10 October 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 30 September 2019 (Q3 of the Group's 2019 financial year). All numbers below from unaudited management accounts.
• Record quarterly revenues with $4.9m generated in Q3 2019.
• Record quarterly revenues of $3.4m in Q3 from trading division.
• Record quarter of export of own production sawn timber and veneer with 120 containers shipped.
• New kilns completed on schedule and operational in Gabon
• Upgraded sawmill in Gabon on track to be fully operational during Q4 2019
• Membership of Congo Basin Forest Partnership
Consistent revenue growth
Record quarterly revenues of $4.9m during Q3 represented a 44% increase from 2018's average quarterly run-rate, and continued quarter on quarter growth. The trading division performed particularly strongly with $3.4m in revenues. Revenues from our own production were $1.5m, but were impacted adversely by the halting of timber exports from Gabon during the summer due to the 'kevazingogate' scandal created by the attempted illegal export of logs. The export from Gabon of logs of all species has been banned since 2010. With the export situation for processed timber products returning to normal, our pace of shipments picked up sharply by the end of the quarter, with revenues from these later shipments due to fall within Q4.
Record quarterly revenues of $3.4m from the trading division represent a 70% increase from the average quarterly run-rate of 2018. With the balance of the Internal Trade Finance Facility raised earlier in 2019 being put to work during Q3, further revenue growth from the trading division is expected.
By way of context, while pricing of some more expensive species has fallen by around 10% during 2019, global demand for African hardwood logs has remained consistent despite the backdrop of an economic slowdown in China, which typically accounts for around 50% of total demand. Overseas access to this raw material is diminishing however, as the IMF and other foreign donors exert pressure on African governments to implement sustainable harvesting policies and restrict or completely ban the export of logs in order to encourage in-country processing. Equatorial Guinea became the latest country to implement such a ban in May 2019, with Congo and Cameroon, traditionally large exporters of logs, implementing a quota system whereby the majority of logs of specific species must be processed in-country prior to export. These moves are strongly to the advantage of Woodbois due to our strong network of suppliers who are already processing timber in-country.
Our trading strategy is to actively engage with and support suppliers who operate within clearly defined sustainability guidelines verified by accredited independent 3rd party auditors. Advising these suppliers on technical specifications, and how to achieve the standards of compliance required in order to access international markets helps to improve their margins and enables us to lock in long-term contracts, increasing certainty for both parties.
The completion of the installation of drying kilns at our sawmill in Mouila in September saw a major milestone reached and shareholder value created. We anticipate margin improvement of around 8% from sawn timber as a result of bringing this activity in house, with a further 2% margin increase from reduced logistics costs.
Thanks to months of research and planning, the lead-time from order to installation was impressively quick. I'm also pleased to report that the level of support throughout the process from Techdry, the Chinese manufacturer, has been nothing short of excellent. I look forward to ordering more kilns from Techdry as we expand capacity in Gabon, or elsewhere in the future.
Focus is now on installation of the new production lines to upgrade the sawmill in Mouila which are scheduled for completion during the current quarter. Once all of these major works are completed, and with a year of 'learning by doing' under our belts at the veneer factory, an expectation of revenue and profitability growth from our production facilities in 2020 would appear to be justified.
While management focus has understandably been largely on expanding the trading operation and upgrading facilities in West Africa, where the rapid payback on allocated resource is proven, the team in Mozambique has been driving a domestic-based agenda, centred on opportunities emerging from the large-scale infrastructure installations that are underway to support the multi-billion dollar Mozambique LNG project. To date, we have supplied several trial orders for dunnage, which is used to separate large oil and gas pipes and have contributed to tender proposals for timber-based solutions for worker accommodation. These areas have the potential to lead to significant levels of demand and we will continue to push hard on both of these fronts.
Envision, the Tanzanian entity which purchased the Tanzanian agriculture business from us, has not yet paid the initial proceeds in accordance with the payment schedule agreed in the Sale and Purchase agreement ("SPA"). The legal action that we had commenced against Envision has now been stayed until the end of 2019 to allow for mediation between the parties with the objective of giving Envision the time required to secure the funds required to meet their commitments as set out within the SPA. The Group is still settling outstanding creditors (circa $182,000 at 30 June 2019) and apart from minimal winding up expenses, the Group has no ongoing cost commitment in Tanzania.
Preference Share Restructure into 4% Convertible Bond
The board resolved to approve the proposed restructure of the 5% perpetual preference shares in Woodbois subsidiary Argento. The preference shares will be repurchased in exchange for the issue of Bonds by the Company, at a ratio of US$400 in nominal value of Bonds for every one Preference Share for an aggregate value of US$30m. A Trust Deed has been entered into between the Company and Woodside Corporate Services Limited acting as the trustee for the bonds and the Company is currently in the process of exchanging contracts with each of the Preference Shareholders.
A Closing Date of 20th October 2019 has been detailed for the purpose of the 4% interest payment due which will be calculated per annum by reference to the principal amount thereof and is payable annually in arrears within ten business days following 30 December in each year with the exception of 30 December 2019.
Congo Basin Forest Partnership
Finally, I'm very pleased to announce that Woodbois has joined the Congo Basin Forest Partnership (CBFP). The CBFP is an international association of more than forty governments, international organizations, private sector and civil society representatives, is designed to enhance the sustainable management of the Congo Basin ecosystem. Membership of the CBFP will allow Woodbois to engage in discussions and initiatives that promote the sustainable management of forests in the Congo Basin.
The partnership promotes economic development, poverty alleviation, and effective governance through the conservation and sustainable management of natural resources, including forests and wildlife. The CBFP, established at the 2002 World Summit on Sustainable Development, operates within the framework of the Council of Ministers in charge of the Forests of Central Africa (COMIFAC) and in accordance with COMIFAC's strategic plan, the Plan de Convergence.
Given the importance that our customers attach to using only sustainable hardwood products, it is both important and valuable for Woodbois to work alongside key sustainability-driven organisations such as the CBFP.
We still have much to achieve this year as we enter the home straight of 2019, but we draw great encouragement from all that has been achieved during the year to date and the consistent progression and evolution of the business. Thank you for taking the time to read this report and for your ongoing support.
Paul Dolan - CEO
+44 (0)20 7099 1940
Arden Partners Plc (Nominated adviser and broker)
+44 (0)20 7614 5900
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