Obtala Limited Quarterly Business Update Q4 2016 (1033V)

TIDMOBT

RNS Number : 1033V

Obtala Limited

25 January 2017

25 Jan 2017

Obtala Limited

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

(AIM: OBT)

Quarterly Business Update Q4 2016

Key highlights

   --      $14.25m raised in subsidiary Preference share issue 
   --      Successfully exported timber produce internationally and received follow-on orders 
   --      Successfully exported fresh agricultural produce from Tanzania to Dubai 
   --      Completed the sale of loss-making Lesotho/African Home Stores  retail chain 
   --      CPI status within Mozambique activated 

Obtala Limited (AIM: OBT), the African focused agricultural and forestry company, is pleased to provide the following business update for the quarter ending 31(st) December 2016, which is intended to communicate Group progress and developments since 30(th) Sept 2016.

We have had an exceptionally busy quarter, with significant management focus, time and effort allocated to raising capital in order to monetise embedded asset value with the aim of accelerating productivity from these assets. In our 3Q update released on 30th September 2016 we stated our intention to raise funds via an issue of perpetual convertible preference shares in our 75% owned forestry subsidiary, Argento Limited. During October and November 10 potential investors joined management in visiting our operations in East Africa, assessing assets and meeting the local teams. On 1st December we were delighted to announce a $14.25m investment, including $2.15m by Board members. $5.525m of this has been received to date with the balance due by no later than 30 June 2017 in accordance with the previously announced timetable. Meradell SPV holders, who had earlier in 2016 subscribed approximately $3.7m, elected to exchange their holdings for Argento preference shares and Global Timber converted its $900k investment into Obtala ordinary shares. The total raise during 2016 amounted to $18.85m, a significant vote of confidence in the potential of our operations and in management on the ground. Up to a further $5m is still pending Investment Committee approval at a large Asian based financial institution and we hope to have news on this in the near future.

The success of the capital raise has required a comprehensive revision of our initial expansion plans, allowing for a more aggressive approach than originally anticipated. Expansion consultations are underway and detailed plans for both business lines will be completed and put into action during Q1 2017.

With the African Home Stores disposal completed, all focus can now be turned towards completing and implementing these key strategic plans against the longer term background of significant planned international infrastructure spend in Tanzania, including the new port in Bagamoyo and a new railway line linking Tanzania with Burundi, Rwanda and the Democratic Republic of Congo. Mozambique too, despite its ongoing negotiations with the IMF, is attracting large scale foreign investment as confirmed by ENI's $8bn Northern Mozambique gas project approval and Mitsui & Co's $750m investment into the Nacala port area.

In preparation for a radical scaling up of the business, we are investing in a comprehensive Enterprise Resource Planning (ERP) system to give us not only finance and accounting data and analysis but immediate visibility on production, procurement, sales and distribution as well as providing business intelligence for complete oversight of the business.

Agriculture in Tanzania

Business in Africa often presents a unique set of challenges as well as rewards, and the hiring of Warren Deats (COO) and Sophie Hunter (Head of Sales), and their establishment of an office in Dar Es Salaam has been critical in laying the foundations for the next phase of business development. The opportunity and real cost of growing fresh produce to a world-class standard without comprehensive supply chain management through to the consumer can be substantial. The creation of this supply chain and successfully managing trial production through each stage into both domestic and export markets was a major achievement during Q4, when we completed our first melon harvest and successfully tested our supply chain management through to the consumer with exports of fresh melon by road to Kenya and by sea to Dubai, our principle future target market. The buyers in both Kenya and Dubai praised the quality of the produce and repeat orders have subsequently been sent to Nairobi. An indication of significant future demand has been received from Dubai. We are planning our planting schedule for 2017 to exploit the window between July and November when sweet melon and water melon is less readily available locally in Dubai/Middle East. While we expect to ship in bulk to the Middle East, we are also reviewing our sales strategy into Dar Es Salaam, East Africa's most populous and fastest growing city and a huge opportunity on our doorstep.

