TIDMOBT
RNS Number : 1634B
Obtala Limited
08 January 2018
8 January 2018
Obtala Limited
("Obtala", the "Group" or the "Company")
(AIM: OBT)
Q4 2017 Quarterly Business Update
-- Q4 2017 momentum to result in record annual revenue for
Obtala, with contribution from all divisions; forestry production,
timber trading and agriculture
-- First step in expansion of timber trading division announced
with $1m loan capital from senior management. External trade
finance facility on track for first draw down Q1 2018
-- 11,000m3 of logs harvested and 3,500m3 of export grade timber
produced. Forest production in Gabon up 63% since WoodBois
acquisition
-- Mozambique sawmill construction on budget and expected to be
operational in time for cutting season. Veneer factory in Gabon on
track to commence production Q1 2018
-- MOU signed for establishment of community forestry concession
in Mozambique with witness and support of World Bank
-- Successful distribution of agriculture produces by sea, air,
and truck. First 3.8t aircraft container of mangoes sent to Dubai
via airfreight
Strong End to Year to Result in Record Annual Revenue
In Q4 2017 all business lines generated revenues and achieved a
number of key operational milestones on the back of the planned
capital expenditure and organisation building that took place in
the first half of the year. The forestry and agriculture boards
have consolidated their strategy for 2018, and through the
budgeting process, the Obtala Board has determined the optimal
capital allocation for the Group. The WoodBois acquisition and
integration has confirmed our view that the lack of capital
available to African enterprises creates compelling opportunities
to acquire and invest in strong management teams and we are
delighted to have found in WoodBois an excellent platform to
develop our business in West Africa.
Forestry Production
The significant investments made in harvesting capacity have led
to high levels of production despite the rainy season in Gabon
(October-January) and Mozambique (from December). A total of
11,000m3 of logs were harvested and 3,500m3 of sawn timber produced
in Q4 2017.
Month to month increases in harvesting production in Gabon were
tempered by the impact of the rainy season which started three
weeks early. However, total production in H2 2017 was still up 63%
on H1 2017. Focus remains on doubling harvesting capacity in time
for the dry season, in order to increase utilization of the sawmill
and new veneer factory which will be operational. We are in the
process of evaluating options for additional equipment and
expanding our team of mechanics and bulldozer operators. The veneer
factory is expected to commence production in Q1 2018. A team of
engineers from Morocco has been on site commissioning the machinery
since November 2017, and will remain on site after the factory
opens. The market for logs remains strong in Gabon as producers
struggle to find sufficient raw material for their veneer and
plywood factories. Although we continue to harvest only a fraction
of our available sustainable cut, our preference is to use all
additional logs harvested to increase production at our sawmill and
veneer factory to maximize margins. We intend to increase the
production capacity of our veneer factory through the potential
purchase of an additional dryer and a plywood production line.
These investments will only be made in the second half of 2018
after the veneer factory meets performance targets.
Link to progress photos of new veneer factory:
http://www.obtala.com/images-gabon-veneer-factory.html
In Mozambique, we were operational in 4 concessions in Q4 2017
with continued focus on increasing harvesting capacity under the
direction of Ivan Muir. As of January 2018, Ivan has been appointed
COO of Argento Mozambique and will be responsible for all aspects
of the daily running of the business. Patrick Greene will remain as
Company Administrator but will operate in a new role of managing
senior external relationships. Armando Antonio has also been hired
as Export Manager, based in Nacala, to handle increasing export
volumes.
Under the direction of Argento board member Tom Holroyd, the
construction of the new sawmill in Mozambique is almost complete
and remains on budget. The sawmill is set to be fully operational
within Q1 2018 and will be one of the largest in Sub Saharan
Africa. The scale of our project and quality of construction has
attracted a great deal of interest and we are exploring several
opportunities to leverage our new base of operations as a centre
for value added timber processing in Northern Mozambique.
Link to progress photos of new sawmill:
http://www.obtala.com/images-mozambique-sawmill.html
Timber Trading
The priorities for the timber trading division in Q4 2017 were
to secure additional trade finance and lay the groundwork with key
suppliers to facilitate profitable growth in 2018.
After talking to various potential partners, we moved forward
with a trade finance institution that offered us the required
flexibility to make best use of additional funds to grow the
trading business. We will also be able to make use of the facility
to manage increases in working capital expected from the forestry
production division, especially as the new veneer factory comes
online in Gabon. On January 2, 2018 we announced that an initial
$1m in loan capital has been secured to complement external trade
finance. The preparation for securing and managing an external
trade finance facility has involved a review of the risks
throughout our timber supply chain and the implementation of new
insurance policies and associated training. Our forestry subsidiary
Argento Ltd has received the Category 1 Global Business License,
ahead of transferring the trading division's operations to
Mauritius.
We have been negotiating with key suppliers to offtake increased
levels of production on the back of strong demand for African
hardwood and higher levels of trading capital. This will set the
business up for further profitable growth in 2018, with decisions
based on maximizing the return on trading capital. On the demand
side, the outlook for 2018 in China will become clear as buyers
return after Chinese New Year. The strongest growth in demand for
African hardwoods, including Okoume (the primary species produced
in Gabon) has been from North America and we expect this trend to
continue in 2018. Demand in the Middle East has been flat while
sales to Pakistan have been growing on a monthly basis with strong
demand for red hardwood species. We have continued to explore JV
discussions with our strategic partners in Pakistan as we formalize
our strategy for WoodBois Asia in H1 2018.
Agriculture Update
In Q4 2017, we further broadened our product set to include
Whitehaven sweet melons, aubergines, sweet peppers, round tomatoes
and pumpkin. In addition to these new products, we have also
harvested and sold Caribbean King sweet melons, yellow honeydew
sweet melons, watermelon and butternut.
