REG - Obtala Limited - Final Results
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) 596/2014.
31 May 2018
Obtala Limited
("Obtala", the "Group" or the "Company")
(AIM: OBT)
Final Results FY2017
· Revenue $8.4 million versus 2016 revenue of $0.6 million
· Profit after tax of $2.2 million versus 2016 loss $5.3 million
· Profit attributable to shareholders $9.9 million versus 2016 loss $4.8 million
· Fair value adjustment (loss) on Biological Asset of $35.3 million
· Deferred tax credit of $12.2m
· Net equity of Group $135.1 million versus $115.4 million in 2016
· Total assets $222.1 million versus $181.1 million in 2016
· WoodBois acquisition successfully integrated within the Group
· Continuing to seek trade finance funding to scale timber trading business
· Scale of operations in Mozambique likely to be limited
· Revenues from Agri division making up less than 5% of Group revenues
· Profitability-driven inter-divisional capital allocation going forward
· To coincide with the 2017 results we have produced a company Sustainability Report http://www.obtala.com/investors-financial-statements.html
To read the results in full go to http://www.obtala.com/investors-financial-statements.html
Chairman Miles Pelham said "An increase in year over year revenues of more than 13x, provides clear evidence that the Group is unrecognisable from its position just 18 months ago. The successful acquisition of WoodBois International has brought significant new skills and knowledge to the Group in the form of a world-class forestry trading and production leadership team, as well as a highly experienced logistics and support team. Our view when making the acquisition was that providing the WoodBois team with additional trading capital, as well as financing the capex required to complete their production facilities in Gabon, would lead to significant value for shareholders. We remain strongly of that opinion."
CEO Paul Dolan commented "With the initial stage of our turnaround complete, Obtala is now in a unique position to bring vital positive impact to Africa's economic transformation, social development and environmental management through our operations. We will allocate our available capital strictly to business lines that demonstrate commercial sustainability through generating positive returns. We believe that the combination of skillsets within the management team that we have assembled during 2017 makes us natural candidates to become industry leaders in African timber trading and production."
Obtala Limited
Miles Pelham - Chairman
Paul Dolan - CEOMartin Collins - Deputy Chairman
+44 (0)20 7099 1940
Northland Capital Partners Ltd (Nomad and Broker)
Tom Price
Jamie Spotswood
+44 (0)20 3861 6625
Chairman's Statement
I am pleased to present the Annual Report and consolidated financial statements for Obtala Ltd (the "Company" and its subsidiaries the "Group") for the year ended 31 December 2017.
The transitional journey that the Company embarked upon in 2016 gathered pace throughout 2017 with significant changes taking place particularly across the timber production and trading business lines. An increase in year on year revenues of more than 13x, detailed in the income statement below, provides clear evidence that the Group is unrecognisable from its position just 18 months ago. Within that time, our leadership team has also changed beyond recognition, and key milestones laid out by the new team have been achieved, including major construction projects which have been completed on time and within budget, no small achievement given the geographies we operate within.
The rapidly growing African timber production and trading industry reflects these geographies and their populations. It is by nature a fragmented, diverse space, with multiple players but lacking a clear market leader. Obtala aspires to achieve such status. Indeed, the fresh approach and ambition of the board was most notably exemplified in 2017 by the transformative acquisition and successful integration of WoodBois International into the Group. This game-changing acquisition marked a significant first step towards achieving this goal.
Cities in Africa are projected to house 500m more people by 2030, but as I've spelled out in previous statements, relying purely on the inevitable demographic-driven benefits for revenue and profitability growth is not an option. We see significant opportunities within both timber and agriculture in Sub-Saharan Africa and our ambition is to grow our businesses and achieve meaningful scale in the most rapidly growing market on the planet through informed, intelligent capital allocation and through harnessing the talents of a young, ambitious, willing and available workforce. Your board will continue to identify opportunities to strengthen the group, perform thorough research and due diligence, take measured risk and put in the hard yards required to close deals where appropriate in the future.