We expect to increase land utilization to around 125 hectares in 2017 from the 25 Ha harvested in 2016 with some 500ha targeted for 2018. A substantial increase in agricultural production will require the construction of larger cold storage and pack-house facilities. Plans are being drawn up for a purpose built facility that can be extended in modular fashion as further land is cleared and irrigated, and we anticipate the first stage of this build to be completed in time for the 4Q2017 harvest.

During Q4 the business was audited for the renewal of both GLOBALG.A.P. and BRC accreditation and these inspections were passed successfully.

Forestry in Mozambique

Creating and testing the supply chain for exporting timber was equally important for our timber business and was a key target for Q4. Many hurdles were overcome in the export of our first three international containers to Durban. The buyer was happy with the quality and finish of the timber received and has placed repeat orders.

Initial proceeds of the preference share raise are being allocated to new forestry plant and equipment, trucks for transporting timber, and the construction of a central sawmill capable of handling 100% of the annual permitted cut from our concessions. Construction will commence in Q1 2017 and we expect this facility to be operational by Q3 2017. 2017 promises to be an exciting year for the forestry business. Whilst Mozambique has banned export of all timber in log form from January 2017, so encouraging timber processing within Mozambique, many of our competitor's business models will be challenged forcing them to seek processing facilities to fulfill orders, or to sell timber in log form to other producers within Mozambique. We see this as an opportunity to buy-in wood from other producers to process for our own international order-book and welcome the government's push towards more sustainable forestry practices.

Various options are under consideration with regard to maximizing value from the 'whole log' rather than losing up to 25% of the tree as 'waste', including but not limited to biofuels, plywood and charcoal manufacturing. The potential to move up the value chain, for example through a joinery or furniture factory also exist and will be explored once the sawmill is operational.

We have now received a Foreign Direct Investment ID from the Bank of Mozambique thereby activating our CPI status within Mozambique conditional upon the phased $3m investment plan as announced on 26(th) October. We have applied for Industrial Free Zone (IFZ) status with Mozambique's Office for Accelerated Development Economic Areas (Gazeda) as intimated in our 26 November 2016 announcement which we expect to receive during H1 2017.

Miles Pelham, Chairman of Obtala commented:

"The decisions taken now with regard to scaling up our businesses are critical. Significant time and effort is being spent on detailed planning, reviewing and stress-testing our plans prior to embarking on the recruitment of skills and capex required to drive a material step change in revenues from both business lines.

"We have come a long way during my 7 month tenure of 2016 and I am pleased with the change we have implemented and the progress made. As we head into 2017 we leave behind a final quarter where we proved, tested and stressed the business model, procedures, logistics and operational competence of management.

"I am happy with our operational progress and we move to the next stage of utilizing the funds received from our Argento preference share raising to ramp up production dramatically.

"We should expect more business partnerships throughout 2017 as we use the deep experience and networks of our new operational management and investors to broaden our horizons and develop to the scale envisaged in our Mission Statement.

"I would like to welcome the numerous new investors whom joined us throughout 2016 and thank existing stakeholders for their loyal support and commitment. Special thanks goes to on-the-ground management whom have been placed under immense pressure to enact change in a quick but stable fashion. The work has been long and hard but their efforts are already starting to bear fruit.

"I am confident 2017 will be a revolutionary year for the company as we move forward into growing markets well-funded, unencumbered, and with a competent and motivated management team. We are working with reputable independent research houses and we expect them to initiate coverage within the current quarter."

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

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

Mission Statement:

To become one of East Africa's largest sustainable food and timber producers, consistently delivering world-class product to the global marketplace. To deliver material, positive social impact in East Africa through commercial enterprise, helping to alleviate poverty and enriching the lives of future generations.

This information is provided by RNS

The company news service from the London Stock Exchange

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January 25, 2017 09:00 ET (14:00 GMT)