TIDMOBT
RNS Number : 1033V
Obtala Limited
25 January 2017
25 Jan 2017
Obtala Limited
("Obtala", the "Group" or the "Company")
(AIM: OBT)
Quarterly Business Update Q4 2016
Key highlights
-- $14.25m raised in subsidiary Preference share issue
-- Successfully exported timber produce internationally and received follow-on orders
-- Successfully exported fresh agricultural produce from Tanzania to Dubai
-- Completed the sale of loss-making Lesotho/African Home Stores retail chain
-- CPI status within Mozambique activated
Obtala Limited (AIM: OBT), the African focused agricultural and
forestry company, is pleased to provide the following business
update for the quarter ending 31(st) December 2016, which is
intended to communicate Group progress and developments since
30(th) Sept 2016.
We have had an exceptionally busy quarter, with significant
management focus, time and effort allocated to raising capital in
order to monetise embedded asset value with the aim of accelerating
productivity from these assets. In our 3Q update released on 30th
September 2016 we stated our intention to raise funds via an issue
of perpetual convertible preference shares in our 75% owned
forestry subsidiary, Argento Limited. During October and November
10 potential investors joined management in visiting our operations
in East Africa, assessing assets and meeting the local teams. On
1st December we were delighted to announce a $14.25m investment,
including $2.15m by Board members. $5.525m of this has been
received to date with the balance due by no later than 30 June 2017
in accordance with the previously announced timetable. Meradell SPV
holders, who had earlier in 2016 subscribed approximately $3.7m,
elected to exchange their holdings for Argento preference shares
and Global Timber converted its $900k investment into Obtala
ordinary shares. The total raise during 2016 amounted to $18.85m, a
significant vote of confidence in the potential of our operations
and in management on the ground. Up to a further $5m is still
pending Investment Committee approval at a large Asian based
financial institution and we hope to have news on this in the near
future.
The success of the capital raise has required a comprehensive
revision of our initial expansion plans, allowing for a more
aggressive approach than originally anticipated. Expansion
consultations are underway and detailed plans for both business
lines will be completed and put into action during Q1 2017.
With the African Home Stores disposal completed, all focus can
now be turned towards completing and implementing these key
strategic plans against the longer term background of significant
planned international infrastructure spend in Tanzania, including
the new port in Bagamoyo and a new railway line linking Tanzania
with Burundi, Rwanda and the Democratic Republic of Congo.
Mozambique too, despite its ongoing negotiations with the IMF, is
attracting large scale foreign investment as confirmed by ENI's
$8bn Northern Mozambique gas project approval and Mitsui & Co's
$750m investment into the Nacala port area.
In preparation for a radical scaling up of the business, we are
investing in a comprehensive Enterprise Resource Planning (ERP)
system to give us not only finance and accounting data and analysis
but immediate visibility on production, procurement, sales and
distribution as well as providing business intelligence for
complete oversight of the business.
Agriculture in Tanzania
Business in Africa often presents a unique set of challenges as
well as rewards, and the hiring of Warren Deats (COO) and Sophie
Hunter (Head of Sales), and their establishment of an office in Dar
Es Salaam has been critical in laying the foundations for the next
phase of business development. The opportunity and real cost of
growing fresh produce to a world-class standard without
comprehensive supply chain management through to the consumer can
be substantial. The creation of this supply chain and successfully
managing trial production through each stage into both domestic and
export markets was a major achievement during Q4, when we completed
our first melon harvest and successfully tested our supply chain
management through to the consumer with exports of fresh melon by
road to Kenya and by sea to Dubai, our principle future target
market. The buyers in both Kenya and Dubai praised the quality of
the produce and repeat orders have subsequently been sent to
Nairobi. An indication of significant future demand has been
received from Dubai. We are planning our planting schedule for 2017
to exploit the window between July and November when sweet melon
and water melon is less readily available locally in Dubai/Middle
East. While we expect to ship in bulk to the Middle East, we are
also reviewing our sales strategy into Dar Es Salaam, East Africa's
most populous and fastest growing city and a huge opportunity on
our doorstep.
