2 April 2019
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) 596/2014.
("Woodbois", the "Group" or the "Company")
Woodbois, the African focused forestry and timber trading company, is pleased to provide a quarterly update on operations for the three months ended 31 March 2019 (Q1 of the Group's 2019 financial year).
· $4.5m revenue in Q1 2019. Record quarter
· 114 containers of own production sawn timber and veneer shipped. Record quarter
· 100% increase in sales at 2019 Dubai Woodshow
· £5m Equity investment by 1798 Volantis Fund
· $5m net inflows to Internal Trading Fund (ITF) with commitment of further $5m
· 25% stake in Montara Continental purchased to complete corporate restructuring
· Civil works for kilns and enhanced sawmill in progress, footprint of 3,400m2
· Kilns on schedule to be operational in Q3 2019
· NSMS purchase option not exercised
· Name change to Woodbois Limited, refreshed website released
Strong Revenue Growth
Following the 60% Year-on-Year revenue growth achieved in 2018, revenues increased by a further 33% from 2018's quarterly average of $3.4mm to $4.5m in Q1 2019. Revenue increases were recorded from both trading activities and from sales of our own sawn timber and veneer production. This strong start to 2019 was further enhanced by high levels of inflows and commitments to our ITF. Having spent more than twelve months working to attract additional trade finance funds, rather like London buses, two substantial subscriptions arrived simultaneously providing significant impetus to the trading division. $5m was drawn down by the end of Q1 and a further $5m will be drawn down by the end of April 2019, providing a high level of confidence that the trading division will deliver further growth during 2019.
Shipping and Logistics
Working in tandem with the trading and production teams, our logistics team chalked up an impressive quarter, shipping a record 114 containers of sawn timber and veneers from our production facilities. This is an increase of more than 100% on Q1 2018 and more than a 50% increase over the 2018 quarterly average. This impressive step-up was achieved despite encountering some notable headwinds that were completely outside their control, such as the temporary closure of the port in Libreville while a container that had fallen into the harbour was located, as well as a strike by customs workers.
Trading and Sales
The trading team has been on the road constantly since the additional trade finance was secured, visiting existing and potential new suppliers and building a pipeline of supply to meet globally driven demand, primarily in African hardwoods. While the trading team has been busy sourcing in Africa, the sales team has been equally busy racking up airmiles, visiting customers and following up leads in Europe, Asia and the Middle East. Three team members attended the Dubai Woodshow in March. The Woodbois stand once again proved popular, attracting a significant number of visitors and enquiries. Sales were completed with several new clients and total sales exceeded $2m, an increase of more than 100% over 2018 sales at this trade show. Revenues from these sales will flow through in Q2 and Q3.
Corporate Consolidation and Institutional Investment
The Company made a dynamic start to 2019, announcing the disposal of its agricultural assets in Tanzania and the acquisition of the 25% of Montara Continental Limited that it did not own (from Africa Resource Investment Limited ("ARI")). At that time, the directors expressed their belief that simplifying the corporate structure and narrowing the company's focus to timber trading and production, would make the group more attractive to potential investors and trade finance providers.
Although we had not anticipated immediate institutional grade investment, these changes taken together with Woodbois' rapid growth and strong sustainability credentials put the company on the radar of the 1798 Volantis Team, a team within Lombard Odier Asset Management group dedicated to UK Small Cap Investment. During Q1, Volantis invested approximately £5m in new ordinary shares as well as committing to the provision of a loan of $5m for the purposes of trade finance.
We are delighted to have attracted this capital investment, and with our newly consolidated corporate structure, streamlined business activities, strengthened balance sheet and continued growth prospects, we look forward to attracting additional institutional shareholders to our share register in the future.
Sawmill - Capex
New 'Techdry' kilns arrived in Gabon from China in March, just ahead of schedule and we expect them to be installed and operational in Q3 as anticipated. Bringing kiln drying onsite rather than outsourcing as has been done to date, provides a perfect example of the potential to enhance margins via investments with very short-term payoffs. As per the RNS of 14 January 2019, the installation of our own kilns will directly add $700,000 to the bottom line annually assuming existing levels of production.