Since the completion of our upgraded refrigerated pack house, we
have successfully delivered seven, 40-foot, refrigerated containers
of sweet melons to Dubai by sea. The eighth and final container of
the season is en route to Dubai, due for arrival mid-January.
Cold chain integrity is fundamental to the success of the
business and we are very pleased to report that our upgraded pack
house is performing at the world class level anticipated. We have
not suffered any cold chain issues throughout the entire season.
This creates a fantastic platform for expansion of our program into
2018 as we can now confidently step up the capacity utilization of
the facility.
We did, however, initially have some quality issues in the field
due to the prolonged rains at the beginning of the planting season.
As a result, we encountered lower pack out rates and higher
spoilage rates of our sweet melon harvest. As the season unfolded
we steadily returned to the levels we would expect under normal
"growing conditions."
The expansion of our growth plan to include the market garden
has proved successful too and through our local Mama Jo's sales
team we have delivered and distributed thirteen refrigerated trucks
of produce to different markets in Dar es Salaam, including a
variety of retail and wholesale outlets. In addition to this, we
have also sent four refrigerated trucks of produce to Nairobi via
our exclusive Kenyan distributor.
As part of our future expansion plans into mango orchards we
have successfully sold fresh mangos into Dar es Salaam through our
own local sales team as well as into Zanzibar, via an exclusive
agent. In addition, for the first time ever, we delivered a 3.8t
aircraft container of fresh mango, to Dubai via airfreight where
the fruit was sold via our exclusive wholesaler.
We continued to build strong foundations for the future of the
agriculture business in Q4 2017, developing a clear edge through
consistent cold chains, reliable logistics partners and
controllable export routes as well as building track record and
trust with customers. In 2018 we will leverage these capabilities
to increase volumes and explore new global market demand potential
for our produce, whether fresh, dried or crushed, to ensure we
achieve the highest margins possible.
Link to photos of agriculture produce:
http://www.obtala.com/images-agriculture-produce.html
Social Impact Report
Jessica Camus, who joined the Board in Q1 2017, has made
significant progress in leading our social impact initiatives, the
highlight of which was the signing of an MOU with the Uapé
Community Association to jointly manage a community forest
concession in Mozambique. Obtala has committed to supporting the
local community with knowledge transfer of sustainable timber
extraction, protection of forests and access to its processing
facilities. The MOU signing took place took place in the presence
of and with the support of representatives from the local
government and the World Bank. A reforestation project is underway
at Obtala's concession in Uapé to plant a range of indigenous
species, including Chanfuta, Umbila and Pau Ferro. 10,000
tree-seeds will be planted by the end of 2018. Jessica's team are
also working with the timber trading division in the Ivory Coast
with a view to expanding the reporting metrics within our
responsible wood procurement program. In addition to these key
projects, activities have been taking place on a daily basis across
all of our businesses, deepening our relationships with the
communities we operate in. These include electrification projects
and infrastructure upgrades for local schools, sponsorship of
sports teams and food donations to hospitals and orphanages.
Link to photos of social impact activities:
http://www.obtala.com/images-social-impact-work.html
Finance and M&A Strategy
In H1 2018, management will focus on quickly deploying
additional trading capital according to parameters set internally
and externally. We aim to demonstrate the organizational capability
(the Obtala Board has over 90 years of trading experience) to
support further expansion in both internal and external trade
finance and further capitalize on WoodBois' impressive 14-year
track record. Opportunities to pre-finance, sign exclusive offtake
agreements or acquire timber suppliers will be evaluated on a case
by case basis. To assist with this strategy, we have hired a new
strategy manager, formerly of the private equity team at CDC Group,
with experience investing in timber and agriculture businesses. We
have also hired a manager of strategy execution with experience
raising trade finance funds and trading commodities. Both have
spent their careers to date focused on Africa and have deep
experience of our core markets.
We remain in dialogue with various funding bodies regarding
specific projects to scale our agriculture businesses in East
Africa, where our business goals of increasing food production, job
creation, and removing supply chain roadblocks by building
infrastructure are strongly aligned with the priorities of national
governments.
Management is still considering a dual-listing in Asia as we
continue to see strong interest from Asian-based investors
interested in gaining exposure to timber and agriculture resources
in Africa through a public vehicle. Three new research reports,
including one initiation piece, were published in Q4 2017 and are
available for download on the Obtala website.
Quote from Miles Pelham, Chairman of Obtala, comments: "Obtala
is not the same company I joined as Chairman in 2016. The dormant
assets held by the Company in East Africa are now producing, and we
have grown into a vertically integrated forestry and agriculture
business with significant operations in West Africa. This was not
always an easy path, but many lessons have been learned and
important relationships forged. Significant time and capital was
invested in H1 2017 installing a new operating team in each
business, rationalizing corporate structure and building the
infrastructure required to operate at scale. While the result will
be a record year of revenue for the Group, this merely represents
the initial phase of growth for the Company. I am excited for what
2018 will bring and fully expect it to be another year of
exponential growth for the Group."
Obtala Limited
Miles Pelham - Chairman
Paul Dolan - CEO
Martin Collins - Deputy Chairman
www.obtala.com +44 (0)20 7099 1940
Northland Capital Partners Ltd (Nomad and Joint Broker)
Tom Price
David Hignell +44 (0)20 3861 6625
Brandon Hill Capital (Joint Broker)
Jonathan Evans +44 (0)20 3463 5000
Beaufort Securities Limited (Joint Broker)
Jon Belliss +44 (0)20 7382 8300
This information is provided by RNS
The company news service from the London Stock Exchange
END
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