April : Obtala exceeds production and sales records in Q1 update
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Obtala exceeds production and sales records in Q1 update
Obtala exceeds sales and production
records
- Invoiced sales of $3.9m
- Quarterly record exceeded for contracted sales - $8m
- Quarterly record exceeded for export grade timber production - 3,600m3
- Successful $6.35m equity raise, including 24% subscription from management.
- Negotiation of external trade finance facility for expansion of timber trading unit ongoing and on track for first draw down during Q2 2018
- Gabon veneer factory in test phase, production to commence Q2 2018
- Mozambique sawmill construction completed on time, ahead of 2018 cutting season.
- Extension to MOU with NSMS to purchase 100% of NSMS share capital
- Production plans for 2018 agri business in Tanzania completed, including the return of 200 hectares of agricultural land to local partner
Strong start to 2018
The
Group has
enjoyed a
positive start
to 2018, with
further
operational
milestones
achieved on
the path to
our most
pressing
objective, to
become
cash-flow
positive, and
towards our
longer-term
objective of
achieving high
levels of
sustainable
profitability.
These
milestones
include the
setting of new
records for
timber orders
received and
for volume of
production
achieved. 2017
saw the group
extend its
reach to West
Africa,
acquiring
WoodBois, a
business with
strong
management,
significant
assets and
proven
production
capability. As
per our RNS of
30 January
2018, the
successful
$6.35m equity
raise in Q1
2018 was
largely
earmarked for
investment
into
compelling
opportunities
presented to
the board by
the WoodBois
management
team to
accelerate
returns from
their
businesses.
The funding of
these
opportunities
commenced
immediately
upon receipt
of funds in
February 2018
and we
anticipate a
rapid return
on investment.
Gabon
Our
new veneer
factory in
Gabon has
moved into
test phase
with
production
anticipated to
commence early
in Q2 2018.
Veneer is
expected to be
our highest
margin
business line.
Achieving
capacity
output is a
priority for
2018 and
resources will
be allocated
accordingly.
Some
additional
custom-built
engineering
modifications
have been
incorporated,
which will
allow for the
addition of a
plywood making
line to be
added in the
future, taking
us one further
significant
step along the
value chain.
Any additional
investment
will be funded
from free cash
flow.
On 28 March
2018 we took
delivery of
two brand new
bulldozers and
three MAN
trucks,
financed via
the recent
equity raise.
This new
equipment will
facilitate the
transportation
of volumes of
timber from
our
concessions
sufficient for
the veneer
factory to run
at capacity.
The achievable
volume of sawn
timber
production
from the
Group's
sawmill in
Gabon has, to
date, been
constrained by
the amount of
timber
received from
our
concessions,
which is a
function of
available
harvesting
equipment. The
aforementioned, recently purchased bulldozers and trucks, in addition to
supplying our
veneer
factory, will
also supply
additional
timber to our
sawmill,
sufficient to
increase
output by
~20%. The
level of log
extraction
required in
order for both
the veneer
factory and
the sawmill to
operate at
capacity is
less than 2%
of what is
sustainably
viable and
legally
permissible
from our
concessions.
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Two new Komatsu
Bulldozer |
Three new MAN trucks |
Mozambique
The
sawmill in
Nampula,
Mozambique
came online in
Q1 2018, with
the arrival of
brand new
Wood-Mizer
processing
equipment from
South Africa
and some older
equipment
moved to
Nampula from
the existing
sawmill in
Uape. No
harvesting is
permitted in
Mozambique
from January
to March each
year but
testing of
production
lines at the
new sawmill is
being
conducted on
timber
harvested from
our
concessions
during Q4
2017.
An Obtala
delegation
will travel to
Mozambique
during Q2 2018
and will
continue
discussions
with
FundInvest as
per our RNS of
9 January 2018
with the aim
of creating a
business plan
that aligns
the mandates
and interests
of both
parties. There
is a
possibility
that no
agreement will
be reached,
but either
way, any
further
infrastructure
investment
will be
focused
exclusively on
West Africa in
the interim
until these
discussions
are concluded.
