- Argento has acquired 100% of the share capital of WoodBois, a leading global trader and producer of sawn timber, for $14.6m over 3 tranches including c$4m equity
- Gabon Forestry concession actually 96,851 hectares (vs. 41,278ha initially estimated)
- Potential annual harvest of over 9 million m³ identified by third party inventory assessor
- Sawmill capacity of 42,000 m³ (vs. 24,000 m³) verified by Obtala and consultants
- Credit facility already increased by 36% to support higher timber trading volume in 2H 2017
- Obtala to invest $400,000 to complete 18,000m³ capacity veneer factory by end 2017
- Paul Dolan (CEO) and Warren Deats (COO) appointed to WoodBois Board
- Hadi Ghossein to become CEO of new holding company WoodBois Gabon
Obtala Limited (AIM: OBT), the African focused agricultural and forestry company, is pleased to announce the completion of its acquisition through Argento Limited (its 75% owned forestry subsidiary) of WoodBois International ApS (WoodBois) following the satisfactory completion of its due diligence process further to the announcement of 24 May 2017.
Argento has acquired 100% of the share capital of WoodBois as of June 30, 2017 for a total consideration of US$14.6 million (approximately £11.2 million), and Paul Dolan (CEO) and Warren Deats (COO) have been appointed to the WoodBois board. WoodBois’ founder directors, Zahid Abbas and Jacob Hansen, each of whom are former DLH Group executives 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 Gabonese citizen who manages operations in Gabon, has committed for a minimum of 3 years.
Founded in 2004, WoodBois 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. WoodBois is headquartered in Copenhagen, Denmark, with African trading operations based in Abidjan, Ivory Coast, where the company leases warehouse space for inventory. WoodBois maintains a diverse buyer and supplier 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%). WoodBois’ concessions in Gabon now total 96,851 hectares, and are all located within 70km of their 42,000m³ capacity sawmill and 18,000m³ veneer facility in Mouila, Gabon. WoodBois is currently planning expansion into Asia, with joint venture discussions underway with strategic partners in Pakistan, where WoodBois has already secured a contract to provide railway sleepers for the construction of a major railway linking China to Pakistan’s port of Gwadar, set to become the largest port in Asia. The selling shareholders of WoodBois are Tropican Holding ApS, A2Z Holding Aps and Mr Hadi Mabala Ghossein.
Due Diligence Findings
Since Obtala announced the acquisition of WoodBois on 24 May 2017, WoodBois has received approval for a forest management plan for a 20-year concession covering a net area of 96,851 hectares near Mouila, Gabon, 82,703 hectares of which is dense forest. Each year WoodBois may apply to harvest an area of 5,000 hectares, and each 5,000 hectare area may remain open for harvesting for up to three years with no more than three areas in any concession opened for harvesting at any one time. As long as WoodBois has the resources to fell, haul and process the timber, any tree can be felled on the proviso it is in the agreed management plan and has a diameter equal or greater than the minimum exploitable diameter at breast height for that species.
Obtala commissioned a third-party inventory assessment to determine the potential annual cut of first and second grade quality timber available to WoodBois in each 5,000 hectare area, based on the timber inventory and government requirements. Over 25 commercial species were identified in the forest, however the inventory assessment focused only on the five primary species WoodBois is currently harvesting. An annual potential first and second grade cut of 8,201,091m³ of Okoume, 527,691m³ of Okan, 153,662m³ of Azobe, 926,940m³ and 186,925m³ of Ovengkol was found. This assumes approximately 3,000 hectares of each 5,000 hectare area is readily accessible productive land, a conservative assumption.
WoodBois’ current harvesting capacity was assessed by Obtala’s commercial due diligence team and an independent forestry consultant, concluding an annual harvest of 71,280m³ can be readily achieved with existing equipment. Given the extent of the timber resources available in the concession there is scope to invest in increasing harvesting capacity many times over. Although the inventory resource is considerable in reality the amount we harvest is likely to be drastically less than our allowance due to our commitment to sustainable harvesting practices.
WoodBois’ sawmill in Mouila, Gabon was visited by the Obtala team in June. The volume weighted average recovery rate across all species (January-May) was found to be 57.5%, and a target recovery rate of 56% was measured by a forestry consultant who accompanied the Obtala team on site. Year to date average production cost per m³ sawn timber was found to be $249 per m³, in line with WoodBois estimate of $260, with the operation expected to achieve lower production costs as volumes increase. The annual capacity of the sawmill was estimated at 42,000m³ (vs. 24,000m³) once new equipment (already purchased by WoodBois) is installed.
Obtala intends to invest $400,000 to compete the construction of WoodBois’ veneer factory in Mouila. This includes the purchase of additional equipment required to address identified bottlenecks and achieve an annual production target of 18,000m³ of veneer. The veneer factory is expected to be completed by the end of 2017. Obtala’s commercial due diligence team was able to verify all production cost and market price assumptions for the veneer business, which is expected to contribute significant cashflow from 2018.