Strategy
Three distinct divisions were formed within the Group during 2017: Trading, Forestry and Agriculture, and a clear strategy has been devised for each. The board continually impresses upon the leadership teams of each division that capital allocation must be both performance and potential driven. Investment, either opex or capex, will only be forthcoming for strategies that can demonstrate significant return to shareholders over time. Running loss-making business lines is not a sustainable business strategy and simply not an option. We will leave no stone unturned in our quest to support and fund businesses where our combination of skills and experience give us an edge. Conversely, if we cannot source the requisite expertise to profitably participate in particular business lines or geographies we will not waste shareholder money by trying. Divestments as well as acquisitions are a possibility and there can be no sacred cows.
Timber Trading
Management will focus on generating a track record in the timber trading division to support an expansion in our levels of internal and external trade finance. Opportunities to pre-finance, sign exclusive off-take 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, Ashkan Rahmati, formerly of the private equity team at CDC Group, with experience investing in timber and agriculture businesses in Africa.
Timber Production
Having materially increased production capacity through construction and purchase of sawmills in Mozambique and Gabon, and with a new veneer factory scheduled to commence production in Gabon during H1 2018, the timber production division will start to generate material revenues during 2018. With strong internal competition now in place for the opex and capex required to further scale the businesses, the commercial environment in each country is certain to influence capital allocation decision making. At the time of writing, the 2018 cutting licences in Mozambique which were due to be issued at the beginning of April have still not been issued. This follows 2017 when they were issued at the end of June, thus compressing the usual 9 month season into just 6 months. Whilst we support the Government's aim of creating an in-country manufacturing industry, commercial reality and the necessity for all subsidiaries to achieve profitability is likely to limit the scale of our operations in Mozambique in the immediate future.
After the 2017 year end the Ministry of Land, Environment and Rural Development (MITADER) in Mozambique, issued a ruling on the exploitation and export of endangered species of timber under which the exploitation and collection of timber of Pterocarpus tinctorius (Nkula), Swartzia madagascariensis (Ironwood) and Combretum imberbe (Mondzo) is forbidden. Obtala has never owned licences to extract any of these species. In addition, the export of Chanfuta, Umbila and Jambire will not be allowed, those three species being licensed only for the domestic market. Obtala has previously exported both Chanfuta and Umbila from Mozambique. We have reviewed the potential financial implications of these measures for the Group, but since Argento's operations in Mozambique are certified by MITADER, if they are adopted into law they should, in the long term, benefit the Group from both an operational and pricing perspective given that illegal operators will be removed from the market. In the short term however, we have reduced our expectation of the level of selling prices that will be achieved from these species. As selling price is an assumption that impacts the standing timber valuation, we have recognized an impairment and corresponding deferred tax credit. Even taking this impairment into account however, total assets within the Group have increased by 23% to US$222.1m, with an improved mix of property, plant and machinery from investment adding to the standing timber valuation.
Agriculture
We are engaged in on-going 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. Equally clear from the income statement below is the position that the Agriculture business currently occupies within the group. Revenues from the Agri division made up less than 5% of the Group total in 2017. Dedication of management time in future will be in proportion to revenue and profitability potential. While we see tremendous long-dated optionality in scaling up our melon/mango hybrid model, this will require patient third-party capital. Any future losses in this division will be strictly limited to the amount of premium we are prepared to pay for such optionality.
Financial results
The Group generated US$8.4 million of revenue in 2017 versus 2016 revenue of US$0.6 million, resulting in a profit after tax from continuing operations of US$2.2 million (2016: loss US$5.3 million). The profit after tax, attributable to owners of the parent, totals US$9.9 million (versus the 2016 loss of US$4.8 million) including a gain on bargain purchase of US$37.525 million, a fair value adjustment (loss) on biological assets of US$35.327 million and the corresponding deferred tax credit of US$12.173 million.
The total equity position of the Group increased to US$135.1 million versus US$115.4 million in 2016. Total assets amounted to US$222.1 million versus US$181.1 million in 2016.
