Quarterly Update

RNS Number : 9388M

Obtala Limited

14 January 2019

 

14 January 2019

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) 596/2014.

Obtala Limited

("Obtala", the "Group" or the "Company")

(AIM: OBT)

Quarterly Update

Obtala, the African focused forestry and timber trading company, is pleased to provide a quarterly update on operations for the three months ended 31 December 2018 (Q4 of the Group's 2018 financial year).

·     Strategic review of loss-making businesses completed

·   77 containers of own production sawn timber shipped vs quarterly average of 71 for first 3 quarters.

·     $3.7m revenue in Q4 vs $3.2m in Q3*

·     $13.5m revenue FY 2018 vs $8.4m FY 2017*

*Based on unaudited management accounts and including the agriculture operations which are now being disposed of.

Q4 provided another quarter of incremental progress for the Group with revenues increasing by 16% over the previous quarter to $3.7m, and providing a strong finish to 2018 with revenues increasing 60% year over year to a new high of $13.5m. Aside from the disposal of agricultural assets in Tanzania (see below), the principal focus for the Group continued on increasing output from our profitable assets in West Africa, reducing costs, attracting additional trade finance funding, and improving margins by leveraging our fixed cost base to reduce cost of production.

Tanzania - Agriculture

As stated in RNS of 30^th October 2018, a comprehensive review of the legacy businesses in East Africa was completed during Q3 and the decision was taken to seek a strategic partner or to fully spin out the agriculture business in Tanzania. Following dialogue with various interested parties an agreement with Envision Consulting (T) Limited has been reached, the details of which were communicated by RNS on 10^th January 2019.

Veneer factory

Feedback from customers regarding the quality of veneer output has been unanimously positive and bodes well for the objective to generate significant revenues and profitability from this prime asset. Improvements to the factory during Q4 included the installation of an electronic bobbin to capture the peeled veneers and speed up the initial phase of the process. As we seek to increase output and improve workflows, additional capex has been allocated to the installation of a debarking machine, two hydraulic lifters and a hydraulic press. All were placed on order during Q4 2018 and will be installed during Q1 2019, reducing some of the hitherto more manual aspects involved in production and post-production processes.

Unsurprisingly for a new facility, recovery ratios of the most valuable 'face' veneers, have yet to match the industry standard, and we have room for improvement. A new manager, Mr Driss Farissi, joined us in mid-December to take overall charge of the facility and he will be responsible for delivering best-in-class recovery rates and scaling up production. Mr Farissi is a Moroccan national and has more than 25 years of experience in veneer production and factory management in African countries including nine years in Gabon.

Sawmill

A new sawmill line of Wood-Mizer equipment arrived in Gabon from South Africa at the end of December 2018 and is scheduled to be commissioned and fully operational by the end of January 2019. Civil engineering works have been undertaken to make improvements to the hangers that will house the new sawmill line. The new equipment will improve the finished quality of our sawn lumber which will in turn open new export markets for our own production, enhancing our status with clients as we move towards our objective of becoming industry leaders.

An order has been placed with Techdry of China for kilns with a capacity of approximately 1000m3. The kilns are scheduled to arrive during Q2 2019 and we expect them to be operational during Q3 2019. At current rates of production, using our own kilns rather than the existing outsourcing drying arrangement will create a saving of approximately $700,000 per year which will go straight to our bottom line. This saving will increase in line with higher levels of production until the kilns are operating at 100% utilisation, once production is at approximately 80% above current levels.

Trading

As announced on January 10^th 2019, $10m has been secured in order to fund the trading arm of the business, signifying a major milestone for the Group on its pathway to becoming a leading player in African timber trading. This additional capital will enable the trading team to supercharge the development of their business during 2019. In line with the rapid growth of urban populations across Sub-Saharan Africa, we will seek to develop our intra-African trading and supply chains, as well as expanding the established WoodBois business of supplying African timber and timber products to clients around the globe. The additional funding will allow us to service the needs of our end buyers through the securing of valuable supplier agreements. While we are excited to embrace this immediate opportunity for growth, we see it as no more than a stepping stone towards building significant scale and will therefore continue to focus attention on increasing our Trade Finance facilities during 2019.

Another key objective for the trading business is the roll out of proprietary technology to connect the trading and operations teams in real time in all locations, enabling optimal return on capital and speeding up information flows and decision making. The technology, developed by software engineers in South Africa, allows for our specific, customised requirements to be bolted on to an inexpensive 'off the shelf' application. We expect the system to pay for itself through a reduction in manpower currently dedicated to time-intensive data gathering and processing. As well as providing performance analytics, the system will serve to improve internal controls and reduce key person risk, both of which are critical as we seek to scale up the business significantly over the next 24 months.

CEO Paul Dolan commented, "The positive transition within the operating business during 2018 has resulted in a further upward rebasing of revenues, a trend we expect to accelerate into 2019. The efforts made to generate this result have been mirrored by intensive management focus on cost reduction, streamlining of the corporate structure, strengthening the balance sheet and creating a board with the strongest possible credentials within our chosen sphere of competition. I look forward to communicating further progress on all of these fronts during 2019."

Obtala Limited Miles Pelham - Chairman Paul Dolan - CEO www.obtala.com	[phone]
Arden Partners Plc (Nominated adviser and broker) Tom Price Maria Gomez de Olea	[phone]

 

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