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Sawmill structure
complete |
Setting up the new Woodmizers |
NSMS
As
per the
announcement
of 29 March
2018, we have
agreed an
extension to
our MOU with
NSMS in order
to complete
our due
diligence and
observe more
sample data.
Under the
terms of the
original
announcement,
Obtala,
through
Argento, has
provided a
CFA450m
($845k) loan
to NSMS to
pre-finance
the production
of timber in
the Ivory
Coast,
repayable over
9 months from
31 March 2018,
in return for
exclusivity
over this
production.
Under the
extended
agreement, at
any time up to
1st April
2019, Obtala
can serve
written notice
via Argento to
purchase 100%
of NSMS' share
capital.
Should the
acquisition
not be
pursued, the
loan becomes
repayable in
full. Initial
deliveries
from NSMS have
been received,
put through
the kiln
drying process
in Abidjan and
have already
been shipped
to North
America.
Margins
within our
trading
business are
variable, but
in general are
lower than
that of our
production
business. The
trading
business can
be scaled more
rapidly than
our production
business
however, and
given that we
are currently
capturing less
than 0.5% of
market share,
the level to
which it can
be scaled is
substantial.
Timber Trading
The key
constraint to
growth of the
trading
business is
the amount of
capital
available.
Our timeline
to scale and
optimise the
trading
business is as
follows:
- close initial $5m trade finance facility Q2 2018
- increase trade finance facility H2 2018
- reduce average cost of trade finance facility 2019
Securing a
trade finance
facility has
taken longer
than
anticipated
but we are now
at an advanced
stage with an
established
provider and
feel confident
that we will
be able to
satisfy their
criteria in
full during Q2
in order to
secure an
initial $5m
trading
facility.
Since timber
is largely a
non-perishable
product, once
a sales
contract is in
place and the
product is
'Free on
Board', risk
to capital
employed is
minimal. The
$1m facility
provided by
management at
a market rate
of 11.5% has
been fully
deployed,
providing
multiple
example trades
as evidence
for potential
providers.
Increasing
this facility
and driving
down the
associated
cost of
capital as
providers
become
familiar with
our trading
cycles and
associated
risks will
remain a high
priority for
the management
team
throughout
2018 and 2019.
The main
difference
between trade
finance and
working
capital
finance is the
collateral and
the turnover.
A factory is
easily
identifiable
by a lender
and attracts
lower
rates.Timber
orders are
less "visible"
and lenders
require higher
rates despite
historically
low
client default
rates. However
with a typical
customer
timber order
to delivery
taking
3 months we
can use this
capital 3-4
times per
year, covering
the higher
lending cost.
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Mouilla, Gabon |
Okoume Timber, Gabon |
Agriculture
2018
will see the
start of our
Hybrid Orchard
Model, with up
to 500
hectares of
mango saplings
planted over
future years.
We have agreed
to return the
lease on 200
hectares of
land to one of
our local
partners since
we are unable
to commit to a
timeline to
fully
cultivate
their land.
The
termination of
this agreement
in no way
inhibits our
future plans.
Our rate of
planting will
be dependent
on either free
cash flow
generated via
sale of cash
crops or on
external
'patient
capital'
funding. With
full supply
chain
logistics and
cold chain at
3 degrees from
farm to
off-taker in
Dubai
successfully
tested in
2017, the agri
business has
developed into
a low-cost,
low-maintenance
option on
future annuity
income,
without
distracting
management's
attention from
the more
immediate
revenue
generating
opportunities
that we
believe exist
in the
forestry
space.
![]() |
![]() |
Refrigerated Reefer
loading at our
Packhouse. 18,200kg
Caribbean King Melons
bound for Dubai |
Yellow Honey Dew Melons sold in Nairobi, Dar es Salaam and Dubai |
Source: Obtala