:30 hrs. CET at the offices of SpareBank 1 Markets AS, Olav Vs gate 5, 0161 Oslo. To register, please send an e-mail to: corporateaccess@sb1markets.no 
 
For further information, please contact:
Roger Hofseth, CEO of Hofseth BioCare ASA
Mob: +47 95147941
E-mail: rh@hofseth-as.no
 
Jon Olav Ødegård, CFO of Hofseth BioCare ASA
Mob: +47 93632966
E-mail: joo@hofsethbiocare.no
 
About Hofseth BioCare ASA:
HBC is a Norwegian biotech company that offers high-value ingredients and finished products for humans and pets. The Company is founded on the core values of sustainability, traceability and optimal utilization of natural resources. Through an innovative hydrolysis technology, HBC is able to preserve the quality of salmon oil, proteins and calcium, prepared of fresh salmon off-cuts. HBC's objective is to contribute to the efficient use of marine resources and deliver quality products for ingredients and finished consumer products in the nutrition market.
 
HBC's headquarters are located in Ålesund, Norway with branches in Oslo, Chicago, Mumbai, Palo Alto and Tokyo. HBC is listed on Oslo Stock Exchange Axess list with ticker "HBC". See more information about the Company at www.hofsethbiocare.com and www.facebook.com/hofsethbiocare
 
This information is subject to the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.