Obtala Limited Acquisition of WoodBois International ApS (0223G)

TIDMOBT

RNS Number : 0223G

Obtala Limited

24 May 2017

24 May 2017

Obtala Limited

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

(AIM: OBT)

Acquisition of WoodBois International ApS

   --           Acquisition of WoodBois, a leading global trader and producer of sawn timber 
   --           Profitable for past 5 years and immediately cash accretive to the Group 
   --           Historic trading revenues c$15m, profits invested in production assets 

-- 102,000 acre concession in Gabon with fully operational 24,000m3 sawn capacity sawmill, 18,000m3 veneer plant opening in 2017

   --           Consideration of $14.8m over 3 tranches and including c$4m Obtala equity 
   --           Deferred consideration over 5 years tied to management retention 

Obtala Limited (AIM: OBT), the African focused agricultural and forestry company, is pleased to announce the acquisition through Argento Limited (its 75% owned forestry subsidiary) of WoodBois International ApS ("WBI"), a global trader and producer of sawn timber, for a total consideration of US$14.8 million (approximately GBP11.4 million).

WoodBois International

Founded in 2004, WBI is engaged in the global trading of sawn timber sourced from 100s of exclusive timber producers throughout Africa, as well as the production of sawn timber planks and veneer from its concessions in Gabon. WBI is headquartered in Copenhagen, Denmark, with African trading operations based in Abidjan, Ivory Coast, where the company leases warehouse space for inventory. WBI has a diverse buyer base with no pronounced customer or regional concentration with sales into the Middle East (33%), Europe (17%), USA & Canada (15%) as well as into Africa (14%), South America (13%) and Asia (9%). WBI's concessions in Gabon total 102,000 acres (41,278 hectares) with an annual permitted cut of 70,000m3, the primary species of which is Okoume. The concession rights have no expiration but are renewable annually and are all located within 70km of WBI's sawmill and veneer facility in Mouila, Gabon. WBI, like Obtala, is committed to sustainable forestry management and intends to seek FSC (or similar) certification in the near future.

Terms of the Acquisition

Argento will acquire 100% of the share capital of WBI, including all land, fixed assets, inventory and the forestry concessions in Gabon. The immediate plan is to accelerate the expansion of WBI's sawmill (current annual capacity of 24,000m3 sawn timber) and complete the upgrade of their veneer facility (planned annual capacity of 18,000m3 veneer) within 2017. Expansion of both business lines is estimated to cost US$500,000 in capex.

Historically investment in production has come primarily from funds generated by WBI's trading business, whose growth has been limited only by access to capital and trade finance that Obtala can source. WBI's founder directors, Zahid Abbas and Jacob Hansen, each of whom are former DLH Group executives (one of the world's largest timber trading companies) with over 20 years' experience in African timber sales and procurement, will remain with Obtala for a minimum of 5 years, while Hadi Ghossein, a former diplomat and Gabonese citizen who manages operations in Gabon, has committed for a minimum of 3 years.

Obtala will acquire the entire issued share capital of WBI, for a total consideration of approximately US$14.8 million to be satisfied by a mixture of cash and new Obtala ordinary shares payable in three tranches, subject to satisfactory completion of Obtala's due diligence:

-- Tranche 1: Initial cash consideration of US$3 million (approximately GBP2.31 million); and the issue of 15,641,499 new Obtala ordinary shares within five business days of completion of the due diligence period ("Completion");

-- Tranche 2: Further cash consideration of US$3 million (approximately GBP2.31 million) on the earlier of 30 September 2017 and 120 days after Completion; and

-- Tranche3: Deferred cash consideration of US$5 million (approximately GBP3.85 million) payable over five years in equal quarterly payments commencing 30 September 2017.

The consideration shares to be issued as part of the Tranche 1 consideration, with a value at 19.0p per share of GBP2.97 million (approximately US$3.84 million), are subject to a 24 month lock up period, with any disposal subject to Obtala's consent and orderly market provisions. They represent approximately 5.63% of Obtala's current issued ordinary share capital. Any shortfall (or excess) in working capital relative to debt assumed on completion, though not expected to be material, will be offset by a purchase price adjustment to Tranche 2 and Tranche 3 payments. Tranche 2 and 3 payments are conditional on the continued employment of WBI's two founder directors, Zahid Abbas and Jacob Hansen.

During the year to 2015, WBI recorded earnings before interest and tax in Danish Krone of DKK 2.54 million (then equivalent to approximately GBP247,000) on turnover of DKK 106.8 million (then approximately GBP10.40 million), and as at 31 December 2015 had total assets of DKK 56.92 million (then approximately GBP5.61 million).

Commenting on the acquisition, Miles Pelham, Chairman of Obtala said: "WBI's decades of experience in the timber industry leaves them uniquely positioned in the sourcing and global distribution of African timber. Obtala has plans for the rapid expansion of WBI's trading business, which to date has been constrained by a lack of access to capital, and which we have great confidence will drive revenue and margin expansion in the forestry division.

Strategic capex in the production assets in Gabon have already been identified which will generate cost savings and enable entry into higher margin product lines, in line with Argento's strategy in Mozambique. I am delighted that WBI's founders have accepted a substantial deferred consideration and committed to remaining with Obtala for at least the next 5 years. We can see tremendous upside to what is already by a very accretive acquisition from WBI management's standalone projections.

This acquisition marks a step-up the value chain as we look to position Obtala at points where our margins are maximized and where we see long-term sustainable growth and synergies. Extensive work has been undertaken during the last few months examining businesses that exhibit motivated & committed management, strong synergies, that are at or near cashflow positive, and where a partnership with Obtala will lead to a mutually strengthened platform.

We will continue to follow a strategy of increasing shareholder value both organically and by acquisition/partnerships within our two defined strategies of Agriculture and Forestry, and no other."

Commenting on the acquisition, Zahid Abbas, Co-Founder of WBI said: "We are delighted to partner with Obtala, whose knowledge of international finance and access to trading capital will enable our business to reach a level we would not have otherwise conceived. We have been impressed with management's understanding of African timber markets and the unique value proposition that we can deliver in partnership with Obtala's existing African operations.

We are committed to helping Obtala's existing forestry business move up the value chain to achieve its targets and see substantial synergies in our partnership."

 
Obtala Limited 
 Miles Pelham - Chairman 
 Paul Dolan - CEO 
 www.obtala.com                               [phone] 
ZAI Corporate Finance Limited (Nomad) 
 Peter Trevelyan-Clark / John Treacy          [phone] 
Brandon Hill Capital (Joint Broker) 
 Jonathan Evans 
                                              [phone] 
 Beaufort Securities Limited (Joint Broker) 
 Jon Belliss                                   [phone] 
 

This announcement contains information which was previously inside information for the purposes of Article 7 of the Market Abuse Regulation EU Regulation 596/2014.

This information is provided by RNS

The company news service from the London Stock Exchange

END

STREXLFLDEFEBBX

(END) Dow Jones Newswires

May 24, 2017 02:00 ET (06:00 GMT)