We expect to increase land utilization to around 125 hectares in
2017 from the 25 Ha harvested in 2016 with some 500ha targeted for
2018. A substantial increase in agricultural production will
require the construction of larger cold storage and pack-house
facilities. Plans are being drawn up for a purpose built facility
that can be extended in modular fashion as further land is cleared
and irrigated, and we anticipate the first stage of this build to
be completed in time for the 4Q2017 harvest.
During Q4 the business was audited for the renewal of both
GLOBALG.A.P. and BRC accreditation and these inspections were
passed successfully.
Forestry in Mozambique
Creating and testing the supply chain for exporting timber was
equally important for our timber business and was a key target for
Q4. Many hurdles were overcome in the export of our first three
international containers to Durban. The buyer was happy with the
quality and finish of the timber received and has placed repeat
orders.
Initial proceeds of the preference share raise are being
allocated to new forestry plant and equipment, trucks for
transporting timber, and the construction of a central sawmill
capable of handling 100% of the annual permitted cut from our
concessions. Construction will commence in Q1 2017 and we expect
this facility to be operational by Q3 2017. 2017 promises to be an
exciting year for the forestry business. Whilst Mozambique has
banned export of all timber in log form from January 2017, so
encouraging timber processing within Mozambique, many of our
competitor's business models will be challenged forcing them to
seek processing facilities to fulfill orders, or to sell timber in
log form to other producers within Mozambique. We see this as an
opportunity to buy-in wood from other producers to process for our
own international order-book and welcome the government's push
towards more sustainable forestry practices.
Various options are under consideration with regard to
maximizing value from the 'whole log' rather than losing up to 25%
of the tree as 'waste', including but not limited to biofuels,
plywood and charcoal manufacturing. The potential to move up the
value chain, for example through a joinery or furniture factory
also exist and will be explored once the sawmill is
operational.
We have now received a Foreign Direct Investment ID from the
Bank of Mozambique thereby activating our CPI status within
Mozambique conditional upon the phased $3m investment plan as
announced on 26(th) October. We have applied for Industrial Free
Zone (IFZ) status with Mozambique's Office for Accelerated
Development Economic Areas (Gazeda) as intimated in our 26 November
2016 announcement which we expect to receive during H1 2017.
Miles Pelham, Chairman of Obtala commented:
"The decisions taken now with regard to scaling up our
businesses are critical. Significant time and effort is being spent
on detailed planning, reviewing and stress-testing our plans prior
to embarking on the recruitment of skills and capex required to
drive a material step change in revenues from both business
lines.
"We have come a long way during my 7 month tenure of 2016 and I
am pleased with the change we have implemented and the progress
made. As we head into 2017 we leave behind a final quarter where we
proved, tested and stressed the business model, procedures,
logistics and operational competence of management.
"I am happy with our operational progress and we move to the
next stage of utilizing the funds received from our Argento
preference share raising to ramp up production dramatically.
"We should expect more business partnerships throughout 2017 as
we use the deep experience and networks of our new operational
management and investors to broaden our horizons and develop to the
scale envisaged in our Mission Statement.
"I would like to welcome the numerous new investors whom joined
us throughout 2016 and thank existing stakeholders for their loyal
support and commitment. Special thanks goes to on-the-ground
management whom have been placed under immense pressure to enact
change in a quick but stable fashion. The work has been long and
hard but their efforts are already starting to bear fruit.
"I am confident 2017 will be a revolutionary year for the
company as we move forward into growing markets well-funded,
unencumbered, and with a competent and motivated management team.
We are working with reputable independent research houses and we
expect them to initiate coverage within the current quarter."
Obtala Limited
Miles Pelham - Chairman
Paul Dolan - CEO
www.obtala.com +44 (0)20 7099 1940
ZAI Corporate Finance Limited (Nomad)
Ray Zimmerman/ Peter Trevelyan-Clark / John Treacy +44 (0)20 7060 2220
Brandon Hill Capital (Broker)
Jonathan Evans +44 (0)20 3463 5000
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
Mission Statement:
To become one of East Africa's largest sustainable food and
timber producers, consistently delivering world-class product to
the global marketplace. To deliver material, positive social impact
in East Africa through commercial enterprise, helping to alleviate
poverty and enriching the lives of future generations.
This information is provided by RNS
The company news service from the London Stock Exchange
END
MSCGMGZMZKZGNZM
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