Quarterly update

RNS Number : 6096C

Obtala Limited

02 October 2018

 

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

2 October 2018

Obtala Limited

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

(AIM: OBT)

Quarterly update

Obtala, the African focused agricultural and forestry company, is pleased to provide a quarterly update on operations for the quarter ended 30 September 2018 (Q3 of the Group's 2018 financial year).

·     US$3.2m revenue in Q3 consistent with average quarterly revenue of US$3.2m in H1

·     3900m3 of sawn timber produced vs average quarterly production of 3700m3 in H1

·     90 containers of own production sawn timber shipped vs quarterly average of 62 containers in H1

·     US$2.25m of additional trade financing received in Q3

·     Strategic review of loss-making divisions underway

Q3 provided another solid quarter of progress for the Group. Although the revenue run rate was slightly slower than the previous quarter, year to date revenues have now comfortably surpassed that of the full year in 2017 and revenues for the current financial year are expected to exceed US$10m for the first time in the history of the Company. August is typically a slow month in West Africa with a large number of public holidays but September proved to be a record month for the number of containers of sawn timber shipped from Gabon. Revenues for shipments made in late September will be recognised in Q4.

The principal focus for the Group remained on increasing output from our profitable assets in West Africa and improving margins by leveraging our fixed cost base to reduce cost of production.

Forestry

Output of sawn timber totaled 3,900m3 vs 3,800m3 in Q2 and 3,600m3 in Q1. 95% of sawn timber production came from Gabon despite the August holiday season. Total output at the sawmills during 2018 has already comfortably exceeded that of 2017. As Gabon's rainy season commences in October we can expect to see our overall production decrease slightly in the final quarter of the year.

Q3 saw the handover of the new veneer factory from the installation team to the newly hired veneer production team. Training of the local labour force has been taking place and work-flow processes developed. Minor modifications have been made to equipment, all of which is now fully functioning and the factory is currently operating 8 hour daily shifts. Trial orders have been completed and are in transit to clients. Our quality controllers are happy with the specification and quality of output but we intend to review detailed customer feedback before increasing production levels.

Our upgraded logistics team in Libreville have had an immediate impact by shipping a total of 90 containers, almost 30% more than in the previous quarter. We intend to further de-risk the Group's supply chain logistics via agreements with additional shipping lines. Revenues from containers shipped late in September will fall into Q4 earnings.

With regard to sawn timber from Mozambique, we have little to add to comments made at the end of Q2. MITADER, Mozambique's ministry of land, environment and rural development has still not announced the definition of what would constitute a 'finished product', so export of any 2018 harvest is not viable. We have elected therefore to perform a very limited harvest this year, which will be sold exclusively into the domestic market. Mozambique accounted for less than 5% of total sawn timber production during Q3.

Agriculture

The 2018 harvest of 24 hectares of sweet melon is currently underway and initial containers have been sent to Dubai and the UK. The percentage of Caribbean King Melons to reach the size demanded by the Middle Eastern market has been lower than expected, hence the shipments of smaller sizes to the UK where we are currently waiting to see what prices will be achieved. There are many potential reasons for the fruit being smaller than expected, including spray programme, irrigation settings and fertilizer applied, but it is most likely that the limited amount of direct sunlight has been an influence as Morogoro has experienced unusually overcast weather since July.

Trading

The order book for the trading business remains very healthy at more than US$10m and we look forward to converting more of this business as Trade Finance facilities grow. Our internal trading fund (ITF) attracted additional capital during the quarter and now stands at US$4m. The vehicle pays 11.5% to lenders and is secured against receivables, inventory and timber that has been invoiced and received from third party suppliers. The initial tranche of ITF deployed in January 2018 has been recycled on average every 80 days and average margin per trade has been above 10%. We believe the high levels of proven returns provide compelling evidence for potential investors as we seek to scale the trading business.

Group

With top-line growth showing an encouraging trajectory, management focus must now fall squarely on the underperforming, loss-making legacy areas of the business as we seek to complete the turnaround by delivering a positive bottom line. The results for the first half of 2018 laid bare the reality of the improvement that is required. As announced simultaneously with the results for H1 2018, a strategic review of these business units is now underway, with all recommendations to be considered and examined in detail by the board. As previously stated, the board is unlikely to accept any proposal that involves material losses from any business line being sustained in the next financial year.

Our most recent announcement also signaled our intention to sign up to the principles of the Quoted Companies Alliance Corporate Governance Code (the "QCA Code") which I am pleased to say that Obtala has now adopted. The QCA is an independent membership organisation that champions the interests of small to mid-size quoted companies.  The QCA Code helps put into practice a worthwhile, effective and flexible governance model for the Company. It identifies ten principles to be followed in order to deliver growth in long term shareholder value, encompassing an efficient, effective and dynamic management framework accompanied by good communication and positive engagement between the Company and all of its stakeholders.

With these principles firmly in mind, I look forward to updating shareholders with the findings from our strategic review ahead of our next quarterly update.

Paul Dolan

Chief Executive Officer

Obtala Limited Miles Pelham - Chairman Paul Dolan - CEO Martin Collins - Deputy Chairman www.obtala.com	[phone]
Northland Capital Partners Ltd (Nomad and Broker) Tom Price Jamie Spotswood	[phone]

 

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