The philosophical question: ‘If a tree falls in a forest and no one is around to hear it, does it make a sound?’ has been attributed to Anglo-Irish philosopher, George Berkeley. Today’s news that Danish lender, Sydbank has pulled USD6m lines of credit from Woodbois LON:WBI was heard in a Gabonese forest and across the stockmarket as the company saw its shares fall like timber over 60% in morning trades.
The AIM-listed, Guernsey-based, forestry company opened trading at 0.4p this morning (19th April), but fell almost immediately to 0.24p before recovering to 0.41p by 12:00. The company has offered a -77.6% year-to-date return, and a -90.9% one-year return, with shares ranging between 0.25p and 9.39p over a 52-week period. The company has a market capitalisation of GBP25.5m.
In a statement to the market this morning, management said that Sydbank, which lends to Woodbois’ subsidiary, Woodgroup Aps, pulled its debt facility as: “Woodgroup ApS generated a loss in 1Q23. Sydbank believe that, as a consequence, the circumstances of Woodgroup ApS have changed significantly to their detriment.”
On investigation, Woodgroup APS is a registered Danish company established in February 2015 that was formed to undertake the wholesaling of wood, wood products and construction materials, with a secondary and tertiary activities wholesaling sanitary equipment, hardware, plumbing materials, heating equipment and supplies. Woodbois’ chief executive, Paul Dolan has been a director since 2019, and was joined on the board by Woodbois’ South African CFO, Carnel Geddes a year later.
Presumably, Woodgroup APS is the Danish-based sales outlet of Woodbois’ timber and forestry operations. The group also has offices in London, Gabon, Mozambique, Mauritius and South Africa. According to the Danish registry, Woodgroup APS also trades under the names: Atlantic Wood, Global Woods & Veneers Company and African Timber & Logs Company.
Woodbois’ management ‘shocked’
Management said that Sydbank had agreed a USD6m facility that was fully-drawn and an additional USD3.1m ancillary account. The bank raised a “floating charge” against Woodgroup APS, which was reduced by the withdrawal of the USD3.1m ancillary line of credit.
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The bank has demanded Woodgroup APS submit a proposal as to how it will repay the remaining USD2.9m, deadlining the end of May as to the submission of a refinancing plan. No doubt this will mean the folks in Greve, Copenhagen will have to make a call to the team in Guernsey to find a solution,
Woodbois’ management was “shocked to receive this unexpected notice of termination”, and strongly disagreed with Sydbank’s prognosis, accepting that performance in the first quarter of the year was “poor” but that over the longer-term the subsidiary was: “well placed to deliver a very positive performance for the remainder of the year.”
However, the company is going to have to look at its own internal cash-flow forecasts and it is likely it will lead to a difficult trading period in the short term, as it tries to repay Woodgroup APS’ outstanding debt. Woodbois has a reasonably strong cash position, with company confirming that it has USD430,000 in the bank and outstanding trade receivables of USD1.5m. However, the need to pay out USD2.9m in the next month will really stress the company’s balance sheet and given the company had only just gone to market last month for a GBP3m fundraise by way of a conditional placing of 250,000,000 new ordinary shares of 1p each at a price of 1.2 pence per new ordinary share, tapping up the market again so soon after would be bad form and send out a very negative message to the company’s long-suffering shareholders.
Recent fundraise
At the time Dolan said: “We are pleased to have successfully closed this limited and oversubscribed fundraise which will provide working capital for the company, including to assist in its further expansion and towards achieving full FSC certification.”
In January, the company published its results for 2022 with total revenues of USD23.1m a 32% appreciation on the USD17.5m booked in 2021. Profits for 2022 were also up 69% to USD5.9m and Woodbois’ gross profit margin increased to 25% vs 20% the year previously.
Dolan continued: “[The placing] significantly strengthens our balance sheet as we take the company towards cashflow positivity in 2023 where our overriding priority is to generate consistent, positive cash flow from our substantial forestry assets.”
This latest development, however, might push back that ambition of consistent, positive cash flow and the forestry company has engaged restructuring advisors to help it work though this sudden shock to the system. Dolan reiterated that: “the company can continue to operate as a going concern in the short term, and will seek to utilise existing cash reserves and available working capital to meet its near term operating obligations,” in today’s statement.
Carbon offsetting
As previously reported, Woodbois moved from its traditional timber and forestry business into the carbon offsetting sector, and has around 170,000Ha of forest under management in Gabon, a country the size of the UK with forest coverage of 87%, and another 300,000Ha in Mozambique and runs a sawmill and veneer factory in West Africa from where it exports its timber around the world. Woodgroup APS is one other side of the equation, a builder’s merchant supplying timber and building products to the Scandinavian construction sector.
The company says it supplies sustainable African hardwoods, with Dolan explaining to The Armchair Trader that the company remains sustainable by taking only five to six trees from a one hectare block of 500 to 1,000 trees once every 20 years. Each tree produces around 10 cubic metres of timber, which wholesales in the range of USD1,800 to USD 2,000 per cubic metre. The company made around USD4m to USD5m in 2019 but is targeting USD30m to USD40m. In 2020 the company added carbon sequestration as a product, planting forests to offset carbon produced in developed economies, a market the logging company believes could grow to USD100bn by 2030.
Earlier this month Woodbois announced that it had been granted 50,000Ha by the Government of Gabon for its first voluntary carbon credit afforestation project. Woodbois also recently mandated a real estate broker in Gabon to explore the potential for a sale and lease-back of its unencumbered 14Ha of real-estate production sites in Mouila, Gabon which were valued at USD15m. The company hopes to use the realised cash to pay back debt including a USD1m facility to Lombard Odier, and will now have to commit funds to the new cash call from Sydbank. The company had earmarked the money raised from the potential sale-and-leaseback to business development and afforestation, which now may drop down the priority list.
The company also opened discussion with some of the holders of USD700,000 convertible debt to extend the tenor or conversion date.
For sure today’s development is shocking for Woodbois, and all the plans they had laid out for 2023 might need to be pulped because of the unexpected call on reserves from Denmark. However, the main trunk of the business – Gabon and afforestation – is still growing in the right direction. Time will only tell how this affects Woodbois over the longer term, but the company has time on its side, given the average Okume tree takes around 40 years to reach maturity.