Directorate changes
Simon Rollason (Managing Director) and Jean du Lac (Non-executive Director) resigned from the board in March 2017
Philippe Cohen resigned from the board as Finance Director in July 2017
Frank Scolaro resigned from the board as Non-executive Director in July 2017
Warren Deats resigned as Chief Operating Officer in October 2017
Jessica Camus-Demarche joined as Non-executive Director in March 2017
Carnel Geddes joined as Chief Financial Officer in October 2017
Martin Collins joined the board as Deputy Chairman (exec) in October 2017
We sincerely thank Frank for his ongoing support as largest shareholder, Simon, Jean and Philippe for their many years of service to the Company, and Warren for his hard work and diligence in the initial stages of the business turnaround.
In addition to bringing their considerable skills to the table, the appointments of Jessica and Carnel have provided the board with a more healthy balance of both age and gender. Martin, Jessica and Carnel deserve recognition for the energy, enthusiasm, and incredible appetite for rolling up their sleeves and getting things done.
Outlook
As well as the welcome additions to the main board mentioned above, the acquisition of WoodBois brought significant new skills and knowledge to the Group in the form of a world-class forestry trading and production leadership team, as well as a highly experienced support and logistics team. Our view when making the acquisition was that providing the WoodBois team with additional trading capital, as well as financing the capex required to complete their production facilities in Gabon, would lead to significant value for shareholders. We remain strongly of that opinion.
Attracting trade finance to scale the trading business has proved more time-consuming than initially anticipated, largely due to the non-commoditised nature of the timber market. We have however now received a term sheet for a revolving $5m trade finance facility and will shortly commence work with the provider on the legal process. No assurances can be given that the term sheet will lead to a formal financing agreement or that trade finance will be secured on favourable terms but the Company will make further announcements regarding future funding as appropriate. We will seek to attract additional trade finance during H2 2018, and over time aim to generate a trade finance pipeline sufficient to drive Obtala's next 'step change' in level of revenue generation and profitability. In December 2017, members of the board provided $1m of Internal Trade Finance in order to trial trades and gather data, generate analytics and create track record. Margins from capital deployed and the time period thereof have been consistent with baseline expectations.
Administration costs came in at the high end of expectations for 2017. Post year-end, and with the benefit of significantly improved financial reporting, management have addressed these costs through a comprehensive zero-based budgeting exercise. As well as reducing the size of the board, the following steps have been taken:
· All non-essential travel has been eliminated
· Elimination of any duplication of function across the integrated business lines
· All brokerage and research services have been terminated other than our joint Nomad and broker Northland
Management will continue to provide quarterly updates on the progress of the business.
Previous market forecasts were largely driven by the magnitude and timing of trade finance estimated to be attracted by the Company in order to scale the trading business. As per my previous comments, attracting and growing such funding will continue to be work in progress for the foreseeable future. Whilst the Board expects significant growth in revenue during 2018, an improvement in margins and a continued sharp control of costs leading to improved profitability, the outturn for the year will depend on the timing and quantum of drawdown of trade finance, amongst other factors.
Further global clampdowns on deforestation during 2017, notably in Myanmar and Laos, have led to importers of tropical timber to look elsewhere. Demand for Okoume (our most popular species in Gabon) has increased due to its quality and price-point. The underlying trends in timber bode very well for our assets and revenue and profit generation in the coming years. The active sponsorship of a clampdown on deforestation by developed nations coupled with the projected doubling of the Sub-Saharan population over the coming decades points to increasing tightness in African timber markets, particularly in the high-value hard species that we are exposed to via our sustainable practices. We are working internally and with external partners to provide traceability and chain of custody solutions throughout the timber divisions, possibly utilising blockchain technology.
As evidenced by our quarterly updates, we remain committed to communicating regularly with you, our shareholders, regardless of whether we are ahead or behind the targets that we have set for ourselves. While 13x year on year revenue growth undoubtedly represents a major step-change for the Company, this is merely the initial phase of our intended growth. I am excited for what 2018 will bring and fully expect further step changes in levels of revenue and profitability in the years to come.
