Acquisition

RNS Number : 6539V

Obtala Resources Limited

30 October 2014

 



30 October 2014

Obtala Resources Limited

("Obtala" or the "Company")

(AIM: OBT)

African Home Stores Update-

Acquisition of Retail Outlets, Lesotho

Obtala Resources Limited (AIM:OBT), the emerging agri-processing, farming and timber company, is pleased to announce that it has signed an agreement ("Agreement") for the purchase of a controlling 72.69% shareholding in Lifes' Comfort Solutions (Pty) Limited, a private Lesotho registered company (the "Vendor") which operates five departmental retail outlets (the "Business") within Lesotho with immediate effect.

Highlights:

·       Majority shareholding acquired in private Lesotho registered company

·       5 separate departmental retail outlets within the Kingdom of Lesotho

·       Provides distribution outlet direct to market for own label and branded products

·       Strong revenue stream, US$10.52 million in last financial year

·       Clear opportunity to improve margins

·       Scalable business model for improved buying power and gross profit optimisation  

This acquisition marks the completion of the vertical integration business model which has been the Company's previously stated intention and provides additional outlets for the sales of our own products, through the entire "Farm to Fork" process, allowing the Company to access the expanding potential of the emerging African consumer market.

Obtala has agreed terms and signed an Agreement with Lifes' Comfort Solution (Pty) limited, a private, non-related Lesotho registered entity to acquire a majority 72.69% controlling shareholding and management control over five retail outlets.

Business Background and Strategy

The Business operates out of five separate rented retail units located predominately within the southern lowlands of Lesotho. The main branch and administrative centre is located in Maseru, the capital of Lesotho and has a shop floor area of 2,940m² (31,650 square foot). The total floor space for the five units is 5,590m² (60,200 square foot), which are all fully stocked. This adds to the 1,000m² (10,750 square foot) premises the Company has secured through a rental agreement in Bloemfontein, South Africa. The Business has recently installed a new IT system for stock and inventory control across the chain and employs 135 staff, including senior management, buyers, accountants, marketing staff and shop workers.

The Business is a departmental store with a variety of well-known home focused branded goods and has been in operation for over 10 years having built a well-respected brand name within the Kingdom of Lesotho. It has commission based agreements with Vodacom, selling air-time, with Mpesa, the money transfer business, and with Multi-Choice, the satellite TV provider all of which increase the footfall into the shops, which is currently estimated by the Vendors at 40,000-50,000 consumers per month.

The business currently sources products from wholesalers in South Africa resulting in reduced gross profit earnings opportunities and missed uplift potential that can be achieved by sourcing elsewhere. The Company has contacted two buying companies in Asia with the intention that they will purchase and consolidate freight on our behalf before shipping into Africa. The Company will open an Asia based buying office that will service Lesotho and the African Homes Stores which will be opened in other African countries over the next two years. The stores provide an outlet for our own goods and products which will be sold in specially designated Mama Jo's "Deli" style sections within each store.

The Company has engaged the services of an experienced manager with strong African experience to oversee the operations and the planned African Home Store expansion into neighbouring countries. As the business expands the Company will engage suitable top level management to supervise the growth of the business.

Consideration

The terms of the acquisition of Lifes' Comfort Solutions are as follows:

·       Payment to the Vendor of a cash consideration of USD800,000, payable in 24 equal monthly payments, with the initial payment commencing from 1^st April 2015; and

·       The payment of a loan account of M 2,792,860 (USD 265,986) held by the Vendors which is payable in 12 equal monthly payments, with the initial payment commencing from on 1^st April 2015.

·       Moreover, the Company will assume responsibility of an existing M 3,500,000 (USD 333,333) overdraft facility with Nedbank (Lesotho) Ltd currently operated in the normal course of business.

For the purposes of this announcement we have used an exchange rate of USD$:£1 is 0.62, Lesotho Loti "Maloti" M:£1 is 0.057 and USD$:1M of 10.5.

Value of the assets

The carrying value of gross assets acquired under the Agreement as consolidated in the latest reported annual financial statements at 31 March 2013 amounted to M39,715,110 (USD3,782,391) of which M21,271,872 (USD2,025,892) are stock inventory items.

Income and expenses attributable to the Business

Income and expenses attributable to the Business in the latest reported annual financial statements for the 12 month period ended 31 March 2013 were as follows:

	Maloti millions	US$ millions
Revenue	110.449	10.52
Cost of Sales	88.775	8.45
Profit after Tax	1.286	0.12

Chairman's comment

Francesco Scolaro, Chairman of Obtala, commented: "this Acquisition represents the final important link in establishing a vertically integrated business chain in Africa that we have been busy establishing in recent years. Also, this Acquisition represents an excellent opportunity for us to improve both revenue and margins as we identify new products for the stores and improve the buying process through sourcing directly from Asia. In addition, it provides a vital outlet for our own products and branded goods produced on our farms, processing operation and the timber business. We only recently announced our intention to open a chain of outlets for our products under the African Home Stores brand so I am delighted that in short time we have six stores, five in Lesotho and one, so far, in South Africa. Moreover, our intention is to roll out these stores in neighbouring countries in Africa and obtain further economies as we scale up the business. The challenge for us as a company is to now optimise the operations we have already and also expand the business units into the growing African consumer market and we are busy assembling the right management to deliver this strategy.

Obtala Resources Francesco Scolaro - Chairman Simon Rollason - Managing Director www.obtalaresources.com [phone] Fox-Davies Capital [phone] Jonathan Evans Square 1 Consulting [phone] David Bick Mark Longson

 

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