WoodBois’ trading business, historically the main contributor to annual revenues (~$15m) is headquartered in Copenhagen, where it conducts the sale of wood primarily sourced in Africa to a diverse network of buyers. The Obtala team visited WoodBois’ African trading operation in Abidjan, Ivory Coast, where wood is sourced from regional suppliers, then stored (and typically kiln dried) before shipment. Obtala intends to significantly upscale this business, which has seen its available capital reduced as WoodBois invested in production assets in Gabon, and has already increased WoodBois credit facility, enabling WoodBois to procure a greater volume of wood from African suppliers (and at higher margin via ‘pre-financing’ production) in 2H 2017.
Terms of Acquisition
Obtala has acquired the entire issued share capital of WoodBois, for a total consideration of approximately US$14.6 million to be satisfied by a mixture of cash and new Obtala ordinary shares payable in three tranches.
- Tranche 1: Initial cash consideration of US$3 million (approximately £2.30 million) and the issue of 15,641,499 new Obtala ordinary shares within five business days of completion of the due diligence period on June 30 2017;
- Tranche 2: Further cash consideration of US$3 million (approximately £2.30 million) on the earlier of 30 September 2017 and 120 days after Completion; and
- Tranche 3: Deferred cash consideration of US$ 5 million (approximately £3.84 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 17.63p per share of £2.76 million (approximately US$3.59m 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% 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.
Both the Tranche 2 and Tranche 3 payments are conditional on the successful transfer of WoodBois’ assets in Gabon (including the forestry concession, land and fixed assets) to a new holding company, WoodBois Gabon, which will be 100% owned by Argento Limited. Hadi Ghossein is to be CEO of WoodBois Gabon, with Jacob Hansen, Zahid Abbas, and Paul Dolan as Directors.
During the year to 2016, WoodBois recorded earnings before interest and tax in Danish Krone of DKK 3.53 million or US$496k (vs. DKK 2.53 million in 2015 or US$370k) on turnover of DKK 98.3 million or US$13.8m (vs. DKK 106.8 million in 2015 or US$15.6m). Profit after tax for 2016 was DKK 2.10 million or US$295K (vs. DKK 891K in 2015 or US$131k). As at 31 December 2016 WoodBois had total assets of DKK 60.45 million or US$8.5m (vs. DKK 56.92 million in 2015 or US$8.3m).
Commenting on the transaction, Miles Pelham, Chairman of Obtala said: “I am pleased and excited to announce the successful and timely completion of our due diligence process and welcome WoodBois to the Obtala family.
Our due diligence team verified substantially all the assumptions upon which our valuation was based, finding on numerous occasions that the WoodBois team had been very conservative. A great deal of trust has consequentially developed between the Obtala and WoodBois management teams, which gives me great confidence in our ability to execute on the business plan.
Clearly, WoodBois’ forest has the potential to support many multiples of current production and is already rapidly scaling. I am equally encouraged by our analysis of the timber trading market. It appears that working capital has been the only thing holding back substantial growth in WoodBois’ trading division and we intend to unlock this potential immediately.”
Commenting on the acquisition, Zahid Abbas, Co-Founder of WoodBois said: “The completion of our acquisition could not come at a better time. With the dry season now underway in Africa, WoodBois can ramp up the production of our forestry businesses in Gabon. The Obtala management team understands the gap left in the global timber trading market after banks retrenched from commodity trade finance following the financial crisis, and have shown themselves capable of raising the capital required to dramatically scale this business through the provision of trade finance, which they have already initiated as of the day of completion.”
Financial due diligence was conducted by Obtala’s Group Accountant Carnel Geddes. Independent consultants assessed WoodBois’ harvesting and processing (sawmill and veneer) operations, alongside Obtala’s commercial due diligence team. An inventory assessment and valuation of WoodBois’ forestry concessions was conducted by a company specializing in forestry valuation and investment services.
Obtala’s legal due diligence and structuring advice, as well as the management of Gabonese counsel, was provided by the Leeds and Paris offices of DWF. DWF (France) specializes in providing in-depth knowledge of the sectors vital to the development of Africa, such as energy and infrastructure, natural resources, real estate, and agribusiness industries.
Miles Pelham – Chairman Paul Dolan – CEO
+44 (0)20 7099 1940
ZAI Corporate Finance Limited (Nomad)
John Treacy / Ray Zimmerman
+44 (0)20 7060 2220
Brandon Hill Capital (Joint Broker)
+44 (0)20 3463 5000
Beaufort Securities Limited (Joint Broker)
Gavin Burnell / Jon Belliss
+44 (0)20 7382 8300
This announcement contains information which was previously inside information for the purposes of Article 7 of the Market Abuse Regulation EU Regulation 596/2014.
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