I wish to thank all of you, our shareholders, for your continued support.
Miles Pelham
Chairman
25 May 2018
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND TOTAL COMPREHENSIVE INCOME
Notes
2017
2016
Continuing operations
$000
$000
Turnover
2
8,406
630
Cost of sales
(8,310)
(141)
Gross profit
3
96
489
Other income
131
-
Loss on fair value of Biological assets
12
(35,327)
-
Operating costs
(3,743)
(829)
Administrative expenses
(3,990)
(3,488)
Depreciation
(926)
(907)
Share based payment expense
25
(979)
-
Operating loss
3
(44,738)
(4,735)
Contingent acquisition expense
24
(574)
-
Gain on bargain purchase
24
37,525
-
Preference share liability expense
(1,604)
-
Foreign exchange gain
254
-
Finance income
5
20
5
Finance costs
6
(810)
(521)
(Loss) before taxation
(9,927)
(5,251)
Taxation
7
12,173
-
Profit / (Loss) for the year from continuing operations
2,246
(5,251)
Discontinued operations
(Loss) from discontinued operations, net of tax:
- Owners of the parent
- Non-controlling interests
9
(146)
-
(347)
(35)
Profit / (Loss) for the year
2,100
(5,633)
Profit / (Loss) attributable to:
- Owners of the parent
9,861
(4,836)
- Non-controlling interests
26
(7,761)
(797)
2,100
(5,633)
Items that may be subsequently reclassified to profit or loss:
Currency translation differences, net of tax
(2,299)
(24)
Total comprehensive income for the year
(199)
(5,657)
Total comprehensive income / (loss) attributable to:
Owners of the parent
7,562
(4,860)
Non-controlling interests
26
(7,761)
(797)
Total comprehensive income / (loss) for the year
(199)
(5,657)
Total comprehensive income / (loss) attributable to equity shareholders arises from:
- Continuing operations
7,708
(4,478)
- Discontinued operations
9
(146)
(382)
7,562
(4,860)
Earnings per share from continuing and discontinued operations attributable to the owners of the parent during the year (cents per share)
Basic earnings per share
From continuing operations (cents)
8
3.51
(1.70)
From discontinued operations (cents)
(0.05)
(0.14)
From profit / (loss) for the year
3.46
(1.84)
Diluted earnings per share
From continuing operations (cents)
8
2.39
(1.70)
From discontinued operations (cents)
(0.05)
(0.14)
From profit / (loss) for the year
2.36
(1.84)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to the owners of the parent
Share capital
Share premium
Merger reserve
Preference share capital
Foreign exchange reserve
Share based payment reserve
Retained earnings
Total
Non-controlling interests
Total equity
$000
$000
$000
$000
$000
$000
$000
$000
$000
$000
At 1 JANUARY 2016
4,104
17,968
44,487
-
(2,081)
1,580
25,061
91,119
29,477
120,596
Loss for the year
-
-
-
-
-
-
(4,836)
(4,836)
(797)
(5,633)
Other comprehensive income:
Currency translation differences
-
-
-
-
(24)
-
-
(24)
-
(24)
Total comprehensive income for the year
-
-
-
(24)
-
(4,836)
(4,860)
(797)
(5,657)
Transactions with owners:
Sales of subsidiary
-
-
-
-
-
-
311
311
(311)
-
Issue of ordinary shares
136
-
-
-
-
(136)
-
-
-
-
Reserve transfer
-
-
-
-
-
(46)
46
-
-
-
Exchange differences on translating into presentational currency
-
-
-
-
486
-
-
486
-
486
At 31 December 2016
4,240
17,968
44,487
-
(1,619)
1,398
20,582
87,056
28,369
115,425
Profit / (Loss) for the year
-
-
-
-
-
9,861
9,861
(7,761)
2,100
Other comprehensive income:
Currency translation differences
-
-
-
-
(2,299)
-
-
(2,299)
-