During Q1 2019, management visited numerous sawmills, veneer and plywood factories and equipment manufacturers in Gabon, Slovenia, Turkey, Spain and Morocco to conduct research ahead of placing orders for new equipment. I'm pleased to report that an entire new line combining Chinese and Slovenian sawmilling equipment has been placed on order and is expected to be delivered in Q3 2019 and to become operational before year end. These investments will not only increase current levels of production but are expected also to improve margins by enhancing recovery levels by at least 10% from the 33% currently being achieved. Thorough planning by our on-site factory managers has ensured that the sawmill has maintained consistent output despite the mechanics and logistics of relocating heavy machinery whilst simultaneously undertaking construction and civil works activity in preparation for the arrival of new kilns and band-saws. These new facilities will collectively occupy an area of more than 3,400m2
Veneer Factory - Capex
A debarking machine, two hydraulic lifters and a hydraulic press have recently arrived in Gabon and will be installed in the coming weeks. This equipment will serve to reduce some of the hitherto more manual aspects involved in production and post-production processes. As is the case with sawn timber, profit margins are driven by incremental gains to recovery rates from each log harvested. In order to further boost recovery rates and increase margins from veneer production, we will add a plywood manufacturing line to improve the value of 'strips' or offcuts. Comprehensive research with regard to the optimal equipment to complement current veneer output is underway with the intention of placing this equipment on order during Q2 and for it to be operational before the end of 2019.
After the well documented difficulties experienced in 2018, our streamlined operation retains the option to scale up production as and when the operating environment appears more conducive. However, given the losses sustained in Mozambique in previous years we will proceed with caution. We are conducting research into what an optimal future product mix would look like, and we are reviewing the cost and availability of the additional machinery and skills which would be required to deliver such a product mix.
I'm relieved to report that thankfully none of our personnel or facilities found themselves in the path of the catastrophic flooding and widespread destruction from Cyclone Idai which passed 200km to our south. One can only feel desperately sorry for the more than 1 million people estimated to have been displaced in Mozambique as well as in neighbouring Zimbabwe and Malawi. With roads in and out of Beira badly damaged, our contribution to helping those affected has been limited to collecting clothing, shoes and household utensils, which were delivered to the Red Cross in Nampula for distribution at the closest relief centres.
Option to Purchase NSMS Not Exercised
Further to the RNS announcement of 29 March 2018 regarding the extension to the period for serving notice to acquire 100% of the share capital of Nouvelle Scierie Moderne de Sassandra ("NSMS"), we have taken the decision to allow for the notice period to lapse, thus not exercising our option to purchase the business. We maintain a cordial relationship with NSMS however and will seek to continue to have exclusivity over their production of timber in Ivory Coast as well as exploring opportunities with them in other timber ventures across West Africa.
In January 2019, Jessica Camus stepped down as a Non-Executive Director of the Company. The Company would like to put on record how grateful we are to Jessica for her dedication and contribution to culture and corporate DNA during her two years with the Company. Jessica's extensive experience and guidance helped the Company to develop and articulate its sustainability strategy, forge new partnerships and create a meaningful legacy of social impact.
We are Woodbois
This is the first quarterly report to be delivered under the Woodbois banner and with great strides already made in 2019, it is one that I've greatly looked forward to issuing. Having bought out minority interests and restructured and completed the sale of our agriculture business in Tanzania, your management team now has the comparative luxury of focussing exclusively on the development of market-leading timber production and trading businesses. The pace of progress reported above clearly validates the decision to shed the agriculture business in order to concentrate our experience, energy and strengthened balance sheet on competing profitably within our chosen industry.
With the business now fully functioning, we will seek to drive profitability through business expansion while constantly seeking margin improvement. We are obsessive on both counts. Significant time and a large number of air-miles have been racked up since January in order to re-establish and expand our supplier network, meet new and existing customers as well as researching the latest equipment and optimal production line formats.
Our new website www.woodbois.com was released on 30 March, please enjoy a browse. Although the website was designed with customers in mind, it gives a good feel for where we are now as a group. Any feedback from you our investors is always welcome via the 'contact us' links.
Miles Pelham - Chairman
Paul Dolan - CEO
+44 (0)20 7099 1940
Arden Partners Plc (Nominated adviser and broker)
Maria Gomez de Olea
+44 (0)20 7614 5900