(2,299)
Total comprehensive income for the year
-
-
-
-
(2,299)
-
9,861
7,562
(7,761)
(199)
Transactions with owners:
Issue of preference shares
-
-
-
14,318
-
-
-
14,318
-
14,318
Issue of ordinary shares
260
4,372
-
-
-
-
-
4,632
-
4,632
Share based payment expense
-
-
-
-
-
979
-
979
-
979
Reserve transfer
-
-
-
-
-
(1,398)
1,398
-
-
-
At 31 December 2017
4,500
22,340
44,487
14,318
(3,918)
979
31,841
114,547
20,608
135,155
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2017
2016
Notes
$000
$000
ASSETS
Non-current assets
Assets under construction
11
883
-
Biological assets
12
192,501
174,528
Property, plant and equipment
10
17,741
1,935
Total non-current assets
211,125
176,463
Current assets
Trade and other receivables
13
3,441
241
Inventory
14
5,484
1,017
Cash and cash equivalents
16
2,089
3,398
Total current assets
11,014
4,656
TOTAL ASSETS
222,139
181,119
LIABILITIES
Current liabilities
Trade and other payables
17
(4,017)
(9,846)
Borrowings
18
(6,472)
-
Contingent acquisition liability
24
(574)
-
TOTAL CURRENT LIABILITIES
(11,063)
(9,846)
NON-CURRENT LIABILITIES
Borrowings
18
(742)
-
Deferred tax
7
(61,728)
(55,848)
Preference share liability
19
(12,588)
-
Other related party payables
27
(863)
-
Total non-current liabilities
(75,921)
(55,848)
TOTAL LIABILITIES
(86,984)
(65,694)
NET ASSETS
135,155
115,425
EQUITY
Share capital
20
4,500
4,240
Share premium
21
22,340
17,968
Merger reserve
22
44,487
44,487
Preference share capital
19
14,318
-
Foreign exchange reserve
(3,918)
(1,619)
Share based payment reserve
25
979
1,398
Retained earnings
31,841
20,582
Equity attributable to the owners of the parent
114,547
87,056
Non-controlling interests
26
20,608
28,369
TOTAL EQUITY
135,155
115,425
CONSOLIDATED STATEMENT OF CASH FLOWS
2017
2016
Notes
$000s
$000s
OPERATING ACTIVITIES
(Loss) before taxation
(9,927)
(5,251)
Adjustment for:
Depreciation of property, plant and equipment
11
926
907
Loss from discontinued operation
9
(146)
-
Fair value adjustment of biological asset
12
35,327
-
Inventory losses
3
977
-
Movement in foreign exchange
(
(2,553)
-
Contingent acquisition expense
24
574
-
Preference share liability
1,604
-
Reserve transfer
419
-
Finance income
(20)
-
Finance costs
6
810
521
Loss on disposal of subsidiary
-
382
Gain on bargain purchase
24
(37,525)
-
Decrease in trade and other receivables
521
195
(Decrease)/increase in trade and other payables
(9,857)
6,846
Decrease in inventory
(2,884)
(162)
CASH OUTFLOW FROM OPERATIONS
(21,754)
3,438
Finance costs paid
(154)
(521)
Finance income received
20
-
Income taxes received
7
-
-
Net cash OUTFLOW from CONTINUING operations
(21,888)
2,917
INVESTING ACTIVITIES
Net cash outflow from acquisition of subsidiary
24
(6,683)
-
Expenditure on assets under construction
11
(883)
-
Expenditure on property, plant and equipment
10
(4,040)
(493)
Net cash (OUTFLOW)/INFLOW from investing activities
(11,606)
(493)
FINANCING ACTIVITIES
Net receipts in loans and borrowings
5,827
-
Proceeds from the issue of ordinary shares
1,056
-
Proceeds from the issue of preference shares
25,302
-
Net cash inflow from financing activities
32,185
-
(DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS
(1,309)
2,424
Cash and cash equivalents at beginning of year
3,398
974
CASH AND CASH EQUIVALENTS AT end of YEAR
2,089
